##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended September 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to            .
 Commission file number 333-84486
 Land OLakes, Inc.
 (Exact name of Registrant as Specified in Its Charter)
 Minnesota
    
    41-0365145(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)4001 Lexington Avenue NorthArden Hills, Minnesota
    
    55112(Address of Principal Executive Offices)
    
    (Zip Code)
 (651) 481-2222  (Registrants Telephone Number, Including Area Code)
 o þ
  o o þ
 o þ
   www.landolakesinc.com




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##### Table of Contents



INDEX
 PagePart I Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30,
2006 and 2005 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
(unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40Part II Other Information
    
    
    40Item 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    41Item 6. Exhibits
    
    
    42SIGNATURES
    
    
    43Amended and Restated Five-Year Revolving AgreementSecond Amended and Restated Receivables Purchase AgreementThird Amendment to Purchase and Sale AgreementSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification
 2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 LAND OLAKES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,379
    
    
    $
    179,704Receivables, net
    
    
    527,924
    
    
    
    591,445Inventories
    
    
    458,957
    
    
    
    453,135Prepaid expenses
    
    
    29,395
    
    
    
    333,023Other current assets
    
    
    49,311
    
    
    
    81,075Total current assets
    
    
    1,100,966
    
    
    
    1,638,382Investments
    
    
    289,646
    
    
    
    263,786Property, plant and equipment, net
    
    
    656,049
    
    
    
    668,650Goodwill, net
    
    
    319,032
    
    
    
    327,059Other intangibles, net
    
    
    94,041
    
    
    
    96,767Other assets
    
    
    109,110
    
    
    
    100,414Total assets
    
    $
    2,568,844
    
    
    $
    3,095,058LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    124,598
    
    
    $
    76,465Current portion of long-term debt and obligations under capital lease
    
    
    12,323
    
    
    
    23,921Accounts payable
    
    
    458,953
    
    
    
    976,959Accrued expenses
    
    
    221,465
    
    
    
    265,924Patronage refunds and other member equities payable
    
    
    12,144
    
    
    
    29,622Total current liabilities
    
    
    829,483
    
    
    
    1,372,891Long-term debt and obligations under capital lease
    
    
    632,704
    
    
    
    646,802Employee benefits and other liabilities
    
    
    175,965
    
    
    
    165,796Minority interests
    
    
    8,673
    
    
    
    6,012Equities:Capital stock
    
    
    1,874
    
    
    
    1,967Member equities
    
    
    911,234
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (74,415
    )
    
    
    (75,163
    )Retained earnings
    
    
    83,326
    
    
    
    83,235Total equities
    
    
    922,019
    
    
    
    903,557Commitments and contingenciesTotal liabilities and equities
    
    $
    2,568,844
    
    
    $
    3,095,058
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005($ in thousands)Net sales
    
    $
    1,580,529
    
    
    $
    1,717,509
    
    
    $
    5,339,966
    
    
    $
    5,555,402Cost of sales
    
    
    1,455,118
    
    
    
    1,590,280
    
    
    
    4,891,199
    
    
    
    5,119,242Gross profit
    
    
    125,411
    
    
    
    127,229
    
    
    
    448,767
    
    
    
    436,160Selling, general and administrative
    
    
    123,118
    
    
    
    128,111
    
    
    
    389,801
    
    
    
    384,207Restructuring and impairment charges
    
    
    15,116
    
    
    
    
    
    
    
    19,397
    
    
    
    1,024(Loss) earnings from operations
    
    
    (12,823
    )
    
    
    (882
    )
    
    
    39,569
    
    
    
    50,929Interest expense, net
    
    
    12,985
    
    
    
    19,288
    
    
    
    44,725
    
    
    
    62,350Other income, net
    
    
    (1,754
    )
    
    
    
    
    
    
    (17,624
    )
    
    
    (1,385
    )Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    (102,446
    )
    
    
    
    
    
    
    (102,446
    )Equity in losses (earnings) of affiliated companies
    
    
    2,383
    
    
    
    1,709
    
    
    
    (27,346
    )
    
    
    (42,070
    )Minority interest in earnings of subsidiaries
    
    
    542
    
    
    
    142
    
    
    
    1,127
    
    
    
    959(Loss) earnings before income taxes and discontinued operations
    
    
    (26,979
    )
    
    
    80,425
    
    
    
    38,687
    
    
    
    133,521Income tax (benefit) expense
    
    
    (10,282
    )
    
    
    6
    
    
    
    (5,480
    )
    
    
    4,972Net (loss) earnings from continuing operations
    
    
    (16,697
    )
    
    
    80,419
    
    
    
    44,167
    
    
    
    128,549Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    2,032Net (loss) earnings
    
    $
    (16,697
    )
    
    $
    80,438
    
    
    $
    44,167
    
    
    $
    130,581Applied to:Member equitiesAllocated patronage
    
    $
    5,237
    
    
    $
    74,932
    
    
    $
    42,255
    
    
    $
    118,796Deferred equities
    
    
    707
    
    
    
    808
    
    
    
    525
    
    
    
    (1,487
    )5,944
    
    
    
    75,740
    
    
    
    42,780
    
    
    
    117,309Retained earnings
    
    
    (22,641
    )
    
    
    4,698
    
    
    
    1,387
    
    
    
    13,272$
    (16,697
    )
    
    $
    80,438
    
    
    $
    44,167
    
    
    $
    130,581
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Nine Months EndedSeptember 30,2006
    
    
    2005($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    44,167
    
    
    $
    130,581Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2,032
    )Adjustments to reconcile net earnings to net cash provided (used) by operating activities:Depreciation and amortization
    
    
    71,271
    
    
    
    74,539Amortization of deferred financing costs
    
    
    1,759
    
    
    
    5,768Bad debt expense
    
    
    1,983
    
    
    
    1,122Proceeds from patronage revolvement received
    
    
    4,961
    
    
    
    3,428Non-cash patronage income
    
    
    (1,138
    )
    
    
    (958
    )Deferred income tax expense
    
    
    2,252
    
    
    
    5,183Decrease in other assets
    
    
    3,553
    
    
    
    8,000(Decrease) increase in other liabilities
    
    
    (2,487
    )
    
    
    3,025Restructuring and impairment charges
    
    
    19,397
    
    
    
    1,024Gain on divestiture of businesses
    
    
    (8,063
    )
    
    
    Gain on sale of investments
    
    
    (7,736
    )
    
    
    (102,446
    )Equity in earnings of affiliated companies
    
    
    (27,346
    )
    
    
    (42,070
    )Dividends from affiliated companies
    
    
    3,952
    
    
    
    5,038Minority interests
    
    
    1,127
    
    
    
    959Other
    
    
    (3,222
    )
    
    
    (5,849
    )Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    132,178
    
    
    
    32,963Inventories
    
    
    (6,217
    )
    
    
    (70,112
    )Prepaids and
other current assets
    
    
    296,602
    
    
    
    256,076Accounts payable
    
    
    (518,441
    )
    
    
    (376,568
    )Accrued expenses
    
    
    29,342
    
    
    
    58,560Net cash provided (used) by operating activities
    
    
    37,894
    
    
    
    (13,769
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (50,658
    )
    
    
    (44,465
    )Acquisitions
    
    
    (84,187
    )
    
    
    (42,892
    )Payments for investments
    
    
    (4,025
    )
    
    
    (4,893
    )Proceeds from sale of investments
    
    
    8,819
    
    
    
    316,448Net proceeds from divestiture of businesses
    
    
    37,220
    
    
    
    2,635Proceeds from sale of property, plant and equipment
    
    
    1,248
    
    
    
    17,942Other
    
    
    6,908
    
    
    
    20,706Net cash (used) provided by investing activities
    
    
    (84,675
    )
    
    
    265,481Cash flows from financing activities:Decrease in short-term debt, net
    
    
    (32,244
    )
    
    
    (203
    )Proceeds from issuance of long-term debt
    
    
    10,004
    
    
    
    1,751Principal payments on long-term debt and capital lease obligations
    
    
    (35,286
    )
    
    
    (227,124
    )Payments for redemption of member equities
    
    
    (43,193
    )
    
    
    (33,897
    )Payments for
debt issuance costs
    
    
    (1,527
    )
    
    
    Other
    
    
    5,051
    
    
    
    (279
    )Net cash used by financing activities
    
    
    (97,195
    )
    
    
    (259,752
    )Net cash (used) provided by operating activities of discontinued operations (revised)
    
    
    (349
    )
    
    
    3,942Net cash provided by investing activities of discontinued operations (revised)
    
    
    
    
    
    
    42,135Net (decrease) increase in cash and cash equivalents
    
    
    (144,325
    )
    
    
    38,037Cash and cash equivalents at beginning of the period
    
    
    179,704
    
    
    
