##### 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 June 30, 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
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   We maintain a website on the Internet where additional information about Land OLakes, Inc.
is available. Our website address is www.landolakesinc.com. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, press releases and
earnings releases are available, free of charge, on our website when they are released
publicly or filed with the SEC.




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##### 



INDEX
 PagePart I. Financial Information
    
    
    3Item I. Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2008 and
2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
(unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45Part II Other Information
    
    
    46Item 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    47Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    48SIGNATURES
    
    
    49Section 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
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    140,337
    
    
    $
    116,839Receivables, net
    
    
    1,282,870
    
    
    
    1,006,707Inventories
    
    
    1,169,062
    
    
    
    964,515Prepaid expenses
    
    
    92,277
    
    
    
    856,033Other current assets
    
    
    137,979
    
    
    
    76,178Total current assets
    
    
    2,822,525
    
    
    
    3,020,272Investments
    
    
    336,223
    
    
    
    303,978Property, plant and equipment, net
    
    
    591,433
    
    
    
    551,752Goodwill, net
    
    
    314,489
    
    
    
    318,224Other intangibles, net
    
    
    117,895
    
    
    
    119,167Other assets
    
    
    122,836
    
    
    
    118,438Total assets
    
    $
    4,305,401
    
    
    $
    4,431,831LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    111,869
    
    
    $
    132,170Current portion of long-term debt
    
    
    4,584
    
    
    
    5,182Accounts payable
    
    
    1,572,098
    
    
    
    1,150,353Customer advances
    
    
    136,366
    
    
    
    926,240Accrued expenses
    
    
    506,077
    
    
    
    337,476Patronage refunds and other member equities payable
    
    
    42,070
    
    
    
    28,065Total current liabilities
    
    
    2,373,064
    
    
    
    2,579,486Long-term debt
    
    
    605,126
    
    
    
    611,602Employee benefits and other liabilities
    
    
    210,475
    
    
    
    202,400Minority interests
    
    
    29,334
    
    
    
    6,175Commitments and contingenciesEquities:Capital stock
    
    
    1,659
    
    
    
    1,701Member equities
    
    
    960,920
    
    
    
    937,126Accumulated other comprehensive loss
    
    
    (62,687
    )
    
    
    (61,931
    )Retained earnings
    
    
    187,510
    
    
    
    155,272Total equities
    
    
    1,087,402
    
    
    
    1,032,168Total liabilities and equities
    
    $
    4,305,401
    
    
    $
    4,431,831
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    

    2007(Restated)
    
    
    
    
    
    
    (Restated)($ in thousands)Net sales
    
    $
    3,327,865
    
    
    $
    2,022,016
    
    
    $
    6,584,864
    
    
    $
    4,204,299Cost of sales
    
    
    3,016,377
    
    
    
    1,832,600
    
    
    
    6,022,669
    
    
    
    3,797,333Gross profit
    
    
    311,488
    
    
    
    189,416
    
    
    
    562,195
    
    
    
    406,966Selling, general and administrative
    
    
    190,109
    
    
    
    147,842
    
    
    
    357,688
    
    
    
    289,853Restructuring and impairment
    
    
    (12
    )
    
    
    301
    
    
    
    41
    
    
    
    1,689Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    121,391
    
    
    
    47,214
    
    
    
    204,466
    
    
    
    121,365Interest expense, net
    
    
    15,587
    
    
    
    8,894
    
    
    
    32,722
    
    
    
    23,720Other (income) expense, net
    
    
    
    
    
    
    (28,482
    )
    
    
    12
    
    
    
    (28,296
    )Equity in earnings of affiliated companies
    
    
    (20,456
    )
    
    
    (17,781
    )
    
    
    (24,558
    )
    
    
    (20,996
    )Minority interest in earnings of subsidiaries
    
    
    9,818
    
    
    
    330
    
    
    
    11,683
    
    
    
    586Earnings before income taxes
    
    
    116,442
    
    
    
    84,253
    
    
    
    184,607
    
    
    
    146,351Income tax expense
    
    
    13,657
    
    
    
    4,756
    
    
    
    20,539
    
    
    
    14,223Net earnings
    
    $
    102,785
    
    
    $
    79,497
    
    
    $
    164,068
    
    
    $
    132,128Applied to:Member equitiesAllocated patronage
    
    $
    80,296
    
    
    $
    64,395
    
    
    $
    128,137
    
    
    $
    100,861Deferred equities
    
    
    7,535
    
    
    
    3,833
    
    
    
    2,572
    
    
    
    4,88487,831
    
    
    
    68,228
    
    
    
    130,709
    
    
    
    105,745Retained earnings
    
    
    14,954
    
    
    
    11,269
    
    
    
    33,359
    
    
    
    26,383$
    102,785
    
    
    $
    79,497
    
    
    $
    164,068
    
    
    $
    132,128
  4




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LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Six Months Ended
 June 30,2008
    
    
    2007(Restated)($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    164,068
    
    
    $
    132,128Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    44,114
    
    
    
    40,544Amortization of deferred financing costs
    
    
    1,052
    
    
    
    1,233Bad debt expense
    
    
    1,899
    
    
    
    736Proceeds from patronage revolvement received
    
    
    1,616
    
    
    
    3,075Non-cash patronage income
    
    
    (3,183
    )
    
    
    (1,018
    )Deferred income tax benefit
    
    
    (25,418
    )
    
    
    (39,088
    )Increase in other assets
    
    
    (1,496
    )
    
    
    (1,646
    )Increase (decrease) in other liabilities
    
    
    4,937
    
    
    
    (4,367
    )Insurance recovery  business interruption
    
    
    
    
    
    
    4,551Restructuring and impairment
    
    
    41
    
    
    
    1,689Gain on divestiture of businesses
    
    
    
    
    
    
    (28,481
    )Loss on sale of investments
    
    
    12
    
    
    
    185Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )Equity in earnings of affiliated companies
    
    
    (24,558
    )
    
    
    (20,996
    )Dividends from investments in affiliated companies
    
    
    10,072
    
    
    
    24,682Minority interests
    
    
    11,683
    
    
    
    586Other
    
    
    (1,254
    )
    
    
    (20
    )Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (243,378
    )
    
    
    (44,953
    )Inventories
    
    
    (135,059
    )
    
    
    (112,676
    )Prepaids and other current assets
    
    
    761,101
    
    
    
    319,465Accounts payable
    
    
    401,144
    
    
    
    253,861Customer advances
    
    
    (814,098
    )
    
    
    (399,225
    )Accrued expenses
    
    
    169,506
    
    
    
    73,120Net cash provided by operating activities
    
    
    322,801
    
    
    
    197,444Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (69,598
    )
    
    
    (43,475
    )Acquisitions, net of cash acquired
    
    
    (9,040
    )
    
    
    (58
    )Investments in affiliates
    
    
    (50,860
    )
    
    
    (656
    )Distributions from investments in affiliated companies
    
    
    7,865
    
    
    
    Proceeds from sale of investments
    
    
    49
    
    
    
    475Net proceeds from divestiture of businesses
    
    
    
    
    
    
    211,851Proceeds from sale of property, plant and equipment
    
    
    3,105
    
    
    
    4,430Change in notes receivable
    
    
    (11,816
    )
    
    
    (18,444
    )Other
    
    
    (651
    )
    
    
    (957
    )Net cash (used) provided by investing activities
    
    
    (130,946
    )
    
    
    153,166Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (64,778
    )
    
    
    3,712Proceeds from issuance of long-term debt
    
    
    3,898
    
    
    
    6,153Principal payments on long-term debt
    
    
    (13,349
    )
    
    
    (28,798
    )Payments for redemption of member equities
    
    
    (94,032
    )
    
    
    (35,265
    )Other
    
    
    (96
    )
    
    
    (180
    )Net cash used by financing activities
    
    
    (168,357
    )
    
    
    (54,378
    )Net increase in cash and cash equivalents
    
    
    23,498
    
    
    
    296,232Cash and cash equivalents at beginning of the period
    
    
    116,839
    
    
    
    79,707Cash and cash equivalents at end of the period
    
    $
    140,337
    
    
    $
    375,939Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    35,673
    
    
    $
    28,909Income taxes
    
    
    35,885
    
    
    
    7,694
  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
     6




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##### Table of Contents



Accounting Estimates
  2. Restatement of Prior Years Consolidated Financial Statements
   7




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For the three months ended
    
    For the six months endedPreviously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Effect of
    
