##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended March 31, 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
    www.landolakesinc.com




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##### 



INDEX
 PagePart I. Financial Information
    
    
    3Item I. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II Other Information
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35Certification 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)
 March 31,
    
    
    December 31,2006
    
    
    2005($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    37,641
    
    
    $
    179,704Receivables, net
    
    
    610,017
    
    
    
    591,445Inventories
    
    
    454,664
    
    
    
    453,135Prepaid expenses
    
    
    62,726
    
    
    
    333,023Other current assets
    
    
    79,216
    
    
    
    81,075Total current assets
    
    
    1,244,264
    
    
    
    1,638,382Investments
    
    
    245,045
    
    
    
    263,786Property, plant and equipment, net
    
    
    660,677
    
    
    
    668,650Goodwill, net
    
    
    337,167
    
    
    
    327,059Other intangibles, net
    
    
    95,847
    
    
    
    96,767Other assets
    
    
    96,125
    
    
    
    100,414Total assets
    
    $
    2,679,125
    
    
    $
    3,095,058LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    74,051
    
    
    $
    76,465Current portion of long-term debt and obligations under capital lease
    
    
    18,309
    
    
    
    23,921Accounts payable
    
    
    624,580
    
    
    
    976,959Accrued expenses
    
    
    192,214
    
    
    
    265,924Patronage refunds and other member equities payable
    
    
    28,629
    
    
    
    29,622Total current liabilities
    
    
    937,783
    
    
    
    1,372,891Long-term debt and obligations under capital lease
    
    
    644,512
    
    
    
    646,802Employee benefits and other liabilities
    
    
    173,356
    
    
    
    165,796Minority interests
    
    
    8,599
    
    
    
    6,012Equities:Capital stock
    
    
    1,936
    
    
    
    1,967Member equities
    
    
    899,561
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (75,037
    )
    
    
    (75,163
    )Retained earnings
    
    
    88,415
    
    
    
    83,235Total equities
    
    
    914,875
    
    
    
    903,557Commitments and contingenciesTotal liabilities and equities
    
    $
    2,679,125
    
    
    $
    3,095,058
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months EndedMarch 31,2006
    
    
    2005($ in thousands)Net sales
    
    $
    2,074,916
    
    
    $
    2,031,234Cost of sales
    
    
    1,895,398
    
    
    
    1,849,265Gross profit
    
    
    179,518
    
    
    
    181,969Selling, general and administrative
    
    
    131,607
    
    
    
    133,226Restructuring and impairment charges
    
    
    1,358
    
    
    
    919Earnings from operations
    
    
    46,553
    
    
    
    47,824Interest expense, net
    
    
    16,498
    
    
    
    22,242Other income, net
    
    
    (7,837
    )
    
    
    (35
    )Equity in loss of affiliated companies
    
    
    8,502
    
    
    
    812Minority interest in earnings of subsidiaries
    
    
    175
    
    
    
    437Earnings before income taxes and discontinued operations
    
    
    29,215
    
    
    
    24,368Income tax expense
    
    
    3,103
    
    
    
    2,113Earnings from continuing operations
    
    
    26,112
    
    
    
    22,255Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    2,041Net earnings
    
    $
    26,112
    
    
    $
    24,296Applied to:Member equitiesAllocated patronage
    
    $
    24,389
    
    
    $
    21,539Deferred equities
    
    
    (3,311
    )
    
    
    (1,660
    )21,078
    
    
    
    19,879Retained earnings
    
    
    5,034
    
    
    
    4,417$
    26,112
    
    
    $
    24,296
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Three Months EndedMarch 31,2006
    
    
    2005($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    26,112
    
    
    $
    24,296Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2,041
    )Adjustments to reconcile net earnings to net cash (used) provided by operating activities:Depreciation and amortization
    
    
    23,711
    
    
    
    24,714Amortization of deferred financing costs
    
    
    599
    
    
    
    3,014Bad debt expense
    
    
    211
    
    
    
    193Proceeds from patronage revolvement received
    
    
    4,953
    
    
    
    749Non-cash patronage income
    
    
    (359
    )
    
    
    (677
    )Deferred income tax expense
    
    
    2,686
    
    
    
    2,415Decrease in other assets
    
    
    6,625
    
    
    
    4,639Decrease in other liabilities
    
    
    (567
    )
    
    
    (548
    )Restructuring and impairment charges
    
    
    1,358
    
    
    
    919Gain on sale of investment
    
    
    (7,837
    )
    
    
    Equity in loss of affiliated companies
    
    
    8,502
    
    
    
    812Minority interests
    
    
    175
    
    
    
    437Other
    
    
    1,181
    
    
    
    240Changes in current assets and liabilities, net of divestitures:Receivables
    
    
    (19,888
    )
    
    
    28,055Inventories
    
    
    (500
    )
    
    
    (24,954
    )Other current assets
    
    
    276,416
    
    
    
    234,077Accounts payable
    
    
    (354,890
    )
    
    
    (219,762
    )Accrued expenses
    
    
    2,301
    
    
    
    20,759Net cash (used) provided by operating activities
    
    
    (29,211
    )
    
    
    97,337Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (13,468
    )
    
    
    (10,441
    )Acquisitions
    
    
    (84,187
    )
    