    73,136Cash and cash equivalents at end of the period
    
    $
    35,379
    
    
    $
    111,173Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    39,868
    
    
    $
    51,375Income taxes paid
    
    
    4,626
    
    
    
    570
  5




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LAND OLAKES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 ($ in thousands in tables)
(Unaudited)
 1. Summary of Significant Accounting Policies
 
  Recent Accounting Pronouncements
   How
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation)
   6




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Accounting Estimates
  2. Receivables
  September 30,
    
    
    December 31,2006
    
    
    2005Trade accounts
    
    $
    371,807
    
    
    $
    95,040Notes and contracts
    
    
    98,206
    
    
    
    90,119Notes from sale of trade receivables
    
    
    
    
    
    
    369,429Other
    
    
    71,976
    
    
    
    51,167541,989
    
    
    
    605,755Less allowance for doubtful accounts
    
    
    14,065
    
    
    
    14,310Total receivables, net
    
    $
    527,924
    
    
    $
    591,445
    3. Inventories
  September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    146,384
    
    
    $
    148,560Work in process
    
    
    1,655
    
    
    
    2,297Finished goods
    
    
    310,918
    
    
    
    302,278Total inventories
    
    $
    458,957
    
    
    $
    453,135
 7




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##### Table of Contents



4. Investments
  September 30,
    
    
    December 31,2006
    
    
    2005Agriliance LLC
    
    $
    141,731
    
    
    $
    112,932Ag Processing Inc.
    
    
    36,544
    
    
    
    35,831Advanced Food Products, LLC
    
    
    32,577
    
    
    
    31,904Agronomy Company of Canada LTD.
    
    
    16,976
    
    
    
    14,464CoBank, ACB
    
    
    6,047
    
    
    
    10,688Universal Cooperatives, Inc.
    
    
    7,899
    
    
    
    7,716Melrose Dairy Proteins, LLC
    
    
    5,331
    
    
    
    7,495Golden Oval Eggs, LLC
    
    
    4,762
    
    
    
    Prairie Farms Dairy, Inc.
    
    
    4,382
    
    
    
    4,315Other  principally cooperatives and joint ventures
    
    
    33,397
    
    
    
    38,441Total investments
    
    $
    289,646
    
    
    $
    263,786
   For the three
    
    For the threemonths ended
    
    months endedSeptember 30,
    
    September 30,2006
    
    2005Net sales
    
    $
    633,638
    
    
    $
    669,309Gross profit
    
    
    64,774
    
    
    
    64,363Net loss
    
    
    (8,098
    )
    
    
    (6,561
    )For the nine
    
    For the ninemonths ended
    
    months endedSeptember 30,
    
    September 30,2006
    
    2005Net sales
    
    $
    3,041,259
    
    
    $
    3,128,340Gross profit
    
    
    296,052
    
    
    
    321,641Net earnings
    
    
    56,613
    
    
    
    86,189September 30,
    
    December 31,2006
    
    2005Current assets
    
    $
    1,300,264
    
    
    $
    1,712,290Non-current assets
    
    
    167,842
    
    
    
    154,270Current liabilities
    
    
    1,053,356
    
    
    
    1,520,780Non-current liabilities
    
    
    131,914
    
    
    
    119,917Total equity
    
    
    282,836
    
    
    
    225,863
 5. Goodwill and Other Intangible Assets
 Goodwill
  September 30,
    
    
    December 31,2006
    
    
    2005Feed
    
    $
    128,825
    
    
    $
    115,593Dairy Foods
    
    
    69,904
    
    
    
    69,904Layers
    
    
    62,918
    
    
    
    79,567Agronomy
    
    
    46,984
    
    
    
    51,566Seed
    
    
    10,401
    
    
    
    10,429Total goodwill
    
    $
    319,032
    
    
    $
    327,059
 8




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##### Table of Contents



Other Intangible Assets
  September 30,
    
    
    December 31,2006
    
    
    2005Amortized other intangible assets:Patents, less accumulated amortization of $5,775 and $4,909, respectively
    
    $
    10,936
    
    
    $
    11,802Trademarks, less accumulated amortization of $2,511 and $2,078, respectively
    
    
    1,459
    
    
    
    1,892Other intangible assets, less accumulated amortization of $9,970 and $8,543, respectively
    
    
    5,021
    
    
    
    6,448Total amortized other intangible assets
    
    
    17,416
    
    
    
    20,142Total non-amortized other intangible assets  trademarks and dealer network
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    94,041
    
    
    $
    96,767
  6. Debt Obligations
 Notes and Short-term Obligations
     9




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Long-term Debt
  September 30,
    
    
    December 31,2006
    
    
    2005Senior unsecured notes  due 2011 (8.75%)
    
    $
    196,452
    
    
    $
    196,452Senior secured notes  due 2010 (9.00%)
    
    
    175,000
    
    
    
    175,000MoArk LLC debt  due 2006 through 2023 (7.75% weighted average)
    
    
    38,856
    
    
    
    59,136Industrial development revenue bonds and other secured notes payable  due 2006 through 2016 (3.21% to 6.00%)
    
    
    14,875
    
    
    
    14,893Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700Capital lease obligations
    
    
    8,172
    
    
    
    9,310Other debt
    
    
    20,972
    
    
    
    25,232645,027
    
    
    
    670,723Less current portion
    
    
    12,323
    
    
    
    23,921Total long-term debt
    
    $
    632,704
    
    
    $
    646,802
   7. Other Comprehensive Income
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net (loss) earnings
    
    $
    (16,697
    )
    
    $
    80,438
    
    
    $
    44,167
    
    
    $
    130,581Unrealized gain (loss) on available-for-sale-investment securities
    
    
    (49
    )
    
    
    57
    
    
    
    (107
    )
    
    
    (45
    )Change in minimum pension liability, net of taxes
    
    
    111
    
    
    
    (257
    )
    
    
    111
    
    
    
    3,123Foreign currency translation adjustment, net of taxes
    
    
    201
    
    
    
    776
    
    
    
    743
    
    
    
    1,802Total comprehensive income
    
    $
    (16,434
    )
    
    $
    81,014
    
    
    
    44,914
    
    
    
    135,461
 8. Income Taxes
  9. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    4,850
    
    
    $
    4,625
    
    
    $
    175
    
    
    $
    200Interest cost
    
    
    7,925
    
    
    
    7,350
    
    
    
    975
    
    
    
    1,025Expected return on assets
    
    
    (8,650
    )
    
    
    (8,400
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    3,425
    
    
    
    2,500
    
    
    
    675
    
    
    
    683Amortization of prior service cost
    
    
    (125
    )
    
    
    (50
    )
    
    
    75
    
    
    
    75Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    150Net periodic benefit cost
    
    $
    7,425
    
    
    $
    6,025
    
    
    $
    2,050
    
    
    $
    2,133
 10




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##### Table of Contents



Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    14,550
    
    
    $
    13,875
    
    
    $
    525
    
    
    $
    600Interest cost
    
    
    23,775
    
    
    
    22,050
    
    
    
    2,925
    
    
    
    3,075Expected return on assets
    
    
    (25,950
    )
    
    
    (25,200
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    10,275
    
    
    
    7,500
    
    
    
    2,025
    
    
    
    2,049Amortization of prior service cost
    
    
    (375
    )
    
    
    (150
    )
    
    
    225
    
    
    
    225Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    450Net periodic benefit cost
    
    $
    22,275
    
    
    $
    18,075
    
    
    $
    6,150
    
    
    $
    6,399
   10. Share-Based Compensation
      11. Acquisitions of Minority Interests
  11




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##### Table of Contents



12. Restructuring and Impairment Charges
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Restructuring charges
    
    $
    116
    
    
    $
    
    
    
    $
    1,614
    
    
    $
    Impairment charges
    
    
    15,000
    
    
    
    
    
    
    
    17,783
    
    
    
    1,024Total restructuring and impairment charges
    
    $
    15,116
    
    
    $
    
    
    
    $
    19,397
    
    
    $
    1,024
 Restructuring Charges
  Impairment charges
    13. Discontinued Operations
  14. Other Income, Net
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gain on divestiture
    
    $
    (29
    )
    
    $
    
    
    
    $
    (8,063
    )
    
    $
    Loss (gain) on sale of investments
    
    
    100
    
    
    
    
    
    
    
    (7,736
    )
    
    
    (802
    )Gain on sale of intangible
    
    
    (1,825
    )
    
    
    
    
    
    
    (1,825
    )
    
    
    Gain on legal settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (583
    )Total other income, net
    
    $
    (1,754
    )
    
    $
    
    
    
    $
    (17,624
    )
    
    $
    (1,385
    )
  12




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##### Table of Contents



15. Segment Information
        13




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##### Table of Contents



Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended September 30, 2006:Net sales
    
