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




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##### 



INDEX
 PagePart I. Financial Information
    
    
    3Item I. Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005
(unaudited)
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    40Part II Other Information
    
    
    40Item 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    42SIGNATURES
    
    
    43Asset Sale and Purchase AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 LAND OLAKES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    42,673
    
    
    $
    179,704Receivables, net
    
    
    496,090
    
    
    
    591,445Inventories
    
    
    446,988
    
    
    
    453,135Prepaid expenses
    
    
    24,936
    
    
    
    333,023Other current assets
    
    
    39,242
    
    
    
    81,075Total current assets
    
    
    1,049,929
    
    
    
    1,638,382Investments
    
    
    293,307
    
    
    
    263,786Property, plant and equipment, net
    
    
    657,611
    
    
    
    668,650Goodwill, net
    
    
    334,126
    
    
    
    327,059Other intangibles, net
    
    
    94,954
    
    
    
    96,767Other assets
    
    
    103,458
    
    
    
    100,414Total assets
    
    $
    2,533,385
    
    
    $
    3,095,058LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    54,804
    
    
    $
    76,465Current portion of long-term debt and obligations under capital lease
    
    
    5,229
    
    
    
    23,921Accounts payable
    
    
    517,737
    
    
    
    976,959Accrued expenses
    
    
    190,447
    
    
    
    265,924Patronage refunds and other member equities payable
    
    
    11,105
    
    
    
    29,622Total current liabilities
    
    
    779,322
    
    
    
    1,372,891Long-term debt and obligations under capital lease
    
    
    630,897
    
    
    
    646,802Employee benefits and other liabilities
    
    
    174,759
    
    
    
    165,796Minority interests
    
    
    8,609
    
    
    
    6,012Equities:Capital stock
    
    
    1,893
    
    
    
    1,967Member equities
    
    
    906,617
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (74,679
    )
    
    
    (75,163
    )Retained earnings
    
    
    105,967
    
    
    
    83,235Total equities
    
    
    939,798
    
    
    
    903,557Commitments and contingenciesTotal liabilities and equities
    
    $
    2,533,385
    
    
    $
    3,095,058
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005($ in thousands)Net sales
    
    $
    1,684,521
    
    
    $
    1,806,659
    
    
    $
    3,759,437
    
    
    $
    3,837,893Cost of sales
    
    
    1,540,683
    
    
    
    1,679,697
    
    
    
    3,436,081
    
    
    
    3,528,962Gross profit
    
    
    143,838
    
    
    
    126,962
    
    
    
    323,356
    
    
    
    308,931Selling, general and administrative
    
    
    135,076
    
    
    
    122,870
    
    
    
    266,683
    
    
    
    256,096Restructuring and impairment charges
    
    
    2,923
    
    
    
    105
    
    
    
    4,281
    
    
    
    1,024Earnings from operations
    
    
    5,839
    
    
    
    3,987
    
    
    
    52,392
    
    
    
    51,811Interest expense, net
    
    
    15,242
    
    
    
    20,820
    
    
    
    31,740
    
    
    
    43,062Other income, net
    
    
    (8,033
    )
    
    
    (1,350
    )
    
    
    (15,870
    )
    
    
    (1,385
    )Equity in earnings of affiliated companies
    
    
    (38,231
    )
    
    
    (44,591
    )
    
    
    (29,729
    )
    
    
    (43,779
    )Minority interest in earnings of subsidiaries
    
    
    410
    
    
    
    380
    
    
    
    585
    
    
    
    817Earnings before income taxes and discontinued operations
    
    
    36,451
    
    
    
    28,728
    
    
    
    65,666
    
    
    
    53,096Income tax expense
    
    
    1,699
    
    
    
    2,853
    
    
    
    4,802
    
    
    
    4,966Net earnings from continuing operations
    
    
    34,752
    
    
    
    25,875
    
    
    
    60,864
    
    
    
    48,130(Loss) earnings from discontinued operations, net of
income taxes
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    2,013Net earnings
    
    $
    34,752
    
    
    $
    25,847
    
    
    $
    60,864
    
    
    $
    50,143Applied to:Member equitiesAllocated patronage
    
    $
    12,629
    
    
    $
    22,325
    
    
    $
    37,018
    
    
    $
    43,864Deferred equities
    
    
    3,129
    
    
    
    (635
    )
    
    
    (182
    )
    
    
    (2,295
    )15,758
    
    
    
    21,690
    
    
    
    36,836
    
    
    
    41,569Retained earnings
    
    
    18,994
    
    
    
    4,157
    
    
    
    24,028
    
    
    
    8,574$
    34,752
    
    
    $
    25,847
    
    
    $
    60,864
    
    
    $
    50,143
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Six Months EndedJune 30,2006
    
    
    2005($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    60,864
    
    
    $
    50,143Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2,013
    )Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    47,542
    
    
    
    49,953Amortization of deferred financing costs
    
    
    1,198
    
    
    
    3,852Bad debt expense
    
    
    1,079
    
    
    
    747Proceeds from patronage revolvement received
    
    
    4,960
    
    
    
    2,057Non-cash patronage income
    
    
    (819
    )
    
    
    (739
    )Deferred income tax expense
    
    
    12,306
    
    
    
    1,026Decrease in other assets
    
    
    8,367
    
    
    
    7,708Increase in other liabilities
    
    
    212
    
    
    
    2,910Restructuring and impairment charges
    
    
    4,281
    
    
    
    1,024Gain on divestiture of business
    
    
    (8,033
    )
    
    
    Gain on sale of investment
    
    
    (7,837
    )
    
    
    (802
    )Equity in earnings of affiliated companies
    
    
    (29,729
    )
    
    
    (43,779
    )Minority interests
    
    
    585
    
    
    
    817Other
    
    
    885
    
    
    
    797Changes in current assets and liabilities, net of divestitures:Receivables
    
    
    95,078
    
    
    
    83,182Inventories
    
    
    5,931
    
    
    
    (44,643
    )Other current assets
    
    
    306,369
    
    
    
    254,045Accounts payable
    
    
    (459,697
    )
    
    
    (278,947
    )Accrued expenses
    
    
    (2,115
    )
    
    
    37,357Net cash provided by operating activities
    
    
    41,427
    
    
    
    124,695Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (33,636
    )
    
    
    (26,017
    )Acquisitions
    
    
    (84,187
    )
    
    
    (30,106
    )Payments for investments
    
    
    (2,478
    )
    
    
    (2,921
    )Proceeds from sale of investments
    
    
    7,837
    
    
    
    1,000Net proceeds from divestiture of businesses
    
    
    28,655
    
    
    
    2,635Proceeds from sale of property, plant and equipment
    
    
    873
    
    
    
    2,825Dividends from investments in affiliated companies
    
    
    3,190
    
    
    
    4,010Other
    
    
    (1,108
    )
    
    
    101Net cash used by investing activities
    
    
    (80,854
    )
    
    
    (48,473
    )Cash flows from financing activities:Decrease in short-term debt
    
    
    (22,037
    )
    
    
    (6,663
    )Proceeds from issuance of long-term debt
    
    
    1,999
    
    
    
    1,481Principal payments on long-term debt and capital lease obligations
    
    
    (33,810
    )
    
    
    (128,606
    )Payments for redemption of member equities
    
    
    (42,897
    )
    
    
    (33,683
    )Other
    
    
    (512
    )
    