    
    (30,106
    )Payments for investments
    
    
    (800
    )
    
    
    (44
    )Proceeds from sale of investments
    
    
    7,837
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    664
    
    
    
    1,708Dividends from investments in affiliated companies
    
    
    2,645
    
    
    
    2,248Other
    
    
    (350
    )
    
    
    (308
    )Net cash used by investing activities
    
    
    (87,659
    )
    
    
    (36,943
    )Cash flows from financing activities:Decrease in short-term debt
    
    
    (2,791
    )
    
    
    (4,554
    )Proceeds from issuance of long-term debt
    
    
    1,449
    
    
    
    812Principal payments on long-term debt and capital lease obligations
    
    
    (7,682
    )
    
    
    (123,038
    )Payments for redemption of member equities
    
    
    (15,816
    )
    
    
    (19,279
    )Other
    
    
    (41
    )
    
    
    (413
    )Net cash used by financing activities
    
    
    (24,881
    )
    
    
    (146,472
    )Net cash
(used) provided by operating activities of discontinued
operations (revised)
    
    
    (312
    )
    
    
    9,951Net cash provided by investing
activities of discontinued operations (revised)
    
    
    
    
    
    
    42,135Net decrease in cash and cash equivalents
    
    
    (142,063
    )
    
    
    (33,992
    )Cash and cash equivalents at beginning of the period
    
    
    179,704
    
    
    
    73,136Cash and cash equivalents at end of the period
    
    $
    37,641
    
    
    $
    39,144Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    10,023
    
    
    $
    12,606Income taxes recovered
    
    $
    (392
    )
    
    $
    (650
    )
  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
   Accounting Estimates
  2. Receivables
  March 31,
    
    
    December 31,2006
    
    
    2005Trade accounts
    
    $
    95,066
    
    
    $
    95,040Notes and contracts
    
    
    51,347
    
    
    
    90,119Notes from sale of trade receivables (see Note 3)
    
    
    403,988
    
    
    
    369,429Other
    
    
    73,603
    
    
    
    51,167624,004
    
    
    
    605,755Less allowance for doubtful accounts
    
    
    13,987
    
    
    
    14,310Total receivables, net
    
    $
    610,017
    
    
    $
    591,445
   6




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##### Table of Contents



3. Receivables Purchase Facility
  4. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    148,616
    
    
    $
    148,560Work in process
    
    
    2,208
    
    
    
    2,297Finished goods
    
    
    303,840
    
    
    
    302,278Total inventories
    
    $
    454,664
    
    
    $
    453,135
 5. Investments
  March 31,
    
    
    December 31,2006
    
    
    2005Agriliance LLC
    
    $
    107,549
    
    
    $
    112,932Ag Processing Inc.
    
    
    35,944
    
    
    
    35,831Advanced Food Products, LLC
    
    
    31,157
    
    
    
    31,904Agronomy Company of Canada Ltd.
    
    
    13,834
    
    
    
    14,464CoBank, ACB
    
    
    6,047
    
    
    
    10,688Universal Cooperatives, Inc.
    
    
    7,766
    
    
    
    7,716Melrose Dairy Proteins, LLC
    
    
    5,039
    
    
    
    7,495Prairie Farms Dairy, Inc.
    
    
    4,342
    
    
    
    4,315Other  principally cooperatives and joint ventures
    
    
    33,367
    
    
    
    38,441Total investments
    
    $
    245,045
    
    
    $
    263,786
 6. Goodwill and Other Intangible Assets
 Goodwill
  March 31,
    
    
    December 31,2006
    
    
    2005Feed
    
    $
    127,248
    
    
    $
    115,593Layers
    
    
    79,567
    
    
    
    79,567Dairy Foods
    
    
    69,904
    
    
    
    69,904Agronomy
    
    
    50,029
    
    
    
    51,566Seed
    
    
    10,419
    
    
    
    10,429Total goodwill
    
    $
    337,167
    
    
    $
    327,059
  7




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##### Table of Contents



Other Intangible Assets
  March 31,
    
    
    December 31,2006
    
    
    2005Amortized other intangible assets:Patents, less accumulated amortization of $5,197 and $4,909, respectively
    
    $
    11,514
    
    
    $
    11,802Trademarks, less accumulated amortization of $2,189 and $2,078, respectively
    
    
    1,781
    
    
    
    1,892Other intangible assets, less accumulated amortization of $9,063 and $8,543, respectively
    
    
    5,927
    
    
    
    6,448Total amortized other intangible assets
    
    
    19,222
    
    
    
    20,142Total non-amortized other intangible assets  trademarks and dealer network
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    95,847
    
    
    $
    96,767
  7. Debt Obligations
   March 31,
    
    
    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 (7.63% weighted average)
    
    
    57,166
    
    
    
    59,136Industrial development revenue bonds and other secured notes payable  due 2006 through 2016 (3.21% to 6.00%)
    
    
    14,887
    
    
    
    14,893Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700Capital lease obligations
    
    
    8,937
    
    
    
    9,310Other debt
    
    
    19,679
    
    
    
    25,232662,821
    
    
    
    670,723Less current portion
    
    
    18,309
    
    
    