    Restated
    
    Reported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007
    
    2007
    
    Restatement
    
    2007Equity in earnings of affiliated companies
    
    $
    (58,169
    )
    
    $
    40,388
    
    
    $
    (17,781
    )
    
    $
    (65,119
    )
    
    $
    44,123
    
    
    $
    (20,996
    )Earnings before income taxes
    
    
    124,641
    
    
    
    (40,388
    )
    
    
    84,253
    
    
    
    190,474
    
    
    
    (44,123
    )
    
    
    146,351Income tax expense
    
    
    20,204
    
    
    
    (15,448
    )
    
    
    4,756
    
    
    
    31,100
    
    
    
    (16,877
    )
    
    
    14,223Net earnings
    
    
    104,437
    
    
    
    (24,940
    )
    
    
    79,497
    
    
    
    159,374
    
    
    
    (27,246
    )
    
    
    132,128
  For the six months endedPreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007Net earnings
    
    $
    159,374
    
    
    $
    (27,246
    )
    
    $
    132,128Deferred income tax benefit
    
    
    (22,211
    )
    
    
    (16,877
    )
    
    
    (39,088
    )Equity in earnings of affiliated companies
    
    
    (65,119
    )
    
    
    44,123
    
    
    
    (20,996
    )
 3. Receivables
  June 30,
    
    
    December 31,2008
    
    
    2007Trade accounts
    
    $
    967,379
    
    
    $
    834,070Notes and contracts
    
    
    100,933
    
    
    
    92,207Vendor rebates
    
    
    162,326
    
    
    
    26,050Other
    
    
    72,468
    
    
    
    68,7301,303,106
    
    
    
    1,021,057Less allowance for doubtful accounts
    
    
    (20,236
    )
    
    
    (14,350
    )Total receivables, net
    
    $
    1,282,870
    
    
    $
    1,006,707
    4. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    222,338
    
    
    $
    190,586Work in process
    
    
    1,589
    
    
    
    5,058Finished goods
    
    
    945,135
    
    
    
    768,871Total inventories
    
    $
    1,169,062
    
    
    $
    964,515
 8




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##### Table of Contents



5. Investments
  June 30,
    
    
    December 31,2008
    
    
    2007Agriliance LLC
    
    $
    196,605
    
    
    $
    150,945Ag Processing Inc
    
    
    34,684
    
    
    
    32,832Advanced Food Products, LLC
    
    
    32,198
    
    
    
    34,287Delta Egg Farm, LLC
    
    
    10,344
    
    
    
    7,579Melrose Dairy Proteins, LLC
    
    
    8,893
    
    
    
    3,856Universal Cooperatives, Inc
    
    
    7,877
    
    
    
    7,802CoBank, ACB
    
    
    4,892
    
    
    
    4,396Prairie Farms Dairy, Inc
    
    
    3,559
    
    
    
    3,518Agronomy Company of Canada Ltd
    
    
    
    
    
    
    21,909Other  principally cooperatives and joint ventures
    
    
    37,171
    
    
    
    36,854Total investments
    
    $
    336,223
    
    
    $
    303,978
   For the three
    
    For the threemonths ended
    
    months endedJune 30,
    
    June 30,2008
    
    2007Net sales
    
    $
    425,751
    
    
    $
    1,918,870Gross profit
    
    
    57,063
    
    
    
    136,850Net earnings
    
    
    25,534
    
    
    
    32,470
 For the six
    
    For the sixmonths ended
    
    months endedJune 30,
    
    June 30,2008
    
    2007Net sales
    
    $
    656,349
    
    
    $
    2,648,015Gross profit
    
    
    85,009
    
    
    
    218,302Net earnings
    
    
    7,692
    
    
    
    35,353
 June 30,
    
    December 31,2008
    
    2007Current assets
    
    $
    590,308
    
    
    $
    696,332Non-current assets
    
    
    18,589
    
    
    
    66,099Current liabilities
    
    
    205,987
    
    
    
    426,674Non-current liabilities
    
    
    10,053
    
    
    
    33,867Total equity
    
    
    393,157
    
    
    
    301,890
  9




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6. Goodwill and Other Intangible Assets
 Goodwill
  June 30,
    
    
    December 31,2008
    
    
    2007Feed
    
    $
    127,208
    
    
    $
    127,404Dairy Foods
    
    
    68,988
    
    
    
    69,451Layers
    
    
    57,928
    
    
    
    58,280Agronomy
    
    
    49,665
    
    
    
    52,371Seed
    
    
    10,700
    
    
    
    10,718Total goodwill
    
    $
    314,489
    
    
    $
    318,224
  Other Intangible Assets
  June 30,
    
    
    December 31,2008
    
    
    2007Amortized other intangible assets:Patents, less accumulated amortization of $7,834 and $7,250, respectively
    
    $
    8,877
    
    
    $
    9,461Trademarks, less accumulated amortization of $1,841 and $1,592, respectively
    
    
    3,852
    
    
    
    4,102Dealer networks and customer relationships, less accumulated amortization of $1,252 and
$301, respectively
    
    
    46,289
    
    
    
    47,239Other intangible assets, less accumulated amortization of $5,931 and $5,342, respectively
    
    
    7,252
    
    
    
    6,740Total amortized other intangible assets
    
    
    66,270
    
    
    
    67,542Total non-amortized other intangible assets  trademarks and license agreements
    
    
    51,625
    
    
    
    51,625Total other intangible assets
    
    $
    117,895
    
    
    $
    119,167
  7. Debt Obligations
 Notes and Short-term Obligations
    10




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Long-term Debt
  June 30,
    
    
    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 2009 through 2023 (7.73% weighted average)
    
    
    17,436
    
    
    
    29,520MoArk LLC capital lease obligations (6.00% to 8.95%)
    
    
    5,610
    
    
    
    6,349Other debt
    
    
    28,221
    
    
    
    22,472609,710
    
    
    
    616,784Less current portion
    
    
    (4,584
    )
    
    
    (5,182
    )Total long-term debt
    
    $
    605,126
    
    
    $
    611,602
   8. Other Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net earnings
    
    $
    102,785
    
    
    $
    79,497
    
    
    $
    164,068
    
    
    $
    132,128Unrealized loss (gain) on available-for-sale-investment securities
    
    
    1
    
    
    
    
    
    
    
    (175
    )
    
    
    Foreign currency translation adjustment
    
    
    (3,398
    )
    
    
    971
    
    
    
    (450
    )
    
    
    1,241Other
    
    
    (230
    )
    
    
    
    
    
    
    (131
    )
    
    
    (194
    )Total comprehensive income
    
    $
    99,158
    
    
    $
    80,468
    
    
    $
    163,312
    
    
    $
    133,175
 9. Fair Value Measurement
   11




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Level 1:
 Level 2:
 Level 3:
  Fair Value Measurements at June 30, 2008 Using:SignificantQuoted prices
    
    other
    
    SignificantTotal carrying
    
    in active
    
    observable
    
    unobservablevalue at
    
    markets
    
    inputs
    
    inputsJune 30, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Foreign currency exchange contracts
    
    $
    55
    
    
    $
    
    
    
    $
    55
    
    
    $
    Available-for-sale securities
    
    
    296
    
    
    
    296
    
    
    
    
    
    
    
    Derivative assets
    
    
    43,865
    
    
    
    43,755
    
    
    
    110
    
    
    
    Derivative liabilities
    
    
    30,948
    
    
    
    29,086
    
    
    
    1,862
    
    
    
    
   10. Income Taxes
   12




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##### Table of Contents



11. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    3,811
    
    
    $
    3,567
    
    
    $
    197
    
    
    $
    183Interest cost
    
    
    9,677
    
    
    
    8,296
    
    
    
    1,070
    
    
    
    981Expected return on assets
    
    
    (10,999
    )
    
    
    (9,263
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    1,291
    
    
    
    3,237
    
    
    
    489
    
    
    
    736Amortization of prior service cost
    
    
    (132
    )
    
    
    (122
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    107Net periodic benefit cost
    
    $
    3,648
    
    
    $
    5,715
    
    
    $
    1,872
    
    
    $
    2,007
   Other PostretirementPension Benefits
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    7,621
    
    
    $
    7,133
    
    
    $
    393
    
    
    $
    365Interest cost
    
    
    19,355
    
    
    
    16,592
    
    
    
    2,141
    
    
    
    1,962Expected return on assets
    
    
    (21,999
    )
    