    
    (467
    )Net cash used by financing activities
    
    
    (97,257
    )
    
    
    (167,938
    )Net cash (used) provided by operating activities of discontinued operations (revised)
    
    
    (347
    )
    
    
    3,676Net cash provided by investing activities of discontinued operations (revised)
    
    
    
    
    
    
    42,135Net decrease in cash and cash equivalents
    
    
    (137,031
    )
    
    
    (45,905
    )Cash and cash equivalents at beginning of the period
    
    
    179,704
    
    
    
    73,136Cash and cash equivalents at end of the period
    
    $
    42,673
    
    
    $
    27,231Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    30,114
    
    
    $
    38,733Income taxes paid (recovered)
    
    
    896
    
    
    
    (501
    )
  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
  How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
    6




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##### Table of Contents



Accounting Estimates
  2. Receivables
  June 30,
    
    
    December 31,2006
    
    
    2005Trade accounts
    
    $
    87,011
    
    
    $
    95,040Notes and contracts
    
    
    79,579
    
    
    
    90,119Notes from sale of trade receivables (see Note 3)
    
    
    241,556
    
    
    
    369,429Other
    
    
    102,718
    
    
    
    51,167510,864
    
    
    
    605,755Less allowance for doubtful accounts
    
    
    14,774
    
    
    
    14,310Total receivables, net
    
    $
    496,090
    
    
    $
    591,445
   3. Receivables Purchase Facility
  4. Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    147,687
    
    
    $
    148,560Work in process
    
    
    2,053
    
    
    
    2,297Finished goods
    
    
    297,248
    
    
    
    302,278Total inventories
    
    $
    446,988
    
    
    $
    453,135
 7




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##### Table of Contents



5. Investments
  June 30,
    
    
    December 31,2006
    
    
    2005Agriliance LLC
    
    $
    145,288
    
    
    $
    112,932Ag Processing Inc.
    
    
    36,319
    
    
    
    35,831Advanced Food Products, LLC
    
    
    32,189
    
    
    
    31,904Agronomy Company of Canada LTD
    
    
    14,408
    
    
    
    14,464CoBank, ACB
    
    
    6,047
    
    
    
    10,688Universal Cooperatives, Inc.
    
    
    7,841
    
    
    
    7,716Melrose Dairy Proteins, LLC
    
    
    5,305
    
    
    
    7,495Golden Oval Eggs, LLC
    
    
    5,000
    
    
    
    Prairie Farms Dairy, Inc.
    
    
    4,346
    
    
    
    4,315Other  principally cooperatives and joint ventures
    
    
    36,564
    
    
    
    38,441Total investments
    
    $
    293,307
    
    
    $
    263,786
   For the three
    
    For the threemonths ended
    
    months endedJune 30,
    
    June 30,2006
    
    2005Net sales
    
    $
    1,781,839
    
    
    $
    1,787,488Gross profit
    
    
    165,423
    
    
    
    190,766Net earnings
    
    
    75,478
    
    
    
    92,541
 For the six
    
    For the sixmonths ended
    
    months endedJune 30,
    
    June 30,2006
    
    2005Net sales
    
    $
    2,407,620
    
    
    $
    2,459,030Gross profit
    
    
    231,278
    
    
    
    257,278Net earnings
    
    
    64,711
    
    
    
    92,751
 June 30,
    
    December 31,2006
    
    2005Current assets
    
    $
    1,455,202
    
    
    $
    1,712,290Non-current assets
    
    
    158,917
    
    
    
    154,270Current liabilities
    
    
    1,196,451
    
    
    
    1,520,780Non-current liabilities
    
    
    127,093
    
    
    
    119,917Total equity
    
    
    290,575
    
    
    
    225,863
 6. Goodwill and Other Intangible Assets
 Goodwill
  June 30,
    
    
    December 31,2006
    
    
    2005Feed
    
    $
    126,956
    
    
    $
    115,593Layers
    
    
    78,349
    
    
    
    79,567Dairy Foods
    
    
    69,904
    
    
    
    69,904Agronomy
    
    
    48,507
    
    
    
    51,566Seed
    
    
    10,410
    
    
    
    10,429Total goodwill
    
    $
    334,126
    
    
    $
    327,059
 8




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##### Table of Contents



Other Intangible Assets
  June 30,
    
    
    December 31,2006
    
    
    2005Amortized other intangible assets:Patents, less accumulated amortization of $5,486 and $4,909, respectively
    
    $
    11,225
    
    
    $
    11,802Trademarks, less accumulated amortization of $2,298 and $2,078, respectively
    
    
    1,672
    
    
    
    1,892Other intangible assets, less accumulated amortization of $9,559 and $8,543, respectively
    
    
    5,432
    
    
    
    6,448Total amortized other intangible assets
    
    
    18,329
    
    
    
    20,142Total non-amortized other intangible assets  trademarks and dealer network
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    94,954
    
    
    $
    96,767
  7. Debt Obligations
    June 30,
    
    
    December 31,2006
    
    
    2005Senior unsecured notes  due 2011 (8.75%)
    
    $
    196,452
    
    
    $
    196,452Senior secured notes  due 2010 (9.00%)
    
    
    175,000
    
    
    
    175,000MoArk LLC debt  due 2006 through 2023 (7.97% weighted average)
    
    
    31,704
    
    
    
    59,136Industrial development revenue bonds and other secured notes payable  due 2006 through 2016 (3.21% to 6.00%)
    
    
    14,881
    
    
    
    14,893Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700Capital lease obligations
    
    
    8,846
    
    
    
    9,310Other debt
    
    
    18,543
    
    
    
    25,232636,126
    
    
    
    670,723Less current portion
    
    
    5,229
    
    
    
    23,921Total long-term debt
    
    $
    630,897
    
    
    $
    646,802
   9




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8. Other Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings
    
    $
    34,752
    
    
    $
    25,847
    
    
    $
    60,864
    
    
    $
    50,143Unrealized gain (loss) on available-for-sale-investment securities
    
    
    (90
    )
    
    
    (91
    )
    
    
    (58
    )
    
    
    (102
    )Change in minimum pension liability, net of taxes
    
    
    
    
    
    
    3,380
    
    
    
    
    
    
    
    3,380Foreign currency translation adjustment
    
    
    448
    
    
    
    (168
    )
    
    
    542
    
    
    
    1,026Total comprehensive income
    
    $
    35,110
    
    
    $
    28,968
    
    
    $
    61,348
    
    
    $
    54,447
 9. Income Taxes
  10. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    4,850
    
    
    $
    4,625
    
    
    $
    175
    
    
    $
    200Interest cost
    
    
    7,925
    
    
    
    7,350
    
    
    
    975
    
    
    
    1,025Expected return on assets
    
    
    (8,650
    )
    
    
    (8,400
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    3,425
    
    
    
    2,500
    
    
    
    675
    
    
    
    683Amortization of prior service cost
    
    
    (125
    )
    
    
    (50
    )
    
    
    75
    
    
    
    75Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    150Net periodic benefit cost
    
    $
    7,425
    
    
    $
    6,025
    
    
    $
    2,050
    
    
    $
    2,133
   Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    9,700
    
    
    $
    9,250
    
    
    $
    350
    
    
    $
    400Interest cost
    
    
    15,850
    
    
    
    14,700
    
    
    
    1,950
    
    
    
    2,050Expected return on assets
    
    
    (17,300
    )
    
