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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 JUNE 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSION PERIOD FROM _____ TO _____.
COMISSION FILE NUMBER 333-84486
LAND O'LAKES FARMLAND FEED LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1981848
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1080 COUNTY ROAD F
ARDEN HILLS, MINNESOTA 55112
(Address of principal executive offices and zip code)
(651) 481-4700
(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
------- ----------
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION........................................................................... 3
ITEM 1. FINANCIAL STATEMENTS............................................................................ 3
Financial Statements (unaudited) for the three months
and six months ended June 30, 2002 and 2001
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001...................................................................................... 3
Consolidated Statements of Operations for the three months and six months
ended June 30, 2002 and 2001........................................................................... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001........................................................................... 5
Notes to Consolidated Financial Statements............................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................... 31
PART II. OTHER INFORMATION............................................................................... 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 33
SIGNATURES............................................................................................... 34
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ....................................................... $ - $ 3,019
Receivables, net ...................................................................... 97,769 119,063
Inventories ........................................................................... 109,892 113,559
Prepaid expenses ...................................................................... 5,478 6,472
Notes receivable - Land O'Lakes, Inc. ................................................. 7,444 -
-------- --------
Total current assets ............................................ 220,583 242,113
Investments .............................................................................. 32,510 31,496
Property, plant and equipment, net ....................................................... 305,960 326,956
Goodwill, net ............................................................................ 107,329 104,749
Other intangibles, net ................................................................... 99,645 100,663
Other assets ............................................................................. 27,836 27,640
-------- --------
Total assets .................................................... $793,863 $833,617
======== ========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ........................................ $ 3,500 $ 5,000
Notes payable - Land O'Lakes, Inc. ...................................... - 29,210
Accounts payable ........................................................ 90,850 117,074
Accrued expenses ........................................................ 31,493 35,132
-------- --------
Total current liabilities ....................................... 125,843 186,416
Notes payable - Land O'Lakes, Inc. ....................................................... 59,664 59,664
Employee benefits and other liabilities .................................................. 34,211 36,656
Minority interests ....................................................................... 3,020 2,919
Equities:
Contributed capital .................................................................... 515,044 515,044
Retained earnings ....................................................................., 56,081 32,918
-------- --------
Total equities .................................................. 571,125 547,962
-------- --------
Commitments and contingencies
Total liabilities and equities ........................................................... $793,863 $833,617
======== ========
See accompanying notes to consolidated financial statements.
3
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------------------------------------------------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ......................................... $ 576,580 $ 392,958 $ 1,180,003 $ 796,493
Cost of sales ..................................... 506,244 357,602 1,036,839 729,769
----------- ----------- ----------- -----------
Gross profit ...................................... 70,336 35,356 143,164 66,724
Selling, general and administration ............... 61,155 25,564 120,830 52,489
Restructuring and impairment charges (reversals)... 1,041 (843) 4,476 (1,809)
----------- ----------- ----------- -----------
Earnings from operations .......................... 8,140 10,635 17,858 16,044
Interest (income) expense, net .................... (618) 1,682 (1,344) 3,454
Gain on sale of intangibles ....................... - - (4,184) -
Equity in earnings of affiliated companies ........ (60) (530) (263) (831)
Minority interest in earnings of subsidiaries ..... 276 285 486 213
----------- ----------- ----------- -----------
Net earnings ...................................... $ 8,542 $ 9,198 $ 23,163 $ 13,208
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------
2002 2001
--------- ---------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ..................................................... $ 23,163 $ 13,208
Adjustment to reconcile net earnings to cash provided
by (used in) operating activities:
Depreciation and amortization .................................. 24,077 8,142
Bad debt expense ............................................... 1,850 52
Increase in other assets ....................................... (5,747) (2,243)
Decrease in other liabilities .................................. (2,445) (3,973)
Restructuring and impairment charges (reversals) .............. 4,476 (1,809)
Equity in earnings in affiliated companies ..................... (263) (831)
Minority interests ............................................. 486 213
Changes in current assets and liabilities, net of acquisitions and
divestitures:
Receivables .................................................... 19,444 8,604
Inventories .................................................... 3,667 8,890
Other current assets ........................................... 994 4,398
Accounts payable ............................................... (26,224) (13,168)
Accrued expenses ............................................... (6,462) (26,837)
--------- ---------
Net cash provided by (used in) operating activities .............. 37,016 (5,354)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ....................... (8,522) (7,916)
Payments for investments ......................................... - (563)
Proceeds from investments ........................................ 1,056 476
Proceeds from sale of property, plant and equipment .............. 5,585 1,840
--------- ---------
Net cash used by investing activities ............................ (1,881) (6,163)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in short-term debt ........................... (1,500) 900
Proceeds from note payable to Land O'Lakes, Inc................... 228,196 184,717
Payments on note payable to Land O'Lakes, Inc. ................... (264,850) (174,100)
--------- ---------
Net cash (used in) provided by financing activities .............. (38,154) 11,517
--------- ---------
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.
5
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 has 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 did not exceed 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------- ------- ------- -------
2002 2001 2002 2001
------- ------- ------- -------
Net earnings ................................. $ 8,542 $ 9,198 $23,163 $13,208
Add back: Goodwill amortization, net of tax... - 240 - 416
------- ------- ------- -------
Adjusted net earnings ........................ $ 8,542 $ 9,438 $23,163 $13,624
======= ======= ======= =======
THREE
MONTHS 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 ..................... $40,187 $(6,143)
======= =======
6
2. GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of intangible assets follows:
AS OF JUNE 30, 2002
---------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
Amortized intangible assets
Trademarks ............................. $ 882 $ (217)
Patents ................................ 16,373 (1,194)
Agreements not to compete............... 1,402 (486)
Other .................................. 9,930 (4,008)
------- -------
Total .................................. $28,587 $(5,905)
======= =======
Unamortized intangible assets
Trademarks .............................. $76,963
=======
Aggregate amortization expense:
For six months ended June 30, 2002 ...... $ 1,797
Estimated amortization expense:
For six months ended December 31, 2002... $ 1,797
For year ended December 31, 2003 ........ 3,594
For year ended December 31, 2004 ........ 3,594
For year ended December 31, 2005 ........ 3,594
For year ended December 31, 2006 ........ 3,478
For year ended December 31, 2007 ........ 3,478
The changes in the carrying amount of goodwill for the six months ended June
30, 2002, are as follows:
Balance as of January 1, 2002......................... $ 104,749
Reallocation of purchase price...................... 2,808
Amortization expense................................ (244)
-----------
Balance as of June 30, 2002.......................... $ 107,329
===========
3. RECEIVABLES
A summary of receivables is as follows:
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
Trade accounts .................................... $ 19,841 $ 25,320
Notes and contracts ............................... 17,689 18,071
Notes from sale of trade receivables (see Note 4).. 64,411 70,878
Other ............................................. 7,231 13,879
-------- --------
109,172 128,148
Less allowance for doubtful accounts .............. 11,403 9,085
-------- --------
Total receivables, net ............................ $ 97,769 $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 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 June 30, 2002
and December 31, 2001, there was $30.0 million and $75.8 million outstanding,
respectively. The total accounts receivable sold by the Company during the three
months and six months ended June 30, 2002 were $545.5 million and $1,125.2
million, respectively.
7
5. INVENTORIES
A summary of inventories is as follows:
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
Raw materials ..... $ 75,825 $ 63,435
Finished goods .... 34,067 50,124
-------- --------
Total inventories.. $109,892 $113,559
======== ========
6. INVESTMENTS
The Company's investments are as follows:
JUNE 30, DECEMBER 31,
2002 2001
--------- ---------
Harmony Farms, LLC........................... $ 3,596 $ 3,969
New Feeds, LLC............................... 3,034 3,214
Iowa River Feeds, LLC........................ 2,581 2,648
Agland Farmland Feed, LLC.................... 2,286 2,435
Pro-Pet, LLC................................. 2,730 2,362
Nutri-Tech Feeds, LLC........................ 2,319 2,314
LOLFF SPV, LLC............................... 1,000 1,805
Northern Country Feeds, LLC.................. 1,687 1,652
CalvaAlto Liquid, LLC........................ 1,302 1,302
T-PM Holding Company......................... 1,280 1,290
Northern Colorado Feed, LLC.................. 1,098 1,210
Strauss Feeds, LLC........................... 1,139 1,073
Nutrikowi, LLC............................... 876 783
Dakotaland Feeds, LLC........................ 684 736
Other........................................ 6,898 4,703
--------- ---------
Total investments............................ $ 32,510 $ 31,496
========= =========
All of the above investments are accounted for under the equity method with the
exception of a portion of the investments under the caption "Other."
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property plant and equipment is as follows:
JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
Land and land improvements.................. $ 23,613 $ 23,826
Buildings and building equipment............ 121,511 124,205
Machinery and equipment..................... 240,208 247,186
Construction in progress.................... 18,237 13,019
----------- -----------
403,569 408,236
Less accumulated depreciation............... 97,609 81,280
----------- -----------
Total property, plant and equipment, net.... $ 305,960 $ 326,956
=========== ===========
8. RESTRUCTURING AND IMPAIRMENT CHARGES
For the three months ended June 30, 2002, the Company recorded a $1.0
million restructuring and impairment charge of which $0.8 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 the Ft. Dodge, IA office and other plant facilities. The 2001
reversal of $0.8 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 six months ended June 30, 2002 the Company recorded restructuring
and impairment charges of $4.5 million. Of this amount, $2.8 million represented
severance and outplacement costs for 136 employees at the Ft. Dodge office and
other plant facilities
8
and $1.7 million represented a write-down of certain impaired plant assets. $2.3
million of the charges remained accrued as of June 30, 2002. For the six months
ended June 30, 2001, the Company recorded a restructuring reversal of $1.8
million for the sale of certain assets that had been written off in December
2000, and to reflect the decision to continue to operate a plant previously
scheduled for shutdown.
9. GAIN ON SALE OF INTANGIBLES
For the six months ended June 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 (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 $1.8 million and $1.1 million for the three months
ended June 30, 2002 and 2001, respectively, and $3.5 million and $3.2 for the
six months ended June 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 $25.8 million and $25.8
million for the three months ended June 30, 2002 and 2001, respectively, and $
52.4 and $51.9 for the six months ended June 30, 2002 and 2001, respectively.