    
    (18,526
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    2,581
    
    
    
    6,473
    
    
    
    978
    
    
    
    1,472Amortization of prior service cost
    
    
    (264
    )
    
    
    (244
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    214Net periodic benefit cost
    
    $
    7,294
    
    
    $
    11,428
    
    
    $
    3,744
    
    
    $
    4,013
   12. Restructuring and Impairment
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Restructuring (reversals) charges
    
    $
    (12
    )
    
    $
    113
    
    
    $
    41
    
    
    $
    379Impairment charges
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    1,310Total restructuring and impairment
    
    $
    (12
    )
    
    $
    301
    
    
    $
    41
    
    
    $
    1,689
 Restructuring Charges
   Impairment charges
  13




---



##### Table of Contents



13. Other (Income) Expense, Net
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gain on divestiture
    
    $
    
    
    
    $
    (28,481
    )
    
    $
    
    
    
    $
    (28,481
    )Loss (gain) on sale of investments
    
    
    
    
    
    
    (1
    )
    
    
    12
    
    
    
    185Total other (income) expense, net
    
    $
    
    
    
    $
    (28,482
    )
    
    $
    12
    
    
    $
    (28,296
    )
   14. Acquisitions
  15. Commitments and Contingencies
   14




---



##### Table of Contents



16.      Subsequent Event
   15




---



##### Table of Contents



17. Segment Information
         Agronomy
    
    
    AgronomyThree Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2007
    
    
    June 30, 2007Equity in earnings of affiliated companies  as previously reported
    
    $
    (57,345
    )
    
    $
    (61,835
    )Adjustment for vendor rebates
    
    
    40,388
    
    
    
    44,123Equity in earnings of affiliated companies  as restated
    
    
    (16,957
    )
    
    
    (17,712
    )Earnings before income taxes  as previously reported
    
    
    53,149
    
    
    
    55,289Adjustment for vendor rebates
    
    
    (40,388
    )
    
    
    (44,123
    )Earnings before income taxes  as restated
    
    
    12,761
    
    
    
    11,166
 16




---



##### Table of Contents



Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy*
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended June 30, 2008:Net sales (1)
    
    $
    1,037,469
    
    
    $
    925,844
    
    
    $
    248,076
    
    
    $
    993,690
    
    
    $
    138,596
    
    
    $
    (15,810
    )
    
    $
    3,327,865Cost of sales (2)
    
    
    947,418
    
    
    
    830,252
    
    
    
    219,125
    
    
    
    919,115
    
    
    
    115,769
    
    
    
    (15,302
    )
    
    
    3,016,377Selling, general and administrative
    
    
    44,883
    
    
    
    69,072
    
    
    
    20,396
    
    
    
    33,029
    
    
    
    12,919
    
    
    
    9,810
    
    
    
    190,109Restructuring and impairment
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Interest expense (income), net
    
    
    3,262
    
    
    
    6,560
    
    
    
    (1,949
    )
    
    
    6,583
    
    
    
    2,352
    
    
    
    (1,221
    )
    
    
    15,587Equity in earnings of affiliated companies
    
    
    (2,859
    )
    
    
    (1,026
    )
    
    
    (1,252
    )
    
    
    (11,889
    )
    
    
    (3,430
    )
    
    
    
    
    
    
    (20,456
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    9,730
    
    
    
    
    
    
    
    
    
    
    
    9,818Earnings (loss) before income taxes
    
    $
    44,777
    
    
    $
    20,898
    
    
    $
    11,756
    
    
    $
    37,122
    
    
    $
    10,986
    
    
    $
    (9,097
    )
    
    $
    116,442For the three months ended June 30, 2007:Net sales (1)
    
    $
    993,032
    
    
    $
    704,318
    
    
    $
    223,345
    
    
    $
    
    
    
    $
    111,012
    
    
    $
    (9,691
    )
    
    $
    2,022,016Cost of sales (2)
    
    
    906,943
    
    
    
    639,288
    
    
    
    195,090
    
    
    
    (2
    )
    
    
    98,778
    
    
    
    (7,497
    )
    
    
    1,832,600Selling, general and administrative
    
    
    49,740
    
    
    
    63,347
    
    
    
    19,618
    
    
    
    6,811
    
    
    
    7,201
    
    
    
    1,125
    
    
    
    147,842Restructuring and impairment
    
    
    42
    
    
    
    71
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Interest expense (income), net
    
    
    4,837
    
    
    
    6,393
    
    
    
    (1,878
    )
    
    
    (2,613
    )
    
    
    3,611
    
    
    
    (1,456
    )
    
    
    8,894Other income, net
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (28,482
    )Equity in loss (earnings) of affiliated companies
    
    
    863
    
    
    
    (398
    )
    
    
    1
    
    
    
    (16,957
    )
    
    
    (1,290
    )
    
    
    
    
    
    
    (17,781
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330Earnings (loss) before income taxes
    
    $
    59,088
    
    
    $
    1,228
    
    
    $
    10,326
    
    
    $
    12,761
    
    
    $
    2,712
    
    
    $
    (1,862
    )
    
    $
    84,253For the six months ended June 30, 2008:Net sales (1)
    
    $
    2,085,528
    
    
    $
    1,867,576
    
    
    $
    875,193
    
    
    $
    1,480,841
    
    
    $
    319,738
    
    
    $
    (44,012
    )
    
    $
    6,584,864Cost of sales (2)
    
    
    1,953,640
    
    
    
    1,691,893
    
    
    
    779,806
    
    
    
    1,376,955
    
    
    
    263,060
    
    
    
    (42,685
    )
    
    
    6,022,669Selling, general and administrative
    
    
    91,834
    
    
    
    132,464
    
    
    
    43,108
    
    
    
    57,606
    
    
    
    21,916
    
    
    
    10,760
    
    
    
    357,688Restructuring and impairment
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Interest expense (income), net
    
    
    5,802
    
    
    
    13,744
    
    
    
    (1,257
    )
    
    
    11,082
    
    
    
    5,952
    
    
    
    (2,601
    )
    
    
    32,722Other expense, net
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Equity in earnings of affiliated companies
    
    
    (5,457
    )
    
    
    (907
    )
    
    
    (1,252
    )
    
    
    (2,418
    )
    
    
    (14,524
    )
    
    
    
    
    
    
    (24,558
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    322
    
    
    
    
    
    
    
    11,361
    
    
    
    
    
    
    
    
    
    
    
    11,683Earnings (loss) before income taxes
    
    $
    39,668
    
    
    $
    30,048
    
    
    $
    54,788
    
    
    $
    26,255
    
    
    $
    43,334
    
    
    $
    (9,486
    )
    
    $
    184,607For the six months ended June 30, 2007:Net sales (1)
    
    $
    1,873,339
    
    
    $
    1,453,114
    
    
    $
    659,390
    
    
    $
    
    
    
    $
    230,942
    
    
    $
    (12,486
    )
    
    $
    4,204,299Cost of sales (2)
    
    
    1,712,061
    
    
    
    1,316,599
    
    
    
    575,309
    
    
    
    (2
    )
    
    
    204,408
    
    
    
    (11,042
    )
    
    
    3,797,333Selling, general and administrative
    
    
    97,680
    
    
    
    123,459
    
    
    
    39,854
    
    
    
    11,612
    
    
    
    15,109
    
    
    
    2,139
    
    
    
    289,853Restructuring and impairment
    
    
    109
    
    
    
    595
    
    
    
    688
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    1,689Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Interest expense (income), net
    
    
    11,083
    
    
    
    13,176
    
    
    
    (684
    )
    
    
    (5,064
    )
    
    
    7,923
    
    
    
    (2,714
    )
    
    
    23,720Other (income) expense, net
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    (28,296
    )Equity in loss (earnings) of affiliated companies
    
    
    1,358
    
    
    
    (879
    )
    
    
    (54
    )
    
    
    (17,712
    )
    
    
    (3,702
    )
    
    
    (7
    )
    
    
    (20,996
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    586Earnings (loss) before income taxes
    
    $
    79,529
    
    
    $
    5,519
    
    
    $
    44,277
    
    
    $
    11,166
    
    
    $
    6,907
    
    
    $
    (1,047
    )
    
    $
    146,351
 
 *
    
    Increased Agronomy operations are due to the distribution of the crop protection products
business to the Company from Agriliance in September 2007. Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    Consolidated(1) Net sales includes intersegment sales of:For the three months ended: June 30, 2008
    
