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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 SEPTEMBER 30, 2002
[ ] 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
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4001 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126
(Address of principal executive offices and zip code)
(651) 481-2222
(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 X No
--------- ---------
The number of shares of the registrant's common stock outstanding as of October
31, 2002: 1,146 shares of Class A common stock, 5,338 shares of Class B common
stock, 197 shares of Class C common stock, and 1,112 shares of Class D common
stock.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION............................................................................ 3
ITEM I. FINANCIAL STATEMENTS............................................................................. 3
LAND O'LAKES, INC.
Financial Statements (unaudited) for the three and nine months ended September 30, 2002 and 2001
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001............................... 3
Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001.... 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001............. 5
Notes to Consolidated Financial Statements............................................................... 6
LAND O'LAKES FARMLAND FEED LLC
Financial Statements (unaudited) for the three and nine months ended September 30, 2002 and 2001
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001.............................. 20
Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001... 21
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001.............. 22
Notes to Consolidated Financial Statements............................................................... 23
PURINA MILLS, LLC
Financial Statements (unaudited) for the three and nine months ended September 30, 2002 and 2001
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001.............................. 35
Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001... 36
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001.............. 37
Notes to Consolidated Financial Statements............................................................... 38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................... 71
ITEM 4. CONTROLS AND PROCEDURES......................................................................... 72
PART II. OTHER INFORMATION............................................................................... 72
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 73
SIGNATURES............................................................................................... 74
CERTIFICATIONS........................................................................................... 75
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ........................... $ 37,878 $ 130,169
Receivables, net .......................................... 459,432 574,011
Inventories ............................................... 461,545 450,774
Prepaid expenses .......................................... 96,305 185,490
Other current assets ...................................... 24,352 27,038
---------- ----------
Total current assets ................................. 1,079,512 1,367,482
Investments ................................................... 579,151 568,130
Property, plant and equipment, net ............................ 596,245 675,277
Goodwill, net ................................................. 330,387 255,027
Other intangibles, net ........................................ 104,237 108,987
Other assets .................................................. 107,937 116,475
---------- ----------
Total assets ......................................... $2,797,469 $3,091,378
========== ==========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations .......................... $ 34,245 $ 33,971
Current portion of long-term debt ......................... 55,419 19,546
Accounts payable .......................................... 355,544 652,309
Accrued expenses .......................................... 229,698 187,569
Patronage refunds payable ................................. 5,156 28,900
---------- ----------
Total current liabilities ............................ 680,062 922,295
Long-term debt ................................................ 1,071,284 1,147,465
Employee benefits and other liabilities ....................... 110,969 82,801
Deferred tax liabilities ...................................... 20,109 42,495
Minority interests ............................................ 56,249 59,806
Equities:
Capital stock ............................................. 2,237 2,305
Member equities ........................................... 841,022 805,860
Retained earnings ......................................... 15,537 28,351
---------- ----------
Total equities ....................................... 858,796 836,516
---------- ----------
Commitments and contingencies
Total liabilities and equities ................................ $2,797,469 $3,091,378
========== ==========
See accompanying notes to consolidated financial statements.
3
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 1,363,292 $ 1,414,532 $ 4,299,545 $ 4,162,732
Cost of sales 1,250,658 1,319,029 3,915,258 3,834,794
----------- ----------- ----------- -----------
Gross profit 112,634 95,503 384,287 327,938
Selling, general and administration 123,497 94,162 374,986 274,671
Restructuring and impairment charges (reversals) 942 (2,433) 8,218 (4,242)
----------- ----------- ----------- -----------
(Loss) earnings from operations (11,805) 3,774 1,083 57,509
Interest expense, net 18,052 12,230 53,000 36,539
Gain on legal settlement (4,136) -- (36,835) --
Gain on sale of intangibles -- -- (4,184) --
Gain on divestiture of businesses (3,730) -- (4,935) (154)
Equity in loss (earnings) of affiliated companies 4,544 (6,436) (29,822) (43,727)
Minority interest in (loss) earnings of subsidiaries (1,365) 1,958 (1,455) 5,711
----------- ----------- ----------- -----------
(Loss) earnings before income taxes (25,170) (3,978) 25,314 59,140
Income tax (benefit) expense (13,182) 437 (10,018) 6,322
----------- ----------- ----------- -----------
Net (loss) earnings $ (11,988) $ (4,415) $ 35,332 $ 52,818
=========== =========== =========== ===========
Applied to:
Members equities
Allocated patronage refunds $ (12,406) $ (3,790) $ 41,390 $ 39,277
Deferred equities (5,613) (6) (16,206) 2,840
----------- ----------- ----------- -----------
(18,019) (3,796) 25,184 42,117
Retained earnings 6,031 (619) 10,148 10,701
----------- ----------- ----------- -----------
$ (11,988) $ (4,415) $ 35,332 $ 52,818
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2002 2001
--------- ---------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 35,332 $ 52,818
Adjustment to reconcile net earnings to cash (used)
provided by operating activities:
Depreciation and amortization 79,569 65,025
Bad debt expense 3,132 1,611
Proceeds from patronage revolvement received 319 480
Non-cash patronage income (530) (2,364)
Increase in other assets (32,120) (13,970)
Increase (decrease) in other liabilities 4,966 (420)
Restructuring and impairment charges (reversals) 8,218 (4,242)
Gain from divestiture of businesses (4,935) (154)
Equity in earnings of affiliated companies (29,822) (43,727)
Minority interests (1,455) 5,711
Other (6,236) (6,296)
Changes in current assets and liabilites, net of acquisitions and
divestitures:
Receivables 104,574 31,864
Inventories (18,982) (31,394)
Other current assets 98,752 124,875
Accounts payable (284,304) (137,656)
Accrued expenses 34,248 (32,239)
--------- ---------
Net cash (used) provided by operating activities (9,274) 9,922
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (57,258) (53,739)
Acquisitions, net of cash acquired -- (13,300)
Payments for investments (5,069) (44,998)
Net proceeds from divestiture of businesses 3,351 --
Proceeds from sale of investments 21,084 4,353
Proceeds from sale of property, plant and equipment 11,655 24,141
Other 12,612 9,684
--------- ---------
Net cash used by investing activities (13,625) (73,859)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 42,407 132,507
Proceeds from issuance of long-term debt 4,773 52,936
Payments on principal of long-term debt (81,775) (69,340)
Payments for redemption for member equities (36,970) (45,842)
Other 2,173 (1,340)
--------- ---------
Net cash (used) provided by financing activities (69,392) 68,921
--------- ---------
Net (decrease) increase in cash (92,291) 4,984
Cash and cash equivalents at beginning of period 130,169 3,994
--------- ---------
Cash and cash equivalents at end of period $ 37,878 $ 8,978
========= =========
Supplementary Disclosure of Cash Flow Information:
Cash paid during periods for:
Interest, net of interest capitalized $ 49,450 $ 45,918
Income taxes (recovered) paid $ (21,654) $ 20,044
See accompanying notes to consolidated financial statements.
