##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to                    .
 Commission file number 333-84486
 Land OLakes, Inc.
 (Exact name of Registrant as Specified in Its Charter)
 Minnesota
    
    41-0365145(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)4001 Lexington Avenue NorthArden Hills, Minnesota
    
    55112(Address of Principal Executive Offices)
    
    (Zip Code)
 (651) 481-2222  (Registrants Telephone Number, Including Area Code)
 o þ
  o o þ
 o þ
    www.landolakesinc.com




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##### Table of Contents



INDEX
 PagePart I.
    
    Financial Information
    
    
    3Item I.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006 (unaudited)
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    32Part II
    
    Other Information
    
    
    32Item 1.
    
    Legal Proceedings
    
    
    32Item 1A.
    
    Risk Factors
    
    
    33Item 6.
    
    Exhibits
    
    
    34SIGNATURES
    
    
    35Section 302 CertificationSection 302 CertificationSection 1350 CertificationSection 1350 Certification
 2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 LAND OLAKES, INC.
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,771
    
    
    $
    79,707Receivables, net
    
    
    824,636
    
    
    
    604,580Inventories
    
    
    494,521
    
    
    
    471,934Prepaid expenses
    
    
    40,790
    
    
    
    378,278Assets held for sale
    
    
    190,912
    
    
    
    6,234Other current assets
    
    
    54,184
    
    
    
    44,360Total current assets
    
    
    1,644,814
    
    
    
    1,585,093Investments
    
    
    254,145
    
    
    
    270,202Property, plant and equipment, net
    
    
    510,285
    
    
    
    665,069Goodwill, net
    
    
    311,618
    
    
    
    326,527Other intangibles, net
    
    
    94,083
    
    
    
    95,043Other assets
    
    
    117,424
    
    
    
    113,191Total assets
    
    $
    2,932,369
    
    
    $
    3,055,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    91,447
    
    
    $
    58,300Current portion of long-term debt
    
    
    10,689
    
    
    
    10,972Accounts payable
    
    
    785,361
    
    
    
    994,774Accrued expenses
    
    
    229,216
    
    
    
    206,582Patronage refunds and other member equities payable
    
    
    24,003
    
    
    
    18,626Total current liabilities
    
    
    1,140,716
    
    
    
    1,289,254Long-term debt
    
    
    617,279
    
    
    
    639,059Employee benefits and other liabilities
    
    
    187,718
    
    
    
    173,446Minority interests
    
    
    8,991
    
    
    
    8,830Commitments and contingenciesEquities:Capital stock
    
    
    1,798
    
    
    
    1,828Member equities
    
    
    919,790
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (66,200
    )
    
    
    (66,276
    )Retained earnings
    
    
    122,277
    
    
    
    104,801Total equities
    
    
    977,665
    
    
    
    944,536Total liabilities and equities
    
    $
    2,932,369
    
    
    $
    3,055,125
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 For the Three Months Ended March 31,2007
    
    
    2006($ in thousands)Net sales
    
    $
    2,182,283
    
    
    $
    1,996,718Cost of sales
    
    
    1,964,733
    
    
    
    1,817,200Gross profit
    
    
    217,550
    
    
    
    179,518Selling, general and administrative
    
    
    142,011
    
    
    
    131,607Restructuring and impairment charges
    
    
    1,388
    
    
    
    1,358Earnings from operations
    
    
    74,151
    
    
    
    46,553Interest expense, net
    
    
    14,826
    
    
    
    16,498Other expense (income), net
    
    
    186
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    (6,950
    )
    
    
    8,502Minority interest in earnings of subsidiaries
    
    
    256
    
    
    
    175Earnings before income taxes
    
    
    65,833
    
    
    
    29,215Income tax expense
    
    
    10,896
    
    
    
    3,103Net earnings
    
    $
    54,937
    
    
    $
    26,112Applied to:Member equitiesAllocated patronage
    
    $
    36,466
    
    
    $
    24,389Deferred equities
    
    
    1,051
    
    
    
    (3,311
    )37,517
    
    
    
    21,078Retained earnings
    
    
    17,420
    
    
    
    5,034$
    54,937
    
    
    $
    26,112
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Three Months EndedMarch 31,2007
    
    
    2006($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    54,937
    
    
    $
    26,112Adjustments to reconcile net earnings to net cash used by operating activities:Depreciation and amortization
    
    
    21,252
    
    
    
    23,711Amortization of deferred financing costs
    
    
    748
    
    
    
    599Bad debt expense
    
    
    668
    
    
    
    211Proceeds from patronage revolvement received
    
    
    3,075
    
    
    
    4,953Non-cash patronage income
    
    
    (616
    )
    
    
    (359
    )Deferred income tax expense
    
    
    4,908
    
    
    
    2,686(Increase) decrease in other assets
    
    
    (3,615
    )
    
    
    6,625Increase (decrease) in other liabilities
    
    
    892
    
    
    
    (567
    )Restructuring and impairment charges
    
    
    1,388
    
    
    
    1,358Loss (gain) on sale of investment
    
    
    186
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    (6,950
    )
    
    
    8,502Dividends from investments in affiliated companies
    
    
    22,684
    
    
    
    2,645Minority interests
    
    
    256
    
    
    
    175Other
    
    
    113
    
    
    
    1,181Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (222,773
    )
    
    
    (19,888
    )Inventories
    
    
    (40,416
    )
    
    
    (500
    )Prepaids and other current assets
    
    
    328,559
    
    
    
    276,416Accounts payable
    
    
    (209,413
    )
    
    
    (354,890
    )Accrued expenses
    
    
    27,014
    
    
    
    2,301Net cash used by operating activities
    
    
    (17,103
    )
    
    
    (26,566
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (18,045
    )
    
    
    (13,468
    )Acquisitions
    
    
    (58
    )
    
    
    (84,187
    )Payments for investments
    
    
    (406
    )
    
    
    (800
    )Proceeds from sale of investments
    
    
    475
    
    
    
    7,837Proceeds from sale of property, plant and equipment
    
    
    176
    
    
    
    664Other
    
    
    (82
    )
    
    
    (350
    )Net cash used by investing activities
    
    
    (17,940
    )
    