    $
    2,264
    
    
    $
    10,519
    
    
    $
    4,147
    
    
    $
    1,239
    
    
    $
    
    
    
    $
    (18,169
    )
    
    $
    For the three months ended: June 30, 2007
    
    
    9,639
    
    
    
    5,662
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,301
    )
    
    
    For the six months ended: June 30, 2008
    
    
    4,422
    
    
    
    21,264
    
    
    
    13,073
    
    
    
    10,895
    
    
    
    
    
    
    
    (49,654
    )
    
    
    For the six months ended: June 30, 2007
    
    
    12,685
    
    
    
    10,733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,418
    )
    
    
    
 Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    
    Consolidated(2) Cost of sales includes
period-to-period change in unrealized
hedging (gains) losses of:For the three months ended: June 30, 2008
    
    $
    (2,587
    )
    
    $
    (8,298
    )
    
    $
    (5,993
    )
    
    $
    
    
    
    $
    (7,135
    )
    
    $
    (795
    )
    
    $
    (24,808
    )For the three months ended: June 30, 2007
    
    
    3,953
    
    
    
    1,391
    
    
    
    (1,595
    )
    
    
    
    
    
    
    (1,643
    )
    
    
    832
    
    
    
    2,938For the six months ended: June 30, 2008
    
    
    (4,257
    )
    
    
    6,210
    
    
    
    345
    
    
    
    
    
    
    
    620
    
    
    
    215
    
    
    
    3,133For the six months ended: June 30, 2007
    
    
    1,464
    
    
    
    4,277
    
    
    
    406
    
    
    
    
    
    
    
    (144
    )
    
    
    507
    
    
    
    6,510
  17




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##### Table of Contents



18. Consolidating Financial Information
       18




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
June 30, 2008
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    91,060
    
    
    $
    5
    
    
    $
    49,272
    
    
    $
    
    
    
    $
    140,337Receivables, net
    
    
    370,655
    
    
    
    786,424
    
    
    
    941,151
    
    
    
    (815,360
    )
    
    
    1,282,870Intercompany receivables, net
    
    
    330,179
    
    
    
    
    
    
    
    106
    
    
    
    (330,285
    )
    
    
    Inventories
    
    
    407,153
    
    
    
    627,385
    
    
    
    134,524
    
    
    
    
    
    
    
    1,169,062Prepaid expenses
    
    
    21,629
    
    
    
    52,261
    
    
    
    18,387
    
    
    
    
    
    
    
    92,277Other current assets
    
    
    106,291
    
    
    
    30,817
    
    
    
    871
    
    
    
    
    
    
    
    137,979Total current assets
    
    
    1,326,967
    
    
    
    1,496,892
    
    
    
    1,144,311
    
    
    
    (1,145,645
    )
    
    
    2,822,525Investments
    
    
    1,028,184
    
    
    
    52,227
    
    
    
    15,454
    
    
    
    (759,642
    )
    
    
    336,223Property, plant and equipment, net
    
    
    214,355
    
    
    
    278,313
    
    
    
    98,765
    
    
    
    
    
    
    
    591,433Goodwill, net
    
    
    192,418
    
    
    
    62,130
    
    
    
    59,941
    
    
    
    
    
    
    
    314,489Other intangibles, net
    
    
    2,403
    
    
    
    113,364
    
    
    
    2,128
    
    
    
    
    
    
    
    117,895Other assets
    
    
    29,579
    
    
    
    38,582
    
    
    
    58,488
    
    
    
    (3,813
    )
    
    
    122,836Total assets
    
    $
    2,793,906
    
    
    $
    2,041,508
    
    
    $
    1,379,087
    
    
    $
    (1,909,100
    )
    
    $
    4,305,401LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    375
    
    
    $
    909,089
    
    
    $
    (797,595
    )
    
    $
    111,869Current portion of long-term debt
    
    
    1,845
    
    
    
    236
    
    
    
    2,503
    
    
    
    
    
    
    
    4,584Accounts payable
    
    
    662,157
    
    
    
    821,423
    
    
    
    104,290
    
    
    
    (15,772
    )
    
    
    1,572,098Intercompany payables, net
    
    
    
    
    
    
    321,614
    
    
    
    8,671
    
    
    
    (330,285
    )
    
    
    Customer advances
    
    
    6,304
    
    
    
    118,418
    
    
    
    11,644
    
    
    
    
    
    
    
    136,366Accrued expenses
    
    
    238,588
    
    
    
    240,207
    
    
    
    33,088
    
    
    
    (5,806
    )
    
    
    506,077Patronage refunds and other member equities payable
    
    
    42,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,070Total current liabilities
    
    
    950,964
    
    
    
    1,502,273
    
    
    
    1,069,285
    
    
    
    (1,149,458
    )
    
    
    2,373,064Long-term debt
    
    
    579,926
    
    
    
    96
    
    
    
    25,104
    
    
    
    
    
    
    
    605,126Employee benefits and other liabilities
    
    
    175,614
    
    
    
    29,109
    
    
    
    5,752
    
    
    
    
    
    
    
    210,475Minority interests
    
    
    
    
    
    
    6,131
    
    
    
    23,203
    
    
    
    
    
    
    
    29,334Commitments and contingenciesEquities:Capital stock
    
    
    1,659
    
    
    
    
    
    
    
    2,908
    
    
    
    (2,908
    )
    
    
    1,659Additional paid-in capital
    
    
    
    
    
    
    188,582
    
    
    
    81,297
    
    
    
    (269,879
    )
    
    
    Member equities
    
    
    960,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960,920Accumulated other comprehensive loss
    
    
    (62,687
    )
    
    
    (173
    )
    
    
    277
    
    
    
    (104
    )
    
    
    (62,687
    )Retained earnings
    
    
    187,510
    
    
    
    315,490
    
    
    
    171,261
    
    
    
    (486,751
    )
    
    
    187,510Total equities
    
    
    1,087,402
    
    
    
    503,899
    
    
    
    255,743
    
    
    
    (759,642
    )
    
    
    1,087,402Total liabilities and equities
    
    $
    2,793,906
    
    
    $
    2,041,508
    
    
    $
    1,379,087
    
    
    $
    (1,909,100
    )
    
    $
    4,305,401
 19




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2008
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,257,242
    
    
    $
    1,791,958
    
    
    $
    278,665
    
    
    $
    
    
    
    $
    3,327,865Cost of sales
    
    
    1,132,945
    
    
    
    1,648,202
    
    
    
    235,230
    
    
    
    
    
    
    
    3,016,377Gross profit
    
    
    124,297
    
    
    
    143,756
    
    
    
    43,435
    
    
    
    
    
    
    
    311,488Selling, general and administrative
    
    
    77,995
    
    
    
    90,051
    
    
    
    22,063
    
    
    
    
    
    
    
    190,109Restructuring and impairment
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Earnings from operations
    
    
    46,314
    
    
    
    53,705
    
    
    
    21,372
    
    
    
    
    
    
    
    121,391Interest expense (income), net
    
    
    13,885
    
    
    
    2,910
    
    
    
    (1,208
    )
    
    
    
    
    
    
    15,587Equity in earnings of affiliated companies
    
    
    (85,895
    )
    
    
    (1,062
    )
    
    
    (3,431
    )
    
    
    69,932
    
    
    
    (20,456
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    9,818
    
    
    
    
    
    
    
    9,818Earnings before income taxes
    
    
    118,324
    
    
    
    51,857
    
    
    
    16,193
    
    
    
    (69,932
    )
    
    
    116,442Income tax expense (benefit)
    
    
    15,539
    
    
    
    (98
    )
    
    
    (1,784
    )
    
    
    
    
    
    
    13,657Net earnings
    
    $
    102,785
    
    
    $
    51,955
    
    
    $
    17,977
    
    
    $
    (69,932
    )
    
    $
    102,785
 20




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
 Land OLakes,
    
    
    
    
    
    
    Non-Inc. Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    2,893,839
    
    
    $
    3,156,529
    
    
    $
    534,496
    
    
    $
    
    
    
    $
    6,584,864Cost of sales
    
    
    2,669,478
    
    
    
    2,916,702
    
    
    
    436,489
    
    
    
    
    
    
    
    6,022,669Gross profit
    
    
    224,361
    
    
    
    239,827
    
    
    
    98,007
    
    
    
    
    
    
    
    562,195Selling, general and administrative
    
    
    149,043
    
    
    