5
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, 2001 included in our Registration Statement on Form S-4, as
amended. The results of operations and cash flows for interim periods are not
necessarily indicative of results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." Major provisions of these
statements are as follows: all business combinations must now use the purchase
method of accounting, the pooling of interests method of accounting is now
prohibited; intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as a part of a related
contract, asset or liability; goodwill and intangible assets with indefinite
lives are not amortized, but tested for impairment annually, except in certain
circumstances, and whenever there is an impairment indicator; all acquired
goodwill must be assigned to reporting units for purposes of impairment testing
and segment reporting. The Company adopted the provisions of SFAS 141 and
certain provisions of SFAS 142 as of July 1, 2001, and the remaining provisions
of SFAS 142 as of January 1, 2002. As required by SFAS 142, the Company
performed step one of the impairment testing of goodwill by June 30, 2002. For
all segments, the fair market value exceeded the carrying amount. Therefore, the
second step of impairment testing was not required and no impairment has been
recognized in the current year of adoption. The Company will perform impairment
tests annually and whenever events or circumstances occur indicating that
goodwill or other intangible assets might be impaired. As of January 1, 2002,
the Company is no longer amortizing goodwill, except for goodwill related to the
acquisition of cooperatives and the formation of joint ventures.
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net (loss) earnings ......................... $(11,988) $ (4,415) $ 35,332 $ 52,818
Add back: Goodwill amortization, net of tax.. -- 1,550 -- 4,462
-------- -------- -------- --------
Adjusted net (loss) earnings ................ $(11,988) $ (2,865) $ 35,332 $ 57,280
======== ======== ======== ========
2001 2000 1999
-------- -------- --------
Net earnings ................................. $ 71,488 $102,932 $ 21,399
Add back: Goodwill amortization, net of tax .. 5,884 7,741 6,721
-------- -------- --------
Adjusted net earnings ........................ $ 77,372 $110,673 $ 28,120
======== ======== ========
The Company adopted Emerging Issues Task Force ("EITF") No. 00-25, "Vendor
Income Statement Characterization of Consideration to a Purchaser of the
Vendor's Products or Services," on January 1, 2002. EITF No. 00-25 deals with
the accounting for consideration paid from a vendor (typically a manufacturer or
distributor) to a retailer, including slotting fees, cooperative advertising
arrangements and buy-downs. The guidance in EITF 00-25 generally requires that
these incentives be classified as a reduction of sales. The impact of the
adoption decreased sales and selling and administration expense for the nine
months ended September 30, 2002 and 2001 by $76.6 million and $72.9 million,
respectively.
6
2. GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of intangible assets follows:
AS OF SEPTEMBER 30, 2002
-----------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
Amortized intangible assets
Trademarks.................................. $ 3,618 $ (1,335)
Patents..................................... 16,373 (1,106)
Agreements not to compete................... 6,364 (3,705)
Other....................................... 14,520 (7,455)
--------- -----------
Total....................................... $ 40,875 $ (13,601)
========= ===========
Nonamortized intangible assets
Trademarks.................................. $ 76,963
=========
Aggregate amortization expense:
For nine months ended September 30, 2002.... $ 5,036
Estimated amortization expense:
For three months ended December 31, 2002.... $ 1,649
For year ended December 31, 2003............ 5,607
For year ended December 31, 2004............ 4,609
For year ended December 31, 2005............ 4,287
For year ended December 31, 2006............ 4,083
For year ended December 31, 2007............ 3,708
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, are as follows:
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER TOTAL
----------- ---- ---- ----- -------- ----- -----
Balance as of January 1, 2002 ............. $ 40,285 $ 109,463 $ 15,704 $ 701 $ 74,904 $ 13,970 $ 255,027
Madison Dairy additional purchase price.. 26,461 -- -- -- -- -- 26,461
Agriliance additional purchase price .... -- -- -- -- 1,010 -- 1,010
Reallocation of purchase price .......... -- 56,784 (292) -- -- (60) 56,432
Amortization expense .................... -- (563) (27) (40) (4,568) (694) (5,892)
Goodwill written off
related to sale of business unit ...... -- (2,600) -- -- -- (51) (2,651)
--------- --------- --------- --------- --------- --------- ---------
Balance as of September 30, 2002 .......... $ 66,746 $ 163,084 $ 15,385 $ 661 $ 71,346 $ 13,165 $ 330,387
========= ========= ========= ========= ========= ========= =========
The reallocation of the purchase price in the Feed segment was primarily the
result of finalizing the appraisals related to the acquisition of Purina Mills,
Inc. during the third quarter ended September 30, 2002. The offsetting reduction
to property, plant and equipment resulted in a $3.9 million adjustment to reduce
depreciation expense, which was also recorded in the third quarter ended
September 30, 2002.
3. RECEIVABLES
A summary of receivables is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
Trade accounts....................................... $ 268,847 $ 287,229
Notes and contracts.................................. 47,518 50,626
Notes from sale of trade receivables (see Note 4).... 93,498 192,403
Other................................................ 67,160 66,707
----------- -----------
477,023 596,965
Less allowance for doubtful accounts................. 17,591 22,954
----------- -----------
Total receivables, net............................... $ 459,432 $ 574,011
=========== ===========
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,
7
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
special purpose entity (SPE) was established to purchase certain receivables
from the Company. CoBank has been granted an interest in the pool of receivables
owned by the SPE. The transfers of the receivables from the Company to the SPE
are structured as sales and, accordingly, the receivables transferred to the SPE
are not reflected in the consolidated balance sheet. However, the Company
retains credit risk related to the repayment of the notes receivable with the
SPE, which, in turn, is dependent upon the credit risk of the SPE's receivables
pool. Accordingly, the Company has retained reserves for estimated losses. The
Company expects no significant gains or losses from the facility. At September
30, 2002, $35.0 million was outstanding under this facility and $65.0 million of
borrowing remained available. The total accounts receivable sold during the
three months and nine months ended September 30, 2002 were $498.5 million and
$1,763.3 million, respectively.