    23,921Total long-term debt
    
    $
    644,512
    
    
    $
    646,802
   8




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##### Table of Contents



8. Other Comprehensive Income
  Three Months EndedMarch 31,2006
    
    
    2005Net earnings
    
    $
    26,112
    
    
    $
    24,296Unrealized gain (loss) on available-for-sale-investment securities
    
    
    32
    
    
    
    (11
    )Foreign currency translation adjustment
    
    
    94
    
    
    
    1,194Total comprehensive income
    
    $
    26,238
    
    
    $
    25,479
 9. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    4,850
    
    
    $
    4,625
    
    
    $
    175
    
    
    $
    200Interest cost
    
    
    7,925
    
    
    
    7,350
    
    
    
    975
    
    
    
    1,025Expected return on assets
    
    
    (8,650
    )
    
    
    (8,400
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    3,425
    
    
    
    2,500
    
    
    
    675
    
    
    
    683Amortization of prior service cost
    
    
    (125
    )
    
    
    (50
    )
    
    
    75
    
    
    
    75Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    150Net periodic benefit cost
    
    $
    7,425
    
    
    $
    6,025
    
    
    $
    2,050
    
    
    $
    2,133
   10. Share-Based Compensation
    9




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##### Table of Contents



11. Acquisitions of Minority Interests
   12. Restructuring and Impairment Charges
  Three Months EndedMarch 31,2006
    
    
    2005Restructuring charges
    
    $
    1,358
    
    
    $
    Impairment charges
    
    
    
    
    
    
    919Total restructuring and impairment charges
    
    $
    1,358
    
    
    $
    919
 Restructuring Charges
  Impairment charges
  13. Assets and Liabilities Held for Sale
  14. Discontinued Operations
  15. Other Income, Net
 Three Months EndedMarch 31,2006
    
    
    2005Gain on sale of investments
    
    $
    (7,837
    )
    
    $
    Gain on legal settlement
    
    
    
    
    
    
    (35
    )Total other income, net
    
    $
    (7,837
    )
    
    $
    (35
    )
 10




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##### Table of Contents



16. Segment Information
        Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended March 31, 2006:Net sales
    
    $
    887,175
    
    
    $
    693,076
    
    
    $
    389,309
    
    
    $
    
    
    
    $
    107,742
    
    
    $
    (2,386
    )
    
    $
    2,074,916Cost of sales(1)
    
    
    845,185
    
    
    
    624,744
    
    
    
    328,393
    
    
    
    3
    
    
    
    99,484
    
    
    
    (2,411
    )
    
    
    1,895,398Selling, 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 loss (earnings) of affiliated companies
    
    
    2,026
    
    
    
    (345
    )
    
    
    
    
    
    
    6,051
    
    
    
    766
    
    
    
    4
    
    
    
    8,502Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175Earnings (loss) before income taxes and
discontinued operations
    
    $
    (2,917
    )
    
    $
    3,271
    
    
    $
    40,263
    
    
    $
    (6,391
    )
    
    $
    (6,313
    )
    
    $
    1,302
    
    
    $
    29,215For the three months ended March 31, 2005:Net sales
    
    $
    954,895
    
    
    $
    630,665
    
    
    $
    337,443
    
    
    $
    
    
    
    $
    105,242
    
    
    $
    2,989
    
    
    $
    2,031,234Cost of sales(1)
    
    
    906,979
    
    
    
    551,024
    
    
    
    292,128
    
    
    
    
    
    
    
    97,122
    
    
    
    2,012
    
    
    
    1,849,265Selling, general and administrative
    
    
    40,762
    
    
    
    63,361
    
    
    
    15,334
    
    
    
    3,753
    
    
    
    9,508
    
    
    
    508
    
    
    
    133,226Restructuring and impairment charges
    
    
    863
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    919Interest expense (income), net
    
    
    8,370
    
    
    
    7,644
    
    
    
    1,281
    
    
    
    2,246
    
    
    
    3,213
    
    
    
    (512
    )
    
    
    22,242Other income, net
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,331
    )
    
    
    (533
    )
    
    
    
    
    
    
    988
    
    
    
    1,682
    
    
    
    6
    
    
    
    812Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437Earnings (loss) before income taxes and
discontinued operations
    
    $
    (748
    )
    
    $
    8,767
    
    
    $
    28,700
    
    
    $
    (6,987
    )
    
    $
    (6,283
    )
    
    $
    919
    
    
    $
    24,368
 (1) Cost of sales includes unrealized hedging
(gains) losses of:2006
    
    $
    (442
    )
    
    $
    119
    
    
    $
    261
    
    
    $
    
    
    
    $
    (262
    )
    
    $
    53
    
    
    $
    (271
    )2005
    
    $
    (496
    )
    
    $
    (3,588
    )
    
    $
    375
    
    
    $
    
    
    
    $
    (923
    )
    
    $
    
    
    
    $
    (4,632
    )
  11




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##### Table of Contents



17. Unusual Event
  18. Subsequent Event
  19. Consolidating Financial Information
     12




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
March 31, 2006
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,436
    
    
    $
    
    
    
    $
    8,205
    
    
    $
    
    
    
    $
    37,641Receivables, net
    
    
    358,509
    
    
    
    183,232
    
    
    
    93,182
    
    
    
    (24,906
    )
    
    
    610,017Inventories
    
    
    241,995
    
    
    
