##### 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 March 31, 2008
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



INDEX
 PagePart I. Financial Information
    
    
    3Item I. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36Part II Other Information
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    38Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40First Amendment to Third Amended and Restated Receivables Purchases AgreementFifth Amendment to Purchase and Sale AgreementThird Amendment to the Amended and Restated Five-Year Revolving Credit FacilitySection 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
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    78,409
    
    
    $
    116,839Receivables, net
    
    
    1,489,996
    
    
    
    1,006,707Inventories
    
    
    1,145,986
    
    
    
    964,515Prepaid expenses
    
    
    514,679
    
    
    
    856,033Other current assets
    
    
    99,468
    
    
    
    76,178Total current assets
    
    
    3,328,538
    
    
    
    3,020,272Investments
    
    
    344,394
    
    
    
    303,978Property, plant and equipment, net
    
    
    565,244
    
    
    
    551,752Goodwill, net
    
    
    316,305
    
    
    
    318,224Other intangibles, net
    
    
    118,112
    
    
    
    119,167Other assets
    
    
    111,430
    
    
    
    118,438Total assets
    
    $
    4,784,023
    
    
    $
    4,431,831LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    518,753
    
    
    $
    132,170Current portion of long-term debt
    
    
    4,562
    
    
    
    5,182Accounts payable
    
    
    1,376,034
    
    
    
    1,150,353Customer advances
    
    
    521,336
    
    
    
    926,240Accrued expenses
    
    
    431,501
    
    
    
    337,476Patronage refunds and other member equities payable
    
    
    33,472
    
    
    
    28,065Total current liabilities
    
    
    2,885,658
    
    
    
    2,579,486Long-term debt
    
    
    605,237
    
    
    
    611,602Employee benefits and other liabilities
    
    
    204,819
    
    
    
    202,400Minority interests
    
    
    19,573
    
    
    
    6,175Commitments and contingenciesEquities:Capital stock
    
    
    1,678
    
    
    
    1,701Member equities
    
    
    952,777
    
    
    
    937,126Accumulated other comprehensive loss
    
    
    (59,060
    )
    
    
    (61,931
    )Retained earnings
    
    
    173,341
    
    
    
    155,272Total equities
    
    
    1,068,736
    
    
    
    1,032,168Total liabilities and equities
    
    $
    4,784,023
    
    
    $
    4,431,831
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007(Restated)($ in thousands)Net sales
    
    $
    3,256,999
    
    
    $
    2,182,283Cost of sales
    
    
    3,006,292
    
    
    
    1,964,733Gross profit
    
    
    250,707
    
    
    
    217,550Selling, general and administrative
    
    
    167,579
    
    
    
    142,011Restructuring and impairment charges
    
    
    53
    
    
    
    1,388Earnings from operations
    
    
    83,075
    
    
    
    74,151Interest expense, net
    
    
    17,135
    
    
    
    14,826Other expense, net
    
    
    12
    
    
    
    186Equity in earnings of affiliated companies
    
    
    (4,102
    )
    
    
    (3,215
    )Minority interest in earnings of subsidiaries
    
    
    1,865
    
    
    
    256Earnings before income taxes
    
    
    68,165
    
    
    
    62,098Income tax expense
    
    
    6,882
    
    
    
    9,467Net earnings
    
    $
    61,283
    
    
    $
    52,631Applied to:Member equitiesAllocated patronage
    
    $
    47,841
    
    
    $
    36,466Deferred equities
    
    
    (4,963
    )
    
    
    1,05142,878
    
    
    
    37,517Retained earnings
    
    
    18,405
    
    
    
    15,114$
    61,283
    
    
    $
    52,631
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007(Restated)($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    61,283
    
    
    $
    52,631Adjustments to reconcile net earnings to net cash used by operating activities:Depreciation and amortization
    
    
    22,146
    
    
    
    21,252Amortization of deferred financing costs
    
    
    525
    
    
    
    748Bad debt expense
    
    
    986
    
    
    
    668Proceeds from patronage revolvement received
    
    
    1,560
    
    
    
    3,075Non-cash patronage income
    
    
    (1,331
    )
    
    
    (616
    )Deferred income tax (benefit) expense
    
    
    (14,631
    )
    
    
    3,479Increase in other assets
    
    
    (948
    )
    
    
    (594
    )Increase in other liabilities
    
    
    2,808
    
    
    
    893Restructuring and impairment charges
    
    
    53
    
    
    
    1,388Loss on sale of investment
    
    
    12
    
    
    
    186Equity in earnings of affiliated companies
    
    
    (4,102
    )
    
    
    (3,215
    )Dividends from investments in affiliated companies
    
    
    5,448
    
    
    
    22,684Minority interests
    
    
    1,865
    
    
    
    256Other
    
    
    (234
    )
    
    
    113Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (450,627
    )
    
    
    (217,929
    )Inventories
    
    
    (112,649
    )
    
    
    (40,326
    )Prepaids and other current assets
    
    
    354,880
    
    
    
    301,146Accounts payable
    
    
    205,268
    
    
    
    156,111Customer advances
    
    
    (429,128
    )
    
    
    (323,754
    )Accrued expenses
    
    
    91,283
    
    
    
    12,566Net cash used by operating activities
    
    
    (265,533
    )
    
    
    (9,238
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (24,316
    )
    
    
    (18,045
    )Acquisitions, net of cash acquired
    
    
    (6,419
    )
    
    
    (58
    )Payments for investments
    
    
    (50,835
    )
    
    
    (406
    )Distributions from investments in affiliated companies
    
    
    4,448
    
    
    
    Proceeds from sale of investments
    
    
    49
    
    
    
    475Proceeds from sale of property, plant and equipment
    
    
    66
    
    
    
    176Change in notes receivable
    
    
    (6,038
    )
    
    
    (7,865
    )Other
    
    
    (476
    )
    
    
    (82
    )Net cash used by investing activities
    
    
    (83,521
    )
    
    
    (25,805
    )Cash flows from financing activities:Increase in short-term debt, net
    
    
    341,931
    
    
    
    33,147Proceeds from issuance of long-term debt
    
    
    3,583
    
    
    
    1,827Principal payments on long-term debt
    
    
    (12,693
    )
    
    
    (24,359
    )Payments for redemption of member equities
    
    
    (22,161
    )
    
    
    (15,472
    )Other
    
    
    (36
    )
    
    
    (36
    )Net cash provided (used) by financing activities
    
    
    310,624
    
    
    
    (4,893
    )Net decrease in cash and cash equivalents
    
    
    (38,430
    )
    
    
    (39,936
    )Cash and cash equivalents at beginning of the period
    
    
    116,839
    
    
    