5. INVENTORIES
A summary of inventories is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
Raw materials...... $ 97,502 $ 81,923
Work in process.... 32,682 37,423
Finished goods..... 331,361 331,428
----------- -----------
Total inventories.. $ 461,545 $ 450,774
=========== ===========
6. INVESTMENTS
A summary of investments is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
CF Industries, Inc...................................... $ 249,502 $ 248,502
Agriliance, LLC......................................... 119,366 84,030
Ag Processing Inc....................................... 38,681 38,977
MoArk LLC............................................... 39,841 47,593
Advanced Food Products LLC.............................. 27,254 27,487
CoBank, ACB............................................. 21,973 21,549
Melrose Dairy Proteins, LLC............................. 8,227 8,253
PEC Mark II (Malta Cleyton)............................. - 7,681
Universal Cooperatives.................................. 6,196 6,196
Prairie Farms Dairy, Inc................................ 4,917 4,754
Other -- principally cooperatives and joint ventures.... 63,194 73,108
----------- -----------
Total investments....................................... $ 579,151 $ 568,130
=========== ===========
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
Land and land improvements.................. $ 53,911 $ 51,818
Buildings and building equipment............ 292,195 311,499
Machinery and equipment..................... 551,535 560,244
Software.................................... 43,217 38,438
Construction in progress.................... 37,589 56,769
------------- -------------
Total property, plant and equipment......... 978,447 1,018,768
Less accumulated depreciation............... 382,202 343,491
------------- -------------
Total property, plant and equipment, net.... $ 596,245 $ 675,277
============= =============
8
8. RESTRUCTURING AND IMPAIRMENT CHARGES
For the three months ended September 30, 2002, the Company recorded
restructuring and impairment charges of $0.9 million, compared to a reversal of
a prior-year charge of $2.4 million for the three months ended September 30,
2001. Animal feed recorded a $0.9 million restructuring and impairment charge,
of which $0.7 million was related to the write-down of certain impaired plant
assets to their estimated fair value, and $0.2 million was related to employee
severance and outplacement costs for employees at various locations. The 2001
reversal of $2.4 million was for the sale of certain animal feed assets that had
been written off in December 2000 and to reflect the decision to continue
operating a plant previously scheduled for shutdown.
For the nine months ended September 30, 2002, the Company recorded
restructuring and impairment charges of $8.2 million, compared to a reversal of
a prior-year charge of $4.2 million for the nine months ended September 30,
2001. Animal feed recorded a $5.4 million restructuring and impairment charge,
of which $2.4 million was related to the write-down of certain impaired plant
assets to their estimated fair value, and $3.0 million was related to employee
severance and outplacement costs for 136 employees at the Ft. Dodge, IA office
facility and other feed plant facilities. Dairy foods recorded a $2.8 million
charge, which consisted of $1.5 million for employee severance and outplacement
for 82 employees and $1.3 million for impairment related to the Faribault, MN
dairy plant closure. The 2001 reversal of $4.2 million was for the sale of
certain animal feed assets that had been written off in December 2000 and to
reflect the decision to continue operating a plant previously scheduled for
shutdown.
9. GAIN ON LEGAL SETTLEMENT
Through September 30, 2002, the Company received settlement proceeds equal
to $36.8 million from several vitamin product suppliers against whom the Company
alleged certain price-fixing claims. The Company is currently pursuing similar
claims against several other vitamin product suppliers. The total settlement
proceeds received to date represent less than half of the total vitamin product
purchases under dispute.
10. GAIN ON SALE OF INTANGIBLES
For the nine months ended September 30, 2002, the Company recorded a $4.2
million gain on the sale to Potash Corporation of Saskatchewan of a customer
list pertaining to the feed phosphate distribution business.
11. DEBT OBLIGATIONS
The weighted average interest rate on short-term borrowings and notes
outstanding at September 30, 2002 and December 31, 2001 was 3.87% and 6.52%,
respectively.
As of September 30, 2002, interest rates on the Term A Loan, the Term B
Loan, and the revolving credit facility were 4.73%, 5.73% and 5.75%,
respectively.
12. 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
and Lake to Lake.
The animal feed segment consists primarily of a 92% ownership position in
Land O'Lakes Farmland Feed LLC. Land O'Lakes Farmland Feed LLC 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 and 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.
9
The agronomy segment consists primarily of the Company's 50% ownership in
Agriliance, LLC, which is accounted for under the equity method. Agriliance, LLC
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.
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER CONSOLIDATED
----------- ---- ---- ----- -------- ----- ------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales $710,519 $596,398 $32,094 $20,881 $ -- $ 3,400 $1,363,292
Cost of sales 671,691 523,862 28,325 24,781 (1) 2,000 1,250,658
Selling, general and administration 42,641 62,054 11,477 1,563 3,748 2,014 123,497
Restructuring and impairment charges -- 942 -- -- -- -- 942
Interest expense, net 5,503 7,446 452 1,329 2,608 714 18,052
Gain on legal settlement (94) (4,042) -- -- -- -- (4,136)
Gain on divestiture of business -- (24) (3,706) -- -- -- (3,730)
Equity in (earnings) loss of affiliated
companies (560) (834) -- 484 2,733 2,721 4,544
Minority interest in (loss) earnings
of subsidiaries (2,506) 1,141 -- -- -- -- (1,365)
-------- -------- ------- ------- ------- ------- ----------
(Loss) earnings before income taxes $ (6,156) $ 5,853 $(4,454) $(7,276) $(9,088) $(4,049) $ (25,170)
======== ======== ======= ======= ======= ======= ==========
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales $954,112 $413,038 $ 14,843 $29,052 $ -- $ 3,487 $1,414,532
Cost of sales 904,504 379,135 10,580 22,914 (8) 1,904 1,319,029
Selling, general and administration 44,592 28,247 13,020 1,747 3,861 2,695 94,162
Restructuring and impairment reversal -- (2,433) -- -- -- -- (2,433)
Interest expense, net 5,079 1,921 821 1,465 2,700 244 12,230
Equity in (earnings) loss of affiliated
companies (1,531) (1,832) 413 (1,197) (4,823) 2,534 (6,436)
Minority interest in (loss) earnings
of subsidiaries (299) 2,288 17 -- -- (48) 1,958
-------- -------- -------- ------- ------- ------- ----------
Earnings (loss) before income taxes $ 1,767 $ 5,712 $(10,008) $ 4,123 $(1,730) $(3,842) $ (3,978)
======== ======== ======== ======= ======= ======= ==========
10
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER CONSOLIDATED
----------- ---- ---- ----- -------- ----- ------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales $2,151,949 $1,786,372 $284,986 $ 66,575 $ -- $ 9,663 $ 4,299,545
Cost of sales 2,029,720 1,569,527 241,980 68,409 2 5,620 3,915,258
Selling, general and administration 127,317 188,104 34,634 4,792 13,233 6,906 374,986
Restructuring and impairment charges 2,800 5,418 -- -- -- -- 8,218
Interest expense, net 15,298 22,546 2,168 3,966 6,906 2,116 53,000
Gain on legal settlement (922) (35,913) -- -- -- -- (36,835)
Gain on sale of intangibles -- (4,184) -- -- -- -- (4,184)
(Gain) loss on divestiture of business (1,281) (24) (3,706) -- -- 76 (4,935)
Equity in (earnings) loss of affiliated
companies (497) (1,402) (105) 688 (36,633) 8,127 (29,822)
Minority interest in (loss) earnings
of subsidiaries (5,075) 3,511 -- -- -- 109 (1,455)
---------- ---------- -------- -------- -------- -------- -----------
(Loss) earnings before income taxes $ (15,411) $ 38,789 $ 10,015 $(11,280) $ 16,492 $(13,291) $ 25,314
========== ========== ======== ======== ======== ======== ===========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales $2,540,492 $1,222,957 $306,249 $82,771 $ -- $10,263 $4,162,732
Cost of sales 2,378,849 1,119,505 258,503 71,618 -- 6,319 3,834,794
Selling, general and administration 129,984 83,359 35,743 5,458 13,431 6,696 274,671
Restructuring and impairment reversals -- (4,242) -- -- -- -- (4,242)
Interest expense, net 14,829 4,748 4,870 4,662 6,845 585 36,539
Gain on divestiture of business -- (154) -- -- -- -- (154)
Equity in (earnings) loss of affiliated
companies (4,586) (1,974) (5) (3,261) (35,885) 1,984 (43,727)
Minority interest in (loss) earnings
of subsidiaries (697) 6,453 15 -- -- (60) 5,711
---------- ---------- -------- ------- -------- ------- ----------
Earnings (loss) before income taxes $ 22,113 $ 15,262 $ 7,123 $ 4,294 $ 15,609 $(5,261) $ 59,140
========== ========== ======== ======= ======== ======= ==========
13. CONSOLIDATING FINANCIAL INFORMATION
The Company issued $350 million in senior notes which are guaranteed by the
Company and certain of its wholly and majority owned subsidiaries (the
"Guarantor Subsidiaries"). Such guarantees are full, unconditional and joint and
several.