    
    (90,304
    )Cash flows from financing activities:Increase (decrease) in short-term debt, net
    
    
    33,147
    
    
    
    (2,791
    )Proceeds from issuance of long-term debt
    
    
    1,827
    
    
    
    1,449Principal payments on long-term debt
    
    
    (24,359
    )
    
    
    (7,682
    )Payments for redemption of member equities
    
    
    (15,472
    )
    
    
    (15,816
    )Other
    
    
    (36
    )
    
    
    (41
    )Net cash used by financing activities
    
    
    (4,893
    )
    
    
    (24,881
    )Net cash used by operating activities of discontinued operations
    
    
    
    
    
    
    (312
    )Net decrease in cash and cash equivalents
    
    
    (39,936
    )
    
    
    (142,063
    )Cash and cash equivalents at beginning of the period
    
    
    79,707
    
    
    
    179,704Cash and cash equivalents at end of the period
    
    $
    39,771
    
    
    $
    37,641Supplementary Disclosure of Cash Flow
InformationCash paid during periods for:Interest
    
    $
    9,858
    
    
    $
    10,023Income taxes paid (recovered)
    
    $
    500
    
    
    $
    (392
    )
  5




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##### Table of Contents



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




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Accounting Estimates
  2. Receivables
  March 31,
    
    
    December 31,2007
    
    
    2006Trade accounts
    
    $
    645,034
    
    
    $
    469,230Notes and contracts
    
    
    103,585
    
    
    
    73,469Other
    
    
    87,354
    
    
    
    72,435835,973
    
    
    
    615,134Less allowance for doubtful accounts
    
    
    11,337
    
    
    
    10,554Total receivables, net
    
    $
    824,636
    
    
    $
    604,580
   3. Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    172,358
    
    
    $
    152,548Work in process
    
    
    4,221
    
    
    
    3,914Finished goods
    
    
    317,942
    
    
    
    315,472Total inventories
    
    $
    494,521
    
    
    $
    471,934
 7




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##### Table of Contents



4. Investments
  March 31,
    
    
    December 31,2007
    
    
    2006Agriliance LLC
    
    $
    110,294
    
    
    $
    124,719Ag Processing Inc.
    
    
    34,372
    
    
    
    33,975Advanced Food Products, LLC
    
    
    32,845
    
    
    
    32,933Agronomy Company of Canada Ltd.
    
    
    16,186
    
    
    
    16,834Universal Cooperatives, Inc.
    
    
    7,809
    
    
    
    7,986Melrose Dairy Proteins, LLC
    
    
    4,812
    
    
    
    5,741CoBank, ACB
    
    
    4,304
    
    
    
    7,198Delta Egg Farm, LLC
    
    
    4,290
    
    
    
    3,890Prairie Farms Dairy, Inc.
    
    
    3,729
    
    
    
    3,696Golden Oval Eggs, LLC
    
    
    3,664
    
    
    
    4,265Other  principally cooperatives and joint ventures
    
    
    31,840
    
    
    
    28,965Total investments
    
    $
    254,145
    
    
    $
    270,202
  Three Months EndedMarch 31,2007
    
    2006Net sales
    
    $
    729,145
    
    
    $
    625,782Gross profit
    
    
    88,922
    
    
    
    65,856Net earnings (loss)
    
    
    10,353
    
    
    
    (10,767
    )
 March 31,
    
    December 31,2007
    
    2006Current assets
    
    $
    1,800,462
    
    
    $
    1,518,133Non-current assets
    
    
    163,354
    
    
    
    164,917Current liabilities
    
    
    1,610,279
    
    
    
    1,302,148Non-current liabilities
    
    
    132,948
    
    
    
    131,465Total equity
    
    
    220,589
    
    
    
    249,437
  5. Goodwill and Other Intangible Assets
 Goodwill
  March 31,
    
    
    December 31,2007
    
    
    2006Feed
    
    $
    127,782
    
    
    $
    127,893Dairy Foods
    
    
    70,532
    
    
    
    83,799Layers
    
    
    58,982
    
    
    
    58,982Agronomy
    
    
    43,939
    
    
    
    45,461Seed
    
    
    10,383
    
    
    
    10,392Total goodwill
    
    $
    311,618
    
    
    $
    326,527
  8




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Other Intangible Assets
  March 31,
    
    
    December 31,2007
    
    
    2006Amortized other intangible assets:Patents, less accumulated amortization of $6,364 and $6,063, respectively
    
    $
    10,347
    
    
    $
    10,648Trademarks, less accumulated amortization of $2,570 and $2,498, respectively
    
    
    1,400
    
    
    
    1,472Other intangible assets, less accumulated amortization of $11,165 and $10,578, respectively
    
    
    5,711
    
    
    
    6,298Total amortized other intangible assets
    
    
    17,458
    
    
    
    18,418Total non-amortized other intangible assets  trademarks and dealer networks
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    94,083
    
    
    $
    95,043
  6. Debt Obligations
 Notes and Short-term Obligations
      9




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##### Table of Contents



Long-term Debt
  March 31,
    
    
    December 31,2007
    
    
    2006Senior unsecured notes  due 2011 (8.75%)
    
    $
    196,452
    
    
    $
    196,452Senior 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 2007 through 2023 (8.87% weighted average)
    
    
    30,645
    
    
    
    44,004Industrial development revenue bonds and other secured notes
payable  due 2007 through 2016(3.56% to 6.00%)
    
    
    4,861
    
    
    
    14,868Capital lease obligations (5.22% to 8.95%)
    
    
    7,379
    
    
    
    7,776Other debt
    
    
    22,931
    
    
    
    21,231627,968
    
    
    
    650,031Less current portion
    
    
    10,689
    
    
    
    10,972Total long-term debt
    
    $
    617,279
    
    
    $
    639,059
     7. Other Comprehensive Income
  Three Months EndedMarch 31,2007
    
    
    2006Net earnings
    
    $
    54,937
    
    
    $
    26,112Change in minimum pension liability, net of income taxes
    
    
    (194
    )
    
    
    Unrealized gain on available-for-sale-investment securities
    
    
    
    
    
    
    32Foreign currency translation adjustment
    
    
    270
    
    
    