    79,707Cash and cash equivalents at end of the period
    
    $
    78,409
    
    
    $
    39,771Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    13,691
    
    
    $
    9,858Income taxes paid
    
    $
    3,170
    
    
    $
    500
  5




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##### Table of Contents



LAND OLAKES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 ($ in thousands in tables)
 (Unaudited)
 1. Summary of Significant Accounting Policies
   Recent Accounting Pronouncements
      6




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##### Table of Contents



Accounting Estimates
  2. Restatement of Prior Years Consolidated Financial Statements
    PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007Equity in earnings of affiliated companies
    
    $
    (6,950
    )
    
    $
    3,735
    
    
    $
    (3,215
    )Earnings before income taxes
    
    
    65,833
    
    
    
    (3,735
    )
    
    
    62,098Income tax expense
    
    
    10,896
    
    
    
    (1,429
    )
    
    
    9,467Net earnings
    
    
    54,937
    
    
    
    (2,306
    )
    
    
    52,631
  PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007Net earnings
    
    $
    54,937
    
    
    $
    (2,306
    )
    
    $
    52,631Deferred income tax expense
    
    
    4,908
    
    
    
    (1,429
    )
    
    
    3,479Equity in earnings of affiliated companies
    
    
    (6,950
    )
    
    
    3,735
    
    
    
    (3,215
    )
 7




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##### Table of Contents



3. Receivables
  March 31,
    
    
    December 31,2008
    
    
    2007Trade accounts
    
    $
    1,220,132
    
    
    $
    834,070Notes and contracts
    
    
    99,256
    
    
    
    92,207Vendor rebates
    
    
    92,219
    
    
    
    26,050Other
    
    
    96,436
    
    
    
    68,7301,508,043
    
    
    
    1,021,057Less allowance for doubtful accounts
    
    
    (18,047
    )
    
    
    (14,350
    )Total receivables, net
    
    $
    1,489,996
    
    
    $
    1,006,707
    4. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    207,810
    
    
    $
    190,586Work in process
    
    
    3,512
    
    
    
    5,058Finished goods
    
    
    934,664
    
    
    
    768,871Total inventories
    
    $
    1,145,986
    
    
    $
    964,515
 5. Investments
  March 31,
    
    
    December 31,2008
    
    
    2007Agriliance LLC
    
    $
    186,089
    
    
    $
    150,945Advanced Food Products, LLC
    
    
    34,396
    
    
    
    34,287Ag Processing Inc.
    
    
    33,311
    
    
    
    32,832Agronomy Company of Canada Ltd.
    
    
    21,783
    
    
    
    21,909Delta Egg Farm, LLC
    
    
    9,469
    
    
    
    7,579Universal Cooperatives, Inc.
    
    
    7,826
    
    
    
    7,802Melrose Dairy Proteins, LLC
    
    
    6,625
    
    
    
    3,856Prairie Farms Dairy, Inc.
    
    
    3,545
    
    
    
    3,518CoBank, ACB
    
    
    3,313
    
    
    
    4,396Other  principally cooperatives and joint ventures
    
    
    38,037
    
    
    
    36,854Total investments
    
    $
    344,394
    
    
    $
    303,978
 8




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##### Table of Contents



Three Months EndedMarch 31,2008
    
    2007(Restated)Net sales
    
    $
    230,598
    
    
    $
    729,145Gross profit
    
    
    27,946
    
    
    
    81,452Net earnings (loss)
    
    
    (17,842
    )
    
    
    2,883
 March 31,
    
    December 31,2008
    
    2007Current assets
    
    $
    653,602
    
    
    $
    696,332Non-current assets
    
    
    33,870
    
    
    
    66,099Current liabilities
    
    
    298,986
    
    
    
    426,674Non-current liabilities
    
    
    17,497
    
    
    
    33,867Total equity
    
    
    370,989
    
    
    
    301,890
  6. Goodwill and Other Intangible Assets
 Goodwill
  March 31,
    
    
    December 31,2008
    
    
    2007Feed
    
    $
    127,305
    
    
    $
    127,404Dairy Foods
    
    
    69,220
    
    
    
    69,451Layers
    
    
    58,280
    
    
    
    58,280Agronomy
    
    
    50,791
    
    
    
    52,371Seed
    
    
    10,709
    
    
    
    10,718Total goodwill
    
    $
    316,305
    
    
    $
    318,224
  Other Intangible Assets
  March 31,
    
    
    December 31,2008
    
    
    2007Amortized other intangible assets:Patents, less accumulated amortization of $7,544 and $7,250, respectively
    
    $
    9,167
    
    
    $
    9,461Trademarks, less accumulated amortization of $1,715 and $1,592, respectively
    
    
    3,979
    
    
    
    4,102Dealer networks and customer relationships, less accumulated amortization of $776 and
$301, respectively
    
    
    46,764
    
    
    
    47,239Other intangible assets, less accumulated amortization of $5,630 and $5,342, respectively
    
    
    6,577
    
    
    
    6,740Total amortized other intangible assets
    
    
    66,487
    
    
    
    67,542Total non-amortized other intangible assets  trademarks and license agreements
    
    
    51,625
    
    
    
    51,625Total other intangible assets
    
    $
    118,112
    
    
    $
    119,167
  9




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##### Table of Contents



7. Debt Obligations
 Notes and Short-term Obligations
      Long-term Debt
  March 31,
    
    
    December 31,2008
    
    
    2007Senior unsecured notes  due 2011 (8.75%)
    
    $
    192,743
    
    
    $
    192,743Senior secured notes  due 2010 (9.00%)
    
    
    175,000
    
    
    
    175,000Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700MoArk LLC debt  due 2008 through 2023 (7.73% weighted average)
    
    
    17,669
    
    
    
    29,520Capital lease obligations (5.92% to 8.95%)
    
    
    5,970
    
    
    
    6,349Other debt
    
    
    27,717
    
    
    
    22,472609,799
    
    
    
    616,784Less current portion
    
    
    (4,562
    )
    
    
    (5,182
    )Total long-term debt
    
    $
    605,237
    
    
    $
    611,602
   10




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##### Table of Contents



8. Other Comprehensive Income
  Three Months EndedMarch 31,Restated2008
    
    
    2007Net earnings
    
    $
    61,283
    
    
    $
    52,631Unrealized gain on available-for-sale-investment securities
    
    
    (176
    )
    
    
    Foreign currency translation adjustment
    
    
    2,948
    
    
    
    270Other
    
    
    99
    
    
    
    (194
    )Total comprehensive income
    
    $
    64,154
    
    
    $
    52,707
 9. Fair Value Measurement
     Level 1:
 Level 2:
 Level 3:
  Fair Value Measurements at March 31, 2008 Using:SignificantQuoted prices
    
    other
    
    SignificantTotal carrying
    
    in active
    
    observable
    
    unobservablevalue at
    
    markets
    
    inputs
    
    inputsMarch 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Foreign currency exchange contracts
    
    $
    247
    
    
    $
    
    
    