As part of the acquisition of Purina Mills 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 June 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, 2002, and is renewable annually. The Company had a
note receivable from Land O' Lakes, Inc. of $7.4 million at June 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 $.3 million
and $2.4 million for the three months ended June 30, 2002 and 2001,
respectively, and $1.5 and $4.1 for the six months ended June 30, 2002 and 2001,
respectively.
Sales to unconsolidated subsidiaries of the Company totaled $11.5 million
and $10.1 million for the three months ended June 30, 2002 and 2001,
respectively, and $22.4 and $19.3 for the six months ended June 30, 2002 and
2001, respectively.
11. CONSOLIDATING FINANCIAL INFORMATION
Land O'Lakes, Inc. issued $350 million in senior notes which are guaranteed
by Land O'Lakes, Inc. and certain of its wholly and majority owned subsidiaries,
including the Company, (the "Guarantor Subsidiaries"). Such guarantees are full,
unconditional and joint and several.
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's other
subsidiaries (the "Non-Guarantor Subsidiaries"). The supplemental financial
information reflects the investments of the Company in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
WHOLLY OWNED
LAND O'LAKES SUBSIDIARIES OF
FARMLAND WHOLLY OWNED WHOLLY OWNED PURINA NON-
FEED SUBSIDIARIES OF PURINA MILLS, MILLS, LLC GUARANTOR
LLC PARENT LOL FF LLC LLC PARENT PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- --------------- ------------- --------------- ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term
Investments .......... $ (12,263) $ 4,965 $ 5,876 $ (3) $ 1,425 $ - $ -
Receivables, net ........ 109,966 20,176 2,063 12,130 6,920 (53,486) 97,769
Inventories ............. 48,534 13,667 41,413 2,074 4,204 - 109,892
Prepaid expenses ........ 2,885 1,070 1,256 4 263 - 5,478
Note receivable -
Land O'Lakes, Inc .... 7,444 - - - - - 7,444
--------- --------- --------- --------- --------- --------- ---------
Total current
assets ............ 156,566 39,878 50,608 14,205 12,812 (53,486) 220,583
Investments ................ 427,552 258 4,189 8,613 2,196 (410,298) 32,510
Property, plant and
equipment, net .......... 81,390 7,789 208,172 1,116 7,493 - 305,960
Goodwill, net .............. 13,684 3,655 89,680 - 310 - 107,329
Other intangibles, net ..... 1,300 1,591 96,445 - 309 - 99,645
Other assets ............... 36,429 2,044 20,301 - 1,151 (32,089) 27,836
--------- --------- --------- --------- --------- --------- ---------
Total assets ...... $ 716,921 $ 55,215 $ 469,395 $ 23,934 $ 24,271 $(495,873) $ 793,863
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations .......... $ 3,500 $ - $ $ - $ - $ - $ 3,500
Accounts payable ........ 72,526 21,263 31,536 13,926 5,085 (53,486) 90,850
Accrued expenses ........ 11,222 1,617 17,207 124 1,323 - 31,493
--------- --------- --------- --------- --------- --------- ---------
Total current
liabilities ....... 87,248 22,880 48,743 14,050 6,408 (53,486) 125,843
Notes payable -
Land O'Lakes, Inc ....... 59,664 4,902 23,652 - 3,535 (32,089) 59,664
Employee benefits and
other liabilities ....... (252) - 34,021 - 442 - 34,211
Minority interests ......... (864) 866 26 - 2,992 - 3,020
Equities:
Contributed capital ..... 515,044 15,950 338,483 13,025 10,117 (377,575) 515,044
Retained earnings
(accumulated
deficit) ............. 56,081 10,617 24,470 (3,141) 777 (32,723) 56,081
--------- --------- --------- --------- --------- --------- ---------
Total equities .... 571,125 26,567 362,953 9,884 10,894 (410,298) 571,125
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
equities ................... $ 716,921 $ 55,215 $ 469,395 $ 23,934 $ 24,271 $(495,873) $ 793,863
========= ========= ========= ========= ========= ========= =========
10
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002
WHOLLY OWNED
LAND O'LAKES WHOLLY OWNED WHOLLY OWNED SUBSIDIARIES OF NON-
FARMLAND FEED SUBSIDIARIES OF PURINA MILLS, PURINA MILLS, GUARANTOR
LLC PARENT LOL FF LLC LLC PARENT LLC PARENT SUBSIDIARIES CONSOLIDATED
------------- --------------- ------------- --------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ........................... $ 313,253 $ 49,583 $ 193,106 $ 6,813 $ 13,825 $ 576,580
Cost of sales ....................... 285,130 44,855 159,040 5,039 12,180 506,244
--------- --------- --------- --------- --------- ---------
Gross profit ........................ 28,123 4,728 34,066 1,774 1,645 70,336
Selling, general and administration.. 27,238 3,084 26,573 3,168 1,092 61,155
Restructuring and impairment
charges .......................... 1,041 - - - - 1,041
--------- --------- --------- --------- --------- ---------
(Loss) earnings from operations ..... (156) 1,644 7,493 (1,394) 553 8,140
Interest (income) expense, net ...... (499) 129 (271) (5) 28 (618)
Equity in (earnings) loss of
affiliated companies ............. (370) (106) 22 394 - (60)
Minority interest in (loss)
earnings of subsidiaries ......... (86) 206 2 - 154 276
--------- --------- --------- --------- --------- ---------
Net earnings (loss) ................. $ 799 $ 1,415 $ 7,740 $ (1,783) $ 371 $ 8,542
========= ========= ========= ========= ========= =========
11
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
WHOLLY OWNED WHOLLY OWNED
LAND O'LAKES SUBSIDIARIES OF WHOLLY OWNED SUBSIDIARIES OF NON-
FARMLAND FEED LAND O'LAKES PURINA MILLS, PURINA MILLS, GUARANTOR
LLC PARENT FARMLAND FEED LLC LLC PARENT LLC PARENT SUBSIDIARIES CONSOLIDATED
------------- ----------------- ------------- --------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ......................... $ 649,598 $ 88,328 $ 400,840 $ 13,942 $ 27,295 $ 1,180,003
Cost of sales ..................... 590,397 79,732 331,705 10,368 24,637 1,036,839
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ...................... 59,201 8,596 69,135 3,574 2,658 143,164
Selling, general and administration 55,435 5,504 52,471 5,083 2,337 120,830
Restructuring and impairment
charges ........................ 4,476 - - - - 4,476
----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings from operations ... (710) 3,092 16,664 (1,509) 321 17,858
Interest (income) expense, net .... (1,116) 241 (559) (5) 95 (1,344)
Gain on sale of intangibles ....... (4,184) - - - - (4,184)
Equity in (earnings) loss of
affiliated companies ........... (840) - (57) 634 - (263)
Minority interest in earnings
of subsidiaries ................ 33 206 69 - 178 486
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) ............... $ 5,397 $ 2,645 $ 17,211 $ (2,138) $ 48 $ 23,163
=========== =========== =========== =========== =========== ===========
12
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
WHOLLY OWNED
SUBSIDIARIES WHOLLY WHOLLY OWNED
LAND O'LAKES OF LAND OWNED SUBSIDIARIES
FARMLAND O'LAKES PURINA OF PURINA NON-
FEED FARMLAND MILLS, MILLS, GUARANTOR
LLC PARENT FEED LLC LLC PARENT LLC PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- ---------- ------------ ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ......................$ 5,397 $ 2,645 $ 17,211 $ (2,138) $ 48 $ - $ 23,163
Adjustment to reconcile net earnings
(loss) to cash provided (used) by
operating activities:
Depreciation and amortization ......... 7,331 430 15,756 174 386 - 24,077
Bad debt expense ...................... 1,850 - - - - - 1,850
Decrease (increase) in other assets ... 25,218 2,787 (3,849) 583 437 (30,923) (5,747)
(Decrease) increase in other
liabilities ....................... (213) (3,344) 970 - 142 - (2,445)
Restructuring and impairment charges .. 4,476 - - - - - 4,476
Equity in (earnings) loss of
affiliated companies ............... (840) - (57) 634 - - (263)
Minority interests .................... 33 206 69 - 178 - 486
Changes in current assets and
liabilities, net of acquisitions and
divestitures:
Receivables ........................... (8,706) (6,032) 7,758 202 (2,308) 28,530 19,444
Inventories ........................... (2,315) 1,867 1,980 328 1,807 - 3,667
Other current assets .................. (2) (183) 1,167 (4) 16 - 994
Accounts payable ...................... 22,773 (2,077) (8,046) (83) (2,708) (36,083) (26,224)
Accrued expenses ...................... (4,772) 199 (1,911) 230 (208) - (6,462)
-------- --------- --------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities ............................ 50,230 (3,502) 31,048 (74) (2,210) (38,476) 37,016
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ............................. (3,369) (331) (4,592) (143) (87) - (8,522)
Proceeds from sale of investment ......... 681 - 375 - - - 1,056
Proceeds from sale of property, plant
and equipment ......................... 5,585 - - - - - 5,585
-------- --------- --------- --------- --------- --------- ---------
Net cash provided (used) by investing
activities ............................ 2,897 (331) (4,217) (143) (87) - (1,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term debt ... (8,962) 6,031 - - 1,431 - (1,500)
Proceeds from note payable to
Land O'Lakes, Inc ..................... 189,720 - - - - 38,476 228,196
Payments on note payable to
Land O'Lakes, Inc .....................(226,374) (1,610) (35,111) - (1,755) - (264,850)
-------- --------- --------- --------- --------- --------- ---------
Net cash (used) provided by
financing activities .................. (45,616) 4,421 (35,111) - (324) 38,476 (38,154)
-------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in cash .......... 7,511 588 (8,280) (217) (2,621) - (3,019)
Cash and short-term investments at
beginning of period ...................... (19,774) 4,377 14,156 214 4,046 - 3,019
-------- --------- --------- --------- --------- --------- ---------
Cash and short-term investments at
end of period ............................$(12,263) $ 4,965 $ 5,876 $ (3) $ 1,425 $ - $ -