    173,414
    
    
    
    39,255
    
    
    
    
    
    
    
    454,664Prepaid expenses
    
    
    38,994
    
    
    
    20,917
    
    
    
    2,815
    
    
    
    
    
    
    
    62,726Other current assets
    
    
    35,752
    
    
    
    4,542
    
    
    
    38,922
    
    
    
    
    
    
    
    79,216Total current assets
    
    
    704,686
    
    
    
    382,105
    
    
    
    182,379
    
    
    
    (24,906
    )
    
    
    1,244,264Investments
    
    
    1,017,042
    
    
    
    40,124
    
    
    
    7,211
    
    
    
    (819,332
    )
    
    
    245,045Property, plant and equipment, net
    
    
    179,252
    
    
    
    388,282
    
    
    
    93,143
    
    
    
    
    
    
    
    660,677Goodwill, net
    
    
    211,202
    
    
    
    82,554
    
    
    
    43,411
    
    
    
    
    
    
    
    337,167Other intangibles, net
    
    
    3,876
    
    
    
    89,762
    
    
    
    2,209
    
    
    
    
    
    
    
    95,847Other assets
    
    
    19,363
    
    
    
    36,223
    
    
    
    43,838
    
    
    
    (3,299
    )
    
    
    96,125Total assets
    
    $
    2,135,421
    
    
    $
    1,019,050
    
    
    $
    372,191
    
    
    $
    (847,537
    )
    
    $
    2,679,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,071
    
    
    $
    95,349
    
    
    $
    (24,369
    )
    
    $
    74,051Current portion of long-term debt and obligations
under capital lease
    
    
    1,566
    
    
    
    385
    
    
    
    16,358
    
    
    
    
    
    
    
    18,309Accounts payable
    
    
    369,515
    
    
    
    230,694
    
    
    
    27,824
    
    
    
    (3,453
    )
    
    
    624,580Accrued expenses
    
    
    101,512
    
    
    
    76,984
    
    
    
    14,101
    
    
    
    (383
    )
    
    
    192,214Patronage refunds and other member equities payable
    
    
    28,629
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,629Total current liabilities
    
    
    501,222
    
    
    
    311,134
    
    
    
    153,632
    
    
    
    (28,205
    )
    
    
    937,783Long-term debt and obligations under capital lease
    
    
    583,669
    
    
    
    10,744
    
    
    
    50,099
    
    
    
    
    
    
    
    644,512Employee
benefits and other liabilities
    
    
    135,655
    
    
    
    27,148
    
    
    
    10,553
    
    
    
    
    
    
    
    173,356Minority interests
    
    
    
    
    
    
    4,851
    
    
    
    3,748
    
    
    
    
    
    
    
    8,599Equities:Capital stock
    
    
    1,936
    
    
    
    499,082
    
    
    
    19,726
    
    
    
    (518,808
    )
    
    
    1,936Member equities
    
    
    899,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    899,561Accumulated other comprehensive loss
    
    
    (75,037
    )
    
    
    (404
    )
    
    
    
    
    
    
    404
    
    
    
    (75,037
    )Retained earnings
    
    
    88,415
    
    
    
    166,495
    
    
    
    134,433
    
    
    
    (300,928
    )
    
    
    88,415Total equities
    
    
    914,875
    
    
    
    665,173
    
    
    
    154,159
    
    
    
    (819,332
    )
    
    
    914,875Commitments and contingenciesTotal liabilities and equities
    
    $
    2,135,421
    
    
    $
    1,019,050
    
    
    $
    372,191
    
    
    $
    (847,537
    )
    
    $
    2,679,125
 13




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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
    
    $
    1,089,878
    
    
    $
    858,813
    
    
    $
    126,225
    
    
    $
    
    
    
    $
    2,074,916Cost of sales
    
    
    996,625
    
    
    
    781,621
    
    
    
    117,152
    
    
    
    
    
    
    
    1,895,398Gross 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 of subsidiaries
    
    
    (61
    )
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    175Earnings (loss) before income taxes and discontinued
operations
    
    
    29,330
    
    
    
    11,328
    
    
    
    (1,548
    )
    
    
    (9,895
    )
    
    
    29,215Income tax expense (benefit)
    
    
    3,218
    
    
    
    153
    
    
    
    (268
    )
    
    
    
    
    
    
    3,103Earnings (loss) from continuing operations
    
    
    26,112
    
    
    
    11,175
    
    
    
    (1,280
    )
    
    
    (9,895
    )
    
    
    26,112Net earnings (loss)
    
    $
    26,112
    
    
    $
    11,175
    
    
    $
    (1,280
    )
    
    $
    (9,895
    )
    
    $
    26,112
 14




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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
 LandO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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,686Decrease (increase) 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
    
    
    
    8,502Minority 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
    
    
    (55,167
    )
    
    
    4,342
    
    
    
    10,395
    
    
    
    11,219
    
    
    
    (29,211
    )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
    
    
    
    
    
    
    
    664Dividends from investments in affiliated companies
    
    
    1,425
    
    
    
    320
    
    
    
    900
    
    
    
    
    
    
    
    2,645Other
    
    
    175
    
    
    
    3,663
    
    
    
    
    
    
    
    (4,188
    )
    