    $
    247
    
    
    $
    Available-for-sale securities
    
    
    294
    
    
    
    294
    
    
    
    
    
    
    
    Derivative assets
    
    
    25,371
    
    
    
    25,366
    
    
    
    5
    
    
    
    Derivative liabilities
    
    
    36,577
    
    
    
    35,464
    
    
    
    1,113
    
    
    
    
 11




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##### Table of Contents



10. Income Taxes
  11. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    3,810
    
    
    $
    3,566
    
    
    $
    196
    
    
    $
    182Interest cost
    
    
    9,678
    
    
    
    8,296
    
    
    
    1,071
    
    
    
    981Expected return on assets
    
    
    (11,000
    )
    
    
    (9,263
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    1,290
    
    
    
    3,236
    
    
    
    489
    
    
    
    736Amortization of prior service cost
    
    
    (132
    )
    
    
    (122
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    107Net periodic benefit cost
    
    $
    3,646
    
    
    $
    5,713
    
    
    $
    1,872
    
    
    $
    2,006
   12. Restructuring and Impairment Charges
  Three Months EndedMarch 31,2008
    
    
    2007Restructuring charges
    
    $
    53
    
    
    $
    266Impairment charges
    
    
    
    
    
    
    1,122Total restructuring and impairment charges
    
    $
    53
    
    
    $
    1,388
 Restructuring Charges
   12




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##### Table of Contents



Impairment charges
  13. Other Expense, Net
 Three Months EndedMarch 31,2008
    
    2007Loss on sale of investments
    
    $
    12
    
    
    $
    186
   14. Acquisitions
  15. Commitments and Contingencies
 ® ® ® ® ®
  13




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##### Table of Contents



16. Segment Information
         Agronomy2007Equity in earnings of affiliated companies  as previously reported
    
    $
    (4,490
    )Adjustment for vendor rebates
    
    
    3,735Equity in earnings of affiliated companies  as restated
    
    
    (755
    )Earnings before income taxes  as previously reported
    
    
    2,140Adjustment for vendor rebates
    
    
    (3,735
    )Loss before income taxes  as restated
    
    
    (1,595
    )
 14




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##### Table of Contents



Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended March 31, 2008:Net sales (1)
    
    $
    1,048,059
    
    
    $
    941,732
    
    
    $
    627,117
    
    
    $
    487,151
    
    
    $
    181,142
    
    
    $
    (28,202
    )
    
    $
    3,256,999Cost of sales (2)
    
    
    1,006,222
    
    
    
    861,641
    
    
    
    560,681
    
    
    
    457,840
    
    
    
    147,291
    
    
    
    (27,383
    )
    
    
    3,006,292Selling, general and administrative
    
    
    46,951
    
    
    
    63,392
    
    
    
    22,712
    
    
    
    24,577
    
    
    
    8,997
    
    
    
    950
    
    
    
    167,579Restructuring and impairment charges
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Interest expense (income), net
    
    
    2,540
    
    
    
    7,184
    
    
    
    692
    
    
    
    4,499
    
    
    
    3,600
    
    
    
    (1,380
    )
    
    
    17,135Other expense, net
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Equity in (earnings) loss of affiliated companies
    
    
    (2,598
    )
    
    
    119
    
    
    
    
    
    
    
    9,471
    
    
    
    (11,094
    )
    
    
    
    
    
    
    (4,102
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    1,631
    
    
    
    
    
    
    
    
    
    
    
    1,865Earnings (loss) before income taxes
    
    $
    (5,109
    )
    
    $
    9,150
    
    
    $
    43,032
    
    
    $
    (10,867
    )
    
    $
    32,348
    
    
    $
    (389
    )
    
    $
    68,165
 (Restated)
    
    
    
    
    
    
    Other/
    
    
    (Restated)Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended March 31, 2007:Net sales (1)
    
    $
    880,307
    
    
    $
    748,796
    
    
    $
    436,045
    
    
    $
    
    
    
    $
    119,930
    
    
    $
    (2,795
    )
    
    $
    2,182,283Cost of sales (2)
    
    
    805,118
    
    
    
    677,311
    
    
    
    380,219
    
    
    
    
    
    
    
    105,630
    
    
    
    (3,545
    )
    
    
    1,964,733Selling, general and administrative
    
    
    47,940
    
    
    
    60,112
    
    
    
    20,236
    
    
    
    4,801
    
    
    
    7,908
    
    
    
    1,014
    
    
    
    142,011Restructuring and impairment charges
    
    
    67
    
    
    
    524
    
    
    
    500
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    1,388Interest expense (income), net
    
    
    6,246
    
    
    
    6,783
    
    
    
    1,194
    
    
    
    (2,451
    )
    
    
    4,312
    
    
    
    (1,258
    )
    
    
    14,826Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    186Equity in (earnings) loss of affiliated companies
    
    
    495
    
    
    
    (481
    )
    
    
    (55
    )
    
    
    (755
    )
    
    
    (2,412
    )
    
    
    (7
    )
    
    
    (3,215
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256Earnings (loss) before income taxes
    
    $
    20,441
    
    
    $
    4,291
    
    
    $
    33,951
    
    
    $
    (1,595
    )
    
    $
    4,195
    
    
    $
    815
    
    
    $
    62,098
 Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    
    Consolidated(1) Net sales includes intersegment sales of:2008
    
    $
    2,158
    
    
    $
    10,745
    
    
    $
    8,926
    
    
    $
    9,656
    
    
    $
    
    
    
    $
    (31,485
    )
    
    $
    2007
    
    $
    3,046
    
    
    $
    5,071
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (8,117
    )
    
    $
    (2) Cost of sales includes year-to-year change
in unrealized hedging (gains) losses of:2008
    
    $
    (1,670
    )
    
    $
    14,508
    
    
    $
    6,338
    
    
    $
    
    
    
    $
    7,755
    
    
    $
    1,010
    
    
    $
    27,9412007
    
    $
    (2,489
    )
    
    $
    2,886
    
    
    $
    2,001
    
    
    $
    
    
    
    $
    1,499
    
    
    $
    (325
    )
    
    $
    3,572
  15




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##### Table of Contents



17. Consolidating Financial Information
       16




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
March 31, 2008
 LandOLakes,
    
    
    
    
    
    
    Non-Inc. Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,804
    
    
    $
    1,063
    
    
    $
    47,542
    
    
    $
    
    
    
    $
    78,409Receivables, net
    
    
    384,715
    
    
    
    682,567
    
    
    
    1,223,296
    
    
    
    (800,582
    )
    
    
    1,489,996Intercompany receivables, net
    
    
    461,381
    
    
    
    26,309
    
    
    
    
    
    
    
    (487,690
    )
    
    
    Inventories
    
    
    375,228
    
    
    
    632,196
    
    
    
    138,562
    
    
    
    
    
    
    
    1,145,986Prepaid expenses
    
    
    34,088
    
    
    