    94Total comprehensive income
    
    $
    55,013
    
    
    $
    26,238
 8. Income Taxes
   10




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##### Table of Contents



9. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    3,566
    
    
    $
    4,850
    
    
    $
    182
    
    
    $
    175Interest cost
    
    
    8,296
    
    
    
    7,925
    
    
    
    981
    
    
    
    975Expected return on assets
    
    
    (9,263
    )
    
    
    (8,650
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    3,236
    
    
    
    3,425
    
    
    
    736
    
    
    
    675Amortization of prior service cost
    
    
    (122
    )
    
    
    (125
    )
    
    
    
    
    
    
    75Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    150Net periodic benefit cost
    
    $
    5,713
    
    
    $
    7,425
    
    
    $
    2,006
    
    
    $
    2,050
   10. Restructuring and Impairment Charges
  Three Months EndedMarch 31,2007
    
    
    2006Restructuring charges
    
    $
    266
    
    
    $
    1,358Impairment charges
    
    
    1,122
    
    
    
    Total restructuring and impairment charges
    
    $
    1,388
    
    
    $
    1,358
 Restructuring Charges
   Impairment charges
  11




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11. Assets and Liabilities Held for Sale
  12. Other Expense (Income), Net
 Three Months EndedMarch 31,2007
    
    
    2006Loss (gain) on sale of investments
    
    $
    186
    
    
    $
    (7,837
    )Total other expense (income), net
    
    $
    186
    
    
    $
    (7,837
    )
   13. Contingencies
 ® ® ® ®
  14. Segment Information
     12




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Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended March 31, 2007:Net sales (1)
    
    $
    880,307
    
    
    $
    748,796
    
    
    $
    436,045
    
    
    $
    
    
    
    $
    119,930
    
    
    $
    (2,795
    )
    
    $
    2,182,283Cost of sales(2)
    
    
    805,118
    
    
    
    677,311
    
    
    
    380,219
    
    
    
    
    
    
    
    105,630
    
    
    
    (3,545
    )
    
    
    1,964,733Selling, general and administrative
    
    
    47,940
    
    
    
    60,112
    
    
    
    20,236
    
    
    
    4,801
    
    
    
    7,908
    
    
    
    1,014
    
    
    
    142,011Restructuring and impairment charges
    
    
    67
    
    
    
    524
    
    
    
    500
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    1,388Interest expense (income), net
    
    
    6,246
    
    
    
    6,783
    
    
    
    1,194
    
    
    
    (2,451
    )
    
    
    4,312
    
    
    
    (1,258
    )
    
    
    14,826Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    186Equity in (earnings) loss of affiliated companies
    
    
    495
    
    
    
    (481
    )
    
    
    (55
    )
    
    
    (4,490
    )
    
    
    (2,412
    )
    
    
    (7
    )
    
    
    (6,950
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256Earnings before income taxes
    
    $
    20,441
    
    
    $
    4,291
    
    
    $
    33,951
    
    
    $
    2,140
    
    
    $
    4,195
    
    
    $
    815
    
    
    $
    65,833For the three months ended March 31, 2006:Net sales
    
    $
    808,977
    
    
    $
    693,076
    
    
    $
    389,309
    
    
    $
    
    
    
    $
    107,742
    
    
    $
    (2,386
    )
    
    $
    1,996,718Cost of sales(1)
    
    
    766,987
    
    
    
    624,744
    
    
    
    328,393
    
    
    
    3
    
    
    
    99,484
    
    
    
    (2,411
    )
    
    
    1,817,200Selling, general and administrative
    
    
    41,260
    
    
    
    59,129
    
    
    
    18,775
    
    
    
    3,470
    
    
    
    9,275
    
    
    
    (302
    )
    
    
    131,607Restructuring and impairment charges
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,358Interest expense (income), net
    
    
    8,100
    
    
    
    6,102
    
    
    
    1,878
    
    
    
    (3,133
    )
    
    
    4,530
    
    
    
    (979
    )
    
    
    16,498Other income, net
    
    
    (7,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    2,026
    
    
    
    (345
    )
    
    
    
    
    
    
    6,051
    
    
    
    766
    
    
    
    4
    
    
    
    8,502Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175Earnings (loss) before income taxes
    
    $
    (2,917
    )
    
    $
    3,271
    
    
    $
    40,263
    
    
    $
    (6,391
    )
    
    $
    (6,313
    )
    
    $
    1,302
    
    
    $
    29,215
 
 (1)
    
    Net sales includes intersegment sales of: 2007
    
    $
    3,046
    
    
    $
    5,071
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (8,117
    )
    
    $
    2006
    
    $
    1,575
    
    
    $
    5,872
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (7,447
    )
    
    $
    
 (2)
    
    Cost of sales includes unrealized hedging
(gains) losses of:
 2007
    
    $
    (2,489
    )
    
    $
    2,886
    
    
    $
    2,001
    
    
    $
    
    
    
    $
    1,499
    
    
    $
    (325
    )
    
    $
    3,5722006
    
    $
    (442
    )
    
    $
    119
    
    
    $
    261
    
    
    $
    
    
    
    $
    (262
    )
    
    $
    53
    
    
    $
    (271
    )
  15. Consolidating Financial Information
    13




---



##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
March 31, 2007
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,816
    
    
    $
    92
    
    
    $
    32,863
    
    
    $
    
    
    
    $
    39,771Receivables, net
    
    
    466,688
    
    
    
    260,267
    
    
    
    662,939
    
    
    
    (565,258
    )
    
    
    824,636Intercompany receivables, net
    
    
    61,696
    
    
    
    
    
    
    
    
    
    
    
    (61,696
    )
    
    
    Inventories
    
    
    260,064
    
    
    
    186,048
    
    
    
    48,409
    
    
    
    
    
    
    
    494,521Prepaid expenses
    
    
    30,731
    
    
    
    7,396
    
    
    
    2,663
    
    
    
    
    
    
    
    40,790Assets held for sale
    
    
    4,845
    
    
    
    184,022
    
    
    
    2,045
    
    
    
    
    
    
    
    190,912Other current assets
    
    
    36,976
    
    
    
    16,239
    
    
    
    969
    
    
    
    
    
    
    
    54,184Total current assets
    
    
    867,816
    
    
    