    $
    821,918
    
    
    $
    628,946
    
    
    $
    55,169
    
    
    $
    
    
    
    $
    73,796
    
    
    $
    700
    
    
    $
    1,580,529Cost of sales(1)
    
    
    771,305
    
    
    
    557,962
    
    
    
    49,266
    
    
    
    
    
    
    
    75,711
    
    
    
    874
    
    
    
    1,455,118Selling, general and administrative
    
    
    40,033
    
    
    
    58,536
    
    
    
    15,850
    
    
    
    3,694
    
    
    
    6,863
    
    
    
    (1,858
    )
    
    
    123,118Restructuring and impairment charges
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    15,116Interest expense (income), net
    
    
    7,982
    
    
    
    6,158
    
    
    
    (1,993
    )
    
    
    (1,747
    )
    
    
    3,735
    
    
    
    (1,150
    )
    
    
    12,985Other (income) expense, net
    
    
    (1,825
    )
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (1,754
    )Equity in (earnings) loss of affiliated companies
    
    
    (826
    )
    
    
    (684
    )
    
    
    (285
    )
    
    
    1,963
    
    
    
    2,206
    
    
    
    9
    
    
    
    2,383Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    542Earnings (loss) before income taxes and
discontinued operations
    
    $
    5,133
    
    
    $
    6,364
    
    
    $
    (7,669
    )
    
    $
    (3,910
    )
    
    $
    (29,719
    )
    
    $
    2,822
    
    
    $
    (26,979
    )For the three months ended September 30, 2005:Net sales
    
    $
    952,461
    
    
    $
    623,810
    
    
    $
    42,669
    
    
    $
    
    
    
    $
    95,566
    
    
    $
    3,003
    
    
    $
    1,717,509Cost of sales(1)
    
    
    903,497
    
    
    
    558,907
    
    
    
    33,053
    
    
    
    
    
    
    
    91,925
    
    
    
    2,898
    
    
    
    1,590,280Selling, general and administrative
    
    
    37,343
    
    
    
    57,589
    
    
    
    10,824
    
    
    
    18,538
    
    
    
    3,357
    
    
    
    460
    
    
    
    128,111Interest expense (income), net
    
    
    9,854
    
    
    
    6,526
    
    
    
    (1,590
    )
    
    
    1,549
    
    
    
    3,601
    
    
    
    (652
    )
    
    
    19,288Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in
(earnings) loss of affiliated companies
    
    
    (1,365
    )
    
    
    (268
    )
    
    
    
    
    
    
    1,401
    
    
    
    1,939
    
    
    
    2
    
    
    
    1,709Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    136
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142Earnings (loss) before income taxes and
discontinued operations
    
    $
    3,132
    
    
    $
    920
    
    
    $
    376
    
    
    $
    80,958
    
    
    $
    (5,256
    )
    
    $
    295
    
    
    $
    80,425
 Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the nine months ended September 30, 2006 :Net sales
    
    $
    2,482,281
    
    
    $
    1,967,862
    
    
    $
    607,066
    
    
    $
    
    
    
    $
    286,843
    
    
    $
    (4,086
    )
    
    $
    5,339,966Cost of sales(1)
    
    
    2,334,246
    
    
    
    1,763,484
    
    
    
    518,365
    
    
    
    
    
    
    
    277,161
    
    
    
    (2,057
    )
    
    
    4,891,199Selling, general and administrative
    
    
    126,385
    
    
    
    176,987
    
    
    
    50,516
    
    
    
    10,443
    
    
    
    26,335
    
    
    
    (865
    )
    
    
    389,801Restructuring and impairment charges
    
    
    4,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    19,397Interest expense (income), net
    
    
    24,985
    
    
    
    18,751
    
    
    
    (976
    )
    
    
    (8,231
    )
    
    
    13,356
    
    
    
    (3,160
    )
    
    
    44,725Other (income) expense, net
    
    
    (9,662
    )
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    (8,033
    )
    
    
    3
    
    
    
    (17,624
    )Equity in (earnings) loss of affiliated companies
    
    
    (458
    )
    
    
    (1,101
    )
    
    
    (285
    )
    
    
    (30,299
    )
    
    
    4,793
    
    
    
    4
    
    
    
    (27,346
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,127Earnings (loss) before income taxes and discontinued
operations
    
    $
    2,388
    
    
    $
    8,546
    
    
    $
    39,446
    
    
    $
    28,087
    
    
    $
    (41,769
    )
    
    $
    1,989
    
    
    $
    38,687For the nine months ended September 30, 2005 :Net sales
    
    $
    2,844,811
    
    
    $
    1,881,366
    
    
    $
    532,719
    
    
    $
    
    
    
    $
    287,079
    
    
    $
    9,427
    
    
    $
    5,555,402Cost of sales(1)
    
    
    2,706,613
    
    
    
    1,668,232
    
    
    
    461,250
    
    
    
    
    
    
    
    275,141
    
    
    
    8,006
    
    
    
    5,119,242Selling, general and administrative
    
    
    119,971
    
    
    
    175,276
    
    
    
    39,619
    
    
    
    25,590
    
    
    
    22,055
    
    
    
    1,696
    
    
    
    384,207Restructuring and impairment charges
    
    
    863
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    1,024Interest expense (income), net
    
    
    26,726
    
    
    
    20,305
    
    
    
    841
    
    
    
    5,943
    
    
    
    10,518
    
    
    
    (1,983
    )
    
    
    62,350Other income, net
    
    
    (14
    )
    
    
    (1,371
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,385
    )Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated companies
    
    
    (3,481
    )
    
    
    (1,036
    )
    
    
    
    
    
    
    (44,536
    )
    
    
    6,976
    
    
    
    7
    
    
    
    (42,070
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    953
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    959Earnings (loss) before income taxes and discontinued
operations
    
    $
    (5,867
    )
    
    $
    18,903
    
    
    $
    31,003
    
    
    $
    115,449
    
    
    $
    (27,611
    )
    
    $
    1,644
    
    
    $
    133,521
 
 (1)
    
    Cost of sales includes unrealized hedging losses (gains) of: Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    
    ConsolidatedFor the three months ended: September 30, 2006
    
    $
    1,895
    
    
    $
    696
    
    
    $
    1,243
    
    
    $
    
    
    
    $
    (17
    )
    
    $
    271
    
    
    $
    4,088For the three months ended: September 30, 2005
    
    
    (3,601
    )
    
    
    2,441
    
    
    
    538
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    (704
    )For the nine months ended: September 30, 2006
    
    
    (693
    )
    
    
    949
    
    
    
    1,050
    
    
    
    
    
    
    
    (279
    )
    
    
    551
    
    
    
    1,578For the nine months ended: September 30, 2005
    
    
    (3,494
    )
    
    
    (2,712
    )
    
    
    939
    
    
    
    
    
    
    
    (1,097
    )
    
    
    
    
    
    
    (6,364
    )
   14




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##### Table of Contents



16. Unusual Event
  17. Consolidating Financial Information
      15




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
September 30, 2006
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,114
    
    
    $
    1,948
    
    
    $
    29,317
    
    
    $
    
    
    
    $
    35,379Receivables, net
    
    
    197,602
    
    
    
    212,350
    
    
    
    336,799
    
    
    
    (218,827
    )
    
    
    527,924Intercompany receivable, net
    
    
    89,253
    
    
    
    
    
    
    
    
    
    
    
    (89,253
    )
    
    
    Inventories
    
    
    239,499
    
    
    
    180,327
    
    
    
    39,131
    
    
    
    
    
    
    
    458,957Prepaid expenses
    
    
    20,470
    
    
    
    6,708
    
    
    
    2,217
    
    
    
    
    
    
    
    29,395Other current assets
    
    
    36,626
    
    
    
    9,536
    
    
    
    3,149
    
    
    
    
    
    
    
    49,311Total current assets
    
    
    587,564
    
    
    
    410,869
    
    
    
    410,613
    
    
    
    (308,080
    )
    
    
    1,100,966Investments
    
    
    1,071,349
    
    
    
    46,204
    
    
    
    6,793
    
    
    
    (834,700
    )
    
    
    289,646Property, plant and equipment, net
    
    
    176,969
    
    
    
    385,220
    
    
    
    93,860
    
    
    
    
    
    
    
    656,049Goodwill, net
    
    
    198,751
    
    
    
    82,668
    
    
    
    37,613
    
    
    
    
    
    
    
    319,032Other intangibles, net
    
    
    3,220
    
    
    
    88,749
    
    
    
    2,072
    
    
    
    
    
    
    
    94,041Other assets
    
    
    28,431
    
    
    
    37,012
    
    
    
    47,090
    
    
    
    (3,423
    )
    