    169,882
    
    
    
    38,763
    
    
    
    
    
    
    
    357,688Restructuring and impairment
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Earnings from operations
    
    
    75,277
    
    
    
    69,945
    
    
    
    59,244
    
    
    
    
    
    
    
    204,466Interest expense (income), net
    
    
    28,867
    
    
    
    6,113
    
    
    
    (2,258
    )
    
    
    
    
    
    
    32,722Other expense, net
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Equity in earnings of affiliated companies
    
    
    (134,888
    )
    
    
    (981
    )
    
    
    (14,524
    )
    
    
    125,835
    
    
    
    (24,558
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    11,683
    
    
    
    
    
    
    
    11,683Earnings before income taxes
    
    
    181,298
    
    
    
    64,801
    
    
    
    64,343
    
    
    
    (125,835
    )
    
    
    184,607Income tax expense (benefit)
    
    
    17,230
    
    
    
    (27
    )
    
    
    3,336
    
    
    
    
    
    
    
    20,539Net earnings
    
    $
    164,068
    
    
    $
    64,828
    
    
    $
    61,007
    
    
    $
    (125,835
    )
    
    $
    164,068
 21




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2008
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    164,068
    
    
    $
    64,828
    
    
    $
    61,007
    
    
    $
    (125,835
    )
    
    $
    164,068Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    18,955
    
    
    
    20,579
    
    
    
    4,580
    
    
    
    
    
    
    
    44,114Amortization of deferred financing costs
    
    
    979
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    1,052Bad debt expense
    
    
    577
    
    
    
    1,159
    
    
    
    163
    
    
    
    
    
    
    
    1,899Proceeds from patronage revolvement received
    
    
    1,560
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    1,616Non-cash patronage income
    
    
    (2,635
    )
    
    
    (548
    )
    
    
    
    
    
    
    
    
    
    
    (3,183
    )Deferred income tax benefit
    
    
    (25,418
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,418
    )Increase in other assets
    
    
    (454
    )
    
    
    (1,041
    )
    
    
    (79
    )
    
    
    78
    
    
    
    (1,496
    )Increase (decrease) in other liabilities
    
    
    4,946
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    4,937Restructuring and impairment
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Loss on sale of investments
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Equity in earnings of affiliated companies
    
    
    (134,888
    )
    
    
    (981
    )
    
    
    (14,524
    )
    
    
    125,835
    
    
    
    (24,558
    )Dividends from investments in affiliated companies
    
    
    2,434
    
    
    
    500
    
    
    
    7,138
    
    
    
    
    
    
    
    10,072Minority interests
    
    
    
    
    
    
    
    
    
    
    11,683
    
    
    
    
    
    
    
    11,683Other
    
    
    (1,360
    )
    
    
    72
    
    
    
    34
    
    
    
    
    
    
    
    (1,254
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    78,981
    
    
    
    (297,513
    )
    
    
    (76,600
    )
    
    
    51,754
    
    
    
    (243,378
    )Inventories
    
    
    (16,251
    )
    
    
    (100,371
    )
    
    
    (18,437
    )
    
    
    
    
    
    
    (135,059
    )Prepaids and other current assets
    
    
    427,930
    
    
    
    335,379
    
    
    
    (2,208
    )
    
    
    
    
    
    
    761,101Accounts payable
    
    
    163,889
    
    
    
    191,442
    
    
    
    49,468
    
    
    
    (3,655
    )
    
    
    401,144Customer advances
    
    
    (507,765
    )
    
    
    (292,452
    )
    
    
    (13,881
    )
    
    
    
    
    
    
    (814,098
    )Accrued expenses
    
    
    84,526
    
    
    
    87,974
    
    
    
    (982
    )
    
    
    (2,012
    )
    
    
    169,506Net cash provided by operating activities
    
    
    260,115
    
    
    
    9,086
    
    
    
    7,435
    
    
    
    46,165
    
    
    
    322,801Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (30,798
    )
    
    
    (22,517
    )
    
    
    (16,283
    )
    
    
    
    
    
    
    (69,598
    )Acquisitions, net of cash acquired
    
    
    (1,743
    )
    
    
    (1,096
    )
    
    
    (6,201
    )
    
    
    
    
    
    
    (9,040
    )Investments in affiliates
    
    
    (50,625
    )
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (50,860
    )Distributions from investments in affiliated companies
    
    
    1,000
    
    
    
    
    
    
    
    6,865
    
    
    
    
    
    
    
    7,865Proceeds from sale of investments
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Proceeds from sale of property, plant and equipment
    
    
    2,402
    
    
    
    505
    
    
    
    198
    
    
    
    
    
    
    
    3,105Change in notes receivable
    
    
    (8,979
    )
    
    
    588
    
    
    
    (3,425
    )
    
    
    
    
    
    
    (11,816
    )Other
    
    
    (1,953
    )
    
    
    
    
    
    
    1,302
    
    
    
    
    
    
    
    (651
    )Net cash used by investing activities
    
    
    (90,696
    )
    
    
    (22,471
    )
    
    
    (17,779
    )
    
    
    
    
    
    
    (130,946
    )Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (44,477
    )
    
    
    (3,440
    )
    
    
    29,304
    
    
    
    (46,165
    )
    
    
    (64,778
    )Proceeds from issuance of long-term debt
    
    
    1,673
    
    
    
    
    
    
    
    2,225
    
    
    
    
    
    
    
    3,898Principal payments on long-term debt
    
    
    (2,538
    )
    
    
    (206
    )
    
    
    (10,605
    )
    
    
    
    
    
    
    (13,349
    )Payments for redemption of member equities
    
    
    (94,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94,032
    )Distribution to members
    
    
    48,700
    
    
    
    
    
    
    
    (48,700
    )
    
    
    
    
    
    
    Other
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )Net cash used by financing activities
    
    
    (90,770
    )
    
    
    (3,646
    )
    
    
    (27,776
    )
    
    
    (46,165
    )
    
    
    (168,357
    )Net increase (decrease) in cash and cash equivalents
    
    
    78,649
    
    
    
    (17,031
    )
    
    
    (38,120
    )
    
    
    
    
    
    
    23,498Cash and cash equivalents at beginning of period
    
    
    12,411
    
    
    
    17,036
    
    
    
    87,392
    
    
    
    
    
    
    
    116,839Cash and cash equivalents at end of period
    
    $
    91,060
    
    
    $
    5
    
    
    $
    49,272
    
    
    $
    
    
    
    $
    140,337
 22




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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
 23




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2007
 (Restated)LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    Guarantor
    
    
    
    
    
    
    (Restated)Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,119,703
    
    
    $
    762,468
    
    
    $
    139,845
    
    
    $
    
    
    
    $
    2,022,016Cost of sales
    
    
    1,015,199
    
    
    
    690,917
    
    
    
    126,484
    
    
    
    
    
    
    
    1,832,600Gross profit
    
    
    104,504
    
    
    
    71,551
    
    
    
    13,361
    
    
    
    
    
    
    
    189,416Selling, general and administrative
    
    
    73,194
    
    
    
    66,768
    
    
    
    7,880
    
    
    
    
    
    
    
    147,842Restructuring and impairment
    
    
    230
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    301Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    31,080
    
    
    
    10,653
    
    
    
    5,481
    
    
    
    
    
    
    
    47,214Interest expense (income), net
    
    
    3,473
    
    
    
    (953
    )
    
    
    6,374
    
    
    
    
    
    
    
    8,894Other income, net
    
    
    (1
    )
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,482
    )Equity in earnings of affiliated companies
    
    
    (56,160
    )
    
    
    (442
    )
    
    
    (1,428
    )
    
    
    40,249
    
    
    
    (17,781
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    330Earnings before income taxes
    
    
    83,768
    
    
    
    40,529
    
    
    
    205
    
    
    
    (40,249
    )
    
    
    84,253Income tax expense
    
    
    4,271
    
    
    
    142
    
    
    
    343
    
    
    
    
    
    
    
    4,756Net earnings (loss)
    
    $
    79,497
    
    
    $
    40,387
    
    
    $
    (138
    )
    
    $
    (40,249
    )
    
    $
    79,497
 24




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2007
 (Restated)LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    Guarantor
    
    
    
    
    
    
    (Restated)Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    2,218,394
    
    
    $
    1,695,786
    
    
    $
    290,119
    
    
    $
    
    
    
    $
    4,204,299Cost of sales
    
    
    2,000,926
    
    
    