======== ========= ========= ========= ========= ========= =========
13
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
LAND WHOLLY OWNED WHOLLY WHOLLY OWNED
O'LAKES SUBSIDIARIES OWNED SUBSIDIARIES
FARMLAND OF LAND O'LAKES PURINA OF PURINA NON-
FEED FARMLAND MILLS, MILLS, GUARANTOR
LLC PARENT FEED LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ---------- ------------ ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term
investments ............. $ (19,774) $ 4,377 $ 14,156 $ 214 $ 4,046 $ - $ 3,019
Receivables, net .............. 103,219 14,147 9,860 12,417 (4,556) (24,956) 119,063
Inventories ................... 46,219 15,534 43,393 2,402 6,011 - 113,559
Prepaid expenses .............. 2,883 887 2,423 - 279 - 6,472
--------- --------- --------- --------- --------- --------- ---------
Total current
assets .................. 132,547 34,945 69,652 15,033 14,892 (24,956) 242,113
Investments ................... 391,970 258 19,712 11,077 1,303 (392,824) 31,496
Property, plant and
equipment, net ............. 90,709 7,887 219,421 1,147 7,792 - 326,956
Goodwill, net ................. 13,262 3,656 86,872 - 959 - 104,749
Other intangibles, net ........ 1,163 - 99,169 - 331 - 100,663
Other assets .................. 88,531 3,246 - - 1,232 (65,369) 27,640
--------- --------- --------- --------- --------- --------- ---------
Total assets ............... $ 718,182 $ 49,992 $ 494,826 $ 27,257 $ 26,509 $(483,149) $ 833,617
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations ................ $ 4,509 $ 23 $ - $ - $ 468 $ - $ 5,000
Notes payable-Land
O'Lakes, Inc ............... 29,210 - - - - - 29,210
Accounts payable .............. 78,451 12,211 24,136 14,009 5,670 (17,403) 117,074
Accrued expenses .............. 13,170 1,418 19,120 (108) 1,532 - 35,132
--------- --------- --------- --------- --------- --------- ---------
Total current
liabilities ............. 125,340 13,652 43,256 13,901 7,670 (17,403) 186,416
Notes payable-Land
O'Lakes, Inc ............... 59,664 6,512 58,763 - 5,290 (70,565) 59,664
Employee benefits and
other liabilities .......... 755 2,644 32,980 - 277 - 36,656
Minority interests ............ (840) 910 28 - 2,821 - 2,919
Equities:
Contributed capital ........ 515,044 18,300 350,600 16,299 9,982 (395,181) 515,044
Retained earnings
(accumulated deficit).... 18,219 7,947 9,199 (2,934) 469 - 32,918
--------- --------- --------- --------- --------- --------- ---------
Total equities .......... 533,263 26,274 359,799 13,356 10,451 (395,181) 547,962
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
equities ................... $ 718,182 $ 49,992 $ 494,826 $ 27,257 $ 26,509 $(483,149) $ 833,617
========= ========= ========= ========= ========= ========= =========
14
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
LAND O'LAKES WHOLLY OWNED NON-
FARMLAND FEED SUBSIDIARIES OF GUARANTOR
LLC PARENT LOL FF LLC SUBSIDIARIES CONSOLIDATED
------------- --------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ................... $ 333,364 $ 39,369 $ 20,225 $ 392,958
Cost of sales ............... 303,273 35,646 18,683 357,602
--------- --------- --------- ---------
Gross profit ................ 30,091 3,723 1,542 35,356
Selling, general and
administration ........... 22,508 2,030 1,026 25,564
Restructuring and impairment
(reversals) .............. (843) - - (843)
--------- --------- --------- ---------
Earnings from operations .... 8,426 1,693 516 10,635
Interest expense, net ....... 1,366 178 138 1,682
Equity in earnings of
affiliated companies ..... (530) - - (530)
Minority interest in earnings
of subsidiaries .......... 1 94 190 285
--------- --------- --------- ---------
Net earnings ................ $ 7,589 $ 1,421 $ 188 $ 9,198
========= ========= ========= =========
15
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
WHOLLY OWNED
SUBSIDIARIES OF
LAND O'LAKES LAND O'LAKES NON-
FARMLAND FEED FARMLAND FEED GUARANTOR
LLC PARENT LLC SUBSIDIARIES CONSOLIDATED
------------- --------------- ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ................... $ 688,896 $ 73,953 $ 33,644 $ 796,493
Cost of sales ............... 631,040 66,971 31,758 729,769
--------- --------- --------- ---------
Gross profit ................ 57,856 6,982 1,886 66,724
Selling, general and
administration ........... 46,790 4,233 1,466 52,489
Restructuring and impairment
(reversals) .............. (1,809) - - (1,809)
--------- --------- --------- ---------
Earnings from operations .... 12,875 2,749 420 16,044
Interest expense, net ....... 2,846 362 246 3,454
Equity in earnings of
affiliated companies ..... (831) - - (831)
Minority interest in earnings
of subsidiaries .......... 3 147 63 213
--------- --------- --------- ---------
Net earnings ................ $ 10,857 $ 2,240 $ 111 $ 13,208
========= ========= ========= =========
16
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
WHOLLY OWNED
SUBSIDIARIES OF
LAND O'LAKES LAND O'LAKES NON-
FARMLAND FEED FARMLAND FEED GUARANTOR
LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- --------------- ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................... $ 10,857 $ 2,240 $ 111 $ - $ 13,208
Adjustment to reconcile net earnings
to cash provided (used) by operating
activities:
Depreciation and amortization ........... 7,292 384 466 - 8,142
Bad debt expense ........................ 52 - - - 52
(Increase) decrease in other assets ..... (9,048) 1,663 (889) 6,031 (2,243)
(Decrease) increase in other liabilities. (3,131) (847) 5 - (3,973)
Restructuring and impairment reversals .. (1,809) - - - (1,809)
Equity in earnings of affiliated
companies ............................ (831) - - - (831)
Minority interests ...................... 3 147 63 - 213
Changes in current assets and liabilities,
net of acquisitions and divestitures:
Receivables ................................ 25,646 (3,036) (270) (13,736) 8,604
Inventories ................................ 7,772 866 252 - 8,890
Other current assets ....................... 4,543 (144) (1) - 4,398
Accounts payable ........................... (14,499) (639) (35) 2,005 (13,168)
Accrued expenses ........................... (23,924) (1,636) (1,277) - (26,837)
--------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities ................................. 2,923 (1,002) (1,575) (5,700) (5,354)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.. (7,005) (801) (110) - (7,916)
Payments for investments ................... (259) - (304) - (563)
Proceeds from sale of investment ........... 476 - - - 476
Proceeds from sale of property, plant and
equipment ............................... 1,840 - - - 1,840
--------- --------- --------- --------- ---------
Net cash used by investing
activities .............................. (4,948) (801) (414) - (6,163)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt ..... 867 (1,466) (1) 1,500 900
Proceeds from note payable to Land O'
Lakes, Inc .............................. 179,621 - 896 4,200 184,717
Payments on note payable to Land O'
Lakes, Inc .............................. (170,858) (2,478) (764) - (174,100)
--------- --------- --------- --------- ---------
Net cash provided (used) by financing
activities .............................. 9,630 (3,944) 131 5,700 11,517
--------- --------- --------- --------- ---------
Net increase (decrease) in cash ............ 7,605 (5,747) (1,858) - -
Cash and short-term investments at
beginning of period ........................ (9,792) 7,397 2,395 - -
--------- --------- --------- --------- ---------
Cash and short-term investments at end of
period...................................... $ (2,187) $ 1,650 $ 537 $ - $ -
========= ========= ========= ========= =========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussions of financial condition and results
of operations of Land O'Lakes Farmland Feed LLC ("Land O'Lakes Farmland Feed")
together with the financial statements and the notes to such statements included
elsewhere in this Form 10-Q. This discussion contains forward-looking statements
based on current expectations, assumptions, estimates and projections of
management Land O'Lakes Farmland Feed. These forward-looking statements involve
risks and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described in the "Risk Factors" section and elsewhere in this Form
10-Q. We undertake no obligation to update publicly any forward-looking
statements.
OVERVIEW
General
Land O'Lakes Farmland Feed produces both commercial and lifestyle feed for a
wide variety of animals, including dairy cattle, beef cattle, swine, poultry,
horses and other specialty animals such as laboratory and zoo animals. Farmers
and specialized livestock producers who derive income from the sale of milk,
eggs, poultry and livestock use Land O'Lakes Farmland Feed's commercial feed
products. Customers who own animals principally for non-commercial purposes use
Land O'Lakes Farmland Feed's lifestyle feed products. Land O'Lakes Farmland Feed
markets animal feed products under the Land O'Lakes Farmland Feed label. Through
its wholly owned subsidiary Purina Mills, LLC, Land O'Lakes Farmland Feed also
markets animal feed, other than dog and cat food, under the leading brands in
the industry, Purina, Chow and the "Checkerboard " Nine Square Logo.
Land O'Lakes Farmland Feed was formed in October 2000 through the
combination of the feed businesses of Land O'Lakes, Inc. ("Land O'Lakes") and
Farmland Industries Inc. Based on their relative contributions, Land O'Lakes and
Farmland had ownership interests of 69.2% and 30.8%, respectively, at the time
of formation. Subsequent to the formation, the ownership interests were changed
to 73.7% and 26.3%, respectively, due to an additional capital contribution by
Land O'Lakes, Inc. as well as an adjustment to the initial revenue stream
contribution.