    
    109,110Total assets
    
    $
    2,066,284
    
    
    $
    1,050,722
    
    
    $
    598,041
    
    
    $
    (1,146,203
    )
    
    $
    2,568,844LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,191
    
    
    $
    341,267
    
    
    $
    (219,860
    )
    
    $
    124,598Current portion of long-term debt and obligations
under capital lease
    
    
    449
    
    
    
    220
    
    
    
    11,654
    
    
    
    
    
    
    
    12,323Accounts payable
    
    
    286,550
    
    
    
    142,925
    
    
    
    30,903
    
    
    
    (1,425
    )
    
    
    458,953Intercompany payable, net
    
    
    
    
    
    
    89,371
    
    
    
    (118
    )
    
    
    (89,253
    )
    
    
    Accrued expenses
    
    
    115,948
    
    
    
    87,258
    
    
    
    19,224
    
    
    
    (965
    )
    
    
    221,465Patronage refunds and other member equities payable
    
    
    12,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,144Total current liabilities
    
    
    415,091
    
    
    
    322,965
    
    
    
    402,930
    
    
    
    (311,503
    )
    
    
    829,483Long-term debt and obligations under capital lease
    
    
    586,347
    
    
    
    10,783
    
    
    
    35,574
    
    
    
    
    
    
    
    632,704Employee benefits and other liabilities
    
    
    142,827
    
    
    
    27,253
    
    
    
    5,885
    
    
    
    
    
    
    
    175,965Minority interests
    
    
    
    
    
    
    4,754
    
    
    
    3,919
    
    
    
    
    
    
    
    8,673Equities:Capital stock
    
    
    1,874
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,874Additional paid-in capital
    
    
    
    
    
    
    504,318
    
    
    
    94,776
    
    
    
    (599,094
    )
    
    
    Member equities
    
    
    911,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    911,234Accumulated other comprehensive loss
    
    
    (74,415
    )
    
    
    19
    
    
    
    
    
    
    
    (19
    )
    
    
    (74,415
    )Retained earnings
    
    
    83,326
    
    
    
    180,530
    
    
    
    54,920
    
    
    
    (235,450
    )
    
    
    83,326Total equities
    
    
    922,019
    
    
    
    684,967
    
    
    
    149,733
    
    
    
    (834,700
    )
    
    
    922,019Commitments and contingenciesTotal liabilities and equities
    
    $
    2,066,284
    
    
    $
    1,050,722
    
    
    $
    598,041
    
    
    $
    (1,146,203
    )
    
    $
    2,568,844
 16




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended September 30, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    689,805
    
    
    $
    791,038
    
    
    $
    99,686
    
    
    $
    
    
    
    $
    1,580,529Cost of sales
    
    
    638,785
    
    
    
    718,985
    
    
    
    97,348
    
    
    
    
    
    
    
    1,455,118Gross profit
    
    
    51,020
    
    
    
    72,053
    
    
    
    2,338
    
    
    
    
    
    
    
    125,411Selling, general and administrative
    
    
    56,530
    
    
    
    57,068
    
    
    
    9,520
    
    
    
    
    
    
    
    123,118Restructuring and impairment charges
    
    
    9,393
    
    
    
    
    
    
    
    5,723
    
    
    
    
    
    
    
    15,116Earnings (loss) from operations
    
    
    (14,903
    )
    
    
    14,985
    
    
    
    (12,905
    )
    
    
    
    
    
    
    (12,823
    )Interest expense, net
    
    
    8,714
    
    
    
    3,969
    
    
    
    302
    
    
    
    
    
    
    
    12,985Other (income) expense, net
    
    
    (1,822
    )
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    (1,754
    )Equity in (earnings) loss of affiliated
companies
    
    
    5,474
    
    
    
    (641
    )
    
    
    1,968
    
    
    
    (4,418
    )
    
    
    2,383Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    542
    
    
    
    
    
    
    
    542Earnings (loss) before income taxes
    
    
    (27,269
    )
    
    
    11,589
    
    
    
    (15,717
    )
    
    
    4,418
    
    
    
    (26,979
    )Income tax expense (benefit)
    
    
    (10,572
    )
    
    
    1,641
    
    
    
    (1,351
    )
    
    
    
    
    
    
    (10,282
    )Net earnings (loss)
    
    $
    (16,697
    )
    
    $
    9,948
    
    
    $
    (14,366
    )
    
    $
    4,418
    
    
    $
    (16,697
    )
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    2,539,217
    
    
    $
    2,443,116
    
    
    $
    357,633
    
    
    $
    
    
    
    $
    5,339,966Cost of sales
    
    
    2,325,912
    
    
    
    2,223,213
    
    
    
    342,074
    
    
    
    
    
    
    
    4,891,199Gross profit
    
    
    213,305
    
    
    
    219,903
    
    
    
    15,559
    
    
    
    
    
    
    
    448,767Selling, general and administrative
    
    
    177,620
    
    
    
    184,084
    
    
    
    28,097
    
    
    
    
    
    
    
    389,801Restructuring and impairment charges
    
    
    13,674
    
    
    
    
    
    
    
    5,723
    
    
    
    
    
    
    
    19,397Earnings (loss) from operations
    
    
    22,011
    
    
    
    35,819
    
    
    
    (18,261
    )
    
    
    
    
    
    
    39,569Interest expense, net
    
    
    35,333
    
    
    
    7,634
    
    
    
    1,758
    
    
    
    
    
    
    
    44,725Other (income) expense, net
    
    
    3,213
    
    
    
    68
    
    
    
    (20,905
    )
    
    
    
    
    
    
    (17,624
    )Equity in (earnings) loss of affiliated companies
    
    
    (54,519
    )
    
    
    (1,021
    )
    
    
    4,555
    
    
    
    23,639
    
    
    
    (27,346
    )Minority interest in earnings (loss) of
subsidiaries
    
    
    (61
    )
    
    
    
    
    
    
    1,188
    
    
    
    
    
    
    
    1,127Earnings (loss) before income taxes
    
    
    38,045
    
    
    
    29,138
    
    
    
    (4,857
    )
    
    
    (23,639
    )
    
    
    38,687Income tax expense (benefit)
    
    
    (6,122
    )
    
    
    2,267
    
    
    
    (1,625
    )
    
    
    
    
    
    
    (5,480
    )Net earnings (loss)
    
    $
    44,167
    
    
    $
    26,871
    
    
    $
    (3,232
    )
    
    $
    (23,639
    )
    
    $
    44,167
 18




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2006
 LandO'Lakes, Inc.
    
    
    Consolidated
    
    
    Non-GuarantorParent Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    44,167
    
    
    $
    26,871
    
    
    $
    (3,232
    )
    
    $
    (23,639
    )
    
    $
    44,167Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:Depreciation and amortization
    
    
    30,443
    
    
    
    33,400
    
    
    
    7,428
    
    
    
    
    
    
    
    71,271Amortization of deferred financing costs
    
    
    1,686
    
    
    
    59
    
    
    
    14
    
    
    
    
    
    
    
    1,759Bad debt expense
    
    
    335
    
    
    
    823
    
    
    
    825
    
    
    
    
    
    
    
    1,983Proceeds from patronage revolvement received
    
    
    4,957
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4,961Non-cash patronage income
    
    
    (1,076
    )
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (1,138
    )Deferred income tax expense
    
    
    2,252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,252Decrease (increase) in other assets
    
    
    5,832
    
    
    
    (2,233
    )
    
    
    4,775
    
    
    
    (4,821
    )
    
    
    3,553(Decrease) increase in other liabilities
    
    
    (2,372
    )
    
    
    55
    
    
    
    (170
    )
    
    
    
    
    
    
    (2,487
    )Restructuring and impairment charges
    
    
    13,674
    
    
    
    
    
    
    
    5,723
    
    
    
    
    
    
    
    19,397Loss (gain) on divestiture of business
    
    
    12,872
    
    
    
    (30
    )
    
    
    (20,905
    )
    
    
    
    
    
    
    (8,063
    )(Gain) loss on sale of investment
    
    
    (7,834
    )
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    (7,736
    )Equity in (earnings) loss of affiliated companies
    
    
    (54,519
    )
    
    
    (1,021
    )
    
    
    4,555
    
    
    
    23,639
    
    
    
    (27,346
    )Dividends from affiliated companies
    
    
    1,858
    
    
    
    1,194
    
    
    
    900
    
    
    
    
    
    
    
    3,952Minority interests
    
    
    (61
    )
    
    
    
    
    
    
    1,188
    
    
    
    
    
    
    
    1,127Other
    
    
    (1,747
    )
    
    
    (12
    )
    
    
    (1,463
    )
    
    
    
    
    
    
    (3,222
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    135,315
    
    
    
    (38,208
    )
    