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's other
subsidiaries (the "Non-Guarantor Subsidiaries"). The supplemental financial
information reflects the investments of the Company in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting.
The "Majority Owned Consolidated Guarantor" column in the following
supplemental financial information represents Land O'Lakes Farmland Feed LLC
"LOLFF", excluding certain majority owned non-guarantors of LOLFF.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- --------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term
investments $ 28,509 $ (1,029) $ (2,089) $ 12,487 $ -- $ 37,878
Receivables, net 373,426 45,051 101,076 47,264 (107,385) 459,432
Inventories 287,357 58,176 108,671 7,341 -- 461,545
Prepaid expenses 90,942 2,336 2,663 364 -- 96,305
Other current assets 5,950 141 17,658 603 -- 24,352
----------- ----------- ----------- ----------- ----------- -----------
Total current
assets 786,184 104,675 227,979 68,059 (107,385) 1,079,512
Investments 1,080,974 1,581 28,925 2,496 (534,825) 579,151
Property, plant and
equipment, net 274,625 24,661 246,756 50,203 -- 596,245
Goodwill, net 156,437 11,684 161,344 922 -- 330,387
Other intangibles, net 5,547 1,037 97,354 299 -- 104,237
Other assets 50,717 846 31,800 41,656 (17,082) 107,937
----------- ----------- ----------- ----------- ----------- -----------
Total assets $ 2,354,484 $ 144,484 $ 794,158 $ 163,635 $ (659,292) $ 2,797,469
=========== =========== =========== =========== =========== ===========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations $ 15,163 $ 2,789 $ 461 $ 70,392 $ (54,560) $ 34,245
Current portion of
long-term debt 60,347 51,830 (12) 60 (56,806) 55,419
Accounts payable 180,466 68,586 91,400 18,591 (3,499) 355,544
Accrued expenses 183,087 1,974 40,202 4,435 -- 229,698
Patronage refunds
payable 5,156 -- -- -- -- 5,156
----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities 444,219 125,179 132,051 93,478 (114,865) 680,062
Long-term debt 1,004,351 10,153 56,632 19,050 (18,902) 1,071,284
Employee benefits and
other liabilities 77,089 -- 33,450 430 -- 110,969
Deferred tax liabilities 18,829 1,280 -- -- -- 20,109
Minority interests 8,157 -- -- 8,496 39,596 56,249
Equities:
Capital stock 2,237 1,084 505,262 47,320 (553,666) 2,237
Member equities 841,022 -- -- -- -- 841,022
Retained earnings (41,420) 6,788 66,763 (5,139) (11,455) 15,537
----------- ----------- ----------- ----------- ----------- -----------
Total equities 801,839 7,872 572,025 42,181 (565,121) 858,796
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
equities $ 2,354,484 $ 144,484 $ 794,158 $ 163,635 $ (659,292) $ 2,797,469
=========== =========== =========== =========== =========== ===========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES CONSOLIDATED
------------- ------------ ----------- -------------- ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 687,020 $ 63,822 $ 581,423 $ 31,027 $ 1,363,292
Cost of sales 632,011 70,672 511,446 36,529 1,250,658
----------- ----------- ----------- ----------- -----------
Gross profit (loss) 55,009 (6,850) 69,977 (5,502) 112,634
Selling, general and administration 65,561 (5,983) 59,077 4,842 123,497
Restructuring and impairment
charges -- -- 942 -- 942
----------- ----------- ----------- ----------- -----------
(Loss) earnings from operations (10,552) (867) 9,958 (10,344) (11,805)
Interest expense (income), net 18,052 989 (772) (217) 18,052
Gain on legal settlement (4,136) -- -- -- (4,136)
(Gain) loss on divestiture
of businesses (3,078) (3,682) -- 3,030 (3,730)
Equity in loss (earnings) of
affiliated companies 5,147 -- (603) -- 4,544
Minority interest in earnings
(loss) of subsidiaries 3,516 -- (78) (4,803) (1,365)
----------- ----------- ----------- ----------- -----------
(Loss) earnings before income
taxes (30,053) 1,826 11,411 (8,354) (25,170)
Income tax (benefit) expense (14,388) 1,113 (286) 379 (13,182)
----------- ----------- ----------- ----------- -----------
Net (loss) earnings $ (15,665) $ 713 $ 11,697 $ (8,733) $ (11,988)
=========== =========== =========== =========== ===========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES CONSOLIDATED
-------------- ------------ ------------ -------------- ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 2,316,776 $ 167,723 $ 1,734,131 $ 80,915 $ 4,299,545
Cost of sales 2,151,931 150,725 1,523,648 88,954 3,915,258
----------- ----------- ----------- ----------- -----------
Gross profit (loss) 164,845 16,998 210,483 (8,039) 384,287
Selling, general and administration 171,770 16,800 177,964 8,452 374,986
Restructuring and impairment
charges 2,800 -- 5,418 -- 8,218
----------- ----------- ----------- ----------- -----------
(Loss) earnings from operations (9,725) 198 27,101 (16,491) 1,083
Interest expense (income), net 52,625 3,021 (2,211) (435) 53,000
Gain on legal settlement (36,835) -- -- -- (36,835)
Gain on sale of intangibles -- -- (4,184) -- (4,184)
(Gain) loss on divestiture
of businesses (2,714) (3,682) -- 1,461 (4,935)
Equity in earnings of
affiliated companies (28,983) -- (839) -- (29,822)
Minority interest in loss
(earnings) of subsidiaries 2,800 -- 230 (4,485) (1,455)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes 3,382 859 34,105 (13,032) 25,314
Income tax (benefit) expense (11,751) 1,526 (782) 989 (10,018)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) $ 15,133 $ (667) $ 34,887 $ (14,021) $ 35,332
=========== =========== =========== =========== ===========
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ -------------- ------------ -------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 15,133 $ (667) $ 34,887 $ (14,021) $ -- $ 35,332
Adjustment to reconcile net
earnings (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 40,197 2,885 33,963 2,524 -- 79,569
Bad debt expense 957 -- 2,175 -- -- 3,132
Proceeds from patronage revolvement
