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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 March 31, 2003*
or
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________.
Commission file number 333-84486
LAND O'LAKES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0365145
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4001 Lexington Avenue North
Arden Hills, Minnesota 55112
(Address of Principal Executive Offices) (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 | | No |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12-b-2 of the Act). Yes | | No |X|
The number of shares of the registrant's common stock outstanding as of
April 30, 2003: 1,110 shares of Class A common stock, 5,128 shares of Class B
common stock, 193 shares of Class C common stock, and 1,239 shares of Class D
common stock.
Land O'Lakes, Inc. is a cooperative. Our voting and non-voting common
equity can only be held by our members. No public market for voting and
non-voting common equity of Land O'Lakes, Inc. is established and it is
unlikely, in the foreseeable future, that a public market for our voting and
non-voting common equity will develop.
We maintain a website on the Internet through which additional information
about Land O' Lakes, Inc. is available. Our website address is
www.landolakesinc.com. Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, press releases and earnings releases are
available, free of charge, on our website when they are released publicly or
filed with the SEC.
*Although Land O'Lakes, Inc. is not currently required to file the
Quarterly Report on Form 10-Q pursuant to Section 13 or 15(d), we are filing
voluntarily.
INDEX
PAGE
PART I. FINANCIAL INFORMATION........................................................................... 3
Item I. Financial Statements............................................................................. 3
LAND O'LAKES, INC.
Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002....................... 3
Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 (unaudited)..... 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited)..... 5
Notes to Consolidated Financial Statements (unaudited)................................................... 6
LAND O'LAKES FARMLAND FEED LLC
Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002...................... 17
Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 (unaudited)..... 18
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited)..... 19
Notes to Consolidated Financial Statements (unaudited)................................................... 20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................... 43
Item 4. Controls and Procedures......................................................................... 43
PART II. OTHER INFORMATION.............................................................................. 43
Item 1. Legal Proceedings............................................................................... 43
Item 6. Exhibits and Reports on Form 8-K................................................................ 44
SIGNATURES............................................................................................... 45
CERTIFICATIONS........................................................................................... 46
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ........................... $ 34,212 $ 64,327
Receivables, net .......................................... 504,340 567,584
Receivable from legal settlement .......................... -- 96,707
Inventories ............................................... 495,953 446,386
Prepaid expenses .......................................... 97,215 189,246
Other current assets ...................................... 13,689 13,878
------------ ------------
Total current assets .............................. 1,145,409 1,378,128
Investments ................................................. 549,381 545,592
Property, plant and equipment, net .......................... 576,705 579,860
Property under capital lease ................................ 103,511 105,736
Goodwill, net ............................................... 317,905 323,413
Other intangibles ........................................... 102,472 101,770
Other assets ................................................ 210,980 211,823
------------ ------------
Total assets ...................................... $ 3,006,363 $ 3,246,322
============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations .......................... $ 45,825 $ 37,829
Current portion of long-term debt ......................... 81,965 104,563
Current portion of obligation under capital lease ......... 8,867 108,279
Accounts payable .......................................... 509,781 701,786
Accrued expenses .......................................... 202,092 204,629
Patronage refunds payable and other member equities payable 7,128 12,388
------------ ------------
Total current liabilities ......................... 855,658 1,169,474
Long-term debt .............................................. 988,872 1,007,308
Obligation under capital lease .............................. 97,005 --
Employee benefits and other liabilities ..................... 106,532 104,340
Minority interests .......................................... 57,662 53,687
Equities:
Capital stock ............................................. 2,169 2,190
Member equities ........................................... 863,546 873,659
Retained earnings ......................................... 34,919 35,664
------------ ------------
Total equities .................................... 900,634 911,513
------------ ------------
Commitments and contingencies
Total liabilities and equities .............................. $ 3,006,363 $ 3,246,322
============ ============
See accompanying notes to consolidated financial statements.
3
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ................................... $ 1,454,452 $ 1,532,233
Cost of sales ............................... 1,328,903 1,384,258
------------ ------------
Gross profit ................................ 125,549 147,975
Selling, general and administration ......... 119,969 127,521
Restructuring and impairment charges ........ 1,092 3,435
------------ ------------
Earnings from operations .................... 4,488 17,019
Interest expense, net ....................... 17,385 17,547
Gain on legal settlements ................... (8,889) --
Gain on sale of intangible .................. -- (4,184)
Gain on sale of investment .................. (500) --
Equity in loss of affiliated companies ...... 983 9,861
Minority interest in earnings of subsidiaries 1,489 934
------------ ------------
Loss before income taxes .................... (5,980) (7,139)
Income tax benefit .......................... (5,609) (6,163)
------------ ------------
Net loss .................................... $ (371) $ (976)
============ ============
Applied to:
Member equities
Allocated patronage refunds ............ $ 9,794 $ 11,574
Deferred equities ...................... (13,893) (12,086)
------------ ------------
(4,099) (512)
Retained earnings ......................... 3,728 (464)
------------ ------------
$ (371) $ (976)
============ ============
See accompanying notes to consolidated financial statements.
4
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $ (371) $ (976)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization ..................... 26,642 26,813
Amortization of deferred financing charges ........ 913 691
Bad debt expense .................................. 691 253
Proceeds from patronage revolvement received ...... 10 127
Non-cash patronage income ......................... (209) (923)
Receivable from legal settlement .................. 96,707 --
Decrease (increase) in other assets ............... 1,709 (824)
Increase (decrease) in other liabilities .......... 2,096 (1,208)
Restructuring and impairment charges .............. 1,092 3,435
Equity in loss of affiliated companies ............ 983 9,861
Minority interests ................................ 1,489 934
Other ............................................. (1,229) (4,943)
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables ....................................... 62,553 22,255
Inventories ....................................... (47,777) (42,880)
Other current assets .............................. 92,304 77,987
Accounts payable .................................. (192,201) (172,389)
Accrued expenses .................................. (6,537) (22,197)
------------ ------------
Net cash provided (used) by operating activities ..... 38,865 (103,984)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ........... (16,120) (17,674)
Payments for investments ............................. (8,800) (3,595)
Proceeds from sale of investments .................... 3,000 21,009
Proceeds from sale of property, plant and equipment .. 1,562 6,622
Dividends from investments in affiliated companies ... 1,737 3,084
Other ................................................ 2,581 37
------------ ------------
Net cash (used) provided by investing activities ..... (16,040) 9,483
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt .......................... 24,768 37,877
Proceeds from issuance of long-term debt ............. 425 1,688
Payments on principal of long-term debt .............. (61,934) (41,734)
Payments on principal of capital lease obligation .... (2,217) --
Payments for redemption of member equities ........... (15,331) (20,060)
Other ................................................ 1,349 362
------------ ------------
Net cash used by financing activities ................ (52,940) (21,867)
------------ ------------
Net decrease in cash ................................. (30,115) (116,368)
Cash and short-term investments at beginning of period . 64,327 130,169
------------ ------------
Cash and short-term investments at end of period ....... $ 34,212 $ 13,801
============ ============
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during periods for:
Interest, net of interest capitalized ................ $ 14,610 $ 16,924
Income taxes recovered ............................... $ (4,198) $ (7,080)
See accompanying notes to consolidated financial statements.