    
    (233,417
    )
    
    
    268,488
    
    
    
    132,178Inventories
    
    
    494
    
    
    
    (6,478
    )
    
    
    (233
    )
    
    
    
    
    
    
    (6,217
    )Prepaids and other current assets
    
    
    291,925
    
    
    
    3,997
    
    
    
    680
    
    
    
    
    
    
    
    296,602Accounts payable
    
    
    (497,165
    )
    
    
    (9,881
    )
    
    
    (13,439
    )
    
    
    2,044
    
    
    
    (518,441
    )Accrued expenses
    
    
    21,351
    
    
    
    7,319
    
    
    
    2,111
    
    
    
    (1,439
    )
    
    
    29,342Net cash provided (used) by operating activities
    
    
    2,387
    
    
    
    15,895
    
    
    
    (244,660
    )
    
    
    264,272
    
    
    
    37,894Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (19,248
    )
    
    
    (20,363
    )
    
    
    (11,047
    )
    
    
    
    
    
    
    (50,658
    )Acquisitions
    
    
    (84,187
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,187
    )Payments for investments
    
    
    (22,925
    )
    
    
    
    
    
    
    (3,100
    )
    
    
    22,000
    
    
    
    (4,025
    )Proceeds from sale of investments
    
    
    7,917
    
    
    
    902
    
    
    
    
    
    
    
    
    
    
    
    8,819Net proceeds from divestiture of business
    
    
    
    
    
    
    161
    
    
    
    37,059
    
    
    
    
    
    
    
    37,220Proceeds from sale of property, plant and equipment
    
    
    147
    
    
    
    938
    
    
    
    163
    
    
    
    
    
    
    
    1,248Other
    
    
    809
    
    
    
    3,901
    
    
    
    2,198
    
    
    
    
    
    
    
    6,908Net cash (used) provided by investing activities
    
    
    (117,487
    )
    
    
    (14,461
    )
    
    
    25,273
    
    
    
    22,000
    
    
    
    (84,675
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    (677
    )
    
    
    922
    
    
    
    231,783
    
    
    
    (264,272
    )
    
    
    (32,244
    )Proceeds from issuance of long-term debt
    
    
    2,047
    
    
    
    
    
    
    
    7,957
    
    
    
    
    
    
    
    10,004Principal payments on long-term debt and capital
lease obligations
    
    
    (528
    )
    
    
    (408
    )
    
    
    (34,350
    )
    
    
    
    
    
    
    (35,286
    )Distribution to members
    
    
    6,500
    
    
    
    
    
    
    
    (6,500
    )
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (43,193
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,193
    )Payments for
debt issuance costs
    
    
    (1,527
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,527
    )Other
    
    
    (504
    )
    
    
    
    
    
    
    27,555
    
    
    
    (22,000
    )
    
    
    5,051Net cash (used) provided by financing activities
    
    
    (37,882
    )
    
    
    514
    
    
    
    226,445
    
    
    
    (286,272
    )
    
    
    (97,195
    )Net cash used by operating activities of
discontinued operations
    
    
    (349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349
    )Net (decrease) increase in cash and cash equivalents.
    
    
    (153,331
    )
    
    
    1,948
    
    
    
    7,058
    
    
    
    
    
    
    
    (144,325
    )Cash and cash equivalents at beginning of period
    
    
    157,445
    
    
    
    
    
    
    
    22,259
    
    
    
    
    
    
    
    179,704Cash and cash equivalents at end of period
    
    $
    4,114
    
    
    $
    1,948
    
    
    $
    29,317
    
    
    $
    
    
    
    $
    35,379
 19




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    157,445
    
    
    $
    
    
    
    $
    22,259
    
    
    $
    
    
    
    $
    179,704Receivables, net
    
    
    325,878
    
    
    
    185,356
    
    
    
    110,550
    
    
    
    (30,339
    )
    
    
    591,445Intercompany receivables, net
    
    
    90,373
    
    
    
    
    
    
    
    
    
    
    
    (90,373
    )
    
    
    Inventories
    
    
    240,388
    
    
    
    173,849
    
    
    
    38,898
    
    
    
    
    
    
    
    453,135Prepaid expenses
    
    
    321,843
    
    
    
    8,494
    
    
    
    2,686
    
    
    
    
    
    
    
    333,023Other current assets
    
    
    29,806
    
    
    
    11,747
    
    
    
    39,522
    
    
    
    
    
    
    
    81,075Total current assets
    
    
    1,165,733
    
    
    
    379,446
    
    
    
    213,915
    
    
    
    (120,712
    )
    
    
    1,638,382Investments
    
    
    1,019,021
    
    
    
    43,743
    
    
    
    8,077
    
    
    
    (807,055
    )
    
    
    263,786Property, plant and equipment, net
    
    
    182,905
    
    
    
    387,752
    
    
    
    97,993
    
    
    
    
    
    
    
    668,650Goodwill, net
    
    
    201,037
    
    
    
    82,686
    
    
    
    43,336
    
    
    
    
    
    
    
    327,059Other intangibles, net
    
    
    4,192
    
    
    
    90,269
    
    
    
    2,306
    
    
    
    
    
    
    
    96,767Other assets
    
    
    27,718
    
    
    
    35,008
    
    
    
    45,932
    
    
    
    (8,244
    )
    
    
    100,414Total assets
    
    $
    2,600,606
    
    
    $
    1,018,904
    
    
    $
    411,559
    
    
    $
    (936,011
    )
    
    $
    3,095,058LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    300
    
    
    $
    2,269
    
    
    $
    109,484
    
    
    $
    (35,588
    )
    
    $
    76,465Current portion of long-term debt and obligations
under capital lease
    
    
    6,659
    
    
    
    390
    
    
    
    16,872
    
    
    
    
    
    
    
    23,921Accounts payable
    
    
    783,280
    
    
    
    152,806
    
    
    
    44,342
    
    
    
    (3,469
    )
    
    
    976,959Intercompany payable, net
    
    
    
    
    
    
    89,591
    
    
    
    782
    
    
    
    (90,373
    )
    
    
    Accrued expenses
    
    
    168,398
    
    
    
    79,939
    
    
    
    17,113
    
    
    
    474
    
    
    
    265,924Patronage refunds and other member equities payable
    
    
    29,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,622Total current liabilities
    
    
    988,259
    
    
    
    324,995
    
    
    
    188,593
    
    
    
    (128,956
    )
    
    
    1,372,891Long-term debt and obligations under capital lease
    
    
    579,032
    
    
    
    11,021
    
    
    
    56,749
    
    
    
    
    
    
    
    646,802Employee benefits and other liabilities
    
    
    128,042
    
    
    
    27,198
    
    
    
    10,556
    
    
    
    
    
    
    
    165,796Minority interests
    
    
    1,716
    
    
    
    711
    
    
    
    3,585
    
    
    
    
    
    
    
    6,012Equities:Capital stock
    
    
    1,967
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,967Additional paid-in capital
    
    
    
    
    
    
    499,369
    
    
    
    89,213
    
    
    
    (588,582
    )
    
    
    Member equities
    
    
    893,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (75,163
    )
    
    
    (460
    )
    
    
    
    
    
    
    460
    
    
    
    (75,163
    )Retained earnings
    
    
    83,235
    
    
    
    155,970
    
    
    
    62,826
    
    
    
    (218,796
    )
    
    
    83,235Total equities
    
    
    903,557
    
    
    
    654,979
    
    
    
    152,076
    
    
    
    (807,055
    )
    
    
    903,557Commitments and contingenciesTotal liabilities and equities
    
    $
    2,600,606
    
    
    $
    1,018,904
    
    
    $
    411,559
    
    
    $
    (936,011
    )
    
    $
    3,095,058
 20




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended September 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    753,706
    
    
    $
    855,445
    
    
    $
    108,358
    
    
    $
    
    
    
    $
    1,717,509Cost of sales
    
    
    701,216
    
    
    
    785,751
    
    
    
    103,313
    
    
    
    
    
    
    
    1,590,280Gross profit
    
    
    52,490
    
    
    
    69,694
    
    
    
    5,045
    
    
    
    
    
    
    
    127,229Selling, general and administrative
    
    
    66,573
    
    
    
    57,620
    
    
    
    3,918
    
    
    
    
    
    
    
    128,111(Loss) earnings from operations
    
    
    (14,083
    )
    
    
    12,074
    
    
    
    1,127
    
    
    
    
    
    
    
    (882
    )Interest expense, net
    
    
    16,463
    
    
    
    2,260
    
    
    
    565
    
    
    
    
    
    
    
    19,288Gain on sale of investment in CF
Industries, Inc.
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated
companies
    
    
    (10,046
    )
    
    
    (211
    )
    
    
    1,939
    
    
    
    10,027
    
    
    