    461,323
    
    
    
    19,266
    
    
    
    2
    
    
    
    514,679Other current assets
    
    
    76,727
    
    
    
    21,796
    
    
    
    945
    
    
    
    
    
    
    
    99,468Total current assets
    
    
    1,361,943
    
    
    
    1,825,254
    
    
    
    1,429,611
    
    
    
    (1,288,270
    )
    
    
    3,328,538Investments
    
    
    984,821
    
    
    
    49,107
    
    
    
    18,284
    
    
    
    (707,818
    )
    
    
    344,394Property, plant and equipment, net
    
    
    198,861
    
    
    
    273,564
    
    
    
    92,819
    
    
    
    
    
    
    
    565,244Goodwill, net
    
    
    192,658
    
    
    
    63,354
    
    
    
    60,293
    
    
    
    
    
    
    
    316,305Other intangibles, net
    
    
    1,846
    
    
    
    114,072
    
    
    
    2,194
    
    
    
    
    
    
    
    118,112Other assets
    
    
    24,751
    
    
    
    36,154
    
    
    
    54,304
    
    
    
    (3,779
    )
    
    
    111,430Total assets
    
    $
    2,764,880
    
    
    $
    2,361,505
    
    
    $
    1,657,505
    
    
    $
    (1,999,867
    )
    
    $
    4,784,023LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    100,999
    
    
    $
    1,386
    
    
    $
    1,208,271
    
    
    $
    (791,903
    )
    
    $
    518,753Current portion of long-term debt
    
    
    1,837
    
    
    
    234
    
    
    
    2,491
    
    
    
    
    
    
    
    4,562Accounts payable
    
    
    538,223
    
    
    
    769,435
    
    
    
    78,118
    
    
    
    (9,742
    )
    
    
    1,376,034Intercompany payable, net
    
    
    
    
    
    
    483,444
    
    
    
    4,246
    
    
    
    (487,690
    )
    
    
    Customer advances
    
    
    48,677
    
    
    
    448,033
    
    
    
    24,626
    
    
    
    
    
    
    
    521,336Accrued expenses
    
    
    221,729
    
    
    
    176,167
    
    
    
    36,319
    
    
    
    (2,714
    )
    
    
    431,501Patronage refunds and other member equities
payable
    
    
    33,472
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,472Total current liabilities
    
    
    944,937
    
    
    
    1,878,699
    
    
    
    1,354,071
    
    
    
    (1,292,049
    )
    
    
    2,885,658Long-term debt
    
    
    581,406
    
    
    
    108
    
    
    
    23,723
    
    
    
    
    
    
    
    605,237Employee benefits and other liabilities
    
    
    169,801
    
    
    
    29,266
    
    
    
    5,752
    
    
    
    
    
    
    
    204,819Minority interests
    
    
    
    
    
    
    1,484
    
    
    
    18,089
    
    
    
    
    
    
    
    19,573Commitments and contingenciesEquities:Capital stock
    
    
    1,678
    
    
    
    
    
    
    
    2,908
    
    
    
    (2,908
    )
    
    
    1,678Additional paid-in capital
    
    
    
    
    
    
    188,582
    
    
    
    99,448
    
    
    
    (288,030
    )
    
    
    Member equities
    
    
    952,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    952,777Accumulated other comprehensive (loss) income
    
    
    (59,060
    )
    
    
    (171
    )
    
    
    266
    
    
    
    (95
    )
    
    
    (59,060
    )Retained earnings
    
    
    173,341
    
    
    
    263,537
    
    
    
    153,248
    
    
    
    (416,785
    )
    
    
    173,341Total equities
    
    
    1,068,736
    
    
    
    451,948
    
    
    
    255,870
    
    
    
    (707,818
    )
    
    
    1,068,736Total liabilities and equities
    
    $
    2,764,880
    
    
    $
    2,361,505
    
    
    $
    1,657,505
    
    
    $
    (1,999,867
    )
    
    $
    4,784,023
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2008
 LandOLakes,
    
    
    
    
    
    
    Non-Inc. Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,636,597
    
    
    $
    1,364,571
    
    
    $
    255,831
    
    
    $
    
    
    
    $
    3,256,999Cost of sales
    
    
    1,536,532
    
    
    
    1,268,501
    
    
    
    201,259
    
    
    
    
    
    
    
    3,006,292Gross profit
    
    
    100,065
    
    
    
    96,070
    
    
    
    54,572
    
    
    
    
    
    
    
    250,707Selling, general and administrative
    
    
    71,047
    
    
    
    79,831
    
    
    
    16,701
    
    
    
    
    
    
    
    167,579Restructuring and impairment charges
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Earnings from operations
    
    
    28,965
    
    
    
    16,239
    
    
    
    37,871
    
    
    
    
    
    
    
    83,075Interest expense, net
    
    
    14,982
    
    
    
    3,203
    
    
    
    (1,050
    )
    
    
    
    
    
    
    17,135Other expense, net
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Equity in (earnings) loss of affiliated companies
    
    
    (48,991
    )
    
    
    81
    
    
    
    (11,093
    )
    
    
    55,901
    
    
    
    (4,102
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    1,865
    
    
    
    
    
    
    
    1,865Earnings before income taxes
    
    
    62,974
    
    
    
    12,943
    
    
    
    48,149
    
    
    
    (55,901
    )
    
    
    68,165Income tax expense
    
    
    1,691
    
    
    
    71
    
    
    
    5,120
    
    
    
    
    
    
    
    6,882Net earnings
    
    $
    61,283
    
    
    $
    12,872
    
    
    $
    43,029
    
    
    $
    (55,901
    )
    
    $
    61,283
 18




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2008
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    61,283
    
    
    $
    12,872
    
    
    $
    43,029
    
    
    $
    (55,901
    )
    
    $
    61,283Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:Depreciation and amortization
    
    
    9,760
    
    
    
    10,168
    
    
    
    2,218
    
    
    
    
    
    
    
    22,146Amortization of deferred financing costs
    
    
    489
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    525Bad debt expense
    
    
    388
    
    
    
    460
    
    
    
    138
    
    
    
    
    
    
    
    986Proceeds from patronage revolvement received
    
    
    1,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,560Non-cash patronage income
    
    
    (783
    )
    
    
    (548
    )
    
    
    
    
    
    
    
    
    
    
    (1,331
    )Deferred income tax benefit
    
    
    (14,631
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,631
    )Increase in other assets
    
    
    (425
    )
    
    
    (537
    )
    
    
    (30
    )
    
    
    44
    
    
    
    (948
    )Increase in other liabilities
    
    
    2,884
    
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    2,808Restructuring and impairment charges
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Loss on sale of investment
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Equity in (earnings) loss of affiliated companies
    
    
    (48,991
    )
    
    
    81
    
    
    
    (11,093
    )
    
    
    55,901
    
    
    