    
    (350
    )Net cash used by investing activities
    
    
    (79,647
    )
    
    
    (674
    )
    
    
    (3,150
    )
    
    
    (4,188
    )
    
    
    (87,659
    )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 and capital
lease obligations
    
    
    (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
    
    
    (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
 15




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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
    )
    
    
    591,445Inventories
    
    
    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
    
    
    1,075,360
    
    
    
    379,446
    
    
    
    213,915
    
    
    
    (30,339
    )
    
    
    1,638,382Investments
    
    
    1,019,020
    
    
    
    43,743
    
    
    
    8,077
    
    
    
    (807,054
    )
    
    
    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
    
    $
    2,510,232
    
    
    $
    1,018,904
    
    
    $
    411,559
    
    
    $
    (845,637
    )
    
    $
    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
    
    
    692,907
    
    
    
    242,397
    
    
    
    45,124
    
    
    
    (3,469
    )
    
    
    976,959Accrued expenses
    
    
    168,397
    
    
    
    79,940
    
    
    
    17,113
    
    
    
    474
    
    
    
    265,924Patronage refunds and other member equities
payable
    
    
    29,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,622Total current liabilities
    
    
    897,885
    
    
    
    324,996
    
    
    
    188,593
    
    
    
    (38,583
    )
    
    
    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
    
    
    
    497,811
    
    
    
    15,974
    
    
    
    (513,785
    )
    
    
    1,967Member equities
    
    
    893,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (75,163
    )
    
    
    (460
    )
    
    
    
    
    
    
    460
    
    
    
    (75,163
    )Retained earnings
    
    
    83,235
    
    
    
    157,627
    
    
    
    136,102
    
    
    
    (293,729
    )
    
    
    83,235Total equities
    
    
    903,557
    
    
    
    654,978
    
    
    
    152,076
    
    
    
    (807,054
    )
    
    
    903,557Commitments and contingenciesTotal liabilities
and equities
    
    $
    2,510,232
    
    
    $
    1,018,904
    
    
    $
    411,559
    
    
    $
    (845,637
    )
    
    $
    3,095,058
 16




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,081,395
    
    
    $
    730,402
    
    
    $
    219,437
    
    
    $
    
    
    
    $
    2,031,234Cost of sales
    
    
    995,872
    
    
    
    645,284
    
    
    
    208,109
    
    
    
    
    
    
    
    1,849,265Gross profit
    
    
    85,523
    
    
    
    85,118
    
    
    
    11,328
    
    
    
    
    
    
    
    181,969Selling, general and administrative
    
    
    56,293
    
    
    
    65,517
    
    
    
    11,416
    
    
    
    
    
    
    
    133,226Restructuring and impairment charges
    
    
    919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919Earnings (loss) from operations
    
    
    28,311
    
    
    
    19,601
    
    
    
    (88
    )
    
    
    
    
    
    
    47,824Interest expense, net
    
    
    19,923
    
    
    
    459
    
    
    
    1,860
    
    
    
    
    
    
    
    22,242Other income, net
    
    
    (28
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    (35
    )Equity in
(earnings) loss of affiliated companies
    
    
    (16,287
    )
    
    
    (520
    )
    
    
    1,682
    
    
    
    15,937
    
    
    
    812Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    295
    
    
    
    142
    
    
    
    
    
    
    
    437Earnings (loss) before income taxes and
discontinued operations
    
    
    24,703
    
    
    
    19,374
    
    
    
    (3,772
    )
    
    
    (15,937
    )
    
    
    24,368Income tax (benefit) expense
    
    
    2,448
    
    
    
    164
    
    
    
    (499
    )
    
    
    
    
    
    
    2,113Earnings (loss) from continuing operations
    
    
    22,255
    
    
    
    19,210
    
    
    
    (3,273
    )
    
    
    (15,937
    )
    
    
    22,255Earnings from discontinued operations, net of
income taxes
    
    
    2,041
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,041Net earnings (loss)
    
    $
    24,296
    
    
    $
    19,210
    
    
    $
    (3,273
    )
    
    $
    (15,937
    )
    
    $
    24,296
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2005
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    24,296
    
    
    $
    19,210
    
    
    $
    (3,273
    )
    
    $
    (15,937
    )
    
    $
    24,296Earnings from discontinued operations, net of income taxes
    
    
    (2,041
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,041
    )Adjustments to reconcile net earnings (loss) to net cash
(used) provided by operating activities:Depreciation and amortization
    
    
    11,388
    
    
    
    6,857
    
    
    
    6,469
    
    
    
    
    
    
    
    24,714Amortization of deferred financing costs
    
    
    2,393
    
    
    
    
    
    
    
    621
    
    
    
    
    
    
    
    3,014Bad debt expense
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193Proceeds from patronage revolvement received
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    749Non-cash patronage income
    
    
    (212
    )
    
    
    (465
    )
    
    
    
    
    
    
    
    
    
    
    (677
    )Deferred income tax expense
    
    
    2,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,415Decrease (increase) in other assets
    
    
    13,571
    
    
    
    (1,585
    )
    
    
    (2,318
    )
    
    
    (5,029
    )
    
    
    4,639Decrease in other liabilities
    
    
    (72
    )
    
    
    (222
    )
    
    
    (254
    )
    
    
    
    
    