    1,709Minority interest in earnings of
subsidiaries
    
    
    
    
    
    
    89
    
    
    
    53
    
    
    
    
    
    
    
    142Earnings (loss) before income taxes
and discontinued operations
    
    
    81,946
    
    
    
    9,936
    
    
    
    (1,430
    )
    
    
    (10,027
    )
    
    
    80,425Income tax expense (benefit)
    
    
    1,527
    
    
    
    2
    
    
    
    (1,523
    )
    
    
    
    
    
    
    6Net earnings (loss) from continuing
operations
    
    
    80,419
    
    
    
    9,934
    
    
    
    93
    
    
    
    (10,027
    )
    
    
    80,419Earnings from discontinued operations,
net of income taxes
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Net earnings (loss)
    
    $
    80,438
    
    
    $
    9,934
    
    
    $
    93
    
    
    $
    (10,027
    )
    
    $
    80,438
 21




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    2,701,134
    
    
    $
    2,316,070
    
    
    $
    538,198
    
    
    $
    
    
    
    $
    5,555,402Cost of sales
    
    
    2,511,339
    
    
    
    2,089,028
    
    
    
    518,875
    
    
    
    
    
    
    
    5,119,242Gross profit
    
    
    189,795
    
    
    
    227,042
    
    
    
    19,323
    
    
    
    
    
    
    
    436,160Selling, general and administrative
    
    
    178,054
    
    
    
    180,076
    
    
    
    26,077
    
    
    
    
    
    
    
    384,207Restructuring and impairment charges
    
    
    920
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    1,024Earnings (loss) from operations
    
    
    10,821
    
    
    
    46,862
    
    
    
    (6,754
    )
    
    
    
    
    
    
    50,929Interest expense, net
    
    
    56,257
    
    
    
    1,520
    
    
    
    4,573
    
    
    
    
    
    
    
    62,350Other income, net
    
    
    (577
    )
    
    
    (808
    )
    
    
    
    
    
    
    
    
    
    
    (1,385
    )Gain on sale of investment in CF
Industries, Inc.
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated
companies
    
    
    (78,661
    )
    
    
    (1,006
    )
    
    
    6,976
    
    
    
    30,621
    
    
    
    (42,070
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    89
    
    
    
    870
    
    
    
    
    
    
    
    959Earnings (loss) before income taxes
and discontinued operations
    
    
    136,248
    
    
    
    47,067
    
    
    
    (19,173
    )
    
    
    (30,621
    )
    
    
    133,521Income tax expense (benefit)
    
    
    7,699
    
    
    
    186
    
    
    
    (2,913
    )
    
    
    
    
    
    
    4,972Net earnings (loss) from continuing operations
    
    
    128,549
    
    
    
    46,881
    
    
    
    (16,260
    )
    
    
    (30,621
    )
    
    
    128,549Earnings from discontinued operations, net of
income taxes
    
    
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,032Net earnings (loss)
    
    $
    130,581
    
    
    $
    46,881
    
    
    $
    (16,260
    )
    
    $
    (30,621
    )
    
    $
    130,581
 22




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    130,581
    
    
    $
    46,881
    
    
    $
    (16,260
    )
    
    $
    (30,621
    )
    
    $
    130,581Earnings from discontinued operations, net of
income taxes
    
    
    (2,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,032
    )Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operating activities:Depreciation and amortization
    
    
    39,771
    
    
    
    20,645
    
    
    
    14,123
    
    
    
    
    
    
    
    74,539Amortization of deferred financing costs
    
    
    4,262
    
    
    
    
    
    
    
    1,506
    
    
    
    
    
    
    
    5,768Bad debt expense
    
    
    1,122
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,122Proceeds from patronage revolvement received
    
    
    3,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,428Non-cash patronage income
    
    
    (455
    )
    
    
    (503
    )
    
    
    
    
    
    
    
    
    
    
    (958
    )Deferred income tax expense
    
    
    5,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,183Decrease (increase) in other assets
    
    
    10,424
    
    
    
    (733
    )
    
    
    (7,076
    )
    
    
    5,385
    
    
    
    8,000Increase (decrease) in other liabilities
    
    
    4,774
    
    
    
    (505
    )
    
    
    (1,244
    )
    
    
    
    
    
    
    3,025Restructuring and impairment charges
    
    
    920
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    1,024Gain on sale of investment in CF Industries, Inc.
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated companies
    
    
    (78,661
    )
    
    
    (1,006
    )
    
    
    6,976
    
    
    
    30,621
    
    
    
    (42,070
    )Dividends from affiliated companies
    
    
    3,885
    
    
    
    475
    
    
    
    678
    
    
    
    
    
    
    
    5,038Minority interests
    
    
    
    
    
    
    89
    
    
    
    870
    
    
    
    
    
    
    
    959Other
    
    
    1,792
    
    
    
    (72
    )
    
    
    (7,569
    )
    
    
    
    
    
    
    (5,849
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (210,235
    )
    
    
    89,257
    
    
    
    9,735
    
    
    
    144,206
    
    
    
    32,963Inventories
    
    
    (66,963
    )
    
    
    (8,145
    )
    
    
    4,996
    
    
    
    
    
    
    
    (70,112
    )Other current assets
    
    
    249,706
    
    
    
    4,903
    
    
    
    1,467
    
    
    
    
    
    
    
    256,076Accounts payable
    
    
    (432,388
    )
    
    
    79,831
    
    
    
    (11,318
    )
    
    
    (12,693
    )
    
    
    (376,568
    )Accrued expenses
    
    
    44,348
    
    
    
    18,931
    
    
    
    (4,719
    )
    
    
    
    
    
    
    58,560Net cash (used) provided by operating activities
    
    
    (392,984
    )
    
    
    250,152
    
    
    
    (7,835
    )
    
    
    136,898
    
    
    
    (13,769
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (12,299
    )
    
    
    (16,211
    )
    
    
    (15,955
    )
    
    
    
    
    
    
    (44,465
    )Acquisitions
    
    
    (42,892
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,892
    )Payments for investments
    
    
    (93,593
    )
    
    
    
    
    
    
    (4,800
    )
    
    
    93,500
    
    
    
    (4,893
    )Proceeds from the sale of investments
    
    
    315,448
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    316,448Proceeds from divestiture of businesses
    
    
    
    
    
    
    
    
    
    
    2,635
    
    
    
    
    
    
    
    2,635Proceeds from sale of property, plant and equipment
    
    
    2,646
    
    
    
    2,746
    
    
    
    12,550
    
    
    
    
    
    
    
    17,942Decrease in restricted cash
    
    
    20,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,338Other
    
    
    1,067
    
    
    
    
    
    
    
    (699
    )
    
    
    
    
    
    
    368Net cash provided (used) by investing activities
    
    
    190,715
    
    
    
    (12,465
    )
    
    
    (6,269
    )
    
    
    93,500
    
    
    
    265,481Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    126,204
    
    
    
    1,105
    
    
    
    9,386
    
    
    
    (136,898
    )
    
    
    (203
    )Proceeds from issuance of long-term debt
    
    
    1,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,751Principal payments on long-term debt and capital lease
obligations
    
    
    (85,621
    )
    
    
    (38,319
    )
    
    
    (103,184
    )
    
    
    
    
    
    
    (227,124
    )Distribution to members
    
    
    183,830
    
    
    
    (183,830
    )
    
    
    
    
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (33,897
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,897
    )Other
    
    
    5,921
    
    
    
    
    
    
    
    87,300
    
    
    
    (93,500
    )
    
    
    (279
    )Net cash provided (used) by financing activities
    
    
    198,188
    
    
    
    (221,044
    )
    
    
    (6,498
    )
    
    
    (230,398
    )
    
    
    (259,752
    )Net cash provided by operating activities of discontinued
operations
    
    
    3,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,942Net cash provided by investing activities of discontinued
operations
    
    
    42,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,135Net increase (decrease) in cash and cash equivalents
    
    
    41,996
    
    
    
    16,643
    
    
    
    (20,602
    )
    
    
    
    
    
    
    38,037Cash and cash equivalents at beginning of period
    
    
    65,129
    
    
    
    (16,643
    )
    
    
    24,650
    
    
    
    
    
    
    
    73,136Cash and cash equivalents at end of period
    
    $
    107,125
    
    
    $
    
    
    
    $
    4,048
    
    
    $
    
    
    
    $
    111,173
 23




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##### Table of Contents



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
together with the financial statements and the notes to such statements included elsewhere in this
Form 10-Q.
 Overview
 General
    Unconsolidated Businesses
  For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005(in millions)(Loss) earnings from unconsolidated businesses
    
    $
    (2.4
    )
    
    $
    (1.7
    )
    