5
LAND O'LAKES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements reflect, in the opinion of
the management of Land O'Lakes, Inc. (the "Company"), all normal recurring
adjustments necessary for a fair statement of the financial position and results
of operations and cash flows for the interim periods. The statements are
condensed and therefore do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. For further information, refer to the
audited consolidated financial statements and footnotes for the year ended
December 31, 2002 included in our Annual Report on Form 10-K. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The standard requires that a liability for a cost associated with
an exit or disposal activity be recognized and measured initially at fair value
when the liability is incurred. Under prior accounting literature, certain costs
for exit activities were recognized at the date a company committed to an exit
plan. The provisions of the standard are effective for exit or disposal
activities initiated after December 31, 2002.
2. RECEIVABLES
A summary of receivables is as follows:
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Trade accounts............................. $ 246,776 $ 237,106
Notes and contracts........................ 52,739 44,565
Notes from sale of trade receivables (see
Note 3).................................... 151,193 225,144
Other...................................... 73,019 79,024
--------- -----------
523,727 585,839
Less allowance for doubtful accounts....... 19,387 18,255
--------- -----------
Total receivables, net..................... $ 504,340 $ 567,584
========= ===========
A substantial portion of Land O'Lakes receivables is concentrated in the
agricultural industry. Collections of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's credit
risks are continually reviewed, and management believes that adequate provisions
have been made for doubtful accounts.
3. RECEIVABLES PURCHASE FACILITY
In December 2001, the Company established a $100.0 million receivables
purchase facility with CoBank, ACB ("CoBank"). A wholly-owned, unconsolidated
qualifying special purpose entity ("QSPE") was established to purchase certain
receivables from the Company. CoBank has been granted an interest in the pool of
receivables owned by the QSPE. The transfers of the receivables from the Company
to the QSPE are structured as sales and, accordingly, the receivables
transferred to the QSPE are not reflected in the consolidated balance sheet.
However, the Company retains credit risk related to the repayment of the notes
receivable with the QSPE, which, in turn, is dependent upon the credit risk of
the QSPE's receivables pool. Accordingly, the Company has retained reserves for
estimated losses. The Company expects no significant gains or losses from the
facility. At March 31, 2003, $100.0 million was outstanding under this facility
and no amounts remained available. The total accounts receivable sold during the
three months ended March 31, 2003 and 2002 were $672.8 million and $654.1
million, respectively.
6
4. INVENTORIES
A summary of inventories is as follows:
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Raw materials................ $ 146,599 $ 141,849
Work in process.............. 35,005 33,707
Finished goods............... 314,349 270,830
--------- ------------
Total inventories............ $ 495,953 $ 446,386
========= ============
5. INVESTMENTS
A summary of investments is as follows:
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
CF Industries, Inc........................... $ 249,502 $ 249,502
Agriliance LLC............................... 88,862 91,629
MoArk LLC.................................... 55,103 44,678
Ag Processing Inc............................ 37,854 37,854
Advanced Food Products LLC................... 26,822 27,418
CoBank, ACB.................................. 22,090 22,061
Universal Cooperatives....................... 6,473 6,473
Prairie Farms Dairy, Inc..................... 5,272 5,092
Melrose Dairy Proteins, LLC.................. 4,906 6,579
Other -- principally cooperatives and joint
ventures..................................... 52,497 54,306
--------- -----------
Total investments............................ $ 549,381 $ 545,592
========= ===========
6. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The carrying amount of goodwill is as follows:
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Dairy Foods..................... $ 66,668 $ 66,718
Feed............................ 156,651 156,839
Seed............................ 13,432 16,948
Swine........................... 634 647
Agronomy........................ 68,300 69,823
Other........................... 12,220 12,438
--------- -----------
Total goodwill.................. $ 317,905 $ 323,413
========= ===========
Goodwill decreases in Dairy Foods, Feed, Swine, Agronomy and Other were
due to amortization. The goodwill decrease of $3.5 million in the Seed segment
was related to amortization and reclassifications.
OTHER INTANGIBLE ASSETS
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Amortized other intangible assets:
Trademarks, less accumulated amortization
of $1,758 and $1,615, respectively......... $ 2,611 $ 2,725
Patents, less accumulated amortization of
$1,684 and $1,394, respectively............ 14,689 14,979
Agreements not to compete, less accumulated
amortization of $2,534 and $2,324,
respectively............................... 1,766 1,976
Other intangible assets, less accumulated
amortization of $6,578 and $7,343,
respectively.................................... 6,443 5,127
--------- ------------
Total amortized other intangible assets......... 25,509 24,807
Total non-amortized other intangible assets --
trademarks...................................... 76,963 76,963
--------- ------------
Total other intangible assets................... $ 102,472 $ 101,770
========= ============
Amortization expense for the three months ended March 31, 2003 and 2002
was $1.1 million and $1.3 million, respectively. The estimated amortization
expense related to other intangible assets subject to amortization for the
7
next five years will approximate $3.2 million annually. The weighted-average
life of the intangible assets subject to amortization is approximately 11 years.
7. RESTRUCTURING AND IMPAIRMENT CHARGES
RESTRUCTURING CHARGES
For the three months ended March 31, 2003, the Dairy Food segment recorded
a restructuring charge of $1.0 million which represented severance costs for 44
employees as a result of closing an Upper Midwest whey production facility.
For the three months ended March 31, 2002, the Feed segment recorded
restructuring charges of $2.6 million which represented severance and
outplacement costs for 136 employees at the Ft. Dodge, IA office facility and
other plant facilities.
A summary of restructuring activities and resulting reserve for the three
months ended March 31, 2003 is as follows:
BALANCE BALANCE
DECEMBER 31, CHARGE TO UTILIZED MARCH 31,
2002 EXPENSE IN 2003 2003
------------ ------------ ------------ ------------
Termination benefits $ 8,871 $ 1,000 $ (5,231) $ 4,640
Other .............. 1,604 -- (128) 1,476
------------ ------------ ------------ ------------
Total .............. $ 10,475 $ 1,000 $ (5,359) $ 6,116
============ ============ ============ ============
IMPAIRMENT CHARGES
For the three months ended March 31, 2003 and 2002, the Company recorded
impairment charges of $0.1 million and $0.8 million, respectively, in the Feed
segment for write downs of certain plant assets to their estimated fair value.
8. GAIN ON LEGAL SETTLEMENTS
During the three months ended March 31, 2003, the Company recognized gain
on legal settlements of $8.9 million. The gain represents cash received from
product suppliers against whom the Company alleged certain price-fixing claims.
9. GAIN ON SALE OF INTANGIBLE
In the three months ended March 31, 2002, the Company recorded a $4.2
million gain on the sale of a customer list pertaining to the feed phosphate
distribution business.
10. DEBT OBLIGATIONS
In the three months ended March 31, 2003, the Company made payments on
Term A loan of $35.0 million and Term B loan of $26.2 million, of which $50.0
million was a voluntary prepayment. The weighted average interest rates on
short-term borrowings and notes outstanding at March 31, 2003 and December 31,
2002 were 3.52% and 3.51%, respectively.
11. COMMITMENTS AND CONTINGENCIES
In March 2003, our consolidated joint venture, Cheese & Protein
International LLC ("CPI"), received an amendment to its capital lease contract
from its lenders. The amendment eliminated the measurement of the fixed charge
coverage ratio requirement until March 2005. In addition to paying an increased
applicable lender margin, we established a $20 million cash account to provide
additional support to the lease participants. The cash account will only be
drawn upon in the event of a CPI default and would reduce amounts otherwise due
under the lease. This support requirement will be lifted when certain financial
targets are achieved by CPI. At March 31, 2003, the obligation under capital
lease has been recognized as a long-term liability.
8
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.