    1,537,171
    
    
    
    259,236
    
    
    
    
    
    
    
    3,797,333Gross profit
    
    
    217,468
    
    
    
    158,615
    
    
    
    30,883
    
    
    
    
    
    
    
    406,966Selling, general and administrative
    
    
    143,069
    
    
    
    130,399
    
    
    
    16,385
    
    
    
    
    
    
    
    289,853Restructuring and impairment
    
    
    796
    
    
    
    595
    
    
    
    298
    
    
    
    
    
    
    
    1,689Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    73,603
    
    
    
    33,562
    
    
    
    14,200
    
    
    
    
    
    
    
    121,365Interest expense (income), net
    
    
    18,566
    
    
    
    (1,334
    )
    
    
    6,488
    
    
    
    
    
    
    
    23,720Other expense (income), net
    
    
    185
    
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,296
    )Equity in earnings of affiliated companies
    
    
    (90,377
    )
    
    
    (952
    )
    
    
    (4,441
    )
    
    
    74,774
    
    
    
    (20,996
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    586Earnings before income taxes
    
    
    145,229
    
    
    
    64,329
    
    
    
    11,567
    
    
    
    (74,774
    )
    
    
    146,351Income tax expense
    
    
    13,101
    
    
    
    268
    
    
    
    854
    
    
    
    
    
    
    
    14,223Net earnings
    
    $
    132,128
    
    
    $
    64,061
    
    
    $
    10,713
    
    
    $
    (74,774
    )
    
    $
    132,128
 25




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2007
 (Restated)LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    Guarantor
    
    
    
    
    
    
    (Restated)Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    132,128
    
    
    $
    64,061
    
    
    $
    10,713
    
    
    $
    (74,774
    )
    
    $
    132,128Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    20,984
    
    
    
    14,804
    
    
    
    4,756
    
    
    
    
    
    
    
    40,544Amortization of deferred financing costs
    
    
    872
    
    
    
    288
    
    
    
    73
    
    
    
    
    
    
    
    1,233Bad debt expense
    
    
    766
    
    
    
    (41
    )
    
    
    11
    
    
    
    
    
    
    
    736Proceeds from patronage revolvement received
    
    
    3,070
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    3,075Non-cash patronage income
    
    
    (969
    )
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (1,018
    )Deferred income tax expense (benefit)
    
    
    (13,317
    )
    
    
    (25,771
    )
    
    
    
    
    
    
    
    
    
    
    (39,088
    )(Increase) decrease in other assets
    
    
    (843
    )
    
    
    (925
    )
    
    
    
    
    
    
    122
    
    
    
    (1,646
    )Decrease in other liabilities
    
    
    (4,143
    )
    
    
    (224
    )
    
    
    
    
    
    
    
    
    
    
    (4,367
    )Insurance recovery  business interruption
    
    
    
    
    
    
    4,551
    
    
    
    
    
    
    
    
    
    
    
    4,551Restructuring and impairment
    
    
    796
    
    
    
    595
    
    
    
    298
    
    
    
    
    
    
    
    1,689Gain on divestiture of business
    
    
    
    
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,481
    )Loss on sale of investment
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Equity in earnings of affiliated companies
    
    
    (90,377
    )
    
    
    (952
    )
    
    
    (4,441
    )
    
    
    74,774
    
    
    
    (20,996
    )Dividends from investments in affiliated companies
    
    
    20,424
    
    
    
    183
    
    
    
    4,075
    
    
    
    
    
    
    
    24,682Minority interests
    
    
    
    
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    586Other
    
    
    414
    
    
    
    (196
    )
    
    
    (238
    )
    
    
    
    
    
    
    (20
    )Changes in current assets and liabilities, net of divestitures:Receivables
    
    
    (100,386
    )
    
    
    16,373
    
    
    
    47,855
    
    
    
    (8,795
    )
    
    
    (44,953
    )Inventories
    
    
    (103,186
    )
    
    
    (674
    )
    
    
    (8,816
    )
    
    
    
    
    
    
    (112,676
    )Prepaids and other current assets
    
    
    302,124
    
    
    
    16,522
    
    
    
    819
    
    
    
    
    
    
    
    319,465Accounts payable
    
    
    294,838
    
    
    
    (29,629
    )
    
    
    (6,342
    )
    
    
    (5,006
    )
    
    
    253,861Customer advances
    
    
    (373,435
    )
    
    
    (22,209
    )
    
    
    (3,581
    )
    
    
    
    
    
    
    (399,225
    )Accrued expenses
    
    
    67,377
    
    
    
    9,387
    
    
    
    (3,741
    )
    
    
    97
    
    
    
    73,120Net cash provided by operating activities
    
    
    157,322
    
    
    
    11,677
    
    
    
    42,027
    
    
    
    (13,582
    )
    
    
    197,444Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (22,843
    )
    
    
    (17,798
    )
    
    
    (2,834
    )
    
    
    
    
    
    
    (43,475
    )Acquisitions, net of cash acquired
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )Investments in affiliates
    
    
    (500
    )
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (656
    )Proceeds from sale of investments
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Net proceeds from divestiture of businesses
    
    
    211,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211,851Proceeds from sale of property, plant and equipment
    
    
    2,263
    
    
    
    2,111
    
    
    
    56
    
    
    
    
    
    
    
    4,430Change in notes receivable
    
    
    (1,882
    )
    
    
    1,094
    
    
    
    (17,656
    )
    
    
    
    
    
    
    (18,444
    )Other
    
    
    (82
    )
    
    
    (227
    )
    
    
    (648
    )
    
    
    
    
    
    
    (957
    )Net cash provided (used) by investing activities
    
    
    189,224
    
    
    
    (14,820
    )
    
    
    (21,238
    )
    
    
    
    
    
    
    153,166Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (476
    )
    
    
    (101
    )
    
    
    (9,293
    )
    
    
    13,582
    
    
    
    3,712Proceeds from issuance of long-term debt
    
    
    1,983
    
    
    
    930
    
    
    
    3,240
    
    
    
    
    
    
    
    6,153Principal payments on long-term debt
    
    
    (2,872
    )
    
    
    (10,991
    )
    
    
    (14,935
    )
    
    
    
    
    
    
    (28,798
    )Payments for redemption of member equities
    
    
    (35,265
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,265
    )Other
    
    
    (178
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (180
    )Net cash used by financing activities
    
    
    (36,808
    )
    
    
    (10,164
    )
    
    
    (20,988
    )
    
    
    13,582
    
    
    
    (54,378
    )Net increase (decrease) in cash and cash equivalents
    
    
    309,738
    
    
    
    (13,307
    )
    
    
    (199
    )
    
    
    
    
    
    
    296,232Cash and cash equivalents at beginning of period
    
    
    8,976
    
    
    
    15,613
    
    
    
    55,118
    
    
    
    
    
    
    
    79,707Cash and cash equivalents at end of period
    
    $
    318,714
    
    
    $
    2,306
    
    
    $
    54,919
    
    
    $
    
    
    
    $
    375,939
 26




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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
  Subsequent Event
   27




---



##### Table of Contents



General
     28




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##### Table of Contents



Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
   For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Per pound market price average:Butter
    
    $
    1.46
    
    
    $
    1.45
    
    
    $
    1.36
    
    
    $
    1.35Block cheese
    
    
    2.01
    
    
    
    1.73
    
    
    
    1.94
    
    
    
    1.54Non fat dry milk (NASS)
    
    
    1.30
    
    
    
    1.67
    
    
    
    1.33
    
    
    
    1.39
 29




---



##### Table of Contents



Feed.
     Layers
 Derivative Commodity Instruments
  For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007(in millions)
    
    (in millions)Unrealized hedging gain (loss)
    
    $
    24.8
    
    
    $
    (2.9
    )
    
    $
    (3.1
    )
    
    $
    (6.5
    )
 30




---



##### Table of Contents



Vendor Rebates
  Unconsolidated Businesses
  For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007(in millions)Earnings from unconsolidated businesses
    
    $
    20.5
    
    
    $
    17.8
    
    
    $
    24.6
    
    
    $
    21.0
     Results of Operations
 Three months ended June 30, 2008 as compared to three months ended June 30, 2007
 Restatement of Financial Results
 Overview  Restatement of Financial Results
 PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007($ in millions)Equity in earnings of affiliated companies
    
    $
    (58.1
    )
    