    $
    27.3
    
    
    $
    42.1Cash flow from investments in unconsolidated businesses
    
    
    0.8
    
    
    
    1.0
    
    
    
    4.0
    
    
    
    5.0
    24




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##### Table of Contents



For the three months
    
    For the nine monthsended September 30,
    
    ended September 30,2006
    
    2005
    
    2006
    
    2005(in millions)Equity in
(loss) earnings from Agriliance
    
    $
    (4.0
    )
    
    $
    (3.3
    )
    
    $
    28.3
    
    
    $
    43.1Cash distributions from Agriliance
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
     Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
 25




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##### Table of Contents



For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Per pound market price average:Butter
    
    $
    1.26
    
    
    $
    1.67
    
    
    $
    1.23
    
    
    $
    1.57Block cheese
    
    
    1.23
    
    
    
    1.49
    
    
    
    1.22
    
    
    
    1.52
  Feed.
     26




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##### Table of Contents



Layers.
 Derivative Commodity Instruments
  For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005(in millions)
    
    (in millions)Unrealized hedging gain/(loss)
    
    $
    (4.0
    )
    
    $
    0.7
    
    
    $
    (1.4
    )
    
    $
    6.0
 Results of Operations
 Three months ended September 30, 2006 as compared to three months ended September 30, 2005
 Overview of Results
 For the three months ended September 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Net earnings
    
    $
    (16.7
    )
    
    $
    80.4
    
    
    $
    (97.1
    )Lower net earnings, period over period, were primarily driven by the $102.4 million pretax gain on
the sale of CF Industries, which after taxes and related expenses, generated $82.6 million in net
earnings in 2005. In addition, for the three months ended September 30, 2006 net earnings
decreased as the result of a goodwill impairment in Layers, lower unrealized hedging gains, lower
Seed margins, and higher expense in Seed. Partially offsetting those negative impacts was higher
margin in Feed.Net sales
    
    $
    1,580.5
    
    
    $
    1,717.5
    
    
    $
    (137.0
    )Lower net sales for the three months ended September 30, 2006 compared to the same period in
2005 were mainly due to a decline in commodity market prices for Dairy Foods and the sale of the
liquid egg business. The decline was partially offset by higher sales in Feed and Seed. A
discussion of net sales by business segment is found below under the caption Net Sales and Gross
Profit by Business Segment.Gross profit
    
    $
    125.4
    
    
    $
    127.2
    
    
    $
    (1.8
    )Gross profit
decreased in the three months ended September 30, 2006 primarily
due to lower margins in Seed and lower egg prices in Layers. The
decline was partially offset by higher margins in Feed. A discussion of gross profit by business segment is found below under the caption
Net Sales and Gross Profit by Business Segment.Selling, general and administrative expense
    
    $
    123.1
    
    
    $
    128.1
    
    
    $
    (5.0
    )Selling, general and administrative expense in the three months ended September 30, 2006 were
lower than the same period in 2005 due to costs recorded in 2005 related to the sale of CF
Industries. 27




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##### Table of Contents



For the three months ended September 30Increase2006
    
    2005
    
    (Decrease)(In millions)Restructuring and impairment charges
    
    $
    15.1
    
    
    $
    0.0
    
    
    $
    15.1During the three months ended September 30, 2006, Layers recorded a $15 million goodwill
impairment charge.Interest expense, net
    
    $
    13.0
    
    
    $
    19.3
    
    
    $
    (6.3
    )The interest expense decrease was due to lower debt balances, decreased deferred financing
amortization, and partially offset by higher interest rates in 2006. Interest rates on borrowings
averaged 8.0% for the three months ended September 30, 2006, compared to 7.7% for the same period in
2005. Deferred financing amortization decreased $1.3 million for the three months ended September
20, 2006 compared to the same period in 2005.Equity in
losses of affiliated companies
    
    $
    2.4
    
    
    $
    1.7
    
    
    $
    0.7Results for the three months ended September 30, 2006 included an equity loss from Agriliance
of $4.0 million compared to an equity loss of $3.3 million for the same period of 2005. A
discussion of net earnings for Agriliance can be found under the caption Overview  Unconsolidated
Businesses. In Dairy Foods, equity method investments had earnings of $0.8 million for the three
months ended September 30, 2006, compared to equity earnings of $1.4 million for the same period of
2005.
 Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    821.9
    
    
    $
    952.5
    
    
    
    (13.7
    )%Gross profit
    
    
    50.6
    
    
    
    49.0
    
    
    
    3.3
    %Gross profit % of net sales
    
    
    6.2
    %
    
    
    5.1
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    (121.8
    )Volume impact
    
    
    (8.8
    )Total decrease
    
    $
    (130.6
    )
 .
 28




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##### Table of Contents



IncreaseGross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    7.6Volume impact
    
    
    (0.5
    )Unrealized hedging
    
    
    (5.5
    )Total increase
    
    $
    1.6
  Feed
 For the three months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    628.9
    
    
    $
    623.8
    
    
    
    0.8
    %Gross profit
    
    
    71.0
    
    
    
    64.9
    
    
    
    9.4
    %Gross profit % of net sales
    
    
    11.3
    %
    
    
    10.4
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    (41.2
    )Volume impact
    
    
    11.0Acquisitions and divestitures
    
    
    35.3Total increase
    
    $
    5.1
  Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    (0.8
    )Volume impact
    
    
    1.1Unrealized hedging
    
    
    1.7Acquisitions and divestitures
    
    
    4.1Total increase
    
    $
    6.1
 29




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##### Table of Contents



Seed
 For the three months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    55.2
    
    
    $
    42.7
    
    
    
    29.3
    %Gross profit
    
    
    5.9
    
    
    
    9.6
    
    
    
    (38.5
    %)Gross profit % of net sales
    
    
    10.7
    %
    
    
    22.5
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    17.9Volume impact
    
    
    (5.8
    )Acquisitions and divestitures
    
    
    0.4Total increase
    
    $
    12.5
  Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    (2.8
    )Volume impact
    
    
    (0.2
    )Unrealized hedging
    
    
    (0.7
    )Total decrease
    
    $
    (3.7
    )
 .
 Layers
 For the three months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    73.8
    
    
    $
    95.6
    
    
    
    (22.8
    %)Gross profit
    
    
    (1.9
    )
    
    
    3.6
    
    
    
    (152.8
    )%Gross profit % of net
sales
    
    
    (2.6
    )%
    
    
    3.8
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    2.2Volume impact
    
    
    3.1Acquisitions and divestitures
    
    
    (27.1
    )Total decrease
    
    $
    (21.8
    )
 ® .
 30




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##### Table of Contents



Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    (3.6
    )Volume impact
    
    
    (0.0
    )Unrealized hedging
    
    
    (0.1
    )Acquisitions and divestitures
    
    
    (1.8
    )Total decrease
    
    $
    (5.5
    )
 .
 Nine months ended September 30, 2006 as compared to nine months ended September 30, 2005
 Overview of Results
 For the nine months ended September 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Net earnings
    
    $
    44.2
    
    
    $
    130.6
    
    
    $
    (86.4
    )Lower net earnings were primarily driven by the $102.5 million pretax gain on the sale of CF
Industries in 2005 which, after taxes and related expenses, was $82.6 million. Favorable impacts to 2006
net earnings include higher margins and volumes in Seed, lower interest expense, a gain on the sale
of an investment, a gain on the sale of the liquid egg operations in the Layers segment and an
income tax benefit from closing a tax audit. Net earnings were negatively impacted in 2006 by lower
margins in Feed, lower equity in earnings from Agriliance, a goodwill impairment in Layers and
lower unrealized hedging gains.Net sales
    
    $
    5,340.0
    
    
    $
    5,555.4
    
    
    $
    (215.4
    )The decrease in net sales was primarily due to lower market prices for Dairy Foods, partially
offset by higher prices and volumes in Feed and Seed. A discussion of net sales by business
segment is found below under the caption Net Sales and Gross Profit by Business Segment.Gross profit
    
    $
    448.8
    
    
    $
    436.2
    
    
    $
    12.6Gross profit increased in the nine months ended September 30, 2006 primarily due to higher
margins and volumes for Seed and Dairy Foods. A discussion of gross profit by business segment is
found below under the caption Net Sales and Gross Profit by Business Segment.Selling, general and administrative expense
    
    $
    389.8
    
    
    $
    384.2
    
    
    $
    5.6Increased selling expenses in Seed was the primary reason for higher expenses in the nine
months ended September 30, 2006 compared to the same period in the prior year.Restructuring and impairment charges
    