The Animal Feed segment is made up of a 92% ownership position in Land
O'Lakes Farmland Feed LLC ("Land O'Lakes Farmland Feed"). Land O'Lakes Farmland
Feed develops, produces, markets and distributes animal feeds such as ingredient
feed, formula feed, milk replacers, vitamins and additives.
The Crop Seed segment is a supplier and distributor of crop seed products
in the United States. A variety of crop seed is sold, including alfalfa,
soybeans, corn 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.
The Agronomy segment consists primarily of the Company's 50% ownership in
Agriliance LLC ("Agriliance"), which is accounted for under the equity method.
Agriliance markets and sells two primary product lines: crop protection
(including herbicides and pesticides) and crop nutrients (including fertilizers
and micronutrients).
The Company allocates corporate administration expense to all of its
business segments, both directly and indirectly. Corporate staff functions that
are able to determine actual services provided to each segment allocate expense
on a direct and predetermined basis. All other corporate staff functions
allocate expense indirectly based on each segment's percent of total invested
capital. A majority of corporate administration expense is allocated directly.
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER CONSOLIDATED
----------- --------- -------- -------- -------- ------- ------------
FOR THE THREE MONTHS ENDED MARCH
31, 2003
Net sales .................... $ 635,944 $ 602,466 $191,895 $ 21,165 $ -- $ 2,982 $ 1,454,452
Cost of sales ................ 608,106 529,929 166,834 22,236 -- 1,798 1,328,903
Selling, general and
administration ............. 39,462 59,969 13,393 1,362 3,326 2,457 119,969
Restructuring and impairment
charges .................... 1,000 92 -- -- -- -- 1,092
Interest expense, net ........ 6,322 5,789 1,046 1,273 2,332 623 17,385
Gain on legal settlements .... -- (8,889) -- -- -- -- (8,889)
Gain on sale of investment ... -- (500) -- -- -- -- (500)
Equity in loss (earnings) of
affiliated companies ....... 630 (556) -- 365 3,147 (2,603) 983
Minority interest in earnings
of subsidiaries ............ -- 1,489 -- -- -- -- 1,489
----------- --------- -------- -------- -------- ------- ------------
(Loss) earnings before income
taxes ...................... $ (19,576) $ 15,143 $ 10,622 $ (4,071) $ (8,805) $ 707 $ (5,980)
=========== ========= ======== ======== ======== ======= ============
FOR THE THREE MONTHS ENDED MARCH
31, 2002
Net sales .................... $ 731,128 $ 618,563 $155,703 $ 23,880 $ -- $ 2,959 $ 1,532,233
Cost of sales ................ 686,063 544,496 130,568 21,517 -- 1,614 1,384,258
Selling, general and
administration ............. 44,541 62,317 12,977 1,661 3,547 2,478 127,521
Restructuring and impairment
charges .................... -- 3,435 -- -- -- -- 3,435
Interest expense, net ........ 4,358 8,029 973 1,385 2,087 715 17,547
Gain on sale of intangible ... -- (4,184) -- -- -- -- (4,184)
Equity in loss (earnings) of
affiliated companies ....... 530 (458) 96 (161) 9,806 48 9,861
Minority interest in (loss)
earnings of subsidiaries ... (537) 1,399 -- -- -- 72 934
----------- --------- -------- -------- -------- ------- ------------
(Loss) earnings before income
taxes ...................... $ (3,827) $ 3,529 $ 11,089 $ (522) $(15,440) $(1,968) $ (7,139)
=========== ========= ======== ======== ======== ======= ============
9
13. SUBSEQUENT EVENT
On April 1, 2003, a dairy foods customer, Fleming Companies, Inc. and its
operating subsidiaries, filed voluntary petitions for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. We believe that we have adequate
reserves for doubtful accounts to cover losses, if any, arising from Fleming's
inability to pay amounts due to us.
14. CONSOLIDATING FINANCIAL INFORMATION
The Company has entered into financing arrangements which are guaranteed
by the Company and certain of its wholly-owned and majority-owned subsidiaries
(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.
10
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
MARCH 31, 2003
LAND WHOLLY- MAJORITY-
O'LAKES, INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term
investments ................ $ 24,538 $ 3,863 $ (371) $ 6,182 $ -- $ 34,212
Receivables, net .............. 465,364 72,827 138,496 48,007 (220,355) 504,340
Inventories ................... 311,679 55,797 119,179 9,297 -- 495,953
Prepaid expenses .............. 85,141 1,239 10,560 275 -- 97,215
Other current assets .......... 9,819 835 -- 3,034 -- 13,689
------------- ------------- ------------- ------------- ------------- -------------
Total current assets ..... 896,542 134,562 267,864 66,796 (220,355) 1,145,409
Investments ..................... 1,115,381 223 18,790 1,951 (586,963) 549,381
Property, plant and equipment,
net ........................... 269,002 15,018 242,693 49,992 -- 576,705
Property under capital lease .... -- -- -- 103,511 -- 103,511
Goodwill, net ................... 190,711 4,824 122,154 216 -- 317,905
Other intangibles ............... 4,512 677 96,946 337 -- 102,472
Other assets .................... 154,038 3,714 27,018 45,125 (18,915) 210,980
------------- ------------- ------------- ------------- ------------- -------------
Total assets ............. $ 2,630,186 $ 159,017 $ 775,465 $ 267,928 $ (826,233) $ 3,006,363
============= ============= ============= ============= ============= =============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations ................ $ 2,640 $ 2,845 $ (508) $ 79,589 $ (38,741) $ 45,825
Current portion of long-term
debt ....................... 81,918 68,429 -- 47 (68,429) 81,965
Current portion of obligation
under capital lease ........ -- -- -- 8,867 -- 8,867
Accounts payable .............. 464,782 58,000 97,509 11,923 (122,434) 509,781
Accrued expenses .............. 157,723 1,632 39,097 3,640 -- 202,092
Patronage refunds and other
member equities payable ..... 7,128 -- -- -- -- 7,128
------------- ------------- ------------- ------------- ------------- -------------
Total current liabilities 714,190 130,907 136,098 104,067 (229,604) 855,658
Long-term debt .................. 972,366 10,178 -- 15,993 (9,666) 988,872
Obligation under capital lease .. -- -- -- 97,005 -- 97,005
Employee benefits and other
liabilities ................... 77,172 1,168 26,382 1,810 -- 106,532
Minority interests .............. 50,711 -- 2,564 4,387 -- 57,662
Equities:
Capital stock ................. 2,169 1,084 508,035 68,045 (577,164) 2,169
Member equities ............... 863,546 -- -- -- -- 863,546
Retained earnings ............. (49,969) 15,680 102,386 (23,379) (9,799) 34,919
------------- ------------- ------------- ------------- ------------- -------------
Total equities ........... 815,746 16,764 610,421 44,665 (586,963) 900,634
------------- ------------- ------------- ------------- ------------- -------------
Commitments and contingencies
Total liabilities and
equities ...................... $ 2,630,186 $ 159,017 $ 775,465 $ 267,928 $ (826,233) $ 3,006,363
============= ============= ============= ============= ============= =============
11
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
LAND WHOLLY- MAJORITY-
O'LAKES, OWNED OWNED
INC. PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------ ------------- ------------
(UNAUDITED)
Net sales ......................... $ 777,440 $ 54,938 $ 589,485 $ 32,629 $ 1,454,452
Cost of sales ..................... 715,571 50,842 518,674 33,816 1,328,903
----------- ------------ ------------ ------------- ------------
Gross profit ...................... 51,829 4,096 70,811 (1,187) 125,549
Selling, general and administration 54,447 3,161 57,745 4,616 119,969
Restructuring and impairment
charges ......................... 1,000 -- 92 -- 1,092
----------- ------------ ------------ ------------- ------------
(Loss) earnings from operations ... (3,618) 935 12,974 (5,803) 4,488