    
    (16,800
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    6,850
    
    
    
    5,000
    
    
    
    1,350
    
    
    
    1,366Amortization of prior service cost
    
    
    (250
    )
    
    
    (100
    )
    
    
    150
    
    
    
    150Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    300Net periodic benefit cost
    
    $
    14,850
    
    
    $
    12,050
    
    
    $
    4,100
    
    
    $
    4,266
   10




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##### Table of Contents



11. Share-Based Compensation
      12. Acquisitions of Minority Interests
   13. Restructuring and Impairment Charges
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Restructuring charges
    
    $
    140
    
    
    $
    
    
    
    $
    1,498
    
    
    $
    Impairment charges
    
    
    2,783
    
    
    
    105
    
    
    
    2,783
    
    
    
    1,024Total restructuring and impairment charges
    
    $
    2,923
    
    
    $
    105
    
    
    $
    4,281
    
    
    $
    1,024
 Restructuring Charges
  11




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##### Table of Contents



Impairment charges
   14. Discontinued Operations
  15. Other Income, Net
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gain on divestiture
    
    $
    (8,033
    )
    
    $
    
    
    
    $
    (8,033
    )
    
    $
    Gain on sale of investments
    
    
    
    
    
    
    (802
    )
    
    
    (7,837
    )
    
    
    (802
    )Gain on legal settlements
    
    
    
    
    
    
    (548
    )
    
    
    
    
    
    
    (583
    )Total other income, net
    
    $
    (8,033
    )
    
    $
    (1,350
    )
    
    $
    (15,870
    )
    
    $
    (1,385
    )
    16. Segment Information
     12




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13




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Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended June 30, 2006:Net sales
    
    $
    773,188
    
    
    $
    645,840
    
    
    $
    162,589
    
    
    $
    
    
    
    $
    105,304
    
    
    $
    (2,400
    )
    
    $
    1,684,521Cost of sales(1)
    
    
    717,755
    
    
    
    580,777
    
    
    
    140,706
    
    
    
    2
    
    
    
    101,966
    
    
    
    (523
    )
    
    
    1,540,683Selling, general and administrative
    
    
    45,092
    
    
    
    59,324
    
    
    
    15,891
    
    
    
    3,279
    
    
    
    10,196
    
    
    
    1,294
    
    
    
    135,076Restructuring and impairment charges
    
    
    2,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,923Interest expense (income), net
    
    
    8,903
    
    
    
    6,490
    
    
    
    (861
    )
    
    
    (3,351
    )
    
    
    5,092
    
    
    
    (1,031
    )
    
    
    15,242Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,033
    )
    
    
    
    
    
    
    (8,033
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,658
    )
    
    
    (72
    )
    
    
    
    
    
    
    (38,313
    )
    
    
    1,821
    
    
    
    (9
    )
    
    
    (38,231
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410Earnings (loss) before income taxes and
discontinued operations
    
    $
    173
    
    
    $
    (1,089
    )
    
    $
    6,853
    
    
    $
    38,383
    
    
    $
    (5,738
    )
    
    $
    (2,131
    )
    
    $
    36,451For the three months ended June 30, 2005:Net sales
    
    $
    936,273
    
    
    $
    626,890
    
    
    $
    152,607
    
    
    $
    
    
    
    $
    86,271
    
    
    $
    4,618
    
    
    $
    1,806,659Cost of sales(1)
    
    
    894,956
    
    
    
    558,301
    
    
    
    136,068
    
    
    
    
    
    
    
    86,095
    
    
    
    4,277
    
    
    
    1,679,697Selling, general and administrative
    
    
    41,866
    
    
    
    54,325
    
    
    
    13,461
    
    
    
    3,299
    
    
    
    9,190
    
    
    
    729
    
    
    
    122,870Restructuring and impairment charges
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Interest expense (income), net
    
    
    8,502
    
    
    
    6,134
    
    
    
    1,150
    
    
    
    2,148
    
    
    
    3,704
    
    
    
    (818
    )
    
    
    20,820Other income, net
    
    
    (14
    )
    
    
    (1,336
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350
    )Equity in (earnings) loss of affiliated companies
    
    
    (786
    )
    
    
    (235
    )
    
    
    
    
    
    
    (46,925
    )
    
    
    3,354
    
    
    
    1
    
    
    
    (44,591
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380Earnings (loss) before income taxes and
discontinued operations
    
    $
    (8,251
    )
    
    $
    9,216
    
    
    $
    1,928
    
    
    $
    41,478
    
    
    $
    (16,072
    )
    
    $
    429
    
    
    $
    28,728
 Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the six months ended June 30, 2006:Net sales
    
    $
    1,660,363
    
    
    $
    1,338,916
    
    
    $
    551,898
    
    
    $
    
    
    
    $
    213,046
    
    
    $
    (4,786
    )
    
    $
    3,759,437Cost of sales(1)
    
    
    1,562,940
    
    
    
    1,205,522
    
    
    
    469,099
    
    
    
    5
    
    
    
    201,450
    
    
    
    (2,935
    )
    
    
    3,436,081Selling, general and administrative
    
    
    86,353
    
    
    
    118,451
    
    
    
    34,667
    
    
    
    6,750
    
    
    
    19,472
    
    
    
    990
    
    
    
    266,683Restructuring and impairment charges
    
    
    4,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,281Interest expense (income), net
    
    
    17,003
    
    
    
    12,593
    
    
    
    1,017
    
    
    
    (6,484
    )
    
    
    9,620
    
    
    
    (2,009
    )
    
    
    31,740Other income, net
    
    
    (7,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,033
    )
    
    
    
    
    
    
    (15,870
    )Equity in loss (earnings) of affiliated companies
    
    
    368
    
    
    
    (417
    )
    
    
    
    
    
    
    (32,262
    )
    
    
    2,587
    
    
    
    (5
    )
    
    
    (29,729
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585Earnings (loss) before income taxes and
discontinued operations
    
    $
    (2,745
    )
    
    $
    2,182
    
    
    $
    47,115
    
    
    $
    31,991
    
    
    $
    (12,050
    )
    
    $
    (827
    )
    
    $
    65,666For the six months ended June 30, 2005:Net sales
    
    $
    1,891,169
    
    
    $
    1,257,556
    
    
    $
    490,050
    
    
    $
    
    
    
    $
    191,513
    
    
    $
    7,605
    
    
    $
    3,837,893Cost of sales(1)
    
    
    1,801,935
    
    
    
    1,109,325
    
    
    
    428,197
    
    
    
    
    
    
    
    183,216
    
    
    
    6,289
    
    
    
    3,528,962Selling, general and administrative
    
    
    82,628
    
    
    
    117,687
    
    
    
    28,795
    
    
    
    7,052
    
    
    
    18,698
    
    
    
    1,236
    
    
    
    256,096Restructuring and impairment charges
    
    
    863
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    1,024Interest expense (income), net
    
    
    16,872
    
    
    
    13,779
    
    
    
    2,431
    
    
    
    4,394
    
    
    
    6,917
    
    
    
    (1,331
    )
    
    
    43,062Other income, net
    
    
    (14
    )
    
    
    (1,371
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,385
    )Equity in (earnings) loss of affiliated companies
    
    
    (2,116
    )
    
    
    (769
    )
    
    
    
    
    
    
    (45,937
    )
    
    
    5,037
    
    
    
    6
    
    
    