    
    (548
    )Restructuring and impairment charges
    
    
    919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919Equity in (earnings) loss of affiliated companies
    
    
    (16,287
    )
    
    
    (520
    )
    
    
    1,682
    
    
    
    15,937
    
    
    
    812Minority interests
    
    
    
    
    
    
    295
    
    
    
    142
    
    
    
    
    
    
    
    437Other
    
    
    140
    
    
    
    (73
    )
    
    
    173
    
    
    
    
    
    
    
    240Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (212,621
    )
    
    
    128,708
    
    
    
    3,426
    
    
    
    108,542
    
    
    
    28,055Inventories
    
    
    (24,437
    )
    
    
    4,327
    
    
    
    (4,844
    )
    
    
    
    
    
    
    (24,954
    )Other current assets
    
    
    228,830
    
    
    
    3,022
    
    
    
    2,225
    
    
    
    
    
    
    
    234,077Accounts payable
    
    
    (220,396
    )
    
    
    17,465
    
    
    
    (4,290
    )
    
    
    (12,541
    )
    
    
    (219,762
    )Accrued expenses
    
    
    15,179
    
    
    
    8,508
    
    
    
    (2,928
    )
    
    
    
    
    
    
    20,759Net cash (used) provided by operating activities
    
    
    (175,993
    )
    
    
    185,527
    
    
    
    (3,169
    )
    
    
    90,972
    
    
    
    97,337Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (7,707
    )
    
    
    (2,005
    )
    
    
    (729
    )
    
    
    
    
    
    
    (10,441
    )Acquisitions
    
    
    (30,106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,106
    )Payments for investments
    
    
    (7,523
    )
    
    
    (21
    )
    
    
    
    
    
    
    7,500
    
    
    
    (44
    )Proceeds from sale of property, plant and equipment
    
    
    238
    
    
    
    1,465
    
    
    
    5
    
    
    
    
    
    
    
    1,708Dividends from investments in affiliated companies
    
    
    2,020
    
    
    
    200
    
    
    
    28
    
    
    
    
    
    
    
    2,248Other
    
    
    1,751
    
    
    
    (343
    )
    
    
    (1,716
    )
    
    
    
    
    
    
    (308
    )Net cash (used) provided by investing activities
    
    
    (41,327
    )
    
    
    (704
    )
    
    
    (2,412
    )
    
    
    7,500
    
    
    
    (36,943
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    81,703
    
    
    
    1,149
    
    
    
    3,566
    
    
    
    (90,972
    )
    
    
    (4,554
    )Proceeds from issuance of long-term debt
    
    
    812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812Principal payments on long-term debt and capital lease
obligations
    
    
    (115,485
    )
    
    
    (28
    )
    
    
    (7,525
    )
    
    
    
    
    
    
    (123,038
    )Distribution to members
    
    
    183,830
    
    
    
    (183,830
    )
    
    
    
    
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (19,279
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,279
    )Other
    
    
    (413
    )
    
    
    
    
    
    
    7,500
    
    
    
    (7,500
    )
    
    
    (413
    )Net cash provided (used) by financing activities
    
    
    131,168
    
    
    
    (182,709
    )
    
    
    3,541
    
    
    
    (98,472
    )
    
    
    (146,472
    )Net cash provided by operating activities of discontinued
operations
    
    
    9,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,951Net cash provided by investing activities of discontinued
operations
    
    
    42,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,135Net (decrease) increase in cash
    
    
    (34,066
    )
    
    
    2,114
    
    
    
    (2,040
    )
    
    
    
    
    
    
    (33,992
    )Cash and cash equivalents at beginning of period
    
    
    65,129
    
    
    
    (16,643
    )
    
    
    24,650
    
    
    
    
    
    
    
    73,136Cash and cash equivalents at end of period
    
    $
    31,063
    
    
    $
    (14,529
    )
    
    $
    22,610
    
    
    $
    
    
    
    $
    39,144
 18




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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
March 31,2006
    
    2005(in millions)Loss from unconsolidated businesses
    
    $
    8.5
    
    
    $
    0.8Cash flow from investments in unconsolidated businesses
    
    
    2.6
    
    
    
    2.2
    For
the three months ended
March 31,2006
    
    2005(in millions)Equity in loss (earnings) from Agriliance
    
    $
    5.4
    
    
    $
    (0.1
    )Cash distributions from Agriliance
    
    
    0.0
    
    
    
    0.0
 19




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##### Table of Contents



Seasonality
  Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
  20




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##### Table of Contents



March 31,2006
    
    2005Per pound market price average for three months ended:Butter
    
    $
    1.25
    
    
    $
    1.58Block cheese
    
    
    1.24
    
    
    
    1.54
  Feed.
     Layers.
 21




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##### Table of Contents



Derivative Commodity Instruments
  For the three months endedMarch 31,2006
    
    2005(in millions)Unrealized hedging gain
    
    $
    0.1
    
    
    $
    4.3
 Results of Operations
 Three months ended March 31, 2006 as compared to three months ended March 31, 2005
 Overview of Results
 For the three months ended March 31,Increase2006
    