Interest expense (income), net .... 18,171 667 (1,127) (326) 17,385
Gain on legal settlements ......... (8,021) -- (868) -- (8,889)
Gain on sale of investment ........ -- -- (500) -- (500)
Equity in loss (earnings) of
affiliated companies .............. 1,530 -- (547) -- 983
Minority interest in earnings
(loss) of subsidiaries .......... 1,309 -- (4) 184 1,489
----------- ------------ ------------ ------------- ------------
(Loss) earnings before income taxes (16,607) 268 16,020 (5,661) (5,980)
Income tax (benefit) expense ...... (3,758) 282 162 (2,295) (5,609)
----------- ------------ ------------ ------------- ------------
Net (loss) earnings ............... $ (12,849) $ (14) $ 15,858 $ (3,366) $ (371)
=========== ============ ============ ============= ============
12
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
LAND WHOLLY- MAJORITY-
O'LAKES, OWNED OWNED
INC. PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) earnings .................... $ (12,849) $ (14) $ 15,858 $ (3,366) $ -- $ (371)
Adjustments to reconcile net (loss)
earnings to net cash provided (used) by
operating activities:
Depreciation and amortization ......... 15,670 574 9,870 528 -- 26,642
Amortization of deferred financing
charges .............................. 913 -- -- -- -- 913
Bad debt expense ...................... 191 -- 500 -- -- 691
Proceeds from patronage revolvement
received ............................. 10 -- -- -- -- 10
Non-cash patronage income ............. (209) -- -- -- -- (209)
Receivable from legal settlement ...... 90,707 -- 6,000 -- -- 96,707
(Increase) decrease in other assets ... (8,037) 7,356 (564) (2,024) 4,978 1,709
Increase (decrease) in other
liabilities .......................... 3,516 (165) (1,072) (183) -- 2,096
Restructuring and impairment charges .. 1,000 -- 92 -- -- 1,092
Equity in loss (earnings) of affiliated
companies ............................ 1,530 -- (547) -- -- 983
Minority interest ..................... 1,309 -- (4) 184 -- 1,489
Other ................................. (741) -- (425) (63) -- (1,229)
Changes in current assets and
liabilities, net of acquisitions and
divestitures:
Receivables ........................... (38,951) 2,791 64,730 (2,685) 36,668 62,553
Inventories ........................... (57,164) 18,600 (8,896) (317) -- (47,777)
Other current assets .................. 91,165 3,102 (1,942) (21) -- 92,304
Accounts payable ...................... (13,459) (34,279) (22,585) (5,954) (115,924) (192,201)
Accrued expenses ...................... (1,199) (12) (9,663) (888) 5,225 (6,537)
----------- ------------ ------------ ------------- ------------ ------------
Net cash provided (used) by operating
activities ............................ 73,402 (2,047) 51,352 (14,789) (69,053) 38,865
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant and
equipment ............................. (12,509) (122) (3,370) (119) -- (16,120)
Payments for investments ............... (13,797) -- -- (348) 5,345 (8,800)
Proceeds from sale of investments ...... -- -- 3,000 -- -- 3,000
Proceeds from sale of property, plant
and equipment ......................... 1,562 -- -- -- -- 1,562
Dividends from investments in affiliated
companies ............................. 1,737 -- -- -- -- 1,737
Other .................................. 41 -- 2,540 -- -- 2,581
----------- ------------ ------------ ------------- ------------ ------------
Net cash (used) provided by investing
activities ............................. (22,966) (122) 2,170 (467) 5,345 (16,040)
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Decrease) increase in short-term debt . (7,460) 3,494 (604) 13,452 15,886 24,768
Proceeds from issuance of long-term debt 424 -- -- 1 -- 425
Payments on principal of long-term debt (61,916) (18) (52,593) (632) 53,225 (61,934)
Payments on principal of capital lease
obligation ............................ -- -- -- (2,217) -- (2,217)
Payments for redemption of member
equities .............................. (15,331) -- -- -- -- (15,331)
Other .................................. 51 (28) 765 5,964 (5,403) 1,349
----------- ------------ ------------ ------------- ------------ ------------
Net cash (used) provided by financing
activities ............................ (84,232) 3,448 (52,432) 16,568 63,708 (52,940)
----------- ------------ ------------ ------------- ------------ ------------
Net (decrease) increase in cash ........ (33,796) 1,279 1,090 1,312 -- (30,115)
Cash and short-term investments at
beginning of period .................... 58,334 2,584 (1,461) 4,870 -- 64,327
----------- ------------ ------------ ------------- ------------ ------------
Cash and short-term investments at end of
period ................................. $ 24,538 $ 3,863 $ (371) $ 6,182 $ -- $ 34,212
=========== ============ ============ ============= ============ ============
13
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
LAND WHOLLY- MAJORITY-
O'LAKES, INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and short-term
investments ................. $ 58,334 $ 2,584 $ (1,461) $ 4,870 $ -- $ 64,327
Receivables, net ............... 472,165 30,057 150,447 45,377 (130,462) 567,584
Receivable from legal settlement 90,707 -- 6,000 -- -- 96,707
Inventories .................... 254,517 74,397 108,493 8,979 -- 446,386
Prepaid expenses ............... 176,541 4,840 7,625 240 -- 189,246
Other current assets ........... 12,868 337 -- 673 -- 13,878
------------- ------------ ------------ ------------- ------------ ------------
Total current assets ...... 1,065,132 112,215 271,104 60,139 (130,462) 1,378,128
Investments ...................... 1,102,835 1,102 20,777 2,496 (581,618) 545,592
Property, plant and equipment,
net ............................ 260,078 23,131 246,402 50,249 -- 579,860
Property under capital lease ..... -- -- -- 105,736 -- 105,736
Goodwill, net .................... 187,755 13,172 121,673 813 -- 323,413
Other intangibles ................ 4,243 723 96,455 349 -- 101,770
Other assets ..................... 150,909 2,738 27,064 45,049 (13,937) 211,823
------------- ------------ ------------ ------------- ------------ ------------
Total assets .............. $ 2,770,952 $ 153,081 $ 783,475 $ 264,831 $ (726,017) $ 3,246,322
============= ============ ============ ============= ============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations ................. $ 27,040 $ 2,818 $ 59 $ 66,174 $ (58,262) $ 37,829
Current portion of long-term
debt ........................ 104,347 64,963 -- 47 (64,794) 104,563
Obligation under capital lease . -- -- -- 108,279 -- 108,279
Accounts payable ............... 503,851 68,329 117,563 18,553 (6,510) 701,786
Accrued expenses ............... 158,323 1,644 45,361 4,526 (5,225) 204,629
Patronage refunds and other
member equities payable ...... 12,388 -- -- -- -- 12,388
------------- ------------ ------------ ------------- ------------ ------------
Total current liabilities . 805,949 137,754 162,983 197,579 (134,791) 1,169,474
Long-term debt ................... 988,696 10,197 -- 18,023 (9,608) 1,007,308
Employee benefits and other
liabilities .................... 75,588 1,333 26,071 1,348 -- 104,340
Minority interests ............... 49,402 -- -- 4,285 -- 53,687
Equities:
Capital stock .................. 2,190 1,084 507,956 61,123 (570,163) 2,190
Member equities ................ 873,659 -- -- -- -- 873,659
Retained earnings .............. (24,532) 2,713 86,465 (17,527) (11,455) 35,664
------------- ------------ ------------ ------------- ------------ ------------
Total equities ............ 851,317 3,797 594,421 43,596 (581,618) 911,513
------------- ------------ ------------ ------------- ------------ ------------
Commitments and contingencies
Total liabilities and
equities ....................... $ 2,770,952 $ 153,081 $ 783,475 $ 264,831 $ (726,017) $ 3,246,322
============= ============ ============ ============= ============ ============
14
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