received 319 -- -- -- -- 319
Non-cash patronage income (530) -- -- -- -- (530)
(Increase) decrease in other assets (31,394) 2,673 (15,334) 6,554 5,381 (32,120)
Decrease (increase) in other liabilities 8,400 (654) (2,928) 148 -- 4,966
Restructuring and impairment charges 2,800 -- 5,418 -- -- 8,218
(Gain) loss on divestiture of businesses (2,714) (3,682) -- 1,461 -- (4,935)
Equity in earnings of affiliated
companies (28,983) -- (839) -- -- (29,822)
Minority interests 2,800 -- 230 (4,485) -- (1,455)
Other (6,988) -- 194 558 -- (6,236)
Changes in current assets and
liabilities, net of acquisitions
and divestitures:
Receivables 189,843 (10,407) 11,201 (6,791) (79,272) 104,574
Inventories (14,402) (2,569) (1,124) (887) -- (18,982)
Other current assets 88,124 7,112 3,530 (14) -- 98,752
Accounts payable (285,348) 2,219 (20,038) 1,730 17,133 (284,304)
Accrued expenses 34,442 (4,847) 3,565 1,088 -- 34,248
--------- --------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities 12,656 (7,937) 54,900 (12,135) (56,758) (9,274)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (39,355) (1,083) (14,338) (2,482) -- (57,258)
Payments for investments (3,315) (4) -- (1,194) (556) (5,069)
Net proceeds from divestiture of business 3,351 -- -- -- -- 3,351
Proceeds from sale of investment 18,620 270 2,044 150 -- 21,084
Proceeds from sale of property, plant and
equipment 5,963 -- 5,692 -- -- 11,655
Other 12,612 -- -- -- -- 12,612
--------- --------- --------- --------- --------- ---------
Net cash used by investing activities (2,124) (817) (6,602) (3,526) (556) (13,625)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 30,603 (7,588) (4,169) 8,391 15,170 42,407
Proceeds from issuance of long-term debt 4,520 229 -- 24 -- 4,773
Payments on principal of long-term debt (87,588) -- (44,610) (2,421) 52,844 (81,775)
Payments for redemption for member
equities (36,970) -- -- -- -- (36,970)
Other (3,642) 5,994 (581) 11,102 (10,700) 2,173
--------- --------- --------- --------- --------- ---------
Net cash (used) provided by financing
activities (93,077) (1,365) (49,360) 17,096 57,314 (69,392)
--------- --------- --------- --------- --------- ---------
Net (decrease) increase in cash (82,545) (10,119) (1,062) 1,435 -- (92,291)
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 $ 28,509 $ (1,029) $ (2,089) $ 12,487 $ -- $ 37,878
========= ========= ========= ========= ========= =========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------- ------------ ------------
($ IN THOUSANDS)
ASSETS
Current assets:
Cash and short-term
investments ....... $ 111,054 $ 9,090 $ (1,027) $ 11,052 $ -- $ 130,169
Receivables, net ..... 552,951 23,659 136,949 47,109 (186,657) 574,011
Inventories .......... 276,115 57,388 107,548 9,723 -- 450,774
Prepaid expenses ..... 168,486 9,625 6,265 1,114 -- 185,490
Other current assets . 27,038 -- -- -- -- 27,038
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets .......... 1,135,644 99,762 249,735 68,998 (186,657) 1,367,482
Investments ............ 1,047,711 3,596 50,751 1,453 (535,381) 568,130
Property, plant and
equipment, net ....... 272,328 29,146 319,164 54,639 -- 675,277
Goodwill, net .......... 138,054 12,224 103,790 959 -- 255,027
Other intangibles, net . 3,484 2,669 102,503 331 -- 108,987
Other assets ........... 73,403 2,111 4,521 48,141 (11,701) 116,475
---------- ---------- ---------- ---------- ---------- ----------
Total assets ...... $2,670,624 $ 149,508 $ 830,464 $ 174,521 $ (733,739) $3,091,378
========== ========== ========== ========== ========== ==========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations ....... $ 270 $ 2,701 $ 88,902 $ 68,261 $ (126,163) $ 33,971
Current portion of
long-term debt .... 19,995 59,506 23 59 (60,037) 19,546
Accounts payable ..... 436,177 61,786 133,872 20,550 (76) 652,309
Accrued expenses ..... 142,820 6,959 33,769 4,021 -- 187,569
Patronage refunds
payable ........... 28,900 -- -- -- -- 28,900
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities ..... 628,162 130,952 256,566 92,891 (186,276) 922,295
Long-term debt ......... 1,125,437 9,924 65 24,121 (12,082) 1,147,465
Employee benefits and
other liabilities .... 45,459 1,434 35,626 282 -- 82,801
Deferred tax liability . 42,495 -- -- -- -- 42,495
Minority interests ..... 5,494 -- 972 13,744 39,596 59,806
Equities:
Capital stock ........ 2,305 1,084 504,916 58,410 (564,410) 2,305
Member equities ...... 805,860 -- -- -- -- 805,860
Retained earnings .... 15,412 6,114 32,319 (14,927) (10,567) 28,351
---------- ---------- ---------- ---------- ---------- ----------
Total equities .... 823,577 7,198 537,235 43,483 (574,977) 836,516
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
equities ............. $2,670,624 $ 149,508 $ 830,464 $ 174,521 $ (733,739) $3,091,378
========== ========== ========== ========== ========== ==========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES CONSOLIDATED
------------- ------------- ------------ ------------- ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 933,615 $ 58,907 $ 385,242 $ 36,768 $ 1,414,532
Cost of sales 868,551 62,784 353,862 33,832 1,319,029
----------- ----------- ----------- ----------- -----------
Gross profit (loss) 65,064 (3,877) 31,380 2,936 95,503
Selling, general and administration 67,157 (1,864) 24,911 3,958 94,162
Restructuring and impairment
(reversals) -- -- (2,433) -- (2,433)
----------- ----------- ----------- ----------- -----------
(Loss) earnings from operations (2,093) (2,013) 8,902 (1,022) 3,774
Interest expense (income), net 10,017 957 1,365 (109) 12,230
Equity in earnings of
affiliated companies (6,031) -- (405) -- (6,436)
Minority interest in earnings
of subsidiaries 1,824 -- 99 35 1,958
----------- ----------- ----------- ----------- -----------
(Loss) earnings before income taxes (7,903) (2,970) 7,843 (948) (3,978)
Income tax expense (benefit) 655 (382) (65) 229 437