    654,064
    
    
    
    749,888
    
    
    
    (626,954
    )
    
    
    1,644,814Investments
    
    
    1,142,204
    
    
    
    45,939
    
    
    
    9,031
    
    
    
    (943,029
    )
    
    
    254,145Property, plant and equipment, net
    
    
    184,848
    
    
    
    233,788
    
    
    
    91,649
    
    
    
    
    
    
    
    510,285Goodwill, net
    
    
    170,825
    
    
    
    81,710
    
    
    
    59,083
    
    
    
    
    
    
    
    311,618Other intangibles, net
    
    
    4,295
    
    
    
    87,829
    
    
    
    1,959
    
    
    
    
    
    
    
    94,083Other assets
    
    
    29,261
    
    
    
    34,869
    
    
    
    56,841
    
    
    
    (3,547
    )
    
    
    117,424Total assets
    
    $
    2,399,249
    
    
    $
    1,138,199
    
    
    $
    968,451
    
    
    $
    (1,573,530
    )
    
    $
    2,932,369LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    5,044
    
    
    $
    2,869
    
    
    $
    647,101
    
    
    $
    (563,567
    )
    
    $
    91,447Current portion of long-term debt
    
    
    449
    
    
    
    224
    
    
    
    10,016
    
    
    
    
    
    
    
    10,689Accounts payable
    
    
    549,056
    
    
    
    180,080
    
    
    
    58,711
    
    
    
    (2,486
    )
    
    
    785,361Intercompany payable, net
    
    
    
    
    
    
    61,573
    
    
    
    123
    
    
    
    (61,696
    )
    
    
    Accrued expenses
    
    
    106,856
    
    
    
    101,890
    
    
    
    23,222
    
    
    
    (2,752
    )
    
    
    229,216Patronage refunds and other member equities
payable
    
    
    23,733
    
    
    
    150
    
    
    
    120
    
    
    
    
    
    
    
    24,003Total current liabilities
    
    
    685,138
    
    
    
    346,786
    
    
    
    739,293
    
    
    
    (630,501
    )
    
    
    1,140,716Long-term debt
    
    
    587,695
    
    
    
    1,033
    
    
    
    28,551
    
    
    
    
    
    
    
    617,279Employee benefits and other liabilities
    
    
    148,750
    
    
    
    30,936
    
    
    
    8,032
    
    
    
    
    
    
    
    187,718Minority interests
    
    
    1
    
    
    
    4,915
    
    
    
    4,075
    
    
    
    
    
    
    
    8,991Commitments and contingenciesEquities:Capital stock
    
    
    1,798
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,798Additional paid-in capital
    
    
    
    
    
    
    513,438
    
    
    
    139,789
    
    
    
    (653,227
    )
    
    
    Member equities
    
    
    919,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919,790Accumulated other comprehensive loss
    
    
    (66,200
    )
    
    
    (53
    )
    
    
    
    
    
    
    53
    
    
    
    (66,200
    )Retained earnings
    
    
    122,277
    
    
    
    241,044
    
    
    
    48,674
    
    
    
    (289,718
    )
    
    
    122,277Total equities
    
    
    977,665
    
    
    
    754,529
    
    
    
    188,500
    
    
    
    (943,029
    )
    
    
    977,665Total liabilities and equities
    
    $
    2,399,249
    
    
    $
    1,138,199
    
    
    $
    968,451
    
    
    $
    (1,573,530
    )
    
    $
    2,932,369
 14




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,098,691
    
    
    $
    933,318
    
    
    $
    150,274
    
    
    $
    
    
    
    $
    2,182,283Cost of sales
    
    
    985,727
    
    
    
    846,254
    
    
    
    132,752
    
    
    
    
    
    
    
    1,964,733Gross profit
    
    
    112,964
    
    
    
    87,064
    
    
    
    17,522
    
    
    
    
    
    
    
    217,550Selling, general and administrative
    
    
    69,875
    
    
    
    63,631
    
    
    
    8,505
    
    
    
    
    
    
    
    142,011Restructuring and impairment charges
    
    
    566
    
    
    
    524
    
    
    
    298
    
    
    
    
    
    
    
    1,388Earnings from operations
    
    
    42,523
    
    
    
    22,909
    
    
    
    8,719
    
    
    
    
    
    
    
    74,151Interest expense, net
    
    
    15,093
    
    
    
    (381
    )
    
    
    114
    
    
    
    
    
    
    
    14,826Other expense, net
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Equity in (earnings) loss of affiliated
companies
    
    
    (37,952
    )
    
    
    (510
    )
    
    
    (3,013
    )
    
    
    34,525
    
    
    
    (6,950
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256Earnings (loss) before income taxes
    
    
    65,196
    
    
    
    23,800
    
    
    
    11,362
    
    
    
    (34,525
    )
    
    
    65,833Income tax expense
    
    
    10,259
    
    
    
    126
    
    
    
    511
    
    
    
    
    
    
    
    10,896Net earnings
    
    $
    54,937
    
    
    $
    23,674
    
    
    $
    10,851
    
    
    $
    (34,525
    )
    
    $
    54,937
 15




---



##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    54,937
    
    
    $
    23,674
    
    
    $
    10,851
    
    
    $
    (34,525
    )
    
    $
    54,937Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operating activities:Depreciation and amortization
    
    
    10,620
    
    
    
    8,116
    
    
    
    2,516
    
    
    
    
    
    
    
    21,252Amortization of deferred financing costs
    
    
    424
    
    
    
    288
    
    
    
    36
    
    
    
    
    
    
    
    748Bad debt expense
    
    
    704
    
    
    
    (43
    )
    
    
    7
    
    
    
    
    
    
    
    668Proceeds from patronage revolvement received
    
    
    3,070
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    3,075Non-cash patronage income
    
    
    (567
    )
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (616
    )Deferred income tax expense
    
    
    4,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,908(Increase) decrease in other assets
    
    
    (3,489
    )
    
    
    (284
    )
    
    
    98
    
    
    
    60
    
    
    
    (3,615
    )Increase in other liabilities
    
    
    767
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    892Restructuring and impairment charges
    
    
    566
    
    
    
    524
    
    
    
    298
    
    
    