In October 2001, Land O'Lakes acquired Purina Mills, Inc. and contributed
the business to Land O'Lakes Farmland Feed in consideration of an increase in
Land O'Lakes' ownership interest from 73.7% to 92%. The total purchase price of
the Purina Mills acquisition was $358.6 million. The acquisition added $86.9
million of goodwill and $98.9 million of other intangible assets to the balance
sheet of Land O'Lakes Farmland Feed. Land O'Lakes financed the acquisition and
refinanced outstanding indebtedness of Land O'Lakes and Purina Mills through a
combination of secured bank revolving credit and term debt and the issuance of
$350.0 million of unsecured senior notes due 2011. Land O'Lakes Farmland Feed
and its wholly owned domestic subsidiaries (other than LOL Farmland Feed SPV,
LLC) have guaranteed this indebtedness and have secured that obligation with
substantially all assets. By the end of 2002, Land O'Lakes Farmland Feed expects
to have implemented programs that would enable it to generate recurring annual
cost savings of approximately $50 million as a result of the acquisition,
relative to costs that would have been incurred separately. In 2002, we expect
to generate approximately $25 million in savings, which are expected to be
partially offset by plant closing, severance, employee relocation and
information technology integration costs of approximately $20 million.
The table under "Results of Operations" reflects the relative contribution
of selected results of operations of Land O'Lakes Farmland Feed and Purina Mills
for the periods presented.
CONSOLIDATED AND UNCONSOLIDATED BUSINESSES
Land O'Lakes Farmland Feed has numerous business activities that are not
wholly owned. The results of the majority and wholly owned businesses are fully
consolidated. The minority owners' share in these businesses is eliminated in
the consolidated financial statements. Most of the investments in joint ventures
in which Land O'Lakes Farmland Feed has 50% or less of the governance rights are
accounted for under the equity method of accounting. In the second quarter of
2002, unconsolidated businesses contributed earnings of $0.1 million to Land
O'Lakes Farmland Feed, compared to earnings of $0.5 million in the second
quarter of 2001. For the six months ended June 30, 2002, earnings in
unconsolidated businesses were $0.3 million compared to $0.8 million for the six
months ended June 30, 2001. The investment in unconsolidated businesses as of
June 30, 2002 was $32.5 million, compared to $31.5 million as of December 31,
2001. Cash flow from investment in unconsolidated businesses in the second
quarter of 2002 was $0.6 million, compared to none in the second quarter of
2001. Cash flow from investment in unconsolidated businesses for the first half
of 2002 was $1.1 million compared to $0.5 million for the first half of 2001.
18
Critical Accounting Policies
We utilize certain accounting measurements under applicable generally
accepted accounting principles, which involve the exercise of management's
judgment about subjective factors and estimates about the effect of matters,
which are inherently uncertain. The following is a summary of those accounting
measurements which we believe are most critical to the reported results of
operations and financial condition.
Inventory Valuation. Inventories are valued at the lower of cost or market.
Cost is determined on an average cost basis. Our products use agricultural
commodities as inputs, in particular corn, soybean meal, and wheat midds.
Through pricing and the use of risk management tools, the results are marginally
affected by the cost of commodity inputs. Industry practices in animal feed pass
cost fluctuations on to the customer in the long term, but do not protect
against large sudden movements in input costs in the short term.
We use derivative commodity instruments, primarily futures contracts, to
reduce the exposure to changes in commodity prices primarily for product inputs
such as soybean meal and corn. These contracts are not designated as hedges
under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Accordingly, since the
adoption of SFAS No. 133, effective January 1, 2001, the futures contracts are
marked to market each month and unrealized gains and losses are recognized in
earnings. Prior to 2001, we did not mark derivative commodity instruments to
market; instead, we recorded losses or gains only when realized.
Allowance for Doubtful Accounts. We estimate the allowance for doubtful
accounts based on an analysis of specific accounts, an analysis of historical
trends, payment and write-off histories, current sales levels and the state of
the economy. Our credit risk are continually reviewed and management believes
that adequate provisions have been made for doubtful accounts. However,
unexpected changes in the financial strength of customers or changes in the
state of the economy could negatively impact the financial results.
Recoverability of Long-Lived Assets. We assess the recoverability of
goodwill and other long-lived assets annually or whenever events or changes in
circumstances indicate that expected future undiscounted cash flows might not be
sufficient to support the carrying amount of an asset. We deem an asset to be
impaired if a forecast of undiscounted future operating cash flows is less than
an asset's carrying amount. If an asset is determined to be impaired, the loss
is measured as the amount by which the carrying value of the asset exceeds its
fair value.
Merchandising Activities
Land O'Lakes Farmland Feed, in addition to selling its own products, buys
and sells or brokers for a fee soybean meal and other feed ingredients under its
ingredient merchandising program. We market these ingredients to local member
cooperatives and to other feed manufacturers, which use them to produce feed.
Although this activity generates substantial revenues, it is a very low-margin
business. However, we benefit from increased purchasing efficiencies, resulting
in lower prices for feed manufacturing inputs. For the three months ended June
30, 2002, ingredient merchandising generated net sales of $115.9 million, or
20.1% of net sales, and a gross profit of $3.2 million, or 4.6% of total gross
profit. For the six months ended June 30, 2002, ingredient merchandising
generated net sales of $238.0 million or 20.2% of net sales and gross profit of
$6.6 million, or 4.8% of total gross profit.
Seasonality
The feed business is seasonal, with a higher percentage of the feed volume
sold, and earnings being generated, during the first and fourth quarters of the
year. This seasonality is driven largely by weather conditions affecting cattle
product lines. If the weather is particularly cold and wet during the winter,
sales of cattle feed increase as compared with normal seasonal patterns because
the cattle are unable to graze under those conditions and have higher
nutritional requirements. If the weather is relatively warm during the winter,
sales of cattle feed may decrease as compared with normal seasonal patterns
because the cattle may be better able to graze under the warmer conditions.
Other product lines are affected marginally by seasonal conditions, but these
conditions do not materially affect quarter-by-quarter results of operations.
Agricultural Commodity Inputs and Outputs
19
Many of our products use agricultural commodities as inputs, such as corn,
soybean meal, and wheat midds. Through pricing and the use of risk management
tools, our results are marginally affected by the cost of commodity inputs.
Industry practices in animal feed pass cost fluctuations on to the customer in
the long term, but do not protect against large sudden movements in input costs
in the short term.
We follow industry standards for feed pricing. The feed industry generally
prices products based on Income Over Ingredient Cost (IOIC) per ton of feed.
This practice tends to mitigate the impact of volatility in commodity ingredient
markets on animal feed profits. As ingredient costs fluctuate, the changes are
generally passed on to customers through weekly or monthly changes in prices.
Thus, the key indicator of business performance is IOIC rather than net sales.
Net sales are considered a poor indicator of performance as large fluctuations
can occur from period to period due to volatility in underlying commodity
ingredient prices.
We enter into forward contracts to supply feed, which currently represent
approximately 20% of the feed output. When we enters into these contracts, we
also generally enter into forward input supply contracts to "lock in" IOIC.
Changes in commodity grain prices also have an impact on the mix of products
that we sell. When grain prices are relatively high, the demand for complete
feed rises since many livestock producers are also grain growers and will sell
grain in the market and purchase complete feed as needed. When grain prices are
relatively low, these producers will feed their grain to their livestock and
purchase premixes and supplements to provide complete nutrition to their
animals. These fluctuations in product mix generally have minimal effect on
operating results. Complete feed has a far lower margin per ton than supplements
and premixes. Thus, during periods of relatively high grain prices, although
margins per ton are lower, we sell substantially more tonnage because the grain
portion of complete feed makes up the majority of its weight.
As dairy production has shifted from the Upper Midwest to the western United
States, we have seen a change in our feed product mix, with lower sales of
complete feed and increased sales of simple blends. This change is driven by the
difference in nutritional requirements in dairy cows as a result of less severe
winters in the western United States. In addition, the increase in vertical
integration of swine and poultry producers has resulted in increased sales of
lower-margin feed products.
20
RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30,2002 JUNE 30,2001 JUNE 30,2002 JUNE 30,2001
% OF
% OF NET % OF NET % OF NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
------------------------------------------------ --------------------------------------------
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
Net Sales
Land O'Lakes Farmland Feed $ 376,661 65.3% $ 392,958 100.0% $ 765,221 64.8% $ 796,493 100.0%
Purina Mills 199,919 34.7% - 0.0% 414,782 35.2% - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
Total sales 576,580 100.0% 392,958 100.0% 1,180,003 100.0% 796,493 100.0%
Cost of sales
Land O'Lakes Farmland Feed 341,405 59.2% 357,602 91.0% 695,366 58.9% 729,769 91.6%
Purina Mills 164,839 28.6% - 0.0% 341,473 28.9% - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
Total cost of sales 506,244 87.8% 357,602 91.0% 1,036,839 87.9% 729,769 91.6%
Gross Profit
Land O'Lakes Farmland Feed 35,256 6.1% 35,356 9.0% 69,855 5.9% 66,724 8.4%
Purina Mills 35,080 6.1% - 0.0% 73,309 6.2% - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
Total gross profit 70,336 12.2% 35,356 9.0% 143,164 12.1% 66,724 8.4%
Selling, general and
administration expense 61,155 10.6% 25,564 6.5% 120,830 10.2% 52,489 6.6%
Restructuring and impairment
charges (reversals) 1,041 0.2% (843) 0.2% 4,476 0.4% (1,809) 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 8,140 1.4% 10,635 2.7% 17,858 1.5% 16,044 2.0%
Interest expense, net (618) 0.1% 1,682 0.4% (1,344) 0.2% 3,454 0.9%
Gain on sale of intangibles - 0.0% - 0.0% (4,184) 0.7% - 0.0%
Equity in earnings of
affiliated companies (60) 0.0% (530) 0.1% (263) 0.0% (831) 0.2%
Minority interest in earnings
of subsidiaries 276 0.0% 285 0.1% 486 0.1% 213 0.1%
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 8,542 1.5% $ 9,198 2.3% $ 23,163 4.0% $ 13,208 3.4%
================================================================================================================================
21
THREE MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
NET SALES
Net sales for the three months ended June 30, 2002 increased $183.6 million,
or 46.7%, to $576.6, compared to net sales of $393.0 million for the three
months ended June 30, 2001. The acquisition of Purina Mills contributed $199.9
million in incremental sales. This increase was partially offset by declines in
Land O'Lakes Farmland Feed branded sales. Sales in our Land O'Lakes Farmland
Feed Animal Health and Packaged Goods area decreased $5.3 million as a result of
a realigned marketing arrangement with a large vendor whereby we no longer
record sales dollars, but rather a margin-based fee. Swine sales in our Land
O'Lakes Farmland Feed branded products decreased $3.2 million as a result of
decreased volumes and depressed market prices for hog producers, caused, in
part, by excess food proteins in the U.S. market. Sales also decreased $1.8
million in our Land O'Lakes Farmland Feed branded lifestyle product lines,
reflecting a later than expected beginning of the aquaculture feeding season.