LAND WHOLLY- MAJORITY-
O'LAKES, OWNED OWNED
INC. PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------ ------------- ------------
(UNAUDITED)
Net sales ......................... $ 856,762 $ 49,966 $ 597,990 $ 27,515 $ 1,532,233
Cost of sales ..................... 789,040 43,843 526,175 25,200 1,384,258
----------- ------------ ------------ ------------- ------------
Gross profit ...................... 67,722 6,123 71,815 2,315 147,975
Selling, general and administration 58,332 6,122 58,832 4,235 127,521
Restructuring and impairment
charges ......................... -- -- 3,435 -- 3,435
----------- ------------ ------------ ------------- ------------
Earnings (loss) from operations ... 9,390 1 9,548 (1,920) 17,019
Interest expense (income), net .... 17,411 993 (793) (64) 17,547
Gain on sale of intangible ........ -- -- (4,184) -- (4,184)
Equity in loss (earnings) of
affiliated companies .............. 10,064 -- (203) -- 9,861
Minority interest in earnings
(loss) of subsidiaries .......... 1,170 -- 186 (422) 934
----------- ------------ ------------ ------------- ------------
(Loss) earnings before income taxes (19,255) (992) 14,542 (1,434) (7,139)
Income tax (benefit) expense ...... (6,453) 232 (402) 460 (6,163)
----------- ------------ ------------ ------------- ------------
Net (loss) earnings ............... $ (12,802) $ (1,224) $ 14,944 $ (1,894) $ (976)
=========== ============ ============ ============= ============
15
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
LAND WHOLLY- MAJORITY-
O'LAKES, OWNED OWNED
INC. PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) earnings ..................... $ (12,802) $ (1,224) $ 14,944 $ (1,894) $ -- $ (976)
Adjustments to reconcile net (loss)
earnings to net cash (used) provided
by operating activities:
Depreciation and amortization ......... 13,364 1,060 11,784 605 -- 26,813
Amortization of deferred financing
charge ............................... 691 -- -- -- -- 691
Bad debt expense ...................... 208 -- -- 45 -- 253
Proceeds from patronage revolvement
received ............................ 127 -- -- -- -- 127
Non-cash patronage income ............. (923) -- -- -- -- (923)
Decrease (increase) in other assets ... 3,869 420 (6,124) 984 27 (824)
Increase (decrease) in other
liabilities .......................... 732 (882) (1,063) 5 -- (1,208)
Restructuring and impairment charges .. -- -- 3,435 -- -- 3,435
Equity in loss (earnings) of
affiliated companies ................ 10,064 -- (203) -- -- 9,861
Minority interest ..................... 1,170 -- 186 (422) -- 934
Other ................................. (6,989) -- 1,992 54 -- (4,943)
Changes in current assets and
liabilities, net of acquisitions and
divestitures:
Receivables ........................... 11,446 (8,163) 39,324 (4,221) (16,131) 22,255
Inventories ........................... (44,447) (1,228) 860 1,935 -- (42,880)
Other current assets .................. 72,167 6,038 (316) 98 -- 77,987
Accounts payable ...................... (154,787) (8,174) (9,755) 330 (3) (172,389)
Accrued expenses ...................... (16,994) (774) (4,726) 297 -- (22,197)
----------- ------------ ------------ ------------- ------------ ------------
Net cash (used) provided by
operating activities .................. (123,104) (12,927) 50,338 (2,184) (16,107) (103,984)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant and
equipment .............................. (13,298) (312) (2,928) (1,136) -- (17,674)
Payments for investments ................ (3,475) -- -- (144) 24 (3,595)
Proceeds from sale of investments ....... 20,327 -- 682 -- -- 21,009
Proceeds from sale of property, plant
and equipment ......................... 6,527 -- 95 -- -- 6,622
Dividends from investments in affiliated
companies ............................. 3,084 -- -- -- -- 3,084
Other ................................... 37 -- -- -- -- 37
----------- ------------ ------------ ------------- ------------ ------------
Net cash provided (used) by investing
activities ............................ 13,202 (312) (2,151) (1,280) 24 9,483
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase (decrease) in short-term debt .. 37,518 12,919 (32,556) 3,928 16,068 37,877
Proceeds from issuance of long-term debt 1,121 -- 508 20 39 1,688
Payments on principal of long-term debt . (40,111) (122) (189) (1,312) -- (41,734)
Payments for redemption of member
equities .............................. (20,060) -- -- -- -- (20,060)
Other ................................... 19,469 1,624 (21,091) 384 (24) 362
----------- ------------ ------------ ------------- ------------ ------------
Net cash (used) provided by financing
activities ............................ (2,063) 14,421 (53,328) 3,020 16,083 (21,867)
----------- ------------ ------------ ------------- ------------ ------------
Net (decrease) increase in cash ......... (111,965) 1,182 (5,141) (444) -- (116,368)
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 .................................. $ (911) $ 10,272 $ (6,168) $ 10,608 $ -- $ 13,801
=========== ============ ============ ============= ============ ============
16
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
---- ----
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ......... $ -- $ 356
Receivables, net ........................ 61,929 127,382
Receivable from legal settlement ........ -- 6,000
Inventories ............................. 123,557 113,078
Prepaid expenses and other current assets 10,806 7,835
Note receivable - Land O'Lakes, Inc. .... 82,718 29,493
------------ ------------
Total current assets ............ 279,010 284,144
Investments ............................... 20,093 22,973
Property, plant and equipment, net ........ 248,097 251,739
Goodwill, net ............................. 122,370 122,486
Other intangibles ......................... 97,283 96,804
Other assets .............................. 28,845 28,762
------------ ------------
Total assets .................... $ 795,698 $ 806,908
============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ........ $ 1,989 $ 2,400
Accounts payable ........................ 100,281 121,219
Accrued expenses ........................ 40,664 48,134
------------ ------------
Total current liabilities ....... 142,934 171,753
Employee benefits and other liabilities ... 28,192 29,447
Minority interests ........................ 5,626 2,960
Equities:
Contributed capital ..................... 515,376 515,376
Retained earnings ....................... 103,570 87,372
------------ ------------
Total equities .................. 618,946 602,748
------------ ------------
Commitments and contingencies
Total liabilities and equities ............ $ 795,698 $ 806,908
============ ============
See accompanying notes to consolidated financial statements.
17
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
($ IN THOUSANDS)
(UNAUDITED)
Net sales ................................... $ 601,100 $ 611,460
Cost of sales ............................... 528,846 538,632
------------ ------------
Gross profit ................................ 72,254 72,828
Selling, general and administration ......... 58,644 59,675
Restructuring and impairment charges ........ 92 3,435
------------ ------------
Earnings from operations .................... 13,518 9,718
Interest income, net ........................ (1,107) (726)
Gain on legal settlements ................... (868) --
Gain on sale of intangible .................. -- (4,184)
Gain on sale of investment .................. (500) --
Equity in earnings of affiliated companies .. (547) (203)
Minority interest in earnings of subsidiaries 180 210
------------ ------------
Earnings before income taxes ................ 16,360 14,621
Income tax expense .......................... 162 128
------------ ------------
Net earnings ................................ $ 16,198 $ 14,493
============ ============
See accompanying notes to consolidated financial statements.