    
    
    
    
    1,388Loss on sale of investment
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Equity in (earnings) loss of affiliated companies
    
    
    (37,952
    )
    
    
    (510
    )
    
    
    (3,013
    )
    
    
    34,525
    
    
    
    (6,950
    )Dividends from investments in affiliated companies
    
    
    20,123
    
    
    
    211
    
    
    
    2,350
    
    
    
    
    
    
    
    22,684Minority interests
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256Other
    
    
    195
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    113Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (167,348
    )
    
    
    (24,741
    )
    
    
    (213,297
    )
    
    
    182,613
    
    
    
    (222,773
    )Inventories
    
    
    (32,831
    )
    
    
    1,169
    
    
    
    (8,754
    )
    
    
    
    
    
    
    (40,416
    )Prepaids and other current assets
    
    
    361,674
    
    
    
    2,148
    
    
    
    (35,263
    )
    
    
    
    
    
    
    328,559Accounts payable
    
    
    (215,988
    )
    
    
    (18,249
    )
    
    
    30,158
    
    
    
    (5,334
    )
    
    
    (209,413
    )Accrued expenses
    
    
    19,969
    
    
    
    8,261
    
    
    
    (1,098
    )
    
    
    (118
    )
    
    
    27,014Net cash (used) provided by operating activities
    
    
    19,968
    
    
    
    563
    
    
    
    (214,855
    )
    
    
    177,221
    
    
    
    (17,103
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (11,004
    )
    
    
    (5,725
    )
    
    
    (1,316
    )
    
    
    
    
    
    
    (18,045
    )Acquisitions
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )Payments for investments
    
    
    (250
    )
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (406
    )Proceeds from sale of investments
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    135
    
    
    
    35
    
    
    
    
    
    
    
    176Other
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )Net cash used by investing activities
    
    
    (10,855
    )
    
    
    (5,590
    )
    
    
    (1,495
    )
    
    
    
    
    
    
    (17,940
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    3,039
    
    
    
    (437
    )
    
    
    207,766
    
    
    
    (177,221
    )
    
    
    33,147Proceeds from issuance of long-term debt
    
    
    1,337
    
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    1,827Principal payments on long-term debt
    
    
    (141
    )
    
    
    (10,057
    )
    
    
    (14,161
    )
    
    
    
    
    
    
    (24,359
    )Payments for redemption of member equities
    
    
    (15,472
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,472
    )Other
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Net cash (used) provided by financing activities
    
    
    (11,273
    )
    
    
    (10,494
    )
    
    
    194,095
    
    
    
    (177,221
    )
    
    
    (4,893
    )Net decrease in cash and cash equivalents
    
    
    (2,160
    )
    
    
    (15,521
    )
    
    
    (22,255
    )
    
    
    
    
    
    
    (39,936
    )Cash and cash equivalents at beginning of period
    
    
    8,976
    
    
    
    15,613
    
    
    
    55,118
    
    
    
    
    
    
    
    79,707Cash and cash equivalents at end of period
    
    $
    6,816
    
    
    $
    92
    
    
    $
    32,863
    
    
    $
    
    
    
    $
    39,771
 16




---



##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,976
    
    
    $
    15,613
    
    
    $
    55,118
    
    
    $
    
    
    
    $
    79,707Receivables, net
    
    
    300,803
    
    
    
    266,680
    
    
    
    449,742
    
    
    
    (412,645
    )
    
    
    604,580Intercompany receivables, net
    
    
    77,042
    
    
    
    
    
    
    
    
    
    
    
    (77,042
    )
    
    
    Inventories
    
    
    227,258
    
    
    
    205,021
    
    
    
    39,655
    
    
    
    
    
    
    
    471,934Prepaid expenses
    
    
    367,900
    
    
    
    7,528
    
    
    
    2,850
    
    
    
    
    
    
    
    378,278Assets held for sale
    
    
    2,839
    
    
    
    1,162
    
    
    
    2,233
    
    
    
    
    
    
    
    6,234Other current assets
    
    
    25,353
    
    
    
    18,037
    
    
    
    970
    
    
    
    
    
    
    
    44,360Total current assets
    
    
    1,010,171
    
    
    
    514,041
    
    
    
    550,568
    
    
    
    (489,687
    )
    
    
    1,585,093Investments
    
    
    1,134,363
    
    
    
    42,809
    
    
    
    8,323
    
    
    
    (915,293
    )
    
    
    270,202Property, plant and equipment, net
    
    
    183,580
    
    
    
    388,410
    
    
    
    93,079
    
    
    
    
    
    
    
    665,069Goodwill, net
    
    
    184,414
    
    
    
    83,019
    
    
    
    59,094
    
    
    
    
    
    
    
    326,527Other intangibles, net
    
    
    4,789
    
    
    
    88,255
    
    
    
    1,999
    
    
    
    
    
    
    
    95,043Other assets
    
    
    28,392
    
    
    
    36,557
    
    
    
    51,729
    
    
    
    (3,487
    )
    
    
    113,191Total assets
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    2,005
    
    
    $
    3,306
    
    
    $
    469,335
    
    
    $
    (416,346
    )
    
    $
    58,300Current portion of long-term debt
    
    
    449
    
    
    
    403
    
    
    
    10,120
    
    
    
    
    
    
    
    10,972Accounts payable
    
    
    765,044
    
    
    
    198,329
    
    
    
    28,553
    
    
    
    2,848
    
    
    
    994,774Intercompany payable, net
    
    
    
    
    
    
    74,513
    
    
    
    2,529
    
    
    
    (77,042
    )
    
    
    Accrued expenses
    
    
    91,267
    
    
    
    93,629
    
    
    
    24,320
    
    
    
    (2,634
    )
    
    
    206,582Patronage refunds and other member
equities payable
    
    
    18,506
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    18,626Total current liabilities
    
    
    877,271
    
    
    
    370,180
    
    
    
    534,977
    
    
    
    (493,174
    )
    
    
    1,289,254Long-term debt
    
    
    586,030
    
    
    
    10,911
    
    
    
    42,118
    
    
    
    
    
    
    
    639,059Employee benefits and other liabilities
    
    
    137,872
    
    
    
    27,542
    
    
    