    (43,779
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    817Earnings (loss) before income taxes and
discontinued operations
    
    $
    (8,999
    )
    
    $
    17,983
    
    
    $
    30,627
    
    
    $
    34,491
    
    
    $
    (22,355
    )
    
    $
    1,349
    
    
    $
    53,096
 
 (1)
    
    Cost of sales includes unrealized
hedging losses (gains) of: Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended: June 30, 2006
    
    $
    (2,147
    )
    
    $
    134
    
    
    $
    (454
    )
    
    $
    
    
    
    $
    
    
    
    $
    229
    
    
    $
    (2,238
    )For the three months ended: June 30, 2005
    
    
    603
    
    
    
    (1,565
    )
    
    
    26
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    (1,029
    )For the six months ended: June 30, 2006
    
    
    (2,589
    )
    
    
    253
    
    
    
    (193
    )
    
    
    
    
    
    
    (262
    )
    
    
    282
    
    
    
    (2,509
    )For the six months ended: June 30, 2005
    
    
    106
    
    
    
    (5,153
    )
    
    
    401
    
    
    
    
    
    
    
    (1,014
    )
    
    
    
    
    
    
    (5,660
    )
  14




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##### Table of Contents



17. Unusual Event
  18. Consolidating Financial Information
     15




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
June 30, 2006
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,843
    
    
    $
    20,667
    
    
    $
    3,163
    
    
    $
    
    
    
    $
    42,673Receivables, net
    
    
    239,117
    
    
    
    181,457
    
    
    
    111,589
    
    
    
    (36,073
    )
    
    
    496,090Intercompany
receivable, net
    
    
    72,429
    
    
    
    
    
    
    
    
    
    
    
    (72,429
    )
    
    
    Inventories
    
    
    241,209
    
    
    
    167,345
    
    
    
    38,434
    
    
    
    
    
    
    
    446,988Prepaid expenses
    
    
    14,052
    
    
    
    8,113
    
    
    
    2,771
    
    
    
    
    
    
    
    24,936Other current assets
    
    
    28,277
    
    
    
    8,070
    
    
    
    2,895
    
    
    
    
    
    
    
    39,242Total current assets
    
    
    613,927
    
    
    
    385,652
    
    
    
    158,852
    
    
    
    (108,502
    )
    
    
    1,049,929Investments
    
    
    1,078,090
    
    
    
    42,546
    
    
    
    6,313
    
    
    
    (833,642
    )
    
    
    293,307Property, plant and equipment, net
    
    
    177,627
    
    
    
    385,631
    
    
    
    94,353
    
    
    
    
    
    
    
    657,611Goodwill, net
    
    
    208,303
    
    
    
    82,440
    
    
    
    43,383
    
    
    
    
    
    
    
    334,126Other intangibles, net
    
    
    3,560
    
    
    
    89,256
    
    
    
    2,138
    
    
    
    
    
    
    
    94,954Other assets
    
    
    26,954
    
    
    
    36,372
    
    
    
    43,491
    
    
    
    (3,359
    )
    
    
    103,458Total assets
    
    $
    2,108,461
    
    
    $
    1,021,897
    
    
    $
    348,530
    
    
    $
    (945,503
    )
    
    $
    2,533,385LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,049
    
    
    $
    82,097
    
    
    $
    (30,342
    )
    
    $
    54,804Current portion of long-term debt and
obligations under capital lease
    
    
    450
    
    
    
    396
    
    
    
    4,383
    
    
    
    
    
    
    
    5,229Accounts payable
    
    
    344,967
    
    
    
    151,187
    
    
    
    30,494
    
    
    
    (8,911
    )
    
    
    517,737Intercompany
payable, net
    
    
    
    
    
    
    72,221
    
    
    
    208
    
    
    
    (72,429
    )
    
    
    Accrued expenses
    
    
    88,251
    
    
    
    78,420
    
    
    
    23,955
    
    
    
    (179
    )
    
    
    190,447Patronage refunds and other member equities
payable
    
    
    11,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,105Total current liabilities
    
    
    444,773
    
    
    
    305,273
    
    
    
    141,137
    
    
    
    (111,861
    )
    
    
    779,322Long-term debt and obligations under capital lease
    
    
    583,533
    
    
    
    10,731
    
    
    
    36,633
    
    
    
    
    
    
    
    630,897Employee benefits and other liabilities
    
    
    140,357
    
    
    
    27,198
    
    
    
    7,204
    
    
    
    
    
    
    
    174,759Minority interests
    
    
    
    
    
    
    4,782
    
    
    
    3,827
    
    
    
    
    
    
    
    8,609Equities:Capital stock
    
    
    1,893
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,893Additional
paid-in capital
    
    
    
    
    
    
    502,928
    
    
    
    91,459
    
    
    
    (594,387
    )
    
    
    Member equities
    
    
    906,617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    906,617Accumulated other comprehensive loss
    
    
    (74,679
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,679
    )Retained earnings
    
    
    105,967
    
    
    
    170,885
    
    
    
    68,233
    
    
    
    (239,118
    )
    
    
    105,967Total equities
    
    
    939,798
    
    
    
    673,913
    
    
    
    159,729
    
    
    
    (833,642
    )
    
    
    939,798Commitments and contingenciesTotal liabilities and equities
    
    $
    2,108,461
    
    
    $
    1,021,897
    
    
    $
    348,530
    
    
    $
    (945,503
    )
    
    $
    2,533,385
 16




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Three months ended June 30, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    759,534
    
    
    $
    793,265
    
    
    $
    131,722
    
    
    $
    
    
    
    $
    1,684,521Cost of sales
    
    
    690,502
    
    
    
    722,607
    
    
    
    127,574
    
    
    
    
    
    
    
    1,540,683Gross profit
    
    
    69,032
    
    
    
    70,658
    
    
    
    4,148
    
    
    
    
    
    
    
    143,838Selling, general and administrative
    
    
    61,499
    
    
    
    63,832
    
    
    
    9,745
    
    
    
    
    
    
    
    135,076Restructuring and impairment charges
    
    
    2,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,923Earnings (loss) from operations
    
    
    4,610
    
    
    
    6,826
    
    
    
    (5,597
    )
    
    
    
    
    
    
    5,839Interest expense, net
    
    
    13,898
    
    
    
    675
    
    
    
    669
    
    
    
    
    
    
    
    15,242Other (income) expense, net
    
    
    12,872
    
    
    
    
    
    
    
    (20,905
    )
    
    
    
    
    
    
    (8,033
    )Equity in (earnings) loss of affiliated companies
    
    
    (58,144
    )
    
    
    (70
    )
    
    
    1,821
    
    
    
    18,162
    
    
    
    (38,231
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    410
    
    
    
    
    
    
    
    410Earnings (loss) before income taxes
    
    
    35,984
    
    
    
    6,221
    
    
    
    12,408
    
    
    
    (18,162
    )
    
    
    36,451Income tax expense (benefit)
    
    
    1,232
    
    
    
    473
    
    
    
    (6
    )
    
    
    
    
    
    
    1,699Net earnings (loss)
    
    $
    34,752
    
    
    $
    5,748
    
    
    $
    12,414
    
    
    $
    (18,162
    )
    
    $
    34,752
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Six months ended June 30, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,849,412
    
    
    $
    1,652,078
    
    
    $
    257,947
    
    
    $
    
    
    
    $
    3,759,437Cost of sales
    
    
    1,687,127
    
    
    