    $
    40.3
    
    
    $
    (17.8
    )Earnings before income taxes
    
    
    124.6
    
    
    
    (40.3
    )
    
    
    84.3Income tax expense
    
    
    20.2
    
    
    
    (15.4
    )
    
    
    4.8Net earnings
    
    
    104.4
    
    
    
    (24.9
    )
    
    
    79.5
 31




---



##### Table of Contents



Overview of Results
 For the three months ended June 30,Increase2008
    
    2007
    
    (Decrease)($ in millions)Net earnings
    
    $
    102.8
    
    
    $
    79.5
    
    
    $
    23.3Increased net earnings were primarily driven by improved earnings in Agronomy, Feed and Layers
primarily due to favorable market conditions, partially offset by a decline in Dairy Foods
earnings. Net earnings were favorably impacted by a reduction in unrealized hedging losses.Net sales
    
    $
    3,327.9
    
    
    $
    2,022.0
    
    
    $
    1,305.9The increase in net sales was primarily due to the addition of $993.7 million in net sales due
to the repositioning of the Agronomy investment which resulted in the consolidation of the crop
protection products business in September 2007, and higher market prices across all segments. Net
sales increased in Feed, Dairy Foods, Layers, and Seed by $221.5 million, $44.4 million, $27.6
million and $24.7 million, respectively. A discussion of net sales by business segment is found
below under the caption Net Sales and Gross Profit by Business Segment.Gross profit
    
    $
    311.5
    
    
    $
    189.4
    
    
    $
    122.1Gross profit increased in the three months ended June 30, 2008 primarily due to the addition
of $74.6 million of gross profit from the consolidation of the crop protection products business in
September 2007. Improved market prices in Feed and Layers and unrealized hedge gains in Dairy
Foods, Seed and Layers also contributed to the gross profit increase. Partially offsetting these
increases were declining Dairy markets. 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
    
    $
    190.1
    
    
    $
    147.8
    
    
    $
    42.3The increase in selling, general and administrative expense compared to the prior year was
primarily due to the addition of $26.2 million of selling, general and administrative expenses
related to the repositioning of the Agronomy investment which resulted in the consolidation of the
crop protection products business in September 2007. Additionally, in the three months ended June
30, 2008, we recorded a $7.5 million charge within the Other segment for an environmental reserve
related to an EPA claim.Restructuring and impairment charges
    
    $
    
    
    
    $
    0.3
    
    
    $
    (0.3
    )During the three months ended June 30, 2007, Seed incurred a $0.2 million impairment charge
related to a software asset.Gain on insurance settlement
    
    $
    
    
    
    $
    (5.9
    )
    
    $
    (5.9
    )In 2007, Feed recorded a $5.9 million gain on insurance settlement related to a feed plant in
Statesville, North Carolina that was destroyed by fire in December, 2005. The Company holds
insurance coverage for property damage and received insurance proceeds in excess of book value to
rebuild the damaged facility.Interest expense, net
    
    $
    15.6
    
    
    $
    8.9
    
    
    $
    (6.7
    )The increase in interest expense compared to the prior year was higher primarily due to
short-term borrowings related to seasonal crop protection product working capital requirements and
higher commodity inputs in Feed and Dairy Foods. The crop protection products business was
acquired in September, 2007 as part of the Agronomy repositioning.Equity in earnings of affiliated companies
    
    $
    20.5
    
    
    $
    17.8
    
    
    $
    2.7
 Overview  General 
Unconsolidated Businesses.
 32




---



##### Table of Contents



For the three months ended June 30,Increase2008
    
    2007
    
    (Decrease)($ in millions)Income tax expense
    
    $
    13.7
    
    
    $
    4.8
    
    
    $
    8.9
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    1,037.5
    
    
    $
    993.0
    
    
    
    4.5
    %Gross profit
    
    
    90.1
    
    
    
    86.1
    
    
    
    4.6
    %Gross profit % of net
sales
    
    
    8.7
    %
    
    
    8.7
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    64.8Volume impact
    
    
    (19.7
    )Acquisitions and divestitures
    
    
    (0.7
    )Total increase
    
    $
    44.4
  IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    (3.3
    )Volume impact
    
    
    1.6Unrealized hedging
    
    
    6.6Acquisitions and divestitures
    
    
    (0.9
    )Total increase
    
    $
    4.0
  33




---



##### Table of Contents



Feed
 For the three months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    925.8
    
    
    $
    704.3
    
    
    
    31.5
    %Gross profit
    
    
    95.6
    
    
    
    65.0
    
    
    
    47.0
    %Gross profit % of net sales
    
    
    10.3
    %
    
    
    9.2
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    184.4Volume impact
    
    
    37.1Total increase
    
    $
    221.5
  IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    19.2Volume impact
    
    
    1.7Unrealized hedging
    
    
    9.7Total increase
    
    $
    30.6
  Seed
 For the three months ended June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    % changeNet sales
    
    $
    248.1
    
    
    $
    223.4
    
    
    
    11.1
    %Gross profit
    
    
    29.0
    
    
    
    28.3
    
    
    
    2.5
    %Gross profit % of net
sales
    
    
    11.7
    %
    
    
    12.7
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    26.3Volume impact
    
    
    (1.6
    )Total increase
    
    $
    24.7
  34




---



##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    (3.6
    )Volume impact
    
    
    (0.1
    )Unrealized hedging
    
    
    4.4Total increase
    
    $
    0.7
  Layers
 For the three months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    138.6
    
    
    $
    111.0
    
    
    
    24.8
    %Gross profit
    
    
    22.8
    
    
    
    12.2
    
    
    
    86.6
    %Gross profit %
of net sales
    
    
    16.5
    %
    
    
    11.0
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    41.7Volume impact
    
    
    (14.1
    )Total increase
    
    $
    27.6
  IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    6.5Volume impact
    
    
    (1.4
    )Unrealized hedging
    
    
    5.5Total increase
    
    $
    10.6
  Agronomy
  Net Sales
  35




---



##### Table of Contents



Gross Profit
  Six months ended June 30, 2008 as compared to six months ended June 30, 2007
 Restatement of Financial Results
 Overview  Restatement of Financial Results
 PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007($ in millions)Equity in earnings of affiliated companies
    
    $
    (65.1
    )
    
    $
    44.1
    
    
    $
    (21.0
    )Earnings before income taxes
    
    
    190.5
    
    
    
    (44.1
    )
    
    
    146.4Income tax expense
    
    
    31.1
    
    
    
    (16.9
    )
    
    
    14.2Net earnings
    
    
    159.3
    
    
    
    (27.2
    )
    
    
    132.1
 Overview of Results
 For the six months ended June 30,Increase2008
    
    2007
    
    (Decrease)($ in millions)Net earnings
    
    $
    164.1
    
    
    $
    132.1
    
    
    $
    32.0Increased net earnings were primarily driven by improved earnings in Layers, Feed, Agronomy
due to favorable market conditions, partially offset by a decline in Dairy Foods earnings.Net sales
    
    $
    6,584.9
    
    
    $
    4,204.3
    
    
    $
    2,380.6The increase in net sales was primarily due to the addition of $1,480.8 million in net sales
due to the repositioning of the Agronomy investment which resulted in the consolidation of the crop
protection products business in September 2007, and higher market prices across all segments. Net
sales increased in Dairy Foods, Feed, Seed and Layers by $212.2 million, $414.5 million, $215.8
million and $88.8 million, respectively. A discussion of net sales by business segment is found
below under the caption Net Sales and Gross Profit by Business Segment.Gross profit
    
    $
    562.2
    
    
    $
    407.0
    
    
    $
    155.2Gross profit increased in the six months ended June 30, 2008 primarily due to the addition of
$103.9 million of gross profit due to the consolidation of the crop protection products business in
September 2007. Improved market prices in Layers and Feed also contributed to the gross profit
increase. Partially offsetting these increases were declining Dairy markets. 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
    
    $
    357.7
    
    
    $
    289.9
    
    
    $
    67.8
 36




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##### Table of Contents



For the six months ended June 30,Increase2008
    
    2007
    
    (Decrease)($ in millions)Restructuring and impairment charges
    
    $
    
    
    
    $
    1.7
    
    
    $
    (1.7
    )During the six months ended June 30, 2007, Feed announced the closure of plants in Columbus,
WI and in Leoti, KS, resulting in $0.5 million of restructuring and impairment charges. Seed
incurred an impairment charge of $0.5 million in relation to the closing of a soybean facility in
Vincent, IA and $0.2 million related to a software asset impairment. Layers incurred an impairment
charge of $0.3 million for the closure of two farms.Gain on insurance settlement
    