    8,032
    
    
    
    
    
    
    
    173,446Minority interests
    
    
    
    
    
    
    4,808
    
    
    
    4,022
    
    
    
    
    
    
    
    8,830Commitments and contingenciesEquities:Capital stock
    
    
    1,828
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,828Additional paid-in capital
    
    
    
    
    
    
    504,118
    
    
    
    139,820
    
    
    
    (643,938
    )
    
    
    Member equities
    
    
    904,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (66,276
    )
    
    
    (16
    )
    
    
    
    
    
    
    16
    
    
    
    (66,276
    )Retained earnings
    
    
    104,801
    
    
    
    235,448
    
    
    
    35,786
    
    
    
    (271,234
    )
    
    
    104,801Total equities
    
    
    944,536
    
    
    
    739,650
    
    
    
    175,643
    
    
    
    (915,293
    )
    
    
    944,536Total liabilities and equities
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,023,921
    
    
    $
    846,572
    
    
    $
    126,225
    
    
    $
    
    
    
    $
    1,996,718Cost of sales
    
    
    930,668
    
    
    
    769,380
    
    
    
    117,152
    
    
    
    
    
    
    
    1,817,200Gross profit
    
    
    93,253
    
    
    
    77,192
    
    
    
    9,073
    
    
    
    
    
    
    
    179,518Selling, general and administrative
    
    
    59,591
    
    
    
    63,184
    
    
    
    8,832
    
    
    
    
    
    
    
    131,607Restructuring and impairment charges
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,358Earnings from operations
    
    
    32,304
    
    
    
    14,008
    
    
    
    241
    
    
    
    
    
    
    
    46,553Interest expense, net
    
    
    12,721
    
    
    
    2,990
    
    
    
    787
    
    
    
    
    
    
    
    16,498Other income, net
    
    
    (7,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,849
    )
    
    
    (310
    )
    
    
    766
    
    
    
    9,895
    
    
    
    8,502Minority interest in earnings (loss) of subsidiaries
    
    
    (61
    )
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    175Earnings (loss) before income taxes
    
    
    29,330
    
    
    
    11,328
    
    
    
    (1,548
    )
    
    
    (9,895
    )
    
    
    29,215Income tax expense (benefit)
    
    
    3,218
    
    
    
    153
    
    
    
    (268
    )
    
    
    
    
    
    
    3,103Net earnings (loss)
    
    $
    26,112
    
    
    $
    11,175
    
    
    $
    (1,280
    )
    
    $
    (9,895
    )
    
    $
    26,112
 18




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2006
 Land OLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non- GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    26,112
    
    
    $
    11,175
    
    
    $
    (1,280
    )
    
    $
    (9,895
    )
    
    $
    26,112Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operating activities:Depreciation and amortization
    
    
    10,278
    
    
    
    11,149
    
    
    
    2,284
    
    
    
    
    
    
    
    23,711Amortization of deferred financing costs
    
    
    579
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    599Bad debt expense
    
    
    190
    
    
    
    17
    
    
    
    4
    
    
    
    
    
    
    
    211Proceeds from patronage revolvement received
    
    
    4,949
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4,953Non-cash patronage income
    
    
    (301
    )
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (359
    )Deferred income tax expense
    
    
    2,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,686(Increase) decrease in other assets
    
    
    (3,881
    )
    
    
    (485
    )
    
    
    6,046
    
    
    
    4,945
    
    
    
    6,625Decrease in other liabilities
    
    
    (353
    )
    
    
    (50
    )
    
    
    (164
    )
    
    
    
    
    
    
    (567
    )Restructuring and impairment charges
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,358Gain on sale of investment
    
    
    (7,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,849
    )
    
    
    (310
    )
    
    
    766
    
    
    
    9,895
    
    
    
    8,502Dividends from investments in affiliated companies
    
    
    1,425
    
    
    
    320
    
    
    
    900
    
    
    
    
    
    
    
    2,645Minority interests
    
    
    (61
    )
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    175Other
    
    
    (258
    )
    
    
    (5
    )
    
    
    1,444
    
    
    
    
    
    
    
    1,181Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (48,905
    )
    
    
    2,327
    
    
    
    21,257
    
    
    
    5,433
    
    
    
    (19,888
    )Inventories
    
    
    (578
    )
    
    
    435
    
    
    
    (357
    )
    
    
    
    
    
    
    (500
    )Other current assets
    
    
    281,163
    
    
    
    (5,218
    )
    
    
    471
    
    
    
    
    
    
    
    276,416Accounts payable
    
    
    (325,871
    )
    
    
    (11,703
    )
    
    
    (17,300
    )
    
    
    (16
    )
    
    
    (354,890
    )Accrued expenses
    
    
    7,412
    
    
    
    (2,956
    )
    
    
    (3,012
    )
    
    
    857
    
    
    
    2,301Net cash (used) provided by operating activities
    
    
    (53,742
    )
    
    
    4,662
    
    
    
    11,295
    
    
    
    11,219
    
    
    
    (26,566
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (5,007
    )
    
    
    (4,723
    )
    
    
    (3,738
    )
    
    
    
    
    
    
    (13,468
    )Acquisitions
    
    
    (84,187
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,187
    )Payments for investments
    
    
    
    
    
    
    
    
    
    
    (800
    )
    
    
    
    
    
    
    (800
    )Proceeds from sale of investments
    
    
    7,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,837Proceeds from sale of property, plant and equipment
    
    
    110
    
    
    
    66
    
    
    
    488
    
    
    
    
    
    
    
    664Other
    
    
    175
    
    
    
    3,663
    
    
    
    
    
    
    
    (4,188
    )
    
    
    (350
    )Net cash used by investing activities
    
    
    (81,072
    )
    
    
    (994
    )
    
    
    (4,050
    )
    
    
    (4,188
    )
    
    
    (90,304
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    21,761
    
    
    
    802
    
    
    
    (14,135
    )
    
    
    (11,219
    )
    
    
    (2,791
    )Proceeds from issuance of long-term debt
    
    
    1,230
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    1,449Principal payments on long-term debt
    
    
    (113
    )
    
    
    (194
    )
    
    
    (7,375
    )
    
    
    
    
    