    2005
    
    (Decrease)(In millions)Net earnings
    
    $
    26.1
    
    
    $
    24.3
    
    
    $
    1.8Increased net earnings were primarily driven by improved volumes and margins in Seed, lower
interest expense and a gain of $7.8 million on the sale of an investment, which was partially
offset by income tax expense on the gain of $1.6 million. Net earnings were negatively impacted by
lower margins in Dairy Foods and Feed, lower earnings from Agriliance and lower unrealized hedging
gains.Net sales
    
    $
    2,074.9
    
    
    $
    2,031.2
    
    
    $
    43.7The increase in net sales was primarily due to higher prices and volumes in Feed and higher
volumes in Seed, partially offset by lower market prices in Dairy Foods. A discussion of net
sales by business segment is found below under the caption Net Sales and Gross Profit by Business
Segment.Gross profit
    
    $
    179.5
    
    
    $
    182.0
    
    
    $
    (2.5
    )Gross profit declined in the three months ended March 31, 2006 due to lower margins in Dairy
Foods and Feed and lower unrealized hedging gains. Partially offsetting the decline were
significantly higher volumes and margins in Seed. A discussion of gross profit by business segment
is found below under the caption Net Sales and Gross Profit by Business Segment.Selling, general and administrative expense
    
    $
    131.6
    
    
    $
    133.2
    
    
    $
    (1.6
    )The decrease in selling, general and administrative expense was mainly due to lower expenses
in the Feed segment, partially offset by higher expenses in Seed due to sales incentives and
incremental personnel costs to support growth programs.
 22




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##### Table of Contents



For the three months ended March 31,Increase2006
    
    2005
    
    (Decrease)(In millions)Restructuring and impairment charges
    
    $
    1.4
    
    
    $
    0.9
    
    
    $
    0.5During the three months ended March 31, 2006, Dairy Foods closed a facility in Greenwood,
Wisconsin and as a result recorded a restructuring charge of $1.4 million related to a contractual
obligation for waste-water treatment. For the three months ended March 31, 2005, Dairy Foods
recorded a $0.9 million charge for the write-down of certain fixed assets to their estimated fair
value.Interest expense, net
    
    $
    16.5
    
    
    $
    22.2
    
    
    $
    (5.7
    )The decrease in interest expense was due to debt reduction efforts in 2005 and lower deferred
financing charges. Partially offsetting these impacts was an increase in average interest rates.
Interest rates on borrowings averaged 8.5% for the three months ended March 31, 2006 compared to
7.0% for the same period in 2005. Deferred financing amortization decreased by $2.4 million for
the three months ended March 31, 2006 compared to the same period in 2005 primarily due to the
acceleration of deferred financing charges for 2005 related to early payments on the Term B loan.Equity in loss of affiliated companies
    
    $
    8.5
    
    
    $
    0.8
    
    
    $
    7.7
 23




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##### Table of Contents



Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended March 31,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    887.2
    
    
    $
    954.9
    
    
    
    (7.1
    )%Gross profit
    
    
    42.0
    
    
    
    47.9
    
    
    
    (12.3
    )%Gross profit % of net sales
    
    
    4.7
    %
    
    
    5.0
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    (72.4
    )Volume impact
    
    
    4.7Total decrease
    
    $
    (67.7
    )
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    (10.0
    )Volume impact
    
    
    4.2Unrealized hedging
    
    
    (0.1
    )Total decrease
    
    $
    (5.9
    )
  24




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##### Table of Contents



Feed
 For the three months ended March 31,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    693.1
    
    
    $
    630.7
    
    
    
    9.9
    %Gross profit
    
    
    68.3
    
    
    
    79.6
    
    
    
    (14.2
    )%Gross profit % of net sales
    
    
    9.9
    %
    
    
    12.6
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    39.5Volume impact
    
    
    16.1Acquisitions and divestitures
    
    
    6.8Total increase
    
    $
    62.4
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    (8.4
    )Volume impact
    
    
    1.4Unrealized hedging
    
    
    (3.7
    )Acquisitions and divestitures
    
    
    (0.6
    )Total decrease
    
    $
    (11.3
    )
  Seed
 For the three months ended March 31,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    389.3
    
    
    $
    337.4
    
    
    
    15.4
    %Gross profit
    
    
    60.9
    
    
    
    45.3
    
    
    
    34.4
    %Gross profit % of net sales
    
    
    15.6
    %
    
    
    13.4
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    1.1Volume impact
    
    
    48.1Acquisitions
    
    
    2.7Total increase
    
    $
    51.9
 25




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##### Table of Contents



Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    7.5Volume impact
    
    
    6.8Unrealized hedging
    
    
    0.1Acquisitions
    
    
    1.2Total increase
    
    $
    15.6
  Layers
 For the three months ended March 31,($ in millions)
    
    2006
    
    2005
    
    % changeNet sales
    
    $
    107.7
    
    
    $
    105.2
    
    
    
    2.4
    %Gross profit
    
    
    8.3
    
    
    
    8.1
    
    
    