    1,504,228
    
    
    
    244,726
    
    
    
    
    
    
    
    3,436,081Gross profit
    
    
    162,285
    
    
    
    147,850
    
    
    
    13,221
    
    
    
    
    
    
    
    323,356Selling, general and administrative
    
    
    121,090
    
    
    
    127,016
    
    
    
    18,577
    
    
    
    
    
    
    
    266,683Restructuring and impairment charges
    
    
    4,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,281Earnings (loss) from operations
    
    
    36,914
    
    
    
    20,834
    
    
    
    (5,356
    )
    
    
    
    
    
    
    52,392Interest expense, net
    
    
    26,619
    
    
    
    3,665
    
    
    
    1,456
    
    
    
    
    
    
    
    31,740Other (income) expense, net
    
    
    5,035
    
    
    
    
    
    
    
    (20,905
    )
    
    
    
    
    
    
    (15,870
    )Equity in (earnings) loss of affiliated companies
    
    
    (59,993
    )
    
    
    (380
    )
    
    
    2,587
    
    
    
    28,057
    
    
    
    (29,729
    )Minority interest in earnings (loss) of subsidiaries
    
    
    (61
    )
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    585Earnings (loss) before income taxes
    
    
    65,314
    
    
    
    17,549
    
    
    
    10,860
    
    
    
    (28,057
    )
    
    
    65,666Income tax expense (benefit)
    
    
    4,450
    
    
    
    626
    
    
    
    (274
    )
    
    
    
    
    
    
    4,802Net earnings (loss)
    
    $
    60,864
    
    
    $
    16,923
    
    
    $
    11,134
    
    
    $
    (28,057
    )
    
    $
    60,864
 18




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
 For the Six months ended June 30, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    60,864
    
    
    $
    16,923
    
    
    $
    11,134
    
    
    $
    (28,057
    )
    
    $
    60,864Adjustments to reconcile net earnings (loss) to netcash
provided (used) by operating activities:Depreciation and amortization
    
    
    25,046
    
    
    
    17,616
    
    
    
    4,880
    
    
    
    
    
    
    
    47,542Amortization of deferred financing costs
    
    
    1,158
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    1,198Bad debt expense
    
    
    578
    
    
    
    238
    
    
    
    263
    
    
    
    
    
    
    
    1,079Proceeds from patronage revolvement received
    
    
    4,956
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4,960Non-cash patronage income
    
    
    (761
    )
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (819
    )Deferred income tax expense
    
    
    12,306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,306Decrease (increase) in other assets
    
    
    1,448
    
    
    
    (3,543
    )
    
    
    5,577
    
    
    
    4,885
    
    
    
    8,367Increase (decrease) in other liabilities
    
    
    377
    
    
    
    
    
    
    
    (165
    )
    
    
    
    
    
    
    212Restructuring and impairment charges
    
    
    4,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,281Loss (gain) on divestiture of business
    
    
    12,872
    
    
    
    
    
    
    
    (20,905
    )
    
    
    
    
    
    
    (8,033
    )Gain on sale of investment
    
    
    (7,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,837
    )Equity in (earnings) loss of affiliated companies
    
    
    (59,993
    )
    
    
    (380
    )
    
    
    2,587
    
    
    
    28,057
    
    
    
    (29,729
    )Minority interests
    
    
    (61
    )
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    585Other
    
    
    (720
    )
    
    
    (30
    )
    
    
    1,635
    
    
    
    
    
    
    
    885Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    103,784
    
    
    
    (2,730
    )
    
    
    (242
    )
    
    
    (5,734
    )
    
    
    95,078Inventories
    
    
    (1,037
    )
    
    
    6,504
    
    
    
    464
    
    
    
    
    
    
    
    5,931Other current assets
    
    
    301,931
    
    
    
    4,058
    
    
    
    380
    
    
    
    
    
    
    
    306,369Accounts payable
    
    
    (449,672
    )
    
    
    (1,619
    )
    
    
    (13,848
    )
    
    
    5,442
    
    
    
    (459,697
    )Accrued expenses
    
    
    (8,091
    )
    
    
    (1,519
    )
    
    
    6,842
    
    
    
    653
    
    
    
    (2,115
    )Net cash
provided (used) by operating activities
    
    
    1,429
    
    
    
    35,504
    
    
    
    (752
    )
    
    
    5,246
    
    
    
    41,427Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (11,944
    )
    
    
    (13,013
    )
    
    
    (8,679
    )
    
    
    
    
    
    
    (33,636
    )Acquisitions
    
    
    (84,187
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,187
    )Payments for investments
    
    
    (22,778
    )
    
    
    
    
    
    
    (1,700
    )
    
    
    22,000
    
    
    
    (2,478
    )Proceeds from sale of investments
    
    
    7,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,837Net proceeds from divestiture of business
    
    
    
    
    
    
    
    
    
    
    28,655
    
    
    
    
    
    
    
    28,655Proceeds from sale of property, plant and equipment
    
    
    141
    
    
    
    237
    
    
    
    495
    
    
    
    
    
    
    
    873Dividends from investments in affiliated companies
    
    
    1,703
    
    
    
    587
    
    
    
    900
    
    
    
    
    
    
    
    3,190Other
    
    
    2,059
    
    
    
    (3,144
    )
    
    
    (23
    )
    
    
    
    
    
    
    (1,108
    )Net cash (used) provided by investing activities
    
    
    (107,169
    )
    
    
    (15,333
    )
    
    
    19,648
    
    
    
    22,000
    
    
    
    (80,854
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    9,816
    
    
    
    780
    
    
    
    (27,387
    )
    
    
    (5,246
    )
    
    
    (22,037
    )Proceeds from issuance of long-term debt
    
    
    1,549
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    1,999Principal payments on long-term debt and capital
lease obligations
    
    
    (471
    )
    
    
    (284
    )
    
    
    (33,055
    )
    
    
    
    
    
    
    (33,810
    )Payments for redemption of member equities
    
    
    (42,897
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,897
    )Other
    
    
    (512
    )
    
    
    
    
    
    
    22,000
    
    
    
    (22,000
    )
    
    
    (512
    )Net cash (used) provided by financing activities
    
    
    (32,515
    )
    
    
    496
    
    
    
    (37,992
    )
    
    
    (27,246
    )
    
    
    (97,257
    )Net cash used by operating activities of
discontinued operations
    
    
    (347
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (347
    )Net (decrease) increase in cash and cash equivalents
    
    
    (138,602
    )
    
    
    20,667
    
    
    
    (19,096
    )
    
    
    
    
    
    
    (137,031
    )Cash and cash equivalents at beginning of period
    
    
    157,445
    
    
    
    
    
    
    
    22,259
    
    
    
    
    
    
    
    179,704Cash and cash equivalents at end of period
    
    $
    18,843
    
    
    $
    20,667
    
    
    $
    3,163
    
    
    $
    
    
    
    $
    42,673
 19




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##### Table of Contents



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




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Three months ended June 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    866,033
    
    
    $
    730,223
    
    
    $
    210,403
    
    
    $
    
    
    
    $
    1,806,659Cost of sales
    
    
    814,251
    
    
    
    657,993
    
    
    
    207,453
    
    
    
    
    
    
    
    1,679,697Gross profit
    
    
    51,782
    
    
    
    72,230
    
    
    
    2,950
    
    
    
    
    
    
    