----------- ----------- ----------- ----------- -----------
Net (loss) earnings $ (8,558) $ (2,588) $ 7,908 $ (1,177) $ (4,415)
=========== =========== =========== =========== ===========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES CONSOLIDATED
------------- ------------ ------------ -------------- ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 2,747,039 $ 176,195 $ 1,148,091 $ 91,407 $ 4,162,732
Cost of sales 2,545,757 152,765 1,051,873 84,399 3,834,794
----------- ----------- ----------- ----------- -----------
Gross profit 201,282 23,430 96,218 7,008 327,938
Selling, general and administration 171,130 18,246 75,973 9,322 274,671
Restructuring and impairment
(reversals) -- -- (4,242) -- (4,242)
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations 30,152 5,184 24,487 (2,314) 57,509
Interest expense (income), net 29,259 3,435 4,573 (728) 36,539
Gain on divestiture of business (154) -- -- -- (154)
Equity in earnings of
affiliated companies (42,491) -- (1,236) -- (43,727)
Minority interest in earnings
(loss) of subsidiaries 5,856 -- 249 (394) 5,711
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income
taxes 37,682 1,749 20,901 (1,192) 59,140
Income tax expense (benefit) 4,185 1,805 (65) 397 6,322
----------- ----------- ----------- ----------- -----------
Net earnings (loss) $ 33,497 $ (56) $ 20,966 $ (1,589) $ 52,818
=========== =========== =========== =========== ===========
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
LAND CONSOLIDATED MAJORITY
O'LAKES, INC. WHOLLY OWNED
PARENT OWNED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ -------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 33,497 $ (56) $ 20,966 $ (1,589) $ -- $ 52,818
Adjustment to reconcile net
earnings (loss) to cash
provided (used) by operating
activities:
Depreciation and amortization 48,721 2,470 12,062 1,772 -- 65,025
Bad debt expense 1,175 -- 436 -- -- 1,611
Proceeds from patronage
revolvement received 480 -- -- -- -- 480
Non-cash patronage income (2,364) -- -- -- -- (2,364)
(Increase) decrease in other assets (67,563) 1,303 458 (1,463) 53,295 (13,970)
(Decrease) increase in other
liabilities (43,491) (708) (5,068) 82 48,765 (420)
Restructuring and impairment
reversals -- -- (4,242) -- -- (4,242)
Gain on divestiture of businesses (154) -- -- -- -- (154)
Equity in earnings of affiliated
companies (42,491) -- (1,236) -- -- (43,727)
Minority interests 5,856 -- 249 (394) -- 5,711
Other (6,741) -- 531 (86) -- (6,296)
Changes in current assets
and liabilities,
net of acquisitions
and divestitures:
Receivables 80,928 (5,891) (4,426) (14,045) (24,702) 31,864
Inventories (46,536) 4,667 11,277 (802) -- (31,394)
Other current assets 110,548 8,744 5,557 26 -- 124,875
Accounts payable (65,698) (74,951) (14,021) 3,465 13,549 (137,656)
Accrued expenses (4,800) (2,928) (27,211) 2,700 -- (32,239)
--------- --------- --------- --------- --------- ---------
Net cash provided (used) by
operating activities 1,367 (67,350) (4,668) (10,334) 90,907 9,922
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property,
plant and equipment (27,669) (293) (14,280) (11,497) -- (53,739)
Acquisitions, net of cash acquired (13,300) -- -- -- -- (13,300)
Payments for investments (54,870) -- -- (3,103) 12,975 (44,998)
Proceeds from sale of investment 2,365 312 1,676 -- -- 4,353
Proceeds from sale of property,
plant and equipment 20,654 -- 3,301 186 -- 24,141
Other 9,684 -- -- -- -- 9,684
--------- --------- --------- --------- --------- ---------
Net cash (used) provided by
investing activities (63,136) 19 (9,303) (14,414) 12,975 (73,859)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in
short-term debt 105,889 61,963 1,659 6,528 (43,532) 132,507
Proceeds from issuance of
long-term debt 69,571 -- 14,052 16,688 (47,375) 52,936
Payments on principal
of long-term debt (69,160) (112) 860 (928) -- (69,340)
Payments for redemption
for member equities (45,842) -- -- -- -- (45,842)
Other 2,739 5,951 (1,347) 4,292 (12,975) (1,340)
--------- --------- --------- --------- --------- ---------
Net cash provided (used)
by financing activities 63,197 67,802 15,224 26,580 (103,882) 68,921
--------- --------- --------- --------- --------- ---------
Net increase in cash 1,428 471 1,253 1,832 -- 4,984
Cash and short-term investments at
beginning of period (3,957) (545) (2,395) 10,891 -- 3,994
--------- --------- --------- --------- --------- ---------
Cash and short-term investments at
end of period $ (2,529) $ (74) $ (1,142) $ 12,723 $ -- $ 8,978
========= ========= ========= ========= ========= =========
19
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------- ---------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments $ - $ 3,019
Receivables, net 109,073 119,063
Inventories 112,684 113,559
Prepaid expenses 2,920 6,472
Notes receivable - Land O'Lakes, Inc. 17,658 -
----------------- ---------------
Total current assets 242,335 242,113
Investments 31,121 31,496
Property, plant and equipment, net 254,138 326,956
Goodwill, net 162,266 104,749
Other intangibles, net 97,653 100,663
Other assets 32,756 27,640
----------------- ---------------
Total assets $ 820,269 $ 833,617
================= ===============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 3,000 $ 5,000
Notes payable - Land O'Lakes, Inc. - 29,210
Accounts payable 95,221 117,074
Accrued expenses 42,087 35,132
----------------- ---------------
Total current liabilities 140,308 186,416
Notes payable - Land O'Lakes, Inc. 59,664 59,664
Employee benefits and other liabilities 33,880 36,656
Minority interests 3,125 2,919
Equities:
Contributed capital 515,379 515,044
Retained earnings 67,913 32,918
----------------- ---------------
Total equities 583,292 547,962
----------------- ---------------
Commitments and contingencies
Total liabilities and equities $ 820,269 $ 833,617
================= ===============
See accompanying notes to consolidated financial statements.