18
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ....................................................... $ 16,198 $ 14,493
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ................................... 10,011 11,932
Bad debt expense ................................................ 500 75
Receivable from legal settlement ................................ 6,000 --
Increase in other assets ........................................ (83) (4,217)
Decrease in other liabilities ................................... (1,255) (1,308)
Restructuring and impairment charges ............................ 92 3,435
Equity in earnings of affiliated companies ...................... (547) (203)
Minority interest ............................................... 180 210
Gain on sale of investments ..................................... (500) --
Changes in current assets and liabilities, net of acquisitions and
divestitures:
Receivables ..................................................... 64,953 32,131
Inventories ..................................................... (8,689) 2,577
Other current assets ............................................ (1,962) (409)
Accounts payable ................................................ (22,863) (8,001)
Accrued expenses ................................................ (10,869) (9,515)
------------ ------------
Net cash provided by operating activities .......................... 51,166 41,200
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ......................... (3,426) (2,493)
Proceeds from sale of investments .................................. 3,000 641
Proceeds from sale of property, plant and equipment ................ -- 4,535
Other .............................................................. 2,540 --
------------ ------------
Net cash provided by investing activities ........................ 2,114 2,683
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt ........................................ (411) (1,000)
Proceeds from note receivable from Land O'Lakes, Inc. .............. 118,075 98,348
Payments on note payable to Land O'Lakes, Inc. ..................... (171,300) (144,250)
------------ ------------
Net cash used by financing activities .............................. (53,636) (46,902)
------------ ------------
Net decrease in cash and short-term investments .................... (356) (3,019)
Cash and short-term investments at beginning of period ............... 356 3,019
------------ ------------
Cash and short-term investments at end of period ..................... $ -- $ --
============ ============
See accompanying notes to consolidated financial statements.
19
LAND O'LAKES FARMLAND FEED LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements reflect, in the opinion of
the management of Land O'Lakes Farmland Feed LLC (the "Company"), all normal
recurring adjustments necessary for a fair statement of the financial position
and results of operations and cash flows for the interim periods. The statements
are condensed, therefore do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. For further information, refer to the
audited consolidated financial statements and footnotes for the year ended
December 31, 2002 included in our Annual Report on Form 10-K. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The standard requires that a liability for a cost associated with
an exit or disposal activity be recognized and measured initially at fair value
when the liability is incurred. Under prior accounting literature, certain costs
for exit activities were recognized at the date a company committed to an exit
plan. The provisions of the standard are effective for exit or disposal
activities initiated after December 31, 2002.
2. RECEIVABLES
A summary of receivables is as follows:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Trade accounts .......................... $ 23,804 $ 22,458
Notes and contracts ..................... 13,251 23,494
Notes from sale of trade receivables (see
Note 3)................................ 22,719 83,158
Other ................................... 13,303 8,871
------------ ------------
73,077 137,981
Less allowance for doubtful accounts .... 11,148 10,599
------------ ------------
Total receivables, net .................. $ 61,929 $ 127,382
============ ============
3. RECEIVABLES PURCHASE FACILITY
In December 2001, the Company along with Land O'Lakes, Inc. established a
$100.0 million receivables purchase facility with CoBank, ACB ("CoBank"). A
wholly-owned unconsolidated qualifying special purpose entity, Land O'Lakes
Farmland Feed SPV, LLC, ("QSPE"), was established to purchase certain
receivables from the Company along with Land O'Lakes, Inc. CoBank has been
granted an interest in the receivables owned by the QSPE. The transfers of the
receivables from the Company to the QSPE are structured as sales and,
accordingly, the receivables transferred to the QSPE are not reflected in the
Company's consolidated balance sheet. However, the Company retains the credit
risk related to the repayment of the notes receivable with the QSPE, which in
turn is dependent upon the credit risk of the QSPE's receivables. Accordingly,
the Company has retained reserves for estimated losses. The Company expects no
significant gains or losses from the sale of the receivables. At March 31, 2003,
$100.0 million was outstanding under this facility and no amounts remained
available. The total accounts receivable sold during the three months ended
March 31, 2003 and 2002 were $552.1 million and $579.7 million, respectively.
20
4. INVENTORIES
A summary of inventories is as follows:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Raw materials ..................... $ 88,173 $ 83,187
Finished goods .................... 35,384 29,891
------------ ------------
Total inventories ................. $ 123,557 $ 113,078
============ ============
5. INVESTMENTS
The Company's investments are as follows:
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
New Feeds, LLC .................... $ 3,113 $ 3,033
Agland Farmland Feed, LLC ......... 2,462 2,585
Pro-Pet, LLC ...................... 2,448 2,326
Northern Country Feeds, LLC ....... 1,717 1,704
LOLFF SPV, LLC .................... 1,000 1,000
CalvaAlto Liquid, LLC ............. 1,302 1,302
Strauss Feeds, LLC ................ 1,142 1,041
Nutrikowi, LLC .................... 876 876
Dakotaland Feeds, LLC ............. 827 744
Harmony Farms, LLC ................ -- 2,435
Other ............................. 5,206 5,927
------------ ------------
Total investments ................. $ 20,093 $ 22,973
============ ============
6. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The change in the carrying amount of goodwill for the three months ended March
31, 2003, is as follows.
Balance as of January 1, 2003 .. $ 122,486
Amortization expense ......... (116)
---------
Balance as of March 31, 2003 ... $ 122,370
=========
OTHER INTANGIBLE ASSETS
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Amortized other intangible assets
Trademarks, less accumulated amortization of $284 and $262, respectively ... $ 598 $ 621
Patents, less accumulated amortization of $1,684 and $1,395, respectively .. 14,689 14,978
Agreements not to compete, less accumulated amortization of $676 and $626,
respectively ............................................................ 725 775
Other intangible assets, less accumulated amortization of $5,622 and $6,463,
respectively ............................................................ 4,308 3,467
------------ ------------
Total amortized other intangible assets ...................................... 20,320 19,841
Total non-amortized other intangible assets-trademarks ....................... 76,963 76,963
------------ ------------
Total other intangible assets ................................................ $ 97,283 $ 96,804
============ ============
Amortization expense for the three months ended March 31, 2003 and 2002
was $0.6 million and $0.6 million, respectively. The estimated amortization
expense related to other intangible assets subject to amortization for the next
five years will approximate $2.2 million annually. The weighted-average life of
the intangible assets subject to amortization is approximately 13 years.
21
7. RESTRUCTURING AND IMPAIRMENT CHARGES
RESTRUCTURING CHARGES
The Company recorded restructuring charges of $2.6 million representing
severance and outplacement costs for 136 employees at the Ft. Dodge office and
other plant facilities for the three months ended March 31, 2002.
A summary of the restructuring reserve for the three months ended March
31, 2003 is as follows:
BALANCE BALANCE
DECEMBER 31, CHARGE TO UTILIZED MARCH 31,
2002 EXPENSE IN 2003 2003
---- ------- -------- ----
Termination benefits.......... $ 6,396 $ -- $ (4,094) $ 2,302
=========== =========== ========= ===========
IMPAIRMENT CHARGES
For the three months ended March 31, 2003 and 2002, the Company recorded
impairment charges of $0.1 million and $0.8 million, respectively, for write
downs of certain plant assets to their estimated fair value.
8. GAIN ON LEGAL SETTLEMENTS
During the three months ended March 31, 2003, the Company recognized gain
on legal settlements of $0.9 million. The gain represents cash received from
product suppliers against whom the Company alleged certain price-fixing claims.