    (4,102
    )Dividends from investments in affiliated companies
    
    
    227
    
    
    
    500
    
    
    
    4,721
    
    
    
    
    
    
    
    5,448Minority interests
    
    
    
    
    
    
    
    
    
    
    1,865
    
    
    
    
    
    
    
    1,865Other
    
    
    (229
    )
    
    
    5
    
    
    
    (10
    )
    
    
    
    
    
    
    (234
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (95,498
    )
    
    
    (38,902
    )
    
    
    (353,203
    )
    
    
    36,976
    
    
    
    (450,627
    )Inventories
    
    
    34,607
    
    
    
    (124,781
    )
    
    
    (22,475
    )
    
    
    
    
    
    
    (112,649
    )Prepaids and other current assets
    
    
    422,705
    
    
    
    (64,662
    )
    
    
    (3,161
    )
    
    
    (2
    )
    
    
    354,880Accounts payable
    
    
    40,143
    
    
    
    139,454
    
    
    
    23,296
    
    
    
    2,375
    
    
    
    205,268Customer advances
    
    
    (465,392
    )
    
    
    37,163
    
    
    
    (899
    )
    
    
    
    
    
    
    (429,128
    )Accrued expenses
    
    
    64,020
    
    
    
    23,934
    
    
    
    2,249
    
    
    
    1,080
    
    
    
    91,283Net cash provided (used) by operating activities
    
    
    12,170
    
    
    
    (4,857
    )
    
    
    (313,319
    )
    
    
    40,473
    
    
    
    (265,533
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (4,221
    )
    
    
    (9,106
    )
    
    
    (10,989
    )
    
    
    
    
    
    
    (24,316
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (6,419
    )
    
    
    
    
    
    
    (6,419
    )Payments for investments
    
    
    (50,600
    )
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (50,835
    )Distributions from investments in affiliated
companies
    
    
    
    
    
    
    
    
    
    
    4,448
    
    
    
    
    
    
    
    4,448Proceeds from sale of investments
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Change in notes receivable
    
    
    (5,657
    )
    
    
    500
    
    
    
    (881
    )
    
    
    
    
    
    
    (6,038
    )Other
    
    
    (208
    )
    
    
    
    
    
    
    (268
    )
    
    
    
    
    
    
    (476
    )Net cash used by investing activities
    
    
    (60,686
    )
    
    
    (8,491
    )
    
    
    (14,344
    )
    
    
    
    
    
    
    (83,521
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    56,347
    
    
    
    (2,429
    )
    
    
    328,486
    
    
    
    (40,473
    )
    
    
    341,931Proceeds from issuance of long-term debt
    
    
    1,358
    
    
    
    
    
    
    
    2,225
    
    
    
    
    
    
    
    3,583Principal payments on long-term debt
    
    
    (499
    )
    
    
    (196
    )
    
    
    (11,998
    )
    
    
    
    
    
    
    (12,693
    )Payments for redemption of member equities
    
    
    (22,161
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,161
    )Distribution to members
    
    
    30,900
    
    
    
    
    
    
    
    (30,900
    )
    
    
    
    
    
    
    Other
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Net cash provided (used) by financing activities
    
    
    65,909
    
    
    
    (2,625
    )
    
    
    287,813
    
    
    
    (40,473
    )
    
    
    310,624Net increase (decrease) in cash and cash equivalents
    
    
    17,393
    
    
    
    (15,973
    )
    
    
    (39,850
    )
    
    
    
    
    
    
    (38,430
    )Cash and cash equivalents at beginning of period
    
    
    12,411
    
    
    
    17,036
    
    
    
    87,392
    
    
    
    
    
    
    
    116,839Cash and cash equivalents at end of period
    
    $
    29,804
    
    
    $
    1,063
    
    
    $
    47,542
    
    
    $
    
    
    
    $
    78,409
 19




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,411
    
    
    $
    17,036
    
    
    $
    87,392
    
    
    $
    
    
    
    $
    116,839Receivables, net
    
    
    352,798
    
    
    
    544,941
    
    
    
    872,574
    
    
    
    (763,606
    )
    
    
    1,006,707Intercompany receivables
    
    
    
    
    
    
    146,951
    
    
    
    
    
    
    
    (146,951
    )
    
    
    Inventories
    
    
    390,236
    
    
    
    527,014
    
    
    
    47,265
    
    
    
    
    
    
    
    964,515Prepaid expenses
    
    
    454,073
    
    
    
    398,820
    
    
    
    3,140
    
    
    
    
    
    
    
    856,033Other current assets
    
    
    55,602
    
    
    
    19,637
    
    
    
    939
    
    
    
    
    
    
    
    76,178Total current assets
    
    
    1,265,120
    
    
    
    1,654,399
    
    
    
    1,011,310
    
    
    
    (910,557
    )
    
    
    3,020,272Investments
    
    
    1,361,795
    
    
    
    48,312
    
    
    
    15,492
    
    
    
    (1,121,621
    )
    
    
    303,978Property, plant and equipment, net
    
    
    197,175
    
    
    
    270,044
    
    
    
    84,533
    
    
    
    
    
    
    
    551,752Goodwill, net
    
    
    211,900
    
    
    
    47,632
    
    
    
    58,692
    
    
    
    
    
    
    
    318,224Other intangibles, net
    
    
    3,586
    
    
    
    113,440
    
    
    
    2,141
    
    
    
    
    
    
    
    119,167Other assets
    
    
    32,281
    
    
    
    35,927
    
    
    
    53,965
    
    
    
    (3,735
    )
    
    
    118,438Total assets
    
    $
    3,071,857
    
    
    $
    2,169,754
    
    
    $
    1,226,133
    
    
    $
    (2,035,913
    )
    
    $
    4,431,831LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,815
    
    
    $
    879,785
    
    
    $
    (751,430
    )
    
    $
    132,170Current portion of long-term debt
    
    
    1,879
    
    
    
    396
    
    
    
    2,907
    
    
    
    
    
    
    
    5,182Accounts payable
    
    
    498,081
    
    
    
    629,981
    
    
    
    34,408
    
    
    
    (12,117
    )
    
    
    1,150,353Intercompany payables
    
    
    90,209
    
    
    
    55,855
    
    
    
    887
    
    
    
    (146,951
    )
    
    
    Customer advances
    
    
    514,069
    
    
    
    410,870
    
    
    
    1,301
    
    
    
    
    
    
    
    926,240Accrued expenses
    
    
    157,360
    
    
    
    152,233
    
    
    
    31,677
    
    
    
    (3,794
    )
    
    
    337,476Patronage refunds and other member
equities payable
    
    
    28,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,065Total current liabilities
    
    
    1,289,663
    
    
    
    1,253,150
    
    
    
    950,965
    
    
    
    (914,292
    )
    
    
    2,579,486Long-term debt
    
    
    578,380
    
    
    