    126,962Selling, general and administrative
    
    
    55,188
    
    
    
    56,939
    
    
    
    10,743
    
    
    
    
    
    
    
    122,870Restructuring and impairment
charges
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105(Loss) earnings from operations
    
    
    (3,406
    )
    
    
    15,186
    
    
    
    (7,793
    )
    
    
    
    
    
    
    3,987Interest expense (income), net
    
    
    19,840
    
    
    
    (1,168
    )
    
    
    2,148
    
    
    
    
    
    
    
    20,820Other income, net
    
    
    (549
    )
    
    
    (801
    )
    
    
    
    
    
    
    
    
    
    
    (1,350
    )Equity in (earnings) loss of
affiliated
companies
    
    
    (52,296
    )
    
    
    (275
    )
    
    
    3,355
    
    
    
    4,625
    
    
    
    (44,591
    )Minority interest in (loss)
earnings of subsidiaries
    
    
    
    
    
    
    (295
    )
    
    
    675
    
    
    
    
    
    
    
    380Earnings (loss) before income taxes
and discontinued operations
    
    
    29,599
    
    
    
    17,725
    
    
    
    (13,971
    )
    
    
    (4,625
    )
    
    
    28,728Income tax expense (benefit)
    
    
    3,724
    
    
    
    20
    
    
    
    (891
    )
    
    
    
    
    
    
    2,853Net earnings (loss) from continuing
operations
    
    
    25,875
    
    
    
    17,705
    
    
    
    (13,080
    )
    
    
    (4,625
    )
    
    
    25,875Loss from discontinued operations,
net of income taxes
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )Net earnings (loss)
    
    $
    25,847
    
    
    $
    17,705
    
    
    $
    (13,080
    )
    
    $
    (4,625
    )
    
    $
    25,847
 21




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Six months ended June 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,947,428
    
    
    $
    1,460,625
    
    
    $
    429,840
    
    
    $
    
    
    
    $
    3,837,893Cost of sales
    
    
    1,810,123
    
    
    
    1,303,277
    
    
    
    415,562
    
    
    
    
    
    
    
    3,528,962Gross profit
    
    
    137,305
    
    
    
    157,348
    
    
    
    14,278
    
    
    
    
    
    
    
    308,931Selling, general and administrative
    
    
    111,481
    
    
    
    122,456
    
    
    
    22,159
    
    
    
    
    
    
    
    256,096Restructuring and impairment charges
    
    
    919
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    1,024Earnings (loss) from operations
    
    
    24,905
    
    
    
    34,787
    
    
    
    (7,881
    )
    
    
    
    
    
    
    51,811Interest expense (income), net
    
    
    39,794
    
    
    
    (740
    )
    
    
    4,008
    
    
    
    
    
    
    
    43,062Other income, net
    
    
    (577
    )
    
    
    (808
    )
    
    
    
    
    
    
    
    
    
    
    (1,385
    )Equity in (earnings) loss of
affiliated companies
    
    
    (68,614
    )
    
    
    (795
    )
    
    
    5,037
    
    
    
    20,593
    
    
    
    (43,779
    )Minority interest in earnings of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    817Earnings (loss) before income taxes
and discontinued operations
    
    
    54,302
    
    
    
    37,130
    
    
    
    (17,743
    )
    
    
    (20,593
    )
    
    
    53,096Income tax expense (benefit)
    
    
    6,172
    
    
    
    184
    
    
    
    (1,390
    )
    
    
    
    
    
    
    4,966Net earnings (loss) from continuing
operations
    
    
    48,130
    
    
    
    36,946
    
    
    
    (16,353
    )
    
    
    (20,593
    )
    
    
    48,130Earnings from discontinued
operations, net of income taxes
    
    
    2,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,013Net earnings (loss)
    
    $
    50,143
    
    
    $
    36,946
    
    
    $
    (16,353
    )
    
    $
    (20,593
    )
    
    $
    50,143
 22




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six months ended June 30, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    50,143
    
    
    $
    36,946
    
    
    $
    (16,353
    )
    
    $
    (20,593
    )
    
    $
    50,143Earnings from discontinued operations, net of
income taxes
    
    
    (2,013
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,013
    )Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operating activities:Depreciation and amortization
    
    
    33,495
    
    
    
    7,275
    
    
    
    9,183
    
    
    
    
    
    
    
    49,953Amortization of deferred financing costs
    
    
    3,231
    
    
    
    
    
    
    
    621
    
    
    
    
    
    
    
    3,852Bad debt expense
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Proceeds from patronage revolvement received
    
    
    2,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,057Non-cash patronage income
    
    
    (274
    )
    
    
    (465
    )
    
    
    
    
    
    
    
    
    
    
    (739
    )Deferred income tax expense
    
    
    1,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,026Decrease (increase) in other assets
    
    
    9,395
    
    
    
    (368
    )
    
    
    (5,138
    )
    
    
    3,819
    
    
    
    7,708Increase (decrease) in other liabilities
    
    
    6,856
    
    
    
    (483
    )
    
    
    (3,463
    )
    
    
    
    
    
    
    2,910Restructuring and impairment charges
    
    
    919
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    1,024Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (802
    )Equity in (earnings) loss of affiliated companies
    
    
    (68,614
    )
    
    
    (795
    )
    
    
    5,037
    
    
    
    20,593
    
    
    
    (43,779
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    817Other
    
    
    (1,206
    )
    
    
    (72
    )
    
    
    2,075
    
    
    
    
    
    
    
    797Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (176,521
    )
    
    
    101,853
    
    
    
    20,820
    
    
    
    137,030
    
    
    
    83,182Inventories
    
    
    (45,115
    )
    
    
    4,377
    
    
    
    (3,905
    )
    
    
    
    
    
    
    (44,643
    )Other current assets
    
    
    251,262
    
    
    
    3,411
    
    
    
    (628
    )
    
    
    
    
    
    
    254,045Accounts payable
    
    
    (332,290
    )
    
    
    61,780
    
    
    
    (10,062
    )
    
    
    1,625
    
    
    
    (278,947
    )Accrued expenses
    
    
    22,076
    
    
    
    11,634
    
    
    
    3,647
    
    
    
    
    
    
    
    37,357Net cash (used) provided by operating activities
    
    
    (245,628
    )
    
    
    225,198
    
    
    
    2,651
    
    
    
    142,474
    
    
    
    124,695Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (19,906
    )
    
    
    (2,005
    )
    
    
    (4,106
    )
    
    
    
    
    
    
    (26,017
    )Acquisitions
    
    
    (30,106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,106
    )Payments for investments
    
    
    (7,571
    )
    
    
    
    
    
    
    (2,850
    )
    
    
    7,500
    
    
    
    (2,921
    )Proceeds from the sale of investments
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Proceeds from divestiture of businesses
    
    
    
    
    
    
    
    
    
    
    2,635
    
    
    
    
    
    
    
    2,635Proceeds from sale of property, plant and equipment
    
    
    1,151
    
    
    
    1,670
    
    
    
    4
    
    
    
    
    
    
    
    2,825Dividends from investments in affiliated companies
    
    
    2,902
    
    
    
    430
    
    
    
    678
    
    
    
    
    
    
    
    4,010Other
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101Net cash (used) provided by investing activities
    
    
    (53,429
    )
    
    
    1,095
    
    
    
    (3,639
    )
    
    
    7,500
    
    
    
    (48,473
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    146,759
    
    
    