20
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -----------------------------
2002 2001 2002 2001
--------------- --------------- -------------- --------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales $ 594,448 $ 406,779 $ 1,774,451 $ 1,203,272
Cost of sales 522,415 374,547 1,559,254 1,104,316
--------------- --------------- -------------- --------------
Gross profit 72,033 32,232 215,197 98,956
Selling, general and administration 60,378 24,845 181,208 77,334
Restructuring and impairment charges (reversals) 942 (2,433) 5,418 (4,242)
--------------- --------------- -------------- --------------
Earnings from operations 10,713 9,820 28,571 25,864
Interest (income) expense, net (737) 1,478 (2,081) 4,932
Gain on sale of intangibles - - (4,184) -
Equity in earnings of affiliated companies (576) (405) (839) (1,236)
Minority interest in earnings of subsidiaries 194 508 680 721
--------------- --------------- -------------- --------------
Net earnings $ 11,832 $ 8,239 $ 34,995 $ 21,447
=============== =============== ============== ==============
See accompanying notes to consolidated financial statements.
21
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2002 2001
--------------- --------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 34,995 $ 21,447
Adjustments to reconcile net earnings to cash provided
by (used in) operating activities:
Depreciation and amortization 34,333 12,707
Bad debt expense 2,175 436
Increase in other assets (15,883) (302)
Decrease in other liabilities (2,776) (4,986)
Restructuring and impairment charges (reversals) 5,418 (4,242)
Equity in earnings of affiliated companies (839) (1,236)
Minority interests 680 721
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables 7,815 (7,914)
Inventories 875 11,753
Other current assets 3,552 5,554
Accounts payable (21,853) (15,005)
Accrued expenses 3,919 (27,787)
--------------- --------------
Net cash provided by (used in) operating activities 52,411 (8,854)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (14,298) (14,482)
Proceeds from investments 2,044 1,676
Proceeds from sale of property, plant and equipment 5,692 3,374
--------------- --------------
Net cash used in investing activities (6,562) (9,432)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term debt (2,000) 1,660
Proceeds from note payable to Land O'Lakes, Inc. 339,982 280,551
Payments on note payable to Land O'Lakes, Inc. (386,850) (263,925)
--------------- --------------
Net cash (used) provided by financing activities (48,868) 18,286
--------------- --------------
Net decrease in cash and short-term investments (3,019) -
Cash and short-term investments at beginning of period 3,019 -
--------------- --------------
Cash and short-term investments at end of period $ - $ -
=============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid during periods for:
Interest, net of interest capitalized $ - $ -
See accompanying notes to consolidated financial statements.
22
LAND O'LAKES FARMLAND FEED LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. 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 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, 2001 included in our Registration Statement on Form S-4, as
amended. The results of operations and cash flows for interim periods are not
necessarily indicative of results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." Major provisions of these statements are as follows: all business
combinations must now use the purchase method of accounting, the pooling of
interests method of accounting is now prohibited; intangible assets acquired in
a business combination must be recorded separately from goodwill if they arise
from contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either individually
or as a part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized, but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting. Land O'Lakes Farmland Feed
LLC has adopted the provisions of SFAS 141 and certain provisions of SFAS 142 as
of July 1, 2001, and the remaining provisions of SFAS 142 as of January 1, 2002.
As required by SFAS 142, Land O'Lakes Farmland Feed LLC performed step one of
the impairment testing of goodwill for the balances as of January 1, 2002 by
June 30, 2002. The fair value of goodwill exceeded the carrying amount,
therefore the second step of impairment testing is not required and no
impairment has been recognized in the current year of adoption.
Land O'Lakes Farmland Feed LLC will perform impairment tests annually and
whenever events or circumstances occur indicating that goodwill or other
intangible assets might be impaired. As of January 1, 2002, we are no longer
amortizing goodwill, except for goodwill related to the acquisition of
cooperatives and the formation of joint ventures.
The following table presents a reconciliation of net earnings adjusted for
the exclusion of amortization of goodwill no longer required to be amortized,
net of income taxes:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
-------- ------- -------- --------
Net earnings.................................... $ 11,832 $ 8,239 $ 34,995 $ 21,447
Add back: Goodwill amortization, net of tax..... - 210 - 390
-------- ------- -------- --------
Adjusted net earnings........................... $ 11,832 $ 8,449 $ 34,995 $ 21,837
======== ======== ======== ========
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31,
2001 2000
----------- -------------
Net earnings (loss)............................. $ 39,146 $(6,228)
Add back: Goodwill amortization, net of tax..... 1,041 85
--------- -------
Adjusted net earnings (loss).................... $ 40,187 $(6,143)
========= =======
23
2. GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of intangible assets follows:
AS OF SEPTEMBER 30, 2002
-----------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- -----------
Amortized intangible assets
Trademarks ................................... $ 882 $ (240)
Patents ...................................... 16,373 (1,106)
Agreements not to compete .................... 1,402 (560)
Other ........................................ 9,930 (5,991)
------- -------
Total ........................................ $28,587 $(7,897)
======= =======
Nonamortized intangible assets
Trademarks ..................................... $76,963
=======
Aggregate amortization expense:
For nine months ended September 30, 2002 ..... $ 3,916
Estimated amortization expense:
For three months ended December 31, 2002 ..... $ 1,026
For year ended December 31, 2003 ............. 4,107
For year ended December 31, 2004 ............. 4,107
For year ended December 31, 2005 ............. 4,107
For year ended December 31, 2006 ............. 3,991
For year ended December 31, 2007 ............. 3,546
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, are as follows:
Balance as of January 1, 2002......................... $ 104,749
Reallocation of purchase price...................... 57,866
Amortization expense................................ (349)
-----------
Balance as of September 30, 2002..................... $ 162,266
===========
The reallocation of the purchase price was primarily the result of
finalizing the appraisals during the third quarter ended September 30, 2002. The
offsetting reduction to property, plant and equipment resulted in a $3.9 million
adjustment to reduce depreciation expense, which was also recorded in the third
quarter ended September 30, 2002.
3. RECEIVABLES
A summary of receivables is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
Trade accounts....................................... $ 23,747 $ 25,320
Notes and contracts.................................. 22,706 18,071
Notes from sale of trade receivables (see Note 4).... 61,247 70,878
Other................................................ 11,337 13,879
----------- -----------
119,037 128,148
Less allowance for doubtful accounts................. 9,964 9,085
----------- -----------
Total receivables, net............................... $ 109,073 $ 119,063
=========== ===========
4. RECEIVABLES PURCHASE FACILITY
In December 2001, Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and
Purina Mills, LLC established a $100.0 million receivables purchase facility
with CoBank, ACB (CoBank). A wholly owned unconsolidated special purpose entity,
Land O'Lakes Farmland Feed SPV, LLC, (SPE), was established to purchase certain
receivables from Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and Purina
Mills, LLC. CoBank has been granted an interest in the receivables owned by the
SPE. The transfers of the receivables from the Company to the SPE are structured
as sales and, accordingly, the receivables transferred to the SPE are not
reflected in the Company's consolidated balance sheet. However, Land O'Lakes,
Inc., Land O'Lakes Farmland Feed LLC, and Purina Mills, LLC retain the credit
risk related to the repayment of the notes receivable with the SPE, which in
turn is dependent upon the
24
credit risk of the SPE'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 September 30, 2002 and December 31,
2001, there was $35.0 million and $75.8 million of SPE borrowings outstanding,
respectively. The total accounts receivable sold by the Company during the three
months and nine months ended September 30, 2002 were $561.5 million and $1,686.7
million, respectively.