9. GAIN ON SALE OF INTANGIBLE
In the three months ended March 31, 2002, the Company recorded a $4.2
million gain on the sale of a customer list pertaining to the feed phosphate
distribution business.
10. COMMITMENTS AND CONTINGENCIES
GUARANTEES OF PARENT DEBT
In November 2001, Land O'Lakes, which owns 92% of the Company, issued $350
million of senior notes, due 2011. These notes are guaranteed by certain
domestic, wholly-owned subsidiaries of Land O'Lakes, including the Company, and
by each domestic wholly-owned subsidiary of the Company.
This guarantee is a general unsecured obligation, ranks equally in right
of payment with all existing and future senior indebtedness of Land O'Lakes, is
senior in right of payment to all existing and future subordinated obligations
of Land O'Lakes, and is effectively subordinated to any secured indebtedness of
Land O'Lakes and its subsidiaries, including the Company, to the extent of the
value of the assets securing such indebtedness. The maximum potential amount of
future payments that the Company would be required to make is $350 million as of
March 31, 2003. Currently, the Company does not record a liability regarding the
guarantee. The Company has no recourse provision that would enable it to recover
amounts paid under the guarantee from Land O'Lakes or any other parties.
The notes are not guaranteed by certain majority-owned subsidiaries of the
Company (the "Non-Guarantors"). Summarized financial information of the
Non-Guarantors, which is consolidated in the financial statements of the
Company, as of and for the periods indicated, are as follows:
THREE
MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Total assets..... $ 23,097 $ 23,433
Net sales........ 11,615 53,669
Net earnings..... 179 626
22
In November 2001, Land O'Lakes entered into new term facilities consisting
of a $325 million five-year Term Loan A facility and a $250 million seven-year
Term Loan B facility. These facilities are unconditionally guaranteed by certain
domestic, wholly-owned subsidiaries of Land O'Lakes, including the Company, and
by each domestic wholly-owned subsidiary of the Company. The maximum potential
payment related to this guarantee is $459 million as of March 31, 2003. The
Company does not currently record a liability related to the guarantee of the
Term Loans, and the Company has no recourse provisions that would enable it to
recover from Land O'Lakes or any other parties.
GUARANTEES OF PRODUCER LOANS
The Company guarantees certain loans to large producers financed by LOL
Finance Co. The loans totaled $13.8 million and $15.2 million at March 31, 2003
and December 31, 2002, respectively. Reserves for these guarantees of $0.7
million at both March 31, 2003 and December 31, 2002, are included in the
allowance for doubtful accounts. The maximum amount guaranteed by the Company is
$7.0 million with the remaining balance guaranteed by Land O'Lakes. There were
no write-offs related to producer loans for the three months ended March 31,
2003. The Company does not currently record a liability related to the guarantee
of the producer loans. The Company would have recourse against the producer to
partially off-set the liability.
The Company also guarantees certain loans to producers and dealers
financed by third party lenders. The loans totaled $2.4 million and $2.4 million
at March 31, 2003 and December 31, 2002, respectively. Reserves for these
guarantees of $0.5 million and $0.5 million at March 31, 2003 and December 31,
2002, respectively, are included in the consolidated balance sheet. There were
no write-offs related to these loans in the three months ended March 31, 2003.
The maximum potential payment related to these guarantees is $1.0 million. The
Company does not currently record a liability related to the guarantees of these
producer and dealer loans financed by third party lenders. The Company has no
recourse against the producer or dealer to partially off-set the potential
liability.
11. CONSOLIDATING FINANCIAL INFORMATION
Land O'Lakes has issued $350 million in senior notes which are guaranteed
by certain domestic wholly-owned and majority-owned subsidiaries of
Land O'Lakes, including the Company and the Company's domestic wholly-owned
subsidiaries (the "Guarantor Subsidiaries"). Such guarantees are full,
unconditional and joint and several. The Company's majority-owned subsidiaries
are excluded from the guarantee ("Non-Guarantor Subsidiaries").
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's
Non-Guarantor Subsidiaries. The supplemental financial information reflects the
investments of the Company in the Guarantor and Non-Guarantor Subsidiaries using
the equity method of accounting.
During the first quarter of 2003, Nestle Purina PetCare Company consented
to the transfer of the trademark license from Purina Mills, LLC, a wholly-owned
limited liability company, to the Company. The Purina Mills, LLC financial
information has been combined with Land O'Lakes Farmland Feed LLC in the
following supplemental financial information.
23
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
MARCH 31, 2003
LAND
O'LAKES
FARMLAND WHOLLY-OWNED NON-
FEED LLC CONSOLIDATED GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments $ (6,318) $ 5,944 $ 374 $ -- $ --
Receivables, net ............... 61,942 37,878 9,012 (46,903) 61,929
Inventories .................... 101,610 17,569 4,378 -- 123,557
Prepaid expenses and other
current assets ............... 10,240 319 247 -- 10,806
Note receivable - Land
O'Lakes, Inc ................. 82,718 -- -- -- 82,718
------------ ------------ ------------ ------------ ------------
Total current assets ... 250,192 61,710 14,011 (46,903) 279,010
Investments ...................... 52,545 2,361 1,303 (36,116) 20,093
Property, plant and equipment,
net ........................... 234,254 8,439 5,404 -- 248,097
Goodwill, net .................... 118,498 3,656 216 -- 122,370
Other intangibles ................ 95,945 1,001 337 -- 97,283
Other assets ..................... 28,220 1,499 1,826 (2,700) 28,845
------------ ------------ ------------ ------------ ------------
Total assets ........... $ 779,654 $ 78,666 $ 23,097 $ (85,719) $ 795,698
============ ============ ============ ============ ============
LIABILITIES
Current liabilities:
Notes and short-term obligations $ 92 $ -- $ 1,897 $ -- $ 1,989
Accounts payable ............... 105,349 36,524 5,311 (46,903) 100,281
Accrued expenses ............... 37,621 1,556 1,487 -- 40,664
------------ ------------ ------------ ------------ ------------
Total current liabilities 143,062 38,080 8,695 (46,903) 142,934
Employee benefits and other
liabilities .................... 27,168 1,016 2,708 (2,700) 28,192
Minority interests ............... 2,539 -- 3,087 -- 5,626
Equities:
Contributed capital ............ 515,376 28,695 7,421 (36,116) 515,376
Retained earnings .............. 91,509 10,875 1,186 -- 103,570
------------ ------------ ------------ ------------ ------------
Total equities ......... 606,885 39,570 8,607 (36,116) 618,946
------------ ------------ ------------ ------------ ------------
Commitments and contingencies
Total liabilities and equities ... $ 779,654 $ 78,666 $ 23,097 $ (85,719) $ 795,698
============ ============ ============ ============ ============
24
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
LAND
O'LAKES
FARMLAND WHOLLY-OWNED NON-
FEED LLC CONSOLIDATED GUARANTOR
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------
(UNAUDITED)
Net sales ....................... $ 543,183 $ 46,302 $ 11,615 $ 601,100
Cost of sales ................... 477,224 41,450 10,172 528,846
------------ ------------ ------------ ------------
Gross profit .................... 65,959 4,852 1,443 72,254
Selling, general and
administration ................ 55,065 1,680 899 58,644
Restructuring and impairment
charges ....................... 92 -- -- 92
------------ ------------ ------------ ------------
Earnings from operations ........ 9,802 3,172 544 13,518
Interest (income) expense, net .. (1,263) 136 20 (1,107)
Gain on legal settlements ....... (868) -- -- (868)
Gain on sale of investment ...... (500) -- -- (500)