    929
    
    
    
    (11,877
    )
    
    
    (142,474
    )
    
    
    (6,663
    )Proceeds from issuance of long-term debt
    
    
    1,481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,481Principal payments on long-term debt and capital
lease obligations
    
    
    (80,908
    )
    
    
    (38,296
    )
    
    
    (9,402
    )
    
    
    
    
    
    
    (128,606
    )Distribution to members
    
    
    183,830
    
    
    
    (183,830
    )
    
    
    
    
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (33,683
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,683
    )Other
    
    
    (1,468
    )
    
    
    
    
    
    
    8,501
    
    
    
    (7,500
    )
    
    
    (467
    )Net cash provided (used) by financing activities
    
    
    216,011
    
    
    
    (221,197
    )
    
    
    (12,778
    )
    
    
    (149,974
    )
    
    
    (167,938
    )Net cash provided by operating activities of
discontinued operations
    
    
    3,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,676Net cash provided by investing activities of
discontinued operations
    
    
    42,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,135Net (decrease) increase in cash
    
    
    (37,235
    )
    
    
    5,096
    
    
    
    (13,766
    )
    
    
    
    
    
    
    (45,905
    )Cash and cash equivalents at beginning of period
    
    
    65,129
    
    
    
    (16,643
    )
    
    
    24,650
    
    
    
    
    
    
    
    73,136Cash and cash equivalents at end of period
    
    $
    27,894
    
    
    $
    (11,547
    )
    
    $
    10,884
    
    
    $
    
    
    
    $
    27,231
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussions of financial condition and results of operations
together with the financial statements and the notes to such statements included elsewhere in this
Form 10-Q.
 Overview
 General
    Unconsolidated Businesses
  For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005(in millions)Earnings from unconsolidated businesses
    
    $
    38.2
    
    
    $
    44.6
    
    
    $
    29.7
    
    
    $
    43.8Cash flow from investments in unconsolidated businesses
    
    
    0.5
    
    
    
    1.8
    
    
    
    3.2
    
    
    
    4.0
    24




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##### Table of Contents



For the three months
    
    For the six monthsended June 30,
    
    ended June 30,2006
    
    2005
    
    2006
    
    2005(in millions)Equity in earnings from Agriliance
    
    $
    37.7
    
    
    $
    46.3
    
    
    $
    32.4
    
    
    $
    46.4Cash distributions from Agriliance
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
     Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
  25




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##### Table of Contents



For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Per pound market price average:Butter
    
    $
    1.17
    
    
    $
    1.47
    
    
    $
    1.21
    
    
    $
    1.52Block cheese
    
    
    1.18
    
    
    
    1.51
    
    
    
    1.21
    
    
    
    1.53
  Feed.
     26




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##### Table of Contents



Layers.
 Derivative Commodity Instruments
  For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005(in millions)
    
    (in millions)Unrealized hedging gain
    
    $
    2.5
    
    
    $
    1.0
    
    
    $
    2.6
    
    
    $
    5.3
 Results of Operations
 Three months ended June 30, 2006 as compared to three months ended June 30, 2005
 Overview of Results
 For the three months ended June 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Net earnings
    
    $
    34.8
    
    
    $
    25.8
    
    
    $
    9.0
  Net sales
    
    $
    1,684.5
    
    
    $
    1,806.7
    
    
    $
    (122.2
    )
  Gross profit
    
    $
    143.8
    
    
    $
    127.0
    
    
    $
    16.8
  Selling, general and administrative expense
    
    $
    135.1
    
    
    $
    122.9
    
    
    $
    12.2
  27




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##### Table of Contents



For the three months ended June 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Restructuring and impairment charges
    
    $
    2.9
    
    
    $
    0.1
    
    
    $
    2.8
  Interest expense, net
    
    $
    15.2
    
    
    $
    20.8
    
    
    $
    (5.6
    )
  Equity in earnings of affiliated companies
    
    $
    38.2
    
    
    $
    44.6
    
    
    $
    (6.4
    )
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended June 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    773.2
    
    
    $
    936.3
    
    
    
    (17.4
    )%Gross profit
    
    
    55.4
    
    
    
    41.3
    
    
    
    34.1
    %Gross profit % of net
sales
    
    
    7.2
    %
    
    
    4.4
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    (181.4
    )Volume impact
    
    
    18.3Total decrease
    
    $
    (163.1
    )
  28




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##### Table of Contents



Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    9.9Volume impact
    
    
    1.4Unrealized hedging
    
    
    2.8Total increase
    
    $
    14.1
  Feed
 For the three months ended June 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    645.8
    
    
    $
    626.9
    
    
    
    3.0
    %Gross profit
    
    
    65.1
    
    
    
    68.6
    
    
    
    (5.1
    )%Gross profit % of net sales
    
    
    10.1
    %
    
    
    10.9
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    0.8Volume impact
    
    
    5.6Acquisitions and divestitures
    
    
    12.5Total increase
    
    $
    18.9
  Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    (2.3
    )Volume impact
    
    
    1.3Unrealized hedging
    
    
    (1.7
    )Acquisitions and divestitures
    
    
    (0.8
    )Total decrease
    
    $
    (3.5
    )
 29




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##### Table of Contents



Seed
 For the three months ended June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % changeNet sales
    
    $
    162.6
    
    
    $
    152.6
    
    
    
    6.6
    %Gross profit
    
    
    21.9
    
    
    
    16.5
    
    
    
    32.7
    %Gross profit % of net
sales
    
    
    13.5
    %
    
    
    10.8
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    10.6Volume impact
    
    
    (1.6
    )Acquisitions and divestitures
    
    
    1.0Total increase
    
    $
    10.0
  Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    5.4Volume impact
    
    
    (0.9
    )Unrealized hedging
    
    
    0.5Acquisitions and divestitures
    
    
    0.4Total increase
    
    $
    5.4
 ®
 Layers
 For the three months ended June 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    105.3
    
    
    $
    86.3
    
    
    
    
    
    
    
    22.0
    %Gross profit
    
    
    3.3
    
    
    
    0.2
    
    
    
    
    
    
    
    1,550.0
    %Gross profit %
of net sales
    
    
    3.1
    %
    
    
    0.2
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    11.5Volume impact
    
    
    7.5Total increase
    
    $
    19.0
  30




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Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    3.2Volume impact
    
    
    0.0Unrealized hedging
    
    
    (0.1
    )Total increase
    
    $
    3.1
  Six months ended June 30, 2006 as compared to six months ended June 30, 2005
  For the six months ended June 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Net earnings
    
    $
    60.9
    
    
    $
    50.1
    
    
    $
    10.8
  Net sales
    
    $
    3,759.4
    
    
    $
    3,837.9
    
    
    $
    (78.5
    )
  Gross profit
    
    $
    323.4
    
    
    $
    308.9
    
    
    $
    14.5
  Selling, general and administrative expense
    
    $
    266.7
    
    
    $
    256.1
    
    
    $
    10.6
  Restructuring and impairment charges
    
    $
    4.3
    
    
    $
    1.0
    
    
    $
    3.3
  Interest expense, net
    
    $
    31.7
    
    
    $
    43.1
    
    
    $
    (11.4
    )
  31




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For the six months ended June 30,Increase2006
    
    2005
    
    (Decrease)(In millions)Equity in earnings of affiliated companies
    
    $
    29.7
    
    
    $
    43.8
    
    
    $
    (14.1
    )
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the six months ended June 30,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    1,660.4
    