Sales of Land O'Lakes Farmland Feed branded beef feeds decreased $1.4 million,
primarily due to the effect of warmer than average winter weather and excess
food proteins(such as beef cattle, swine and chickens) in the U.S. market.
Sales of bulk phosphates decreased $5.2 million due to the sale of this business
to a third party. Sales in our dairy feeds area increased $3.5 million, driven
by strong sales of simple blends in our Western feed division. Finally, sales
from ingredient merchandising increased $1.6 million, or 1.4%, from $114.3
million for the three months ended June 30, 2001 to $115.9 million for the three
months ended June 30, 2002.
COST OF SALES
Cost of sales for the three months ended June 30, 2002 increased $148.6
million, or 41.6%, to $506.2 million, compared to $357.6 million for the three
months ended June 30, 2001. The acquisition of Purina Mills added $164.9 million
in cost of sales for the three months ended June 30, 2002. This increase was
slightly offset by a decrease in Land O'Lakes Farmland Feed branded product
lines. Land O'Lakes Farmland Feed Animal Health and Packaged Goods decreased
$5.2 million driven by a realigned marketing arrangement whereby we no longer
record cost of sales dollars, but rather a margin-based fee. Land O'Lakes
Farmland Feed branded lifestyle cost of sales declined $2.9 million resulting
from a later than expected beginning of the aquaculture feeding season. Land
O'Lakes Farmland Feed branded swine cost of sales decreased by $1.0 million.
Land O'Lakes Farmland Feed branded beef feeds cost of sales decreased $0.4
million, due to slower sales as a result of warm winter weather. Cost of sales
of bulk phosphates decreased $4.5 million as we sold this business during the
first quarter of 2002. Cost of sales in our dairy feed area increased $4.7
million, primarily as a result of strong sales in our Western feed division.
Cost reductions from the integration efforts related to Purina Mills reduced our
cost of sales by $2.0 million. Cost of sales as a percent of sales decreased 3.2
percentage points, from 91.0% in the second quarter of 2001 to 87.8% in the same
period of 2002. The decrease was due primarily to higher margins on certain
Purina Mills products, which carry a comparatively higher margin than our
traditional product lines. Cost of sales was also decreased by cost reductions
in our purchasing, manufacturing and distribution area as a result of the
integration of the Purina Mills operations. Cost of sales increased $1.7 million
as a result of the increase in ingredient merchandising sales. An unrealized
hedging gain in the second quarter of 2002 related to corn and soybean meal
futures contracts decreased cost of sales by $1.8 million, compared to a gain of
$1.2 million in the second quarter of 2001. IOIC as a percent of cost of sales
increased to 25.9% in the second quarter of 2002 from 17.2% in the same period
of 2001 due to the change in product mix and the change in unrealized hedging
gains and losses as noted above.
SELLING, GENERAL AND ADMINISTRATION EXPENSE
Selling, general and administration expense for the three months ended June
30, 2002 increased $35.6 million, or 139.1%, to $61.2 million, compared to $25.6
million for the three months ended June 30, 2001. Selling, general and
administration expense as a percent of sales increased 4.1 percentage points
from 6.5% for the three months ended June 30, 2001 to 10.6% for the three months
ended June 30, 2002. The majority of this increase was related to the
acquisition of Purina Mills, which contributed $30.6 million in increased
selling, general and administration expense. In addition, in the second quarter
of 2002, we incurred one-time integration costs of $3.2 million with none in the
same period in 2001. During the second quarter of 2002, bad debt expense
increased by $1.7 million over the same period in 2001.
RESTRUCTURING AND IMPAIRMENT CHARGES
22
We recorded a $1.0 million restructuring and impairment charge for the three
months ended June 30, 2002, of which $0.9 million was related to the write-down
of certain impaired plant assets to their estimated fair value, and $0.1 million
was related to employee severance and outplacement costs for employees at
various locations. The 2001 reversal of $0.8 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.
We anticipate restructuring and impairment charges of approximately $7
million in 2002 related to the integration of Purina Mills into Land O'Lakes
Farmland Feed.
INTEREST (INCOME) EXPENSE
Interest (income) expense in the second quarter of 2002 was income of ($0.6)
million compared to $1.7 million of expense in the same period of 2001. Since
the formation of Land O'Lakes Farmland Feed, interest is charged based on actual
borrowings. In the first quarter of 2001, we had a current note payable to Land
O'Lakes in the amount of $29.2 million. After the securitization of the feed,
seed, and swine accounts receivable, cash was generated to pay off this note and
provide cash to Land O' Lakes.
EQUITY IN EARNINGS OF AFFILIATED COMPANIES
In the second quarter of 2002, equity in earnings of affiliated companies
was $0.1 million compared to $0.5 million in the second quarter of 2001.
MINORITY INTEREST IN LOSS OR EARNINGS OF SUBSIDIARIES
In the second quarter of 2002, we recorded minority interest in earnings of
majority owned subsidiaries of $0.3 million compared to $0.3 million in the
first quarter of 2001.
INCOME TAXES
Upon the formation of Land O'Lakes Farmland Feed on October 1, 2000,
provisions for income taxes were no longer recorded since the taxable operations
pass directly to the joint venture owners. Prior to the formation, income taxes
were allocated to Land O'Lakes Feed Division on the basis of its taxable income
and included in the Land O'Lakes tax return.
NET EARNINGS
Net earnings decreased $0.7 million to $8.5 million in the second quarter of
2002, compared to $9.2 million in the second quarter of 2001.
SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES
Net sales for the six months ended June 30, 2002 increased $383.5 million,
or 48.1%, to $1,180.0 million, compared to net sales of $796.5 million for the
six months ended June 30, 2001. The acquisition of Purina Mills contributed
$414.8 million in incremental sales. This increase was partially offset by
declines in Land O'Lakes Farmland Feed branded sales. Sales in our Land O'Lakes
Farmland Feed Animal Health and Packaged Goods area decreased $10.2 million as a
result of a realigned marketing arrangement with a large vendor whereby we no
longer record sales dollars, but rather a margin-based fee. Sales in our Land
O'Lakes Farmland Feed branded swine products decreased $7.0 million as a result
of decreased volumes and depressed market prices for hog producers, caused, in
part, by excess food proteins in the U.S. market. Sales of Land O'Lakes Farmland
Feed branded beef feeds decreased $6.7 million, primarily due to the effect of
warmer than average winter weather and excess food proteins in the U.S. market.
Sales also decreased $5.3 million in our Land O'Lakes Farmland Feed branded
lifestyle product lines, reflecting a delayed start to the aquaculture feeding
season. Sales of bulk phosphates decreased $8.3 million due to the sale of this
business to a third party. Sales in our dairy feeds area increased $4.8 million,
driven by strong sales of simple blends in our Western region. We also
experienced an increase of $4.0 million in our Animal Milk Products area as a
result of strong volumes. Finally, sales from ingredient merchandising decreased
$1.0 million from $238.9 million for the six months ended June 30, 2001 to
$237.9 million for the six months ended June 30, 2002.
23
COST OF SALES
Cost of sales for the six months ended June 30, 2002 increased $307.0
million, or 42.1%, to $1,036.8 million, compared to $729.8 million for the six
months ended June 30, 2001. The acquisition of Purina Mills added $341.5 million
in cost of sales for the six months ended June 30, 2002. This increase was
slightly offset by a decrease in Land O'Lakes Farmland Feed branded product
lines. Land O'Lakes Farmland Feed Animal Health and Packaged Goods decreased
$10.1 million driven by a realigned marketing arrangement whereby we no longer
record cost of sales dollars, but rather a margin-based fee. Land O'Lakes
Farmland Feed branded lifestyle cost of sales declined $5.9 million as result of
a delayed start to the aquaculture feeding season. Land O'Lakes Farmland Feed
branded beef feeds cost of sales decreased $4.6 million, due to slower sales as
a result of warm winter weather. Land O'Lakes Farmland Feed branded swine cost
of sales decreased by $2.8 million. Cost of sales of bulk phosphates decreased
$7.4 million as we sold this business during the first quarter of 2002. Cost of
sales in our Animal Milk Products area increased $2.5 million primarily due to
increased volumes. Cost of sales in our dairy feed area increased $6.7 million,
primarily as a result of strong sales in our Western region. Cost reductions
from the integration efforts related to Purina Mills reduced our cost of sales
by $3.3 million. Cost of sales as a percent of net sales decreased 3.7
percentage points, from 91.6% in the first half of 2001 to 87.9% in the same
period of 2002. The decrease was due primarily to higher margins on certain
Purina Mills products, which carry a comparatively higher margin than our
traditional product lines. Cost of sales decreased $0.9 million as a result of
the decline in ingredient merchandising sales. An unrealized hedging gain in the
first half of 2002 related to corn and soybean meal futures contracts decreased
cost of sales by $3.9 million, compared to an increase from an unrealized
hedging loss of $1.3 million in the first half of 2001. IOIC as a percent of
cost of sales increased to 13.4% in the first half of 2002 from 9.3% in the same
period of 2001 due to the change in product mix and the change in unrealized
hedging gains and losses as noted above.
SELLING, GENERAL AND ADMINISTRATION EXPENSE
Selling, general and administration expense for the six months ended June
30, 2002 increased $68.3 million, or 130.1%, to $120.8 million, compared to
$52.5 million for the six months ended June 30, 2001. Selling, general and
administration expense as a percent of sales increased 3.6 percentage points
from 6.6% for the six months ended June 30, 2001 to 10.2% for the six months
ended June 30, 2002. The majority of this increase was related to the
acquisition of Purina Mills, which contributed $60.6 million in increased
selling, general and administration expense. In addition, in the first half of
2002, we incurred one-time integration costs of $5.5 million with none in the
same period in 2001. We also incurred an additional $1.7 million of bad debt
expense in the first half of 2002.