    
    (7,682
    )Payments for redemption of member equities
    
    
    (15,816
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,816
    )Other
    
    
    55
    
    
    
    (4,276
    )
    
    
    (8
    )
    
    
    4,188
    
    
    
    (41
    )Net cash provided (used) by financing activities
    
    
    7,117
    
    
    
    (3,668
    )
    
    
    (21,299
    )
    
    
    (7,031
    )
    
    
    (24,881
    )Net cash used by operating activities of discontinued
operations
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Net decrease in cash and cash equivalents
    
    
    (128,009
    )
    
    
    
    
    
    
    (14,054
    )
    
    
    
    
    
    
    (142,063
    )Cash and cash equivalents at beginning of period
    
    
    157,445
    
    
    
    
    
    
    
    22,259
    
    
    
    
    
    
    
    179,704Cash and cash equivalents at end of period
    
    $
    29,436
    
    
    $
    
    
    
    $
    8,205
    
    
    $
    
    
    
    $
    37,641
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussions of financial condition and results of operations
together with the financial statements and the notes to such statements included elsewhere in this
Form 10-Q.
 Overview
 General
 ®
  Unconsolidated Businesses
  For the three months endedMarch 31,2007
    
    2006(in millions)Earnings (loss) from unconsolidated businesses
    
    $
    7.0
    
    
    $
    (8.5
    )Cash flow from investments in unconsolidated businesses
    
    
    22.7
    
    
    
    2.6
    For the three months endedMarch 31,2007
    
    2006(in millions)Equity in earnings (loss) from Agriliance
    
    $
    5.2
    
    
    $
    (5.4
    )Cash distributions from Agriliance
    
    
    19.6
    
    
    
    0.0
 20




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##### Table of Contents



Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
   March 31,2007
    
    2006Per pound market price average for three months ended:Butter
    
    $
    1.26
    
    
    $
    1.23Block cheese
    
    
    1.35
    
    
    
    1.23
 Feed.
 21




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##### Table of Contents



Layers
 Derivative Commodity Instruments
  For the three months endedMarch 31,2007
    
    2006($ in millions)Unrealized hedging gain (loss)
    
    $
    (1.8
    )
    
    $
    0.1
 22




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##### Table of Contents



Results of Operations
 Three months ended March 31, 2007 as compared to three months ended March 31, 2006
 Overview of Results
 For the three months ended March 31,Increase2007
    
    2006
    
    (Decrease)($ in millions)Net earnings
    
    $
    54.9
    
    
    $
    26.1
    
    
    $
    28.8
 ®
 Net sales
    
    $
    2,182.3
    
    
    $
    1,996.7
    
    
    $
    185.6
  Gross profit
    
    $
    217.6
    
    
    $
    179.5
    
    
    $
    38.1
  Selling, general and administrative expense
    
    $
    142.0
    
    
    $
    131.6
    
    
    $
    10.4
  Restructuring and impairment charges
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    0.0
  Interest expense, net
    
    $
    14.8
    
    
    $
    16.5
    
    
    $
    (1.7
    )
  23




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##### Table of Contents



For the three months ended March 31,Increase2007
    
    2006
    
    (Decrease)($ In millions)Equity in earnings (loss) of affiliated companies
    
    $
    7.0
    
    
    $
    (8.5
    )
    
    $
    15.5
  Income tax expense
    
    $
    10.9
    
    
    $
    3.1
    
    
    $
    7.8
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended March 31,($ in millions)
    
    2007
    
    2006
    
    % changeNet sales
    
    $
    880.3
    
    
    $
    809.0
    
    
    
    8.8
    %Gross profit
    
    
    75.2
    
    
    
    42.0
    
    
    
    79.0
    %Gross profit % of net
sales
    
    
    8.5
    %
    
    
    5.2
    %
 Increase(decrease)(In millions)Net Sales VariancePricing / product mix impact
    
    $
    66.6Volume impact
    
    
    4.7Total increase
    
    $
    71.3
  Increase(decrease)(In millions)Gross Profit VarianceMargin / product mix impact
    
    $
    31.0Volume impact
    
    
    0.2Unrealized hedging
    
    
    2.0Total increase
    
    $
    33.2
 24




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##### Table of Contents



Feed
 For the three months ended March 31,($ in millions)
    
    2007
    
    2006
    
    % changeNet sales
    
    $
    748.8
    
    
    $
    693.1
    
    
    
    8.0
    %Gross profit
    
    
    71.5
    
    
    
    68.3
    
    
    
    4.6
    %Gross profit % of net sales
    
    
    9.5
    %
    
    
    9.9
    %
 Increase(decrease)(In millions)Net Sales VariancePricing / product mix impact
    
    $
    83.4Volume impact
    
    
    (18.7
    )Acquisitions and divestitures
    
    
    (9.0
    )Total increase
    
    $
    55.7
  Increase(decrease)(In millions)Gross Profit VarianceMargin / product mix impact
    
    $
    9.6Volume impact
    
    
    (2.4
    )Unrealized hedging
    
    
    (2.8
    )Acquisitions and divestitures
    
    
    (1.2
    )Total increase
    
    $
    3.2
  Seed
 For the three months ended March 31,($ in millions)
    
    2007
    
    2006
    
    % changeNet sales
    
    $
    436.0
    
    
    $
    389.3
    
    
    
    12.0
    %Gross profit
    
    
    55.8
    
    
    
    60.9
    
    
    
    (8.4
    )%Gross profit % of net
sales
    
    
    12.8
    %
    
    
    15.6
    %
 25




---



##### Table of Contents



Increase(decrease)(In millions)Net Sales VariancePricing / product mix impact
    
    $
    34.7Volume impact
    
    
    12.0Total increase
    
    $
    46.7
  Increase(decrease)(In millions)Gross Profit VarianceMargin / product mix impact
    
    $
    (3.3
    )Volume impact
    
    
    (.1
    )Unrealized hedging
    
    
    (1.7
    )Total decrease
    
    $
    (5.1
    )
 ®
 Layers
 For the three months ended March 31,($ in millions)
    
    2007
    
    2006
    
    % changeNet sales
    
    $
    119.9
    
    
    $
    107.7
    
    
    