    142
    
    
    
    33,080
    
    
    
    
    
    
    
    611,602Employee benefits and other liabilities
    
    
    171,646
    
    
    
    25,002
    
    
    
    5,752
    
    
    
    
    
    
    
    202,400Minority interests
    
    
    
    
    
    
    1,558
    
    
    
    4,617
    
    
    
    
    
    
    
    6,175Commitments and contingenciesEquities:Capital stock
    
    
    1,701
    
    
    
    
    
    
    
    2,909
    
    
    
    (2,909
    )
    
    
    1,701Additional paid-in capital
    
    
    
    
    
    
    639,343
    
    
    
    118,230
    
    
    
    (757,573
    )
    
    
    Member equities
    
    
    937,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    937,126Accumulated other comprehensive
(loss) earnings
    
    
    (61,931
    )
    
    
    (189
    )
    
    
    476
    
    
    
    (287
    )
    
    
    (61,931
    )Retained earnings
    
    
    155,272
    
    
    
    250,748
    
    
    
    110,104
    
    
    
    (360,852
    )
    
    
    155,272Total equities
    
    
    1,032,168
    
    
    
    889,902
    
    
    
    231,719
    
    
    
    (1,121,621
    )
    
    
    1,032,168Total liabilities and equities
    
    $
    3,071,857
    
    
    $
    2,169,754
    
    
    $
    1,226,133
    
    
    $
    (2,035,913
    )
    
    $
    4,431,831
 20




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2007
 (Restated)LandOLakes,
    
    
    
    
    
    
    Non-Inc. Parent
    
    
    Consolidated
    
    
    Guarantor
    
    
    
    
    
    
    (Restated)Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,098,691
    
    
    $
    933,318
    
    
    $
    150,274
    
    
    $
    
    
    
    $
    2,182,283Cost of sales
    
    
    985,727
    
    
    
    846,254
    
    
    
    132,752
    
    
    
    
    
    
    
    1,964,733Gross profit
    
    
    112,964
    
    
    
    87,064
    
    
    
    17,522
    
    
    
    
    
    
    
    217,550Selling, general and administrative
    
    
    69,875
    
    
    
    63,631
    
    
    
    8,505
    
    
    
    
    
    
    
    142,011Restructuring and impairment charges
    
    
    566
    
    
    
    524
    
    
    
    298
    
    
    
    
    
    
    
    1,388Earnings from operations
    
    
    42,523
    
    
    
    22,909
    
    
    
    8,719
    
    
    
    
    
    
    
    74,151Interest expense, net
    
    
    15,093
    
    
    
    (381
    )
    
    
    114
    
    
    
    
    
    
    
    14,826Other expense, net
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Equity in earnings of affiliated companies
    
    
    (34,217
    )
    
    
    (510
    )
    
    
    (3,013
    )
    
    
    34,525
    
    
    
    (3,215
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256Earnings before income taxes
    
    
    61,461
    
    
    
    23,800
    
    
    
    11,362
    
    
    
    (34,525
    )
    
    
    62,098Income tax expense
    
    
    8,830
    
    
    
    126
    
    
    
    511
    
    
    
    
    
    
    
    9,467Net earnings
    
    $
    52,631
    
    
    $
    23,674
    
    
    $
    10,851
    
    
    $
    (34,525
    )
    
    $
    52,631
 21




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2007
 (Restated)LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    Guarantor
    
    
    
    
    
    
    (Restated)Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    52,631
    
    
    $
    23,674
    
    
    $
    10,851
    
    
    $
    (34,525
    )
    
    $
    52,631Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:Depreciation and amortization
    
    
    10,620
    
    
    
    8,116
    
    
    
    2,516
    
    
    
    
    
    
    
    21,252Amortization of deferred financing costs
    
    
    424
    
    
    
    288
    
    
    
    36
    
    
    
    
    
    
    
    748Bad debt expense
    
    
    704
    
    
    
    (43
    )
    
    
    7
    
    
    
    
    
    
    
    668Proceeds from patronage revolvement received
    
    
    3,070
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    3,075Non-cash patronage income
    
    
    (567
    )
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (616
    )Deferred income tax expense
    
    
    3,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,479(Increase) decrease in other assets
    
    
    (468
    )
    
    
    (284
    )
    
    
    98
    
    
    
    60
    
    
    
    (594
    )Increase in other liabilities
    
    
    768
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    893Restructuring and impairment charges
    
    
    566
    
    
    
    524
    
    
    
    298
    
    
    
    
    
    
    
    1,388Loss on sale of investment
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Equity in earnings of affiliated companies
    
    
    (34,217
    )
    
    
    (510
    )
    
    
    (3,013
    )
    
    
    34,525
    
    
    
    (3,215
    )Dividends from investments in affiliated companies
    
    
    20,123
    
    
    
    211
    
    
    
    2,350
    
    
    
    
    
    
    
    22,684Minority interests
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256Other
    
    
    195
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    113Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (165,187
    )
    
    
    (25,548
    )
    
    
    (209,807
    )
    
    
    182,613
    
    
    
    (217,929
    )Inventories
    
    
    (32,831
    )
    
    
    1,203
    
    
    
    (8,698
    )
    
    
    
    
    
    
    (40,326
    )Prepaids and other current assets
    
    
    334,352
    
    
    
    2,114
    
    
    
    (35,320
    )
    
    
    
    
    
    
    301,146Accounts payable
    
    
    164,348
    
    
    
    (6,757
    )
    
    
    3,854
    
    
    
    (5,334
    )
    
    
    156,111Customer advances
    
    
    (338,606
    )
    
    
    (11,430
    )
    
    
    26,282
    
    
    
    
    
    
    
    (323,754
    )Accrued expenses
    
    
    5,410
    
    
    
    8,349
    
    
    
    (1,075
    )
    
    
    (118
    )
    
    
    12,566Net cash provided (used) by operating activities
    
    
    25,000
    
    
    
    (94
    )
    
    
    (211,365
    )
    
    
    177,221
    
    
    
    (9,238
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (11,004
    )
    
    
    (5,725
    )
    
    
    (1,316
    )
    
    
    
    
    
    
    (18,045
    )Acquisitions
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )Payments for investments
    
    
    (250
    )
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (406
    )Proceeds from sale of investments
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    135
    
    
    
    35
    
    
    
    
    
    
    
    176Change in notes receivable
    
    
    (5,032
    )
    
    
    657
    
    
    
    (3,490
    )
    
    
    
    
    
    
    (7,865
    )Other
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )Net cash used by investing activities
    
    
    (15,887
    )
    
    
    (4,933
    )
    
    
    (4,985
    )
    
    
    
    
    
    
    (25,805
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    3,039
    
    
    
    (437
    )
    
    
    207,766
    
    
    
    (177,221
    )
    