RESTRUCTURING AND IMPAIRMENT CHARGES
For the six months ended June 30, 2002, we recorded a $4.5 million
restructuring and impairment charge, of which $1.7 million was related to the
write-down of certain impaired plant assets to their estimated fair value, and
$2.8 million was related to employee severance and outplacement costs for 136
employees at the Ft. Dodge, IA office facility and other plant facilities. The
2001 reversal of $1.8 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.
We anticipate restructuring and impairment charges of approximately $7 million
in 2002 related to the integration of Purina Mills into Land O'Lakes Farmland
Feed.
INTEREST (INCOME) EXPENSE
Interest (income) expense for the six months ended June 30, 2002 was income
of ($1.3) million compared to $3.4 million of expense in the same period of
2001. Since the formation of Land O'Lakes Farmland Feed, interest is charged
based on actual borrowings. In the first quarter of 2001, we had a current note
payable to Land O'Lakes in the amount of $29.2 million. After the securitization
of the feed, seed, and swine accounts receivable, cash was generated to pay off
this note and provide cash to Land O' Lakes.
EQUITY IN EARNINGS OF AFFILIATED COMPANIES
For the six months ended June 30, 2002, equity in earnings of affiliated
companies was $0.3 million compared to $0.8 million for the same period of 2001.
MINORITY INTEREST IN LOSS OR EARNINGS OF SUBSIDIARIES
24
In the six months ended June 30, 2002, we recorded minority interest in
earnings of majority owned subsidiaries of $0.5 million compared to $0.2 million
for the six months ended June 30, 2001.
INCOME TAXES
Upon the formation of Land O'Lakes Farmland Feed on October 1, 2000,
provisions for income taxes were no longer recorded since the taxable operations
pass directly to the joint venture owners. Prior to the formation, income taxes
were allocated to Land O'Lakes Feed Division on the basis of its taxable income
and included in the Land O'Lakes tax return.
NET EARNINGS
Net earnings for the six months ended June 30, 2002 were $23.2 million
compared to $13.2 million for the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
We rely on cash from operations, borrowings from Land O'Lakes, and the sale
of accounts receivable as the main sources of financing working capital
requirements, additions to property, plant and equipment, and acquisitions and
joint ventures. Other sources of funding consist of leasing arrangements and the
sale of non-strategic assets. Land O'Lakes Farmland Feed had a noncurrent note
payable to Land O'Lakes of $59.7 million at June 30, 2002 and December 31, 2001.
Net cash provided from operating activities of $37.0 million in the six
months ended June 30, 2002 was $42.4 million more than the net cash used by
operating activities of $5.4 million for the six months ended June 30, 2001.
This increase in cash from operations was primarily due to an increase in net
earnings, and improved working capital due to accounts receivable and accrued
expenses, partially offset by accounts payable.
Net cash used in investing activities was $1.9 million in the six months
ended June 30, 2002 as compared with net cash used of $6.2 million in the six
months ended June 30, 2001. This cash flow improvement in 2002 compared to 2001
was primarily the result of higher proceeds from the sale of property, plant,
and equipment.
Net cash flows used in financing activities was $38.2 million for the six
months ended June 30, 2002, compared to net cash provided of $11.5 million in
the same period of 2001. Payments on notes payable to Land O' Lakes in the six
months ended June 30, 2002 and 2001 were $264.9 million and $174.1 million,
respectively. Borrowings from Land O' Lakes increased from $184.7 million in the
six months ended June 30, 2001 to $228.2 million in the six months ended June
30, 2002.
A revolving credit facility has been established between Land O'Lakes and
Land O'Lakes Farmland Feed for the purpose of financing working capital at Land
O'Lakes Farmland Feed. Borrowings under the revolving credit facility with Land
O'Lakes bear interest at 260 basis points over LIBOR. The revolving credit
facility with Land O'Lakes terminates on October 31, 2002, and is renewable
annually.
OFF-BALANCE SHEET ARRANGEMENTS
Land O'Lakes, Land O'Lakes Farmland Feed and Purina Mills entered into a
revolving receivables securitization program with CoBank in December 2001 for up
to $100 million in advances against eligible receivables. Under this program,
these entities sell feed, seed and certain swine receivables to LOL Farmland
Feed SPV, LLC, a limited purpose wholly owned subsidiary of Land O'Lakes
Farmland Feed. This subsidiary is a qualifying special purpose entity (QSPE)
under applicable accounting rules. The QSPE was established for the limited
purpose of purchasing and obtaining financing for these receivables. The
transfers of the receivables to the QSPE are structured as sales and, in
accordance with applicable accounting rules, these receivables are not reflected
in the consolidated balance sheets of Land O'Lakes Farmland Feed or Land
O'Lakes. The QSPE purchases the receivables with a combination of cash initially
received from CoBank, equal to the present value of eligible receivables times
the agreed advance rate; and notes, equal to the unadvanced present value of the
receivables. Land O'Lakes Farmland Feed and the other receivables sellers are
subject to credit risk related to the repayment of the QSPE notes, which in turn
is dependent upon the ultimate collection on the QSPE's receivables pool.
Accordingly, Land O'Lakes Farmland Feed has retained reserves for estimated
losses. As of June 30, 2002, $30.0 million was drawn against this facility with
$70.0 million available.
In addition, Land O'Lakes Farmland Feed leases various equipment and real
properties under long-term operating leases. Total
25
consolidated rental expense for the second quarter of 2002 was $3.1 million,
compared to $1.0 million in the second quarter of 2001. The majority of this
increase was due to the addition of Purina Mills operations. Most of the leases
require payment of operating expenses applicable to the leased assets. We expect
that in the normal course of business most leases that expire will be renewed or
replaced by other leases.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
At June 30, 2002, Land O'Lakes Farmland Feed had certain contractual
obligations that require the following payments:
PAYMENTS DUE BY PERIOD (AS OF JUNE 30, 2002)
--------------------------------------------
CONTRACTUAL CASH OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
----- ---------------- --------- --------- -------------
($ in thousands)
Operating Leases $10,463 $ 3,124 $ 5,236 $ 2,103 $ -
Note payable to Land O'Lakes, Inc. 59,664 - 17,898 17,898 $23,868
------- ------- ------- ------- -------
Total Contractual Obligations $70,127 $ 3,124 $23,134 $20,001 $23,868
======= ======= ======= ======= =======
Land O'Lakes Farmland Feed has certain commitments which may require the
following payments to be made:
AMOUNT OF CONTINGENT OBLIGATIONS (1)
EXPIRATION PER PERIOD (AS OF JUNE 30, 2002)
TOTAL
OTHER GUARANTEES AMOUNTS OVER 5
GUARANTEED LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS YEARS
---------- ---------------- --------- --------- -----
($ in thousands)
Land O'Lakes Term Loan A(2) $291,217 $ 22,753 $150,024 $118,440 $ -
Land O'Lakes Term Loan B(2) 233,783 706 5,645 5,645 221,787
Land O'Lakes 8 3/4 % Senior Notes due
2011 350,000 - - - 350,000
Producer Loans 7,000 7,000 - - -
-------- -------- -------- -------- --------
Total Guarantees $882,000 $ 30,459 $155,669 $124,085 $571,787
======== ======== ======== ======== ========
(1) See "Off-Balance Sheet Arrangements" for information concerning our
receivables securitization.
(2) These obligations are subject to mandatory prepayment in certain
events.
We expect that total capital expenditures will be approximately $40 million
in 2002 and approximately $44 million in 2003. Of such amounts, we currently
estimate that a minimum range of $16 million to $18 million of ongoing
maintenance capital expenditures is required each year.
We expect that funds from operations and available borrowings under our
revolving credit line from Land O'Lakes and the receivables securitization
facility will provide sufficient working capital to operate the business, to
make expected capital expenditures and to meet foreseeable liquidity
requirements.
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
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, we have performed step one of the impairment testing of
goodwill for the balances as of January 1, 2002 by June 30, 2002. The fair
market value of goodwill did not exceed 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. We 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:
26
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
Net earnings ................................ $ 8,542 $ 9,198 $23,163 $13,208
Add back: Goodwill amortization, net of tax.. - 240 - 416
------- ------- ------- -------
Adjusted net earnings ....................... $ 8,542 $ 9,438 $23,163 $13,624
======= ======= ======= =======
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 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)
======= =======
FORWARD LOOKING STATEMENTS
This Form 10-Q for the six months ended June 30, 2002 includes
"forward-looking statements" within the meaning of the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "could," "should,"
"seeks," "pro forma," "as adjusted," "anticipates," "intend," or other
variations thereof, including their use in the negative, or by discussions of
strategies, plans or intentions. Although we believe that our plans, intentions
and expectations reflected in or suggested by such forward-looking statements
are reasonable, you should be aware that actual results could differ materially
from those projected by the forward-looking statements. For a discussion of
factors that could cause actual results to differ materially from the
anticipated results or other expectations expressed in our forward-looking
statements, see the discussion of risk factors set forth below. Because actual
results may differ, readers are cautioned not to place undue reliance on
forward-looking statements. We assume no obligation to update such
forward-looking statements or to update the reasons that actual results could
differ materially from those anticipated in such forward-looking statements.
RISK FACTORS
CHANGES IN CONSUMER PREFERENCES COULD DECREASE OUR REVENUES AND CASH FLOW.
We are subject to the risks of changing consumer preferences, which may
result from a general economic downturn and nutritional and health-related
concerns. Any shift in consumer preferences away from our products could
decrease our revenues and cash flow and impair our ability to operate our
business.
Our business relies on the sale of feed products to consumers who own
animals for recreational purposes or hobbies. The impact of an extended economic
downturn in the U.S. economy could cause some of these owners either to sell
their animals or to seek alternative, less expensive products.
COMPETITION IN THE INDUSTRY MAY REDUCE OUR SALES AND MARGINS.
Our business operates in a highly competitive environment. In addition, we
compete with companies that have substantial capital resources, research and
development staffs, facilities, diversity of product lines and brand
recognition. Increased competition as to any of our products could result in
reduced prices which would reduce our sales and margins.