    $
    
    
    
    $
    (5.9
    )
    
    $
    (5.9
    )During the six months ended June 30, 2007, Feed recorded a $5.9 million gain on insurance
settlement related to a feed plant in Statesville, North Carolina that was destroyed by fire in
December, 2005. The Company holds insurance coverage for property damage and received insurance
proceeds in excess of book value to rebuild the damaged facility.Interest expense, net
    
    $
    32.7
    
    
    $
    23.7
    
    
    $
    9.0Increase in interest expense compared to the prior year was primarily due to higher short-term
borrowings related to seasonal working capital requirements in our crop protection products
business and higher commodity inputs in Feed and Dairy Foods. The crop protection products
business was acquired in September 2007 as part of the Agronomy repositioning.Equity in earnings of affiliated companies
    
    $
    24.6
    
    
    $
    21.0
    
    
    $
    3.6Increased equity in earnings of affiliated companies is primarily related to increased
earnings from Layers and Dairy Foods investments, partially offset by decreased earnings from
Agriliance. In Layers, equity method investments had earnings of $14.5 million for the six months
ended June 30, 2008, compared to equity earnings of $3.7 million for the same period of 2007
primarily due to higher egg prices. Dairy Foods equity method investments had earnings of $5.5
million for the six months ended June 30, 2008, compared to equity losses of $1.4 million for same
period in 2007. Results for the six months ended June 30, 2008 included equity earnings from
Agriliance of $3.4 million compared to equity earnings of $17.7 million for the same period of
2007. A discussion of net earnings for Agriliance can be found under the caption Overview 
General  Unconsolidated Businesses.Income tax expense
    
    $
    20.5
    
    
    $
    14.2
    
    
    $
    6.3
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the six months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    2,085.5
    
    
    $
    1,873.3
    
    
    
    11.3
    %Gross profit
    
    
    131.9
    
    
    
    161.3
    
    
    
    (18.2
    )%Gross profit % of net
sales
    
    
    6.3
    %
    
    
    8.7
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    254.1Volume impact
    
    
    69.5Acquisitions and divestitures
    
    
    (111.4
    )Total increase
    
    $
    212.2
 37




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    (27.8
    )Volume impact
    
    
    1.8Unrealized hedging
    
    
    5.7Acquisitions and divestitures
    
    
    (9.1
    )Total decrease
    
    $
    (29.4
    )
  Feed
 For the six months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    1,867.6
    
    
    $
    1,453.1
    
    
    
    28.5
    %Gross profit
    
    
    175.7
    
    
    
    136.5
    
    
    
    28.7
    %Gross profit % of net sales
    
    
    9.4
    %
    
    
    9.4
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    342.3Volume impact
    
    
    66.2Acquisitions and divestitures
    
    
    6.0Total increase
    
    $
    414.5
  38




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IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    39.1Volume impact
    
    
    2.0Unrealized hedging
    
    
    (1.9
    )Total increase
    
    $
    39.2
  Seed
 For the six months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    875.2
    
    
    $
    659.4
    
    
    
    32.7
    %Gross profit
    
    
    95.4
    
    
    
    84.1
    
    
    
    13.4
    %Gross profit % of net
sales
    
    
    10.9
    %
    
    
    12.8
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    126.0Volume impact
    
    
    89.8Total increase
    
    $
    215.8
  IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    1.5Volume impact
    
    
    9.8Unrealized hedging
    
    
    (0.0
    )Total increase
    
    $
    11.3
  Layers
 For the six months ended June 30,($ in millions)
    
    2008
    
    2007
    
    % changeNet sales
    
    $
    319.7
    
    
    $
    230.9
    
    
    
    38.5
    %Gross profit
    
    
    56.7
    
    
    
    26.5
    
    
    
    113.6
    %Gross profit %
of net sales
    
    
    17.7
    %
    
    
    11.5
    %
 IncreaseNet Sales Variance
    
    (decrease)(In millions)Pricing / product mix impact
    
    $
    104.7Volume impact
    
    
    (15.9
    )Total increase
    
    $
    88.8
 39




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IncreaseGross Profit Variance
    
    (decrease)(In millions)Margin / product mix impact
    
    $
    32.8Volume impact
    
    
    (1.8
    )Unrealized hedging
    
    
    (0.8
    )Total increase
    
    $
    30.2
  Agronomy
  Net Sales
  Gross Profit
  Liquidity and Capital Resources
 Overview
   40




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As of
    
    
    As of
    
    
    As ofJune 30,
    
    
    June 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007($ in millions)Cash and cash equivalents
    
    $
    140.3
    
    
    $
    375.9
    
    
    $
    116.8Availability on revolving credit facility
    
    
    191.7
    
    
    
    190.8
    
    
    
    196.0Availability on receivable securitization program
    
    
    400.0
    
    
    
    200.0
    
    
    
    230.0Availability on MoArk revolving credit facility
    
    
    40.0
    
    
    
    40.0
    
    
    
    40.0Total liquidity
    
    $
    772.0
    
    
    $
    806.7
    
    
    $
    582.8
  Cash Flows
 Restatement of Financial Results
 Overview  Restatement of Financial Results
 PreviouslyReported
    
    Effect of
    
    Restated2007
    
    Restatement
    
    2007($ in millions)Net earnings
    
    $
    159.4
    
    
    $
    (27.3
    )
    
    $
    132.1Deferred income tax benefit
    
    
    (22.2
    )
    
    
    (16.9
    )
    
    
    (39.1
    )Equity in earnings of affiliated companies
    
    
    (65.1
    )
    
    
    44.1
    
    
    
    (21.0
    )
  Operating Activities
 For the Six Months EndedJune 30,2008
    
    
    2007($ in millions)Net earnings
    
    $
    164.1
    
    
    $
    132.1Adjustments to reconcile net earnings to net cash provided by operating activities
    
    
    19.5
    
    
    
    (24.3
    )Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    139.2
    
    
    
    89.6Net cash provided by operating activities
    
    $
    322.8
    
    
    $
    197.4
  41




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##### Table of Contents



Investing Activities
 For the Six Months EndedJune 30,2008
    
    
    2007($ in millions)Additions to property, plant and equipment
    
    $
    (69.6
    )
    
    $
    (43.5
    )Acquisitions
    
    
    (9.0
    )
    
    
    (0.1
    )Investments in affiliates
    
    
    (50.9
    )
    
    
    (0.7
    )Distributions from investments in affiliated companies
    
    
    7.9
    
    
    
    Net proceeds from divestiture of businesses
    
    
    
    
    
    
    211.9Proceeds from sale of investments
    
    
    0.1
    
    
    
    0.5Proceeds from sale of property, plant and equipment
    
    
    3.1
    
    
    
    4.4Change in notes receivable
    
    
    (11.8
    )
    
    
    (18.4
    )Other
    
    
    (0.7
    )
    
    
    (0.9
    )Net cash (used) provided by investing activities
    
    $
    (130.9
    )
    
    $
    153.2
   Financing Activities
 For the Six Months EndedJune 30,2008
    
    
    2007($ in millions)(Decrease) increase in short-term debt, net
    
    $
    (64.8
    )
    
    $
    3.7Proceeds from issuance of long-term debt
    
    
    3.9
    
    
    
    6.2Principal payments on long-term debt
    
    
    (13.4
    )
    
    
    (28.8
    )Payments for redemption of member equities
    
    
    (94.0
    )
    
    
    (35.3
    )Other
    
    
    (0.1
    )
    
    
    (0.2
    )Net cash used by financing activities
    
    $
    (168.4
    )
    
    $
    (54.4
    )
  Principal Debt Facilities
   42




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43




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##### Table of Contents



Capital Leases
  Recent Accounting Pronouncements
        44




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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
  
    
    Developed a process to obtain evidence to support the existence of binding arrangements with vendors, and
    
    Improved the 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.
 45




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##### Table of Contents



(c) Changes in internal controls
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
    46




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##### Table of Contents



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 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.
 47




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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 5. Other Information
 
 Item 6. Exhibits
 (a) Exhibits
 EXHIBIT
    
    DESCRIPTION31.1
    
    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 48




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SIGNATURES
  LAND OLAKES, INC.By
    /s/ Daniel KnutsonDaniel E. KnutsonSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 49