    11.3
    %Gross profit
    
    
    14.3
    
    
    
    8.3
    
    
    
    72.3
    %Gross profit %
of net sales
    
    
    11.9
    %
    
    
    7.7
    %
 Increase(decrease)(In millions)Net Sales VariancePricing / product mix impact
    
    $
    34.1Volume impact
    
    
    3.9Acquisitions and divestitures
    
    
    (25.8
    )Total increase
    
    $
    12.2
  26




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##### Table of Contents



Increase(decrease)(In millions)Gross Profit VarianceMargin / product mix impact
    
    $
    9.4Volume impact
    
    
    (2.3
    )Unrealized hedging
    
    
    (1.8
    )Acquisitions and divestitures
    
    
    0.7Total increase
    
    $
    6.0
  Liquidity and Capital Resources
 Overview
       As of
    
    
    As of
    
    
    As ofMarch 31,
    
    
    March 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006($ in millions)Cash and cash equivalents
    
    $
    39.8
    
    
    $
    37.6
    
    
    $
    79.7Availability on revolving credit facility
    
    
    190.6
    
    
    
    149.1
    
    
    
    174.4Availability on receivable securitization program
    
    
    170.0
    
    
    
    160.0
    
    
    
    200.0Total liquidity
    
    $
    400.4
    
    
    $
    346.7
    
    
    $
    454.1
  27




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##### Table of Contents



Cash Flows
  Operating Activities
 For the Three Months EndedMarch 31,2007
    
    
    2006($ in millions)Net earnings
    
    $
    54.9
    
    
    $
    26.1Adjustments to reconcile net earnings to net cash used by operating activities
    
    
    45.0
    
    
    
    43.9Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    (117.0
    )
    
    
    (96.6
    )Net cash used by operating activities
    
    $
    (17.1
    )
    
    $
    (26.6
    )
  Investing Activities
 For the Three Months EndedMarch 31,2007
    
    
    2006($ in millions)Additions to property, plant and equipment
    
    $
    (18.0
    )
    
    $
    (13.5
    )Acquisitions
    
    
    (0.1
    )
    
    
    (84.2
    )Payments for investments
    
    
    (0.4
    )
    
    
    (0.8
    )Proceeds from sale of investments
    
    
    0.5
    
    
    
    7.8Proceeds from sale of property, plant and equipment
    
    
    0.2
    
    
    
    0.7Other
    
    
    (0.1
    )
    
    
    (0.3
    )Net cash used by investing activities
    
    $
    (17.9
    )
    
    $
    (90.3
    )
   Financing Activities
 For the Three Months EndedMarch 31,2007
    
    
    2006($ in millions)Increase (decrease) in short-term debt, net
    
    $
    33.1
    
    
    $
    (2.8
    )Proceeds from issuance of long-term debt
    
    
    1.8
    
    
    
    1.4Principal payments on long-term debt and obligations under capital lease
    
    
    (24.3
    )
    
    
    (7.7
    )Payments for redemption of member equities
    
    
    (15.5
    )
    
    
    (15.8
    )Net cash used by financing activities
    
    $
    (4.9
    )
    
    $
    (24.9
    )
  28




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##### Table of Contents



Principal Debt Facilities
        29




---



##### Table of Contents



Capital Leases
  Recent Accounting Pronouncements
    30




---



##### Table of Contents



Critical Accounting Policies
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   31




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##### Table of Contents



Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal controls
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
   ® ® ® ®
  32




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##### Table of Contents



Item 1A. Risk Factors
  Set forth below is a summary of the material risk factors for Land OLakes, Inc: 
    
    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
PROFITABILITY.
    
    OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.
    
    CHANGES IN THE MARKET PRICES OF THE DAIRY AND AGRICULTURAL COMMODITIES THAT WE USE AS
INPUTS AS WELL AS THE PRODUCTS WE MARKET MAY CAUSE OUR MARGINS TO DECLINE AND REDUCE THE
LIKELIHOOD OF RECEIVING DIVIDENDS FROM OUR JOINT VENTURES.
    
    WE OPERATE THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO EARNINGS AND TO CONTROL THE
JOINT VENTURE ARE LIMITED.
    
    CERTAIN OF OUR BUSINESS MAY BE ADVERSELY AFFECTED BY THEIR DEPENDENCE UPON THEIR
SUPPLIERS.
    
    OUR 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.
    
    DESPITE OUR LEVERAGE, WE WILL BE ABLE TO INCUR MORE DEBT, WHICH MAY INTENSIFY THE
RISKS ASSOCIATED WITH OUR LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR DEBT.
    
    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.
 33




---



##### Table of Contents




    
    RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO FINANCE FUTURE
OPERATIONS OR CAPITAL NEEDS OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE IN OUR
BEST INTERESTS.
    
    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.
    
    OUR LIMITED ACCESS TO EQUITY MARKETS COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL EQUITY CAPITAL.
    
    INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD DAMAGE OUR
COMPETITIVE POSITION.
    
    OUR BRAND NAMES COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES WHO, BY THEIR ACT OR
OMISSION, COULD ADVERSELY AFFECT THE VALUE OF OUR BRAND NAMES.
    
    PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS.
    
    WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF OR LIABILITIES UNDER ENVIRONMENTAL
LAWS AND REGULATIONS APPLICABLE TO OUR OPERATIONS.
    
    STRIKES OR WORK STOPPAGES BY OUR UNIONIZED WORKERS COULD DISRUPT OUR BUSINESS.
    
    THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM OR OTHER KEY EMPLOYEES WILL
REMAIN WITH US.
 
 Item 6. Exhibits
 (a) Exhibits
 EXHIBIT
    
    DESCRIPTION3.1
    
    
    Restated Articles of Incorporation of Land OLakes, Inc., as amended, August 1998. (1)3.2
    
    
    By-Laws of Land OLakes Inc., as amended, February 2003 (1)31.1
    
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
 (1)
    
    Incorporated by reference to an exhibit to the registrants Registration Statement on Form
S-4 filed April 28, 2004.*
    
    Filed electronically herewith 34




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##### Table of Contents



SIGNATURES
  LAND OLAKES, INC.By
    
    /s/ Daniel Knutson

Daniel E. KnutsonSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 35