Our competitors may succeed in developing new or enhanced products which are
better than ours. These companies may also prove to be more successful in
marketing and selling their products than we are with ours.
AN OVERSUPPLY OF FOOD PROTEINS IN THE U.S. MARKET COULD CONTINUE TO REDUCE OUR
NET SALES AND CASH FLOWS.
Our animal feed segment supplies feed to farmers and specialized livestock
producers for use in their commercial production of livestock. When the price
that these producers receive for their livestock declines as a result of an
oversupply of food proteins (such as beef cattle, swine and chicken) in the
market, such producers may decide to lower their production levels or to seek
alternative, lower margin products, resulting in lower net sales and cash flows
for us.
27
OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY EXTREME WEATHER
CONDITIONS.
Our operating results are affected by seasonal fluctuations of our sales and
operating profits. Our sales are seasonal, with a higher percentage of sales
generated during the fourth and first quarters of the year. This seasonality is
driven largely by weather conditions affecting sales of our beef cattle
products. If the weather is particularly warm during the winter, then sales of
feed for beef cattle may decrease because the cattle may be better able to graze
under warmer conditions.
Live hog and wholesale pork prices are also affected by seasonal factors.
Because of production times for hogs, there are generally fewer hogs available
in the second quarter, causing live hog and wholesale pork prices to be higher
at these times. Conversely, there are generally more hogs available in the
fourth quarter, which generally causes live hog and wholesale pork prices to be
lower on average during these months.
In addition, severe weather conditions and natural disasters, such as
floods, droughts, frosts or earthquakes, or adverse growing conditions, diseases
and insect-infestation problems may reduce the quantity and quality of
commodities available for processing by us. A significant reduction in the
quantity or quality of commodities harvested or produced due to adverse weather
conditions, disease, insect problems or other factors could result in increased
processing costs and decreased production, with adverse financial consequences
to us.
INCREASED ENERGY AND GAS COSTS COULD INCREASE OUR EXPENSES AND REDUCE OUR
PROFITABILITY.
We require a substantial amount of electricity, natural gas and gasoline to
manufacture, store and transport our products. The prices of electricity,
natural gas and gasoline fluctuate significantly over time. Many of our products
compete based on price and we may not be able to pass on increased costs of
production, storage or transportation to our customers. As a result, increases
in the cost of electricity, natural gas or gasoline could substantially harm our
business and results of operations.
OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.
The productivity and profitability of our businesses depend on animal health
and on disease control. We face the risk of outbreaks of mad cow disease, which
could lead to the destruction of beef cattle and dairy cows and decreased demand
for dairy and beef products. If this occurs, we could have decreased demand for
our feed products as dairy and beef producers decrease their herd sizes due to
decreased demand for dairy and beef products.
We face the risk of outbreaks of foot-and-mouth disease, which could lead to
a massive destruction of cloven-hoofed animals such as dairy cattle, beef
cattle, swine, sheep and goats and significantly reduce the demand for meat
products. Because foot-and-mouth disease is highly contagious and destructive to
susceptible livestock, any outbreak of foot-and-mouth disease could result in
the widespread destruction of all potentially infected livestock. Our operations
could suffer as a result of decreased demand for feed products. In addition, we
may be prevented from selling or transporting hogs.
CHANGES IN THE MARKET PRICES OF THE DAIRY AND AGRICULTURAL COMMODITIES THAT WE
USE AS INPUTS AS WELL AS THE PRODUCTS WE MARKET MAY CAUSE OUR OPERATING PROFIT
TO DECREASE.
Many of our products use agricultural commodities as inputs or constitute
agricultural commodity outputs. Consequently, increased cost of commodity inputs
and decreased market price of commodity outputs may reduce our operating profit.
We follow industry standards for feed pricing. The feed industry generally
prices products on the basis of income over ingredient cost ("IOIC") per ton of
feed. This practice mitigates the impact of volatility in commodity ingredient
markets on our margins. However, if our commodity input prices were to increase
dramatically, we may be unable to pass these prices on to our customers, who may
find alternative feed sources at lower prices or may exit the market entirely.
This increased expense could reduce our profitability.
We have ownership interests in swine. In recent years, the market for hogs
and wholesale pork has been the subject of extreme market fluctuations as a
result of a number of factors, including industry expansion, processor capacity
and consumer demand. In December 1998, the price of hogs hit its lowest point in
nearly forty years, resulting in the price we received for a finished hog being
28
substantially less than the cost to produce the hog. The prices for weanling and
feeder pigs also decreased dramatically. As a result, in the fiscal years ended
December 31, 2000 and 1999, we experienced operating losses in the swine
production business; a large portion of which were attributable to our
contracts, which guarantee swine producers certain minimum prices for feeder
pigs. Although we do not intend to renew or extend these contracts, we may
continue to incur losses under these contracts until the last ones expire in
2004.
WE OPERATE THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO EARNINGS AND TO CONTROL
THE JOINT VENTURE ARE LIMITED.
We produce, market and sell products through numerous joint ventures with
unaffiliated third parties.
The terms of each joint venture are different, but our joint venture
agreements generally contain:
- - restrictions on our ability to transfer our ownership interest in the
joint venture;
- - no right to receive distributions without the unanimous consent of the
members of the joint venture; and
- - non-competition arrangements restricting our ability to engage
independently in the same line of business as the joint venture.
In addition to these restrictions, in connection with the formation of some
of our joint ventures, we have entered into purchase or supply agreements which
require us to purchase a minimum amount of the products produced by the joint
venture or supply a minimum amount of the raw materials used by the joint
venture. The day-to-day operations of some of our joint ventures are managed by
us through a management contract and others are managed by other joint venture
members. As a result, we do not have day-to-day control over certain of these
companies.
LAND O'LAKES INABILITY TO SERVICE ITS INDEBTEDNESS COULD REQUIRE US TO MAKE
SIGNIFICANT CASH PAYMENTS, INCLUDING THE FORECLOSED VALUE OF SUBSTANTIALLY ALL
OF OUR ASSET, TO FULLY SATISFY OUR GUARANTEE OF THAT INDEBTEDNESS.
Along with all of our wholly-owned domestic subsidiaries, we jointly and
severally guarantee the performance and full and punctual payment of Land
O'Lakes indebtedness and have secured that obligation with a security interest
in substantially all of our assets. In the event that Land O'Lakes is unable to
fully and punctually service its indebtedness, Land O'Lakes creditors would look
to us for complete satisfaction of the indebtedness. To the extent that we do
not have sufficient cash available to fully satisfy our guarantee, Land O'Lakes
creditors could force us to sell substantially all of our assets and forfeit all
of the resulting proceeds.
The covenants governing Land O'Lakes indebtedness may impose operating and
other restrictions on us that will affect and may limit or prohibit, among other
things, our ability to incur additional debt and sell or otherwise dispose of
our assets.
WE MAY NOT SUCCESSFULLY IMPLEMENT THE STRATEGIES RELATING TO OUR RECENT
ACQUISITIONS OR ACHIEVE THE ANTICIPATED BENEFITS FROM THESE ACQUISITIONS.
The integration and consolidation of Purina Mills as well as the other
acquisitions into our business require substantial management, financial and
other resources. Such integration involves a number of significant risks,
including:
- - unforeseen liabilities;
- - unanticipated problems with the quality of the assets of the acquired
businesses;
- - loss of customers;
- - personnel turnover;
- - loss of relationships with suppliers or service providers; and
- - diversion of management's attention from other aspects of our business.
The effects of these risks and our inability to integrate and manage Purina
Mills and the other acquired businesses successfully or to achieve a substantial
portion of the anticipated cost savings from these acquisitions in the timeframe
we anticipate, could have a material adverse effect on our business, financial
condition or results of operations. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO
POTENTIAL CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR BUSINESS.
We are subject to Federal, state and local laws and regulations relating to
the manufacturing, labeling, packaging, health and safety, sanitation, quality
control, fair trade practices, and other aspects of our business. In addition,
zoning, construction and operating permits are required from governmental
agencies which focus on issues such as land use, environmental protection, waste
management, and the movement of animals across state lines. These laws and
regulations may, in certain instances, affect our ability
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to develop and market new products and to utilize technological innovations in
our business. In addition, changes in these rules might increase the cost of
operating our facilities or conducting our business which would adversely affect
our finances.
As a manufacturer of animal feed products, we are subject to the Federal
Food, Drug and Cosmetic Act and regulations issued thereunder by the Food and
Drug Administration ("FDA"). Several states also have laws that protect feed
distributors or restrict the ability of corporations to engage in farming
activities. These regulations may require us to alter or restrict our operations
or cause us to incur additional costs in order to comply with the regulations.
INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD DAMAGE
OUR COMPETITIVE POSITION.
We rely on patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our intellectual
property. We have invested substantial resources promoting and developing our
trademarked brands and establishing their reputation as high-quality products
Any infringement or misappropriation of our intellectual property could damage
its value, could limit our ability to compete, could damage our reputation and
decrease our trademarks' value. We may have to engage in litigation to protect
our rights to our intellectual property, which could result in significant
litigation costs and require a significant amount of management's time.
Purina Mills, LLC, a wholly owned subsidiary of LOLFF, licenses the
trademarks Purina, Chow and the "Checkerboard" Nine Square Logo under a
perpetual, royalty-free license from Nestle Purina PetCare Company. Under the
terms of the license agreement, Nestle Purina PetCare Company retains primary
responsibility for protecting the licensed trademarks from infringement. If
Nestle Purina PetCare Company fails to assert its rights to the licensed
trademarks, Purina Mills may be unable to stop such infringement or cause them
to do so. Any such infringement of the licensed trademarks, or of similar
trademarks of Nestle Purina PetCare Company, could result in a dilution in the
value of the licensed trademarks.
OUR BRAND NAMES COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES WHO, BY THEIR
ACT OR OMISSION, COULD ADVERSELY AFFECT THE VALUE OF OUR BRAND NAMES.