    
    33,147Proceeds from issuance of long-term debt
    
    
    1,337
    
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    1,827Principal payments on long-term debt
    
    
    (141
    )
    
    
    (10,057
    )
    
    
    (14,161
    )
    
    
    
    
    
    
    (24,359
    )Payments for redemption of member equities
    
    
    (15,472
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,472
    )Other
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Net cash (used) provided by financing activities
    
    
    (11,273
    )
    
    
    (10,494
    )
    
    
    194,095
    
    
    
    (177,221
    )
    
    
    (4,893
    )Net decrease in cash and cash equivalents
    
    
    (2,160
    )
    
    
    (15,521
    )
    
    
    (22,255
    )
    
    
    
    
    
    
    (39,936
    )Cash and cash equivalents at beginning of period
    
    
    8,976
    
    
    
    15,613
    
    
    
    55,118
    
    
    
    
    
    
    
    79,707Cash and cash equivalents at end of period
    
    $
    6,816
    
    
    $
    92
    
    
    $
    32,863
    
    
    $
    
    
    
    $
    39,771
 22




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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
 Restatement of Financial Results
  General
  ® ® ® ® ®
  23




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##### Table of Contents



Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
   March 31,2008
    
    2007Per pound market price average for three months ended:Butter (CME)
    
    $
    1.26
    
    
    $
    1.26Block cheese (CME)
    
    
    1.88
    
    
    
    1.35Non fat dry milk (NASS)
    
    
    1.36
    
    
    
    1.12
 24




---



##### Table of Contents



Feed.
     Layers
 Derivative Commodity Instruments
  For the three months endedMarch 31,2008
    
    2007($ in millions)Unrealized hedging loss
    
    $
    (27.9
    )
    
    $
    (3.6
    )
 25




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##### Table of Contents



Vendor Rebates
  Unconsolidated Businesses
  For the three months endedMarch 31,Restated2008
    
    2007(in millions)Earnings from unconsolidated businesses
    
    $
    4.1
    
    
    $
    3.2
    26




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##### Table of Contents



Results of Operations
 Three months ended March 31, 2008 as compared to three months ended March 31, 2007
 Restatement of Financial Results
 Overview  Restatement of Financial Results
 PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007($ in millions)Equity in earnings of affiliated companies
    
    $
    (6.9
    )
    
    $
    3.7
    
    
    $
    (3.2
    )Earnings before income taxes
    
    
    65.8
    
    
    
    (3.7
    )
    
    
    62.1Income tax expense
    
    
    10.9
    
    
    
    (1.4
    )
    
    
    9.5Net earnings
    
    
    54.9
    
    
    
    (2.3
    )
    
    
    52.6
 Overview of Results
 For the three months ended March 31,Increase2008
    
    2007
    
    (Decrease)($ in millions)Net earnings
    
    $
    61.3
    
    
    $
    52.6
    
    
    $
    8.7
  Net sales
    
    $
    3,257.0
    
    
    $
    2,182.3
    
    
    $
    1,074.7
  Gross profit
    
    $
    250.7
    
    
    $
    217.6
    
    
    $
    33.1
  Selling, general and administrative expense
    
    $
    167.6
    
    
    $
    142.0
    
    
    $
    25.6
  Restructuring and impairment charges
    
    $
    0.1
    
    
    $
    1.4
    
    
    $
    (1.3
    )
 27




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##### Table of Contents



For the three months ended March 31,Increase2008
    
    2007
    
    (Decrease)($ in millions)Interest expense, net
    
    $
    17.1
    
    
    $
    14.8
    
    
    $
    2.3
  Equity in earnings of affiliated companies
    
    $
    4.1
    
    
    $
    3.2
    
    
    $
    0.9
  Income tax expense
    
    $
    6.9
    
    
    $
    9.5
    
    
    $
    (2.6
    )
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended March 31,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    1,048.1
    
    
    $
    880.3
    
    
    
    19.1
    %Gross profit
    
    
    41.8
    
    
    
    75.2
    
    
    
    (44.4
    )%Gross profit % of net
sales
    
    
    4.0
    %
    
    
    8.5
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    249.9Volume impact
    
    
    28.6Acquisitions and divestitures
    
    
    (110.7
    )Total increase
    
    $
    167.8
 28




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##### Table of Contents



Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    (24.4
    )Volume impact
    
    
    Unrealized hedging
    
    
    (0.8
    )Acquisitions and divestitures
    
    
    (8.2
    )Total decrease
    
    $
    (33.4
    )
  Feed
 For the three months ended March 31,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    941.7
    
    
    $
    748.8
    
    
    
    25.8
    %Gross profit
    
    
    80.1
    
    
    
    71.5
    
    
    
    12.0
    %Gross profit % of net sales
    
    
    8.5
    %
    
    
    9.5
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    187.1Volume impact
    
    
    11.8Acquisitions and divestitures
    
    
    (6.0
    )Total increase
    
    $
    192.9
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    19.9Volume impact
    
    
    0.4Unrealized hedging
    
    
    (11.6
    )Acquisitions and divestitures
    
    
    (0.1
    )Total increase
    
    $
    8.6
 29




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##### Table of Contents



Seed
 For the three months ended March 31,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    627.1
    
    
    $
    436.0
    
    
    
    43.8
    %Gross profit
    
    
    66.4
    
    
    
    55.8
    
    
    
    19.0
    %Gross profit % of net
sales
    
    
    10.6
    %
    
    
    12.8
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    105.5Volume impact
    
    
    85.6Total increase
    
    $
    191.1
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    4.6Volume impact
    
    
    10.3Unrealized hedging
    
    
    (4.3
    )Total increase
    
    $
    10.6
  Layers
 For the three months ended March 31,($ in millions)
    
    2008
    
    2007
    

% changeNet sales
    
    $
    181.1
    
    
    $
    119.9
    
    
    
    51.0
    %Gross profit
    
    
    33.9
    
    
    
    14.3
    
    
    
    137.1
    %Gross profit %
of net sales
    
    
    18.7
    %
    
    
    11.9
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    40.6Volume impact
    
    
    20.6Total increase
    
    $
    61.2
 30




---



##### Table of Contents



Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    23.2Volume impact
    
    
    2.6Unrealized hedging
    
    
    (6.2
    )Total increase
    
    $
    19.6
  Agronomy
  Net Sales
  Gross Profit
  Liquidity and Capital Resources
 Overview
  31




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##### Table of Contents



As of
    
    
    As of
    
    
    As ofMarch 31,
    
    
    March 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2007($ in millions)Cash and cash equivalents
    
    $
    78.4
    
    
    $
    39.8
    
    
    $
    116.8Availability on revolving credit facility
    
    
    93.6
    
    
    
    190.6
    
    
    
    196.0Availability on receivable securitization program
    
    
    110.0
    
    
    
    170.0
    
    
    