5. INVENTORIES
A summary of inventories is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
-------- --------
Raw materials ........ $ 79,447 $ 63,435
Finished goods ....... 33,237 50,124
-------- --------
Total inventories .... $112,684 $113,559
======== ========
6. INVESTMENTS
The Company's investments are as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
Harmony Farms, LLC........................... $ 3,340 $ 3,969
New Feeds, LLC............................... 2,979 3,214
Iowa River Feeds, LLC........................ 2,563 2,648
Agland Farmland Feed, LLC.................... 2,339 2,435
Pro-Pet, LLC................................. 2,132 2,362
Nutri-Tech Feeds, LLC........................ 2,345 2,314
LOLFF SPV, LLC............................... 1,000 1,805
Northern Country Feeds, LLC.................. 1,688 1,652
CalvaAlto Liquid, LLC........................ 1,302 1,302
T-PM Holding Company......................... 1,375 1,290
Northern Colorado Feed, LLC.................. 834 1,210
Strauss Feeds, LLC........................... 1,229 1,073
Nutrikowi, LLC............................... 876 783
Dakotaland Feeds, LLC........................ 669 736
Other........................................ 6,450 4,703
--------- ---------
Total investments............................ $ 31,121 $ 31,496
========= =========
All of the above investments are accounted for under the equity method with the
exception of the unconsolidated LOLFF SPV, LLC and a portion of the investments
under the caption "Other", which are accounted for under the cost method.
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
Land and land improvements.................. $ 23,894 $ 23,826
Buildings and building equipment............ 106,587 124,205
Machinery and equipment..................... 208,360 247,186
Construction in progress.................... 19,379 13,019
----------- -----------
358,220 408,236
Less accumulated depreciation............... 104,082 81,280
----------- -----------
Total property, plant and equipment, net.... $ 254,138 $ 326,956
=========== ===========
8. RESTRUCTURING AND IMPAIRMENT
For the three months ended September 30, 2002, the Company recorded a $0.9
million restructuring and impairment charge of
25
which $0.7 million was related to the write-down of certain impaired plant
assets to their estimated fair value, and $0.2 million was related to employee
severance and outplacement costs. The 2001 reversal of $2.4 million was for the
sale of certain animal feed assets that had been written off in December 2000,
and to reflect the decision to continue operating a plant previously scheduled
for shutdown.
For the nine months ended September 30, 2002 the Company recorded
restructuring and impairment charges of $5.4 million. Of this amount, $3.0
million represented severance and outplacement costs for employees and $2.4
million represented a write-down of certain impaired plant assets. $2.3 million
of the charges remained accrued as of September 30, 2002. For the nine months
ended September 30, 2001, the Company recorded a restructuring reversal of $4.2
million for the sale of certain assets that had been written off in December
2000, and to reflect the decision to continue to operate plants previously
scheduled for shutdown.
9. GAIN ON SALE OF INTANGIBLES
For the nine months ended September 30, 2002, the Company recorded a gain
of $4.2 million on the sale to Potash Corporation of Saskatchewan of a customer
list pertaining to the feed phosphate distribution business.
10. RELATED PARTY TRANSACTIONS
In accordance with the Management Services Agreement between Land O'Lakes,
Inc. and Farmland Industries, Inc. (Farmland), Land O'Lakes, Inc. charges the
Company for corporate services such as legal, insurance administration, tax
administration, human resources, payroll and benefit administration, leasing,
public relations, credit and collections, accounting, and information technology
support. These costs totaled $5.8 million and $4.8 million for the nine months
ended September 30, 2002 and 2001, respectively.
Payroll and benefit-related costs are paid directly by Land O'Lakes, Inc.
and reimbursed by the Company. These costs totaled $78.7 million and $79.0
million for the nine months ended September 30, 2002 and 2001, respectively.
As part of the acquisition of Purina Mills, Inc. on October 11, 2001, Land
O'Lakes, Inc. assumed certain liabilities, including a $59.7 million deferred
tax liability. The Company has established a noncurrent note payable for this
liability and, as future taxes relating to the deferred tax liability are paid
by Land O'Lakes, Inc., the Company will make a corresponding payment to Land
O'Lakes, Inc. This note is non-interest bearing and $59.7 million was
outstanding at September 30, 2002 and December 31, 2001.
The Company has a $100 million revolving credit facility with Land O'Lakes,
Inc. which bears interest at LIBOR plus 260 basis points. The facility
terminates on October 31, 2003, and is renewable annually. The Company had a
note receivable from Land O' Lakes, Inc. of $17.7 million at September 30, 2002
and a note payable to Land O' Lakes, Inc. of $29.2 million at December 31, 2001.
The Company entered into a Feed Supply Agreement with Farmland whereby
Farmland agreed to purchase all of its feed and ingredients, excluding grain,
from the Company. Such sales are made at prices competitive with those available
from other suppliers. Sales to Farmland under the agreement totaled $1.5 million
and $6.1 million for the nine months ended September 30, 2002 and 2001,
respectively.
Sales with unconsolidated subsidiaries of the Company totaled $39.8 million
and $34.1 million for the nine months ended September 30, 2002 and 2001,
respectively.
11. CONSOLIDATING FINANCIAL INFORMATION
Land O'Lakes, Inc. issued $350 million in senior notes which are guaranteed
by Land O'Lakes, Inc. and certain of its wholly and majority owned subsidiaries,
including the Company, (the "Guarantor Subsidiaries"). Such guarantees are full,
unconditional and joint and several.
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's other
subsidiaries (the "Non-Guarantor Subsidiaries"). The supplemental financial
information reflects the investments of the Company in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
WHOLLY
WHOLLY OWNED
LAND O'LAKES WHOLLY OWNED OWNED SUBSIDIARIES
FARMLAND FEED SUBSIDIARIES OF PURINA MILLS, OF PURINA MILLS,
LLC PARENT LOL FF LLC LLC PARENT LLC PARENT
--------------- ---------------- -------------- -----------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term
investments $ (15,428) $ 7,871 $ 5,542 $ (74)
Receivables, net 126,755 18,487 9,640 12,766
Inventories 49,812 13,681 43,326 1,852
Prepaid expenses 1,316 348 997 2
Note receivable -
Land O'Lakes, Inc. 17,658 - - -
--------------- ---------------- -------------- -----------------
Total current
assets 180,113 40,387 59,505 14,546
Investments 410,871 258 2,674 8,799
Property, plant and
equipment, net 75,882 7,622 162,151 1,101
Goodwill, net 12,951 3,655 144,738 -
Other intang