    
    $
    1,891.2
    
    
    
    (12.2
    )%Gross profit
    
    
    97.4
    
    
    
    89.2
    
    
    
    9.2
    %Gross profit % of net
sales
    
    
    5.9
    %
    
    
    4.7
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    (253.8
    )Volume impact
    
    
    23.0Total decrease
    
    $
    (230.8
    )
  32




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##### Table of Contents



Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    0.0Volume impact
    
    
    5.5Unrealized hedging
    
    
    2.7Total increase
    
    $
    8.2
  Feed
 For the six months ended June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % changeNet sales
    
    $
    1,338.9
    
    
    $
    1,257.6
    
    
    
    6.5
    %Gross profit
    
    
    133.4
    
    
    
    148.2
    
    
    
    (10.0
    )%Gross profit % of net sales
    
    
    10.0
    %
    
    
    11.8
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    40.3Volume impact
    
    
    21.7Acquisitions and divestitures
    
    
    19.3Total increase
    
    $
    81.3
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    (10.7
    )Volume impact
    
    
    2.7Unrealized hedging
    
    
    (5.4
    )Acquisitions and divestitures
    
    
    (1.4
    )Total decrease
    
    $
    (14.8
    )
  33




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##### Table of Contents



Seed
 For the six months ended June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % changeNet sales
    
    $
    551.9
    
    
    $
    490.1
    
    
    
    12.6
    %Gross profit
    
    
    82.8
    
    
    
    61.9
    
    
    
    33.8
    %Gross profit % of net
sales
    
    
    15.0
    %
    
    
    12.6
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    11.7Volume impact
    
    
    46.4Acquisitions and divestitures
    
    
    3.7Total increase
    
    $
    61.8
  Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    12.8Volume impact
    
    
    5.9Unrealized hedging
    
    
    0.6Acquisitions and divestitures
    
    
    1.6Total increase
    
    $
    20.9
 ®
 Layers
 For the six months ended June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % changeNet sales
    
    $
    213.0
    
    
    $
    191.5
    
    
    
    11.2
    %Gross profit
    
    
    11.6
    
    
    
    8.3
    
    
    
    39.8
    %Gross profit %
of net sales
    
    
    5.4
    %
    
    
    4.3
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    16.1Volume impact
    
    
    5.4Total increase
    
    $
    21.5
  34




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##### Table of Contents



Layers
 Gross
Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    4.4Volume impact
    
    
    (0.3
    )Unrealized hedging
    
    
    (0.8
    )Total increase
    
    $
    3.3
  Liquidity and Capital Resources
 Overview
          As of June 30,
    
    
    As of June 30,
    
    
    As of December 31,2006
    
    
    2005
    
    
    2005($ in millions)Cash and cash equivalents
    
    $
    42.7
    
    
    $
    27.8
    (*)
    
    $
    179.7Availability on revolving credit facility
    
    
    149.4
    
    
    
    144.1
    
    
    
    147.6Availability on receivable securitization program
    
    
    155.0
    
    
    
    170.0
    
    
    
    200.0Total liquidity
    
    $
    347.1
    
    
    $
    341.9
    
    
    $
    527.3
 
 (*)
    
    Excludes restricted cash of $20 million. 35




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##### Table of Contents



Cash Flows
  Operating Activities
 For the Six Months EndedJune 30,2006
    
    
    2005(in millions)Net earnings
    
    $
    60.9
    
    
    $
    50.1Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2.0
    )Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    47.5
    
    
    
    49.9Amortization of deferred financing costs
    
    
    1.2
    
    
    
    3.8Bad debt expense
    
    
    1.1
    
    
    
    0.7Proceeds from patronage revolvement received
    
    
    4.9
    
    
    
    2.1Non-cash patronage income
    
    
    (0.8
    )
    
    
    (0.7
    )Deferred income tax expense
    
    
    12.3
    
    
    
    1.0Decrease in other assets
    
    
    8.4
    
    
    
    7.7Increase in other liabilities
    
    
    0.2
    
    
    
    2.9Restructuring and impairment charges
    
    
    4.3
    
    
    
    1.0Gain on divestiture of business
    
    
    (8.0
    )
    
    
    Gain on sale of investment
    
    
    (7.8
    )
    
    
    (0.8
    )Equity in earnings of affiliated companies
    
    
    (29.7
    )
    
    
    (43.8
    )Minority interests
    
    
    0.6
    
    
    
    0.8Other
    
    
    0.9
    
    
    
    0.8Changes in current assets and liabilities, net of divestitures
    
    
    (54.6
    )
    
    
    51.2Net cash provided by operating activities
    
    $
    41.4
    
    
    $
    124.7
  Investing Activities
 For the Six Months EndedJune 30,2006
    
    
    2005(in millions)Additions to property, plant and equipment
    
    $
    (33.6
    )
    
    $
    (26.0
    )Acquisitions
    
    
    (84.2
    )
    
    
    (30.1
    )Payments for investments
    
    
    (2.5
    )
    
    
    (2.9
    )Net proceeds from divestiture of business
    
    
    28.7
    
    
    
    2.6Proceeds from sale of investments
    
    
    7.8
    
    
    
    1.0Proceeds from sale of property, plant and equipment
    
    
    0.8
    
    
    
    2.8Dividends from investments in affiliated companies
    
    
    3.2
    
    
    
    4.0Other
    
    
    (1.1
    )
    
    
    0.1Net cash used by investing activities
    
    $
    (80.9
    )
    
    $
    (48.5
    )
   36




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##### Table of Contents



Financing Activities
 For the Six Months EndedJune 30,2006
    
    
    2005(in millions)Decrease in short-term debt
    
    $
    (22.0
    )
    
    $
    (6.7
    )Proceeds from issuance of long-term debt
    
    
    1.9
    
    
    
    1.5Principal payments on long-term debt and capital lease obligations
    
    
    (33.8
    )
    
    
    (128.6
    )Payments for redemption of member equities
    
    
    (42.9
    )
    
    
    (33.7
    )Other
    
    
    (0.5
    )
    
    
    (0.4
    )Net cash used by financing activities
    
    $
    (97.3
    )
    
    $
    (167.9
    )
    Principal Debt Facilities
      37




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Off-Balance Sheet Arrangements
  Capital Leases
  Recent Accounting Pronouncements
  38




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##### Table of Contents



How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation)
    Critical Accounting Policies
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  39




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Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
    40




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 5. Other Information
  41




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##### Table of Contents



Item 6. Exhibits
 (a) Exhibits
 EXHIBIT
    
    DESCRIPTION3.1
    
    Restated Articles of Incorporation of Land OLakes, Inc., as amended, August 1998. (1)3.2
    
    By-Laws of Land OLakes Inc., as amended, February 2003. (1)10.1
    
    Asset Sale and Purchase Agreement dated May 23, 2006 between Moark, LLC, Cutler at
Abbeville, L.L.C., Hi Point Industries, LLC, L & W Egg Products, Inc., Norco Ranch,
Inc., and Moark Egg Corporation (together, the Seller) and Golden Oval Eggs, LLC and
GOECA, LP (together, the Buyer)*31.1
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*
 
 (1)
    
    Incorporated by reference to an exhibit to the registrants Registration Statement on Form
S-4 filed April 28, 2004.*
    
    Filed electronically herewith 42




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