    230.0Total liquidity
    
    $
    282.0
    
    
    $
    400.4
    
    
    $
    542.8
  Cash Flows
 Restatement of Financial Results
 Overview  Restatement of Financial Results
 PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007($ in millions)Net earnings
    
    $
    54.9
    
    
    $
    (2.3
    )
    
    $
    52.6Deferred income tax expense
    
    
    4.9
    
    
    
    (1.4
    )
    
    
    3.5Equity in earnings of affiliated companies
    
    
    (6.9
    )
    
    
    3.7
    
    
    
    (3.2
    )
  Operating Activities
 For the Three Months EndedMarch 31,2008
    
    
    2007($ in millions)Net earnings
    
    $
    61.3
    
    
    $
    52.6Adjustments to reconcile net earnings to net cash used by operating activities
    
    
    14.2
    
    
    
    50.4Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    (341.0
    )
    
    
    (112.2
    )Net cash used by operating activities
    
    $
    (265.5
    )
    
    $
    (9.2
    )
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Investing Activities
 For the Three Months EndedMarch 31,2008
    
    
    2007($ in millions)Additions to property, plant and equipment
    
    $
    (24.3
    )
    
    $
    (18.0
    )Acquisitions, net of cash acquired
    
    
    (6.4
    )
    
    
    (0.1
    )Payments for investments
    
    
    (50.8
    )
    
    
    (0.4
    )Distributions from investments in affiliated companies
    
    
    4.4
    
    
    
    Proceeds from sale of investments
    
    
    
    
    
    
    0.5Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    0.2Change in notes receivable
    
    
    (6.0
    )
    
    
    (7.9
    )Other
    
    
    (0.5
    )
    
    
    (0.1
    )Net cash used by investing activities
    
    $
    (83.5
    )
    
    $
    (25.8
    )
   Financing Activities
 For the Three Months EndedMarch 31,2008
    
    
    2007($ in millions)Increase (decrease) in short-term debt, net
    
    $
    341.9
    
    
    $
    33.1Proceeds from issuance of long-term debt
    
    
    3.6
    
    
    
    1.8Principal payments on long-term debt and obligations under capital lease
    
    
    (12.7
    )
    
    
    (24.3
    )Payments for redemption of member equities
    
    
    (22.2
    )
    
    
    (15.5
    )Net cash provided (used) by financing activities
    
    $
    310.6
    
    
    $
    (4.9
    )
  Principal Debt Facilities
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34




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##### Table of Contents



Capital Leases
  Recent Accounting Pronouncements
       35




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Critical Accounting Policies
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Remediation and Changes in Internal Control over Financial Reporting
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
    
    Obtaining evidence to support the existence of binding arrangements with vendors, and
    
    Continuing to improve accounting personnel review processes and procedures over the
existence of such evidence of binding arrangements to support vendor rebates recognized
in the consolidated financial statements.
  (c) Changes in internal controls
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
  ® ® ® ® ®
  37




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Item 1A. Risk Factors
  
    
    COMPETITION IN THE INDUSTRY MAY REDUCE OUR SALES AND MARGINS.
    
    OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO POTENTIAL
CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR MARGINS, PARTICULARLY THOSE
RELATED TO OUR SALES OF ROUNDUP® READY ALFALFA.
    
    THE GEOGRAPHIC SHIFT IN DAIRY PRODUCTION HAS DECREASED SALES AND MARGINS AND COULD
CONTINUE TO NEGATIVELY IMPACT OUR SALES AND MARGINS.
    
    CHANGES IN CONSUMER PREFERENCES AND DISTRIBUTION CHANNELS COULD DECREASE OUR DAIRY
FOODS REVENUES AND CASH FLOWS.
    
    OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY WEATHER CONDITIONS.
    
    INCREASED ENERGY AND GAS COSTS COULD INCREASE OUR EXPENSES AND REDUCE OUR
PROFITABILTIY.
    
    OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.
    
    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 MARGINS TO DECLINE AND REDUCE THE
LIKELIHOOD OF RECEIVING DIVIDENDS FROM OUR JOINT VENTURES.
    
    WE OPERATE THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO EARNINGS AND TO CONTROL THE
JOINT VENTURE ARE LIMITED.
    
    CERTAIN OF OUR BUSINESS MAY BE ADVERSELY AFFECTED BY OUR DEPENDENCE UPON OUR
SUPPLIERS.
    
    THE MANNER IN WHICH WE PAY FOR CERTAIN OF OUR INPUTS AND OTHER PRODUCTS THAT WE
DISTRIBUTE EXPOSES US TO SUPPLIER-SPECIFIC RISK.
    
    INCREASED FINANCIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR
OBLIGATIONS UNDER OUR DEBT FACILITIES AND TO OPERATE OUR BUSINESSES.
    
    SERVICING OUR INDEBTEDNESS REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
    
    IF CREDITORS OF OUR SUBSIDIARIES AND JOINT VENTURES MAKE CLAIMS WITH RESPECT TO THE
ASSETS AND EARNINGS OF THESE COMPANIES, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO REPAY
OUR INDEBTEDNESS AND WE MAY NOT RECEIVE THE CASH WE EXPECT FROM INTERCOMPANY TRANSFERS.
    
    THE COLLATERAL PLEDGED IN SUPPORT OF OUR DEBT OBLIGATIONS MAY NOT BE VALUABLE ENOUGH
TO SATISFY ALL THE BORROWINGS SECURED BY THE COLLATERAL.
    
    A LOSS OF OUR COOPERATIVE TAX STATUS COULD INCREASE OUR TAX LIABILITY.
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
    
    OUR LIMITED ACCESS TO EQUITY MARKETS COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL EQUITY CAPITAL.
    
    INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD DAMAGE OUR
COMPETITIVE POSITION.
    
    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.
    
    PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS.
    
    WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF OR LIABILITIES UNDER ENVIRONMENTAL
LAWS AND REGULATIONS APPLICABLE TO OUR OPERATIONS.
    
    STRIKES OR WORK STOPPAGES BY OUR UNIONIZED WORKERS COULD DISRUPT OUR BUSINESS.
    
    THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM OR OTHER KEY EMPLOYEES WILL
REMAIN WITH US.
 
 Item 6. Exhibits
 (a) Exhibits
 EXHIBIT
    
    DESCRIPTION10.1
    
    First Amendment to Third Amended and Restated Receivables Purchases Agreement, dated
as of March 13, 2008 (Securitization facility). *10.2
    
    Fifth Amendment to Purchase and Sale Agreement, dated as of March 12, 2008
(Securitization facility). *10.3
    
    Third Amendment to the Amended and Restated Five-Year Revolving Credit Facility,
dated as of March 7, 2008. *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*
 
 *
    
    Filed electronically herewith 39




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SIGNATURES
  LAND OLAKES, INC.By
    
    /s/ Daniel KnutsonDaniel KnutsonSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 40