    2.5
    %Gross profit % of net sales
    
    
    7.7
    %
    
    
    7.7
    %
 Net Sales Variance
    
    Increase(decrease)(In millions)Pricing / product mix impact
    
    $
    4.6Volume impact
    
    
    (2.1
    )Total increase
    
    $
    2.5
  Gross Profit Variance
    
    Increase(decrease)(In millions)Margin / product mix impact
    
    $
    1.2Volume impact
    
    
    (0.3
    )Unrealized hedging
    
    
    (0.7
    )Total increase
    
    $
    0.2
  26




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##### Table of Contents



Liquidity and Capital Resources
 Overview
         As of March 31,
    
    
    As of March 31,
    
    
    As of December 31,2006
    
    
    2005
    
    
    2005($ in millions)Cash and cash equivalents
    
    $
    37.6
    
    
    $
    39.1
    
    
    $
    179.7Availability on revolving credit facility
    
    
    149.1
    
    
    
    144.1
    
    
    
    147.6Availability on receivable securitization program
    
    
    160.0
    
    
    
    60.0
    
    
    
    200.0Total liquidity
    
    $
    346.7
    
    
    $
    243.2
    
    
    $
    527.3
  27




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##### Table of Contents



Cash Flows
  Operating Activities
 For the Three Months EndedMarch 31,2006
    
    
    2005(in millions)Net earnings
    
    $
    26.1
    
    
    $
    24.3Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2.0
    )Adjustments to reconcile net earnings to net cash (used) provided by operating
activities:Depreciation and amortization
    
    
    23.7
    
    
    
    24.7Amortization of deferred financing costs
    
    
    0.6
    
    
    
    3.0Bad debt expense
    
    
    0.2
    
    
    
    0.2Proceeds from patronage revolvement received
    
    
    4.9
    
    
    
    0.7Non-cash patronage income
    
    
    (0.4
    )
    
    
    (0.7
    )Deferred income tax expense
    
    
    2.7
    
    
    
    2.4Decrease in other assets
    
    
    6.6
    
    
    
    4.6Decrease in other liabilities
    
    
    (0.6
    )
    
    
    (0.5
    )Restructuring and impairment charges
    
    
    1.4
    
    
    
    0.9Gain on sale of investment
    
    
    (7.8
    )
    
    
    Equity in loss of affiliated companies
    
    
    8.5
    
    
    
    0.8Minority interests
    
    
    0.2
    
    
    
    0.4Other
    
    
    1.1
    
    
    
    0.2Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    (96.4
    )
    
    
    38.3Net cash (used) provided by operating activities
    
    $
    (29.2
    )
    
    $
    97.3
  Investing Activities
 For the Three Months EndedMarch 31,2006
    
    
    2005(in millions)Additions to property, plant and equipment
    
    $
    (13.5
    )
    
    $
    (10.4
    )Acquisitions, net of cash acquired
    
    
    (84.2
    )
    
    
    (30.1
    )Payments for investments
    
    
    (0.8
    )
    
    
    Proceeds from sale of investments
    
    
    7.8
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    0.7
    
    
    
    1.7Dividends from investments in affiliated companies
    
    
    2.6
    
    
    
    2.2Other
    
    
    (0.3
    )
    
    
    (0.3
    )Net cash used by investing activities
    
    $
    (87.7
    )
    
    $
    (36.9
    )
   28




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##### Table of Contents



Financing Activities
 For the Three Months EndedMarch 31,2006
    
    
    2005(in millions)Decrease in short-term debt
    
    $
    (2.8
    )
    
    $
    (4.5
    )Proceeds from issuance of long-term debt
    
    
    1.4
    
    
    
    0.8Principal payments on long-term debt and obligations under capital lease
    
    
    (7.7
    )
    
    
    (123.0
    )Payments for redemption of member equities
    
    
    (15.8
    )
    
    
    (19.3
    )Other
    
    
    
    
    
    
    (0.5
    )Net cash used by financing activities
    
    $
    (24.9
    )
    
    $
    (146.5
    )
    Principal Debt Facilities
     29




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##### Table of Contents



Off-Balance Sheet Arrangements
  Capital Leases
  30




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##### Table of Contents



Recent Accounting Pronouncements
   Critical Accounting Policies
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  31




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##### Table of Contents



(b) Changes in internal controls
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  
    
    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 FLOW.
    
    COMPETITION IN THE INDUSTRY MAY REDUCE OUR SALES AND MARGINS.
    
    OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY WEATHER CONDITIONS.
    
    INCREASED ENERGY AND GAS COSTS COULD INCREASE OUR EXPENSES AND REDUCE OUR PROFITABILTIY.
    
    OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.
 32




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##### Table of Contents




    
    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.
    
    A LOSS OF OUR COOPERATIVE TAX STATUS COULD INCREASE OUR TAX LIABILITY.
    
    OUR SUBSTANTIAL 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 SUBSTANTIAL LEVERAGE, WE WILL BE ABLE TO INCUR MORE DEBT, WHICH MAY
INTENSIFY THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL 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.
    
    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
INTEREST.
    
    THE COLLATERAL PLEDGED IN SUPPORT OF OUR DEBT OBLIGATIONS MAY NOT BE VALUABLE ENOUGH TO
SATISFY ALL THE BORROWINGS SECURED BY THE COLLATERAL
    
    OUR LIMITED ACCESS TO EQUITY MARKETS COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL EQUITY CAPITAL.
    
    OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO POTENTIAL
CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR MARGINS.
    
    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.
 33




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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)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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SIGNATURES
  LAND OLAKES, INC.By:
    /s/ Daniel KnutsonDaniel E. KnutsonSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 35