Equity in (earnings) loss
of affiliated companies ....... (617) 70 -- (547)
Minority interest in (loss)
earnings of subsidiaries ...... (3) -- 183 180
------------ ------------ ------------ ------------
Earnings before income taxes .... 13,053 2,966 341 16,360
Income tax expense .............. -- -- 162 162
------------ ------------ ------------ ------------
Net earnings .................... $ 13,053 $ 2,966 $ 179 $ 16,198
============ ============ ============ ============
25
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
LAND
O'LAKES
FARMLAND WHOLLY-OWNED NON-
FEED LLC CONSOLIDATED GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................... $ 13,053 $ 2,966 $ 179 $ -- $ 16,198
Adjustments to reconcile net earnings
to net cash provided (used) by operating
activities:
Depreciation and amortization ................ 9,557 292 162 -- 10,011
Bad debt expense ............................. 500 -- -- -- 500
Receivable from legal settlement ............. 6,000 -- -- -- 6,000
Decrease (increase) in other assets .......... 73,126 139 481 (73,829) (83)
(Decrease) increase in other liabilities ..... (128,722) (461) (209) 128,137 (1,255)
Restructuring and impairment charges ......... 92 -- -- -- 92
Equity in (earnings) losses of affiliated
companies .................................. (617) 70 -- -- (547)
Minority interest ............................ (3) -- 183 -- 180
Gain on sale of investment ................... (500) -- -- -- (500)
Changes in current assets and liabilities,
net of acquisitions and divestitures:
Receivables .................................. 18,753 (736) (2,655) 49,591 64,953
Inventories .................................. (8,827) (68) 206 -- (8,689)
Other current assets ......................... (1,945) 3 (20) -- (1,962)
Accounts payable ............................. 81,506 (3,535) 724 (101,558) (22,863)
Accrued expenses ............................. (7,571) (2,012) (1,286) -- (10,869)
------------ ------------ ------------ ------------ ------------
Net cash provided (used) by operating
activities ................................... 54,402 (3,342) (2,235) 2,341 51,166
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ..... (3,092) (105) (229) -- (3,426)
Proceeds from sale of investments .............. 3,000 -- -- -- 3,000
Other .......................................... 2,540 -- -- -- 2,540
------------ ------------ ------------ ------------ ------------
Net cash provided (used) by investing
activities ................................... 2,448 (105) (229) -- 2,114
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term debt ......... (2,252) 2,015 2,167 (2,341) (411)
Proceeds from note receivable from Land
O'Lakes, Inc. ................................ 118,075 -- -- -- 118,075
Payments on note payable to Land O'Lakes,
Inc. ......................................... (170,812) -- (488) -- (171,300)
Other .......................................... 630 28 (658) -- --
------------ ------------ ------------ ------------ ------------
Net cash (used) provided by financing
activities ................................... (54,359) 2,043 1,021 (2,341) (53,636)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash ................ 2,491 (1,404) (1,443) -- (356)
Cash and short-term investments at beginning of
period ...................................... (8,809) 7,348 1,817 -- 356
------------ ------------ ------------ ------------ ------------
Cash and short-term investments at end of
period ...................................... $ (6,318) $ 5,944 $ 374 $ -- $ --
============ ============ ============ ============ ============
26
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
LAND
O'LAKES
FARMLAND WHOLLY-OWNED NON-
FEED LLC CONSOLIDATED GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and short-term investments ................ $ (8,809) $ 7,348 $ 1,817 $ -- $ 356
Receivables, net ............................... 195,925 21,523 6,428 (96,494) 127,382
Receivable from legal settlement ............... 6,000 -- -- -- 6,000
Inventories .................................... 90,802 17,691 4,585 -- 113,078
Prepaid expenses and other
current assets ............................... 7,303 322 210 -- 7,835
Note receivable - Land
O'Lakes, Inc. ................................ 87,252 -- -- (57,759) 29,493
------------ ------------ ------------ ------------ ------------
Total current assets ................... 378,473 46,884 13,040 (154,253) 284,144
Investments ...................................... 47,602 5,749 2,196 (32,574) 22,973
Property, plant and equipment,
net ........................................... 237,758 8,644 5,337 -- 251,739
Goodwill, net .................................... 118,017 3,656 813 -- 122,486
Other intangibles ................................ 94,068 2,639 97 -- 96,804
Other assets ..................................... 29,512 -- 1,950 (2,700) 28,762
------------ ------------ ------------ ------------ ------------
Total assets ........................... $ 905,430 $ 67,572 $ 23,433 $ (189,527) $ 806,908
============ ============ ============ ============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ............... $ 2,400 $ -- $ 2,341 $ (2,341) $ 2,400
Accounts payable ............................... 237,919 28,105 3,656 (148,461) 121,219
Accrued expenses ............................... 41,710 3,651 2,773 -- 48,134
------------ ------------ ------------ ------------ ------------
Total current liabilities .............. 282,029 31,756 8,770 (150,802) 171,753
Employee benefits and other
liabilities .................................... 29,493 2,700 3,405 (6,151) 29,447
Minority interests ............................... 29 -- 2,931 -- 2,960
Equities:
Contributed capital ............................ 515,376 25,154 7,420 (32,574) 515,376
Retained earnings .............................. 78,503 7,962 907 -- 87,372
------------ ------------ ------------ ------------ ------------
Total equities ......................... 593,879 33,116 8,327 (32,574) 602,748
------------ ------------ ------------ ------------ ------------
Commitments and contingencies
Total liabilities and equities ................... $ 905,430 $ 67,572 $ 23,433 $ (189,527) $ 806,908
============ ============ ============ ============ ============
27
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
LAND
O'LAKES
FARMLAND WHOLLY-OWNED NON-
FEED LLC CONSOLIDATED GUARANTOR
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------
(UNAUDITED)
Net sales ......................... $ 552,116 $ 45,874 $ 13,470 $ 611,460
Cost of sales ..................... 485,969 40,206 12,457 538,632
------------ ------------ ------------ ------------
Gross profit ...................... 66,147 5,668 1,013 72,828
Selling, general and
administration .................. 54,095 4,335 1,245 59,675
Restructuring and impairment
charges ......................... 3,435 -- -- 3,435
------------ ------------ ------------ ------------
Earnings (loss) from operations ... 8,617 1,333 (232) 9,718
Interest (income) expense, net .... (905) 112 67 (726)
Gain on sale of intangible ........ (4,184) -- -- (4,184)
Equity in (earnings) loss
of affiliated companies ......... (549) 346 -- (203)
Minority interest in earnings
of subsidiaries ................. 186 -- 24 210
------------ ------------ ------------ ------------
Earnings (loss) before income ..... 14,069 875 (323) 14,621
taxes Income tax expense ........ -- -- 128 128
------------ ------------ ------------ ------------
Net earnings (loss) ............... $ 14,069 $ 875 $ (451) $ 14,493
============ ============ ============ ============
28
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
LAND
O'LAKES
FARMLAND WHOLLY-OWNED
FEED LLC CONSOLIDATED NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ................................. $ 14,069 $ 875 $ (451) $ -- $ 14,493
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization ..................... 11,324 405 203 -- 11,932
Bad debt expense .................................. 75 -- -- -- 75
(Increase) decrease in other assets ............... (5,847) 722 (87) 995 (4,217)
Increase (decrease) in other liabilities .......... 1,595 (2,905) 2 -- (1,308)
Restruc