    $
    19.4
    
    
    $
    1.0
    
    
    $
    18.4During the nine months ended September 30, 2006, Dairy Foods closed a facility in Greenwood,
Wisconsin and recorded a restructuring charge of $1.6 million primarily related to a contractual
obligation for waste-water treatment and recorded a $2.8 million impairment charge related to a
note receivable from the previous sale of a cheese facility in Gustine, CA. In addition, Layers
recorded a $15 million goodwill impairment charge. For the nine months ended September 30, 2005,
Dairy Foods and Feed recorded charges for the write-down of certain fixed assets to their estimated
fair value of $0.9 million and $0.1 million, respectively.Interest expense, net
    
    $
    44.7
    
    
    $
    62.4
    
    
    $
    (17.7
    )
  31




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##### Table of Contents



For the nine months ended September 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Equity in earnings of affiliated companies
    
    $
    27.3
    
    
    $
    42.1
    
    
    $
    (14.8
    )
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the nine months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    2,482.3
    
    
    $
    2,844.8
    
    
    
    (12.7
    )%Gross profit
    
    
    148.0
    
    
    
    138.2
    
    
    
    7.1
    %Gross profit % of net sales
    
    
    6.0
    %
    
    
    4.9
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    (385.8
    )Volume impact
    
    
    23.3Total decrease
    
    $
    (362.5
    )
  32




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##### Table of Contents



Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    5.0Volume impact
    
    
    7.6Unrealized hedging
    
    
    (2.8
    )Total increase
    
    $
    9.8
  Feed
 For the nine months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    1,967.9
    
    
    $
    1,881.4
    
    
    
    4.6
    %Gross profit
    
    
    204.4
    
    
    
    213.1
    
    
    
    (4.1
    )%Gross profit % of net sales
    
    
    10.4
    %
    
    
    11.3
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    (7.3
    )Volume impact
    
    
    32.8Acquisitions and divestitures
    
    
    61.0Total increase
    
    $
    86.5
  Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    (11.2
    )Volume impact
    
    
    3.7Unrealized hedging
    
    
    (3.7
    )Acquisitions and divestitures
    
    
    2.5Total decrease
    
    $
    (8.7
    )
  33




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##### Table of Contents



Seed
 For the nine months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    607.1
    
    
    $
    532.7
    
    
    
    14.0
    %Gross profit
    
    
    88.7
    
    
    
    71.5
    
    
    
    24.1
    %Gross profit % of net sales
    
    
    14.6
    %
    
    
    13.4
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    29.1Volume impact
    
    
    41.2Acquisitions and divestitures
    
    
    4.1Total increase
    
    $
    74.4
  Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    12.6Volume impact
    
    
    3.2Unrealized hedging
    
    
    (0.1
    )Acquisitions and divestitures
    
    
    1.5Total increase
    
    $
    17.2
 ®
 Layers
 For the nine months endedSeptember 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    286.8
    
    
    $
    287.1
    
    
    
    (0.0
    )%Gross profit
    
    
    9.6
    
    
    
    11.9
    
    
    
    (19.3
    )%Gross profit %
of net sales
    
    
    3.4
    %
    
    
    4.1
    %
 Increase(decrease)Net Sales Variance
    
    (In millions)Pricing / product mix impact
    
    $
    14.2Volume impact
    
    
    11.4Acquisitions and divestitures
    
    
    (25.9
    )Total decrease
    
    $
    (0.3
    )
  34




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##### Table of Contents



Layers
 Increase(decrease)Gross Profit Variance
    
    (In millions)Margin / product mix impact
    
    $
    2.4Volume impact
    
    
    0.0Unrealized hedging
    
    
    (0.8
    )Acquisitions and divestitures
    
    
    (3.9
    )Total decrease
    
    $
    (2.3
    )
  Liquidity and Capital Resources
 Overview
       As of
    
    
    As of
    
    
    As ofSeptember 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2005
    
    
    2005($ in millions)Cash and cash equivalents
    
    $
    35.4
    
    
    $
    108.3
    
    
    $
    179.7Availability on revolving credit facility
    
    
    174.4
    
    
    
    144.1
    
    
    
    147.6Availability
on receivables securitization program
    
    
    130.0
    
    
    
    200.0
    
    
    
    200.0Total liquidity
    
    $
    339.8
    
    
    $
    452.4
    
    
    $
    527.3
  35




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##### Table of Contents



Cash Flows
  Operating Activities
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(in millions)Net earnings
    
    $
    44.2
    
    
    $
    130.6Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2.0
    )Adjustments to reconcile net earnings to net cash provided (used) by operating
activities:Depreciation and amortization
    
    
    71.3
    
    
    
    74.5Amortization of deferred financing costs
    
    
    1.8
    
    
    
    5.8Bad debt expense
    
    
    2.0
    
    
    
    1.1Proceeds from patronage revolvement received
    
    
    5.0
    
    
    
    3.4Non-cash patronage income
    
    
    (1.1
    )
    
    
    (1.0
    )Deferred income tax expense
    
    
    2.3
    
    
    
    5.2Decrease in other assets
    
    
    3.6
    
    
    
    8.0(Decrease) increase in other liabilities
    
    
    (2.5
    )
    
    
    3.0Restructuring and impairment charges
    
    
    19.4
    
    
    
    1.0Gain on divestiture of businesses
    
    
    (8.1
    )
    
    
    Gain on sale of investments
    
    
    (7.8
    )
    
    
    (102.4
    )Equity in earnings of affiliated companies
    
    
    (27.3
    )
    
    
    (42.1
    )Dividends from affiliated companies
    
    
    4.0
    
    
    
    5.0Minority interests
    
    
    1.1
    
    
    
    1.0Other
    
    
    (3.2
    )
    
    
    (5.8
    )Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    (66.8
    )
    
    
    (99.1
    )Net cash provided (used) by operating activities
    
    $
    37.9
    
    
    $
    (13.8
    )
  Investing Activities
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(in millions)Additions to property, plant and equipment
    
    $
    (50.7
    )
    
    $
    (44.5
    )Acquisitions, net of cash acquired
    
    
    (84.2
    )
    
    
    (42.9
    )Payments for investments
    
    
    (4.0
    )
    
    
    (4.9
    )Net proceeds from divestiture of business
    
    
    37.2
    
    
    
    2.6Proceeds from sale of investments
    
    
    8.8
    
    
    
    316.4Proceeds from sale of property, plant and equipment
    
    
    1.2
    
    
    
    17.9Other
    
    
    7.0
    
    
    
    20.9Net cash (used) provided by investing activities
    
    $
    (84.7
    )
    
    $
    265.5
   36




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##### Table of Contents



Financing Activities
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(in millions)Decrease in short-term debt, net
    
    $
    (32.2
    )
    
    $
    (0.2
    )Proceeds from issuance of long-term debt
    
    
    10.0
    
    
    
    1.8Principal payments on long-term debt and obligations under capital lease
    
    
    (35.3
    )
    
    
    (227.1
    )Payments for redemption of member equities
    
    
    (43.2
    )
    
    
    (33.9
    )Payments for
debt issuance costs
    
    
    (1.5
    )
    
    
    Other
    
    
    5.0
    
    
    
    (0.4
    )Net cash used by financing activities
    
    $
    (97.2
    )
    
    $
    (259.8
    )
    Principal Debt Facilities
     37




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##### Table of Contents



Capital Leases
  Recent Accounting Pronouncements
  38




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##### Table of Contents



How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation)
    Critical Accounting Policies
  Forward-Looking Statements
  39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
    40




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##### Table of Contents



Item 1A. Risk Factors
  41




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##### Table of Contents



Item 6. Exhibits
 (a) Exhibits
 EXHIBIT
    
    DESCRIPTION3.1
    
    Restated Articles of Incorporation of Land OLakes, Inc., as amended, August 1998. (1)3.2
    
    By-Laws of Land OLakes Inc., as amended, February 2003. (1)10.1
    
    Amended and Restated Five-Year Revolving Credit Agreement, dated as of October 11,
2001, as amended and restated as of August 29, 2006, among Land OLakes, Inc., as
borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative
agent and collateral agent.*10.2
    
    Second Amended and Restated Receivables Purchase Agreement, dated as of September 7,
2006, by and among LOL SPV, LLC, as seller, Land OLakes, Inc., as initial servicer,
CoBank, ACB and the other purchasers thereto, and CoBank as administrator.*10.3
    
    Third Amendment, dated as of September 7, 2006, to the Purchase and Sale Agreement
dated as of December 18, 2001, by and among Land OLakes, Inc., Land OLakes Purina
Feed LLC, and Purina Mills, LLC, as originators and LOL SPV, LLC, as purchaser.*31.1
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*32.2
    
    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 an exhibit to the registrants Registration Statement on Form
S-4 filed April 28, 2004.*
    
    Filed electronically herewith 42




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##### Table of Contents



SIGNATURES
  LAND OLAKES, INC.By
    /s/ Daniel KnutsonDaniel E. KnutsonSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 
 43