Purina Mills' products are generally marketed under the trademarks Purina,
Chow and the "Checkerboard" Nine Square Logo under a perpetual, royalty-free
license from Nestle Purina PetCare Company. Nestle Purina PetCare Company
markets widely recognized products under the same trademarks and has given other
unaffiliated companies the right to market products under these trademarks. A
competitor of ours, Cargill, licenses from Nestle Purina PetCare Company the
right to market the same types of products which Purina Mills sells under these
trademarks in countries other than the United States. Acts or omissions by
Nestle Purina PetCare Company or other unaffiliated companies may adversely
affect the value of the Purina, Chow and the "Checkerboard" Nine Square Logo
trademarks and the demand for Purina Mills' products. Third-party announcements
or rumors about these unaffiliated companies could also have these negative
effects.
PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS.
The sale of animal feed products involves the risk of injury to animal
consumers as well as to humans who consume those animals. Such hazards could
result from:
- - tampering by unauthorized third parties;
- - product contamination (such as listeria, E. coli. and salmonella) or
spoilage;
- - the presence of foreign objects, substances, chemicals, and other
agents;
- - residues introduced during the growing, storage, handling or
transportation phases; or
- - improperly formulated products which either do not contain the proper
mixture of ingredients or which otherwise do not have the proper
attributes.
Some of the products we sell are produced for us by third parties, or
contain inputs manufactured by third parties, and such third parties may not
have adequate quality control standards to assure that such products are not
adulterated, misbranded, contaminated or otherwise defective. We may be subject
to claims made by consumers as a result of products manufactured by these third
parties
30
which are marketed under our brand names.
Consumption of our products may cause serious health-related illnesses and
we may be subject to claims or lawsuits relating to such matters. Even an
inadvertent shipment of adulterated products is a violation of law and may lead
to an increased risk of exposure to product liability claims, product recalls
and increased scrutiny by federal and state regulatory agencies. Such claims or
liabilities may not be covered by our insurance or by any rights of indemnity or
contribution which we may have against others in the case of products which are
produced by third parties. In addition, even if a product liability claim is not
successful or is not fully pursued, the negative publicity surrounding any
assertion that our products caused illness or injury could have a material
adverse effect on our reputation with existing and potential customers and on
our brand image. In the past, we have voluntarily recalled certain of our
products in response to reported or suspected contamination. If we determine to
recall any of our products, we may face material consumer claims.
OUR BUSINESS IS SUBJECT TO THE RISK OF ENVIRONMENTAL LIABILITY AND WE COULD BE
NAMED AS A RESPONSIBLE OR POTENTIALLY RESPONSIBLE PARTY.
Many of our current and former facilities have been in operation for many
years and, over that time, we and other operators of those facilities have
generated, used, stored, or disposed of substances or wastes that are or might
be considered hazardous under applicable environmental laws, including chemicals
and fuel stored in underground and above-ground tanks, animal wastes and large
volumes of wastewater discharges. As a result, the soil and groundwater at or
under certain of our current and former facilities may have been contaminated,
and we may be required to make material expenditures to investigate, control and
remediate such contamination.
In addition, federal and state environmental authorities have proposed new
regulations and attempted to apply certain existing regulations for the first
time to agricultural operations. These regulations could result in significant
restraints on some of our operations, particularly our swine operations, and
could require us to spend significant amounts of money to bring these operations
into compliance.
STRIKES OR WORK STOPPAGES BY OUR UNIONIZED WORKERS COULD DISRUPT OUR BUSINESS.
At June 30, 2002, approximately 11% of our employees were covered by
collective bargaining agreements, some of which are due to expire within the
year. Our inability to negotiate acceptable contracts with the unions upon
expiration of these contracts could result in strikes or work stoppages and
increased operating costs as a result of higher wages or benefits paid to union
members or replacement workers. If the unionized workers were to engage in a
strike or work stoppage, or other non-unionized operations were to become
unionized, we could experience a significant disruption of our operations or
higher ongoing labor costs.
THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM OR OTHER KEY EMPLOYEES
WILL REMAIN WITH US.
We believe that our ability to successfully implement our business strategy
and to operate profitably depends on the continued employment of our senior
management team and other key employees. If members of the management team or
other key employees become unable or unwilling to continue in their present
positions, the operation of our business would be disrupted and we may not be
able to replace their skills and leadership in a timely manner to continue our
operations as currently anticipated. We operate generally without employment
agreements with, or key person life insurance on the lives of, our key
personnel.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY RISK
In the ordinary course of business, we are subject to market risk resulting
from changes in commodity prices associated with dairy and other agricultural
markets. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Overview -- Factors Affecting
Comparability -- Dairy and Agricultural Commodity Inputs and Outputs." To manage
the potential negative impact of price fluctuations, we engage in various
hedging and other risk management activities.
As part of our trading activity, we utilize futures and option contracts
offered through regulated commodity exchanges to reduce risk on the market value
of our inventories and our fixed or partially fixed purchase and sale contracts.
We do not utilize hedging instruments for speculative purposes.
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Certain commodities cannot be hedged with futures or option contracts
because such contracts are not offered for these commodities by regulated
commodity exchanges. Inventories and purchase contracts for those commodities
are hedged with forward sales contracts to the extent practical so as to arrive
at a net commodity position within the formal position limits set by us and
deemed prudent for each of those commodities. Commodities for which future
contracts and options are available are also typically hedged first in this
manner, with futures and options used to hedge within position limits that
portion not covered by forward contracts.
The notional or contractual amount of futures contracts provides an
indication of the extent of our involvement in such instruments for the dates
and the periods provided below, but does not represent exposure to market risk
or future cash requirements under certain of these instruments. A summary of our
futures contracts follows:
AT JUNE 30,
-------------------------------------------
2002 2001
-------------------- -------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Commodity futures contracts
Commitments to purchase . $ 39,151 $ 1,632 $ 23,064 $ (491)
Commitments to sell ..... (20,807) (759) (2,137) 19
-------- -------- -------- --------
Total outstanding
derivatives ......... $ 18,344 $ 873 $ 20,927 $ (472)
======== ======== ======== ========
THREE MONTHS ENDED JUNE 30,
---------------------------------------------
2002 2001
--------------------- ----------------------
REALIZED REALIZED
NOTIONAL GAINS NOTIONAL GAINS
AMOUNT (LOSSES) AMOUNT (LOSSES)
-------- -------- -------- --------
(IN THOUSANDS)
Commodity futures contracts
Total volume of exchange
traded contracts:
Commitments to purchase.. $ 45,939 $ 2,346 $ 26,772 $ (798)
Commitments to sell...... $(51,770) $ (1,091) $(35,279) $ 30
SIX MONTHS ENDED JUNE 30,
------------------------------------------------
2002 2001
----------------------- -----------------------
REALIZED REALIZED
NOTIONAL GAINS NOTIONAL GAINS
AMOUNT (LOSSES) AMOUNT (LOSSES)
---------- --------- ---------- ----------
(IN THOUSANDS)
Commodity futures contracts
Total volume of exchange
traded contracts:
Commitments to purchase.. $ 115,457 $ (1,186) $ 45,239 $ (980)
Commitments to sell ..... $(119,882) $ 552 $ (52,585) $ 37
INTEREST RATE RISK
We are exposed to changes in interest rates. Interest rate changes generally
impact the amount of interest payments and, therefore, future earnings and cash
flows, assuming other factors are held constant. Holding other variables
constant, including levels of indebtedness, a one-percentage point increase in
interest rates would have an estimated negative impact on pretax earnings and
cash flows for the next year of approximately $0.6 million.
INFLATION RISK
Inflation is not expected to have a significant impact on our business,
financial condition or results of operations. We generally have been able to
offset the impact of inflation through a combination of productivity
improvements and price increases.
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Certification of Formation of Land O'Lakes Farmland Feed LLC dated
August 11, 2000. (1)
3.2 Limited Liability Company Agreement of Land O'Lakes Farmland Feed LLC. (2)
4.1 Credit Agreement among Land O'Lakes, Inc., the Lenders party
thereto and The Chase Manhattan Bank, dated as of October
11, 2001. (3)
4.2 First Amendment dated November 6, 2001 to the Credit
Agreement dated October 11, 2001. (3)
4.3 Second Amendment dated February 15, 2002 to the Credit
Agreement dated October 11, 2001. (3)
4.4 Guarantee and Collateral Agreement among Land O'Lakes, Inc.
and certain of its subsidiaries and The Chase Manhattan
Bank, dated as of October 11, 2001. (3)
4.5 Indenture dated as of November 14, 2001, among Land O'Lakes,
Inc. and certain of its subsidiaries, and U.S. Bank,
including Form of 8 3/4% Senior Notes due 2011 and Form of
8 3/4% Senior Notes due 2011. (3)
4.6 Registration Rights Agreement dated November 14, 2001 by and
among Land O'Lakes, Inc. and certain of its subsidiaries,
J.P. Morgan Securities Inc., SPP Capital Partners, LLC,
SunTrust Robinson Capital Markets, Inc., Tokyo-Mitsubishi
International plc and U.S. Bancorp Piper Jaffray, Inc. (3)
4.7 Purchase Agreement by and between Land O'Lakes, Inc., and
certain of its subsidiaries, J.P. Morgan Securities Inc.,
SPP Capital Partners, LLC, SunTrust Robinson Capital
Markets, Inc., Tokyo-Mitsubishi International plc and U.S.
Bancorp Piper Jaffray, Inc., dated as of November 8, 2001. (3)
4.8 Form of Old Note (included in Exhibit 4.5). (3)
4.9 Form of New Note (included in Exhibit 4.5). (3)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference to exhibit 3.28 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration
No. 333-84486).
(2) Incorporated by reference to exhibit 3.29 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration
No. 333-84486).
(3) Incorporated by reference to the identical exhibit to Land O'Lakes,
Inc. Registration Statement on Form S-4 filed March 18, 2002
(Registration No. 333-84486).
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for Land O'Lakes Farmland Feed
LLC for the three months ended June 30, 2002.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Arden Hills,
State of Minnesota, on the 14th day of August, 2002.
LAND O'LAKES FARMLAND FEED LLC
By /s/ DANIEL KNUTSON
--------------------------------------
Daniel Knutson
Chief Financial Officer
(Principal Financial and Accounting Officer)
34