##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to                    .
 Commission file number 333-84486
 Land OLakes, Inc.
 (Exact name of Registrant as Specified in Its Charter)
 Minnesota
    
    41-0365145(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)4001 Lexington Avenue NorthArden Hills, Minnesota
    
    55112(Address of Principal Executive Offices)
    
    (Zip Code)
 (651) 481-2222  (Registrants Telephone Number, Including Area Code)
 o þ
  o o þ
 o þ
   www.landolakesinc.com




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##### 



INDEX
 PagePart I. Financial Information
    
    
    3Item I. Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006
(unaudited)
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (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
    
    
    39Part II Other Information
    
    
    40Item 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    40Item 6. Exhibits
    
    
    42SIGNATURES
    
    
    43Articles of Incorporation and By-LawsAsset Purchase and Sale AgreementSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 LAND OLAKES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    375,939
    
    
    $
    79,707Receivables, net
    
    
    656,044
    
    
    
    604,580Inventories
    
    
    563,623
    
    
    
    471,934Prepaid expenses
    
    
    23,426
    
    
    
    378,278Other current assets
    
    
    63,577
    
    
    
    50,594Total current assets
    
    
    1,682,609
    
    
    
    1,585,093Investments
    
    
    316,846
    
    
    
    270,202Property, plant and equipment, net
    
    
    512,364
    
    
    
    665,069Goodwill, net
    
    
    309,020
    
    
    
    326,527Other intangibles, net
    
    
    93,591
    
    
    
    95,043Other assets
    
    
    130,677
    
    
    
    113,191Total assets
    
    $
    3,045,107
    
    
    $
    3,055,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    60,483
    
    
    $
    58,300Current portion of long-term debt
    
    
    10,780
    
    
    
    10,972Accounts payable
    
    
    802,369
    
    
    
    994,774Accrued expenses
    
    
    290,347
    
    
    
    206,582Patronage refunds and other member equities payable
    
    
    30,027
    
    
    
    18,626Total current liabilities
    
    
    1,194,006
    
    
    
    1,289,254Long-term debt
    
    
    615,429
    
    
    
    639,059Employee benefits and other liabilities
    
    
    173,410
    
    
    
    173,446Minority interests
    
    
    5,050
    
    
    
    8,830Commitments and contingencies (Note 14)Equities:Capital stock
    
    
    1,754
    
    
    
    1,828Member equities
    
    
    960,950
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (65,229
    )
    
    
    (66,276
    )Retained earnings
    
    
    159,737
    
    
    
    104,801Total equities
    
    
    1,057,212
    
    
    
    944,536Total liabilities and equities
    
    $
    3,045,107
    
    
    $
    3,055,125
  3




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Net sales
    
    $
    2,022,016
    
    
    $
    1,687,305
    
    
    $
    4,204,299
    
    
    $
    3,684,023Cost of sales
    
    
    1,832,600
    
    
    
    1,543,467
    
    
    
    3,797,333
    
    
    
    3,360,667Gross profit
    
    
    189,416
    
    
    
    143,838
    
    
    
    406,966
    
    
    
    323,356Selling, general and administrative
    
    
    147,842
    
    
    
    135,076
    
    
    
    289,853
    
    
    
    266,683Restructuring and impairment charges
    
    
    301
    
    
    
    2,923
    
    
    
    1,689
    
    
    
    4,281Gain on insurance settlement
    
    
    (5,941
    )
    
    
    
    
    
    
    (5,941
    )
    
    
    Earnings from operations
    
    
    47,214
    
    
    
    5,839
    
    
    
    121,365
    
    
    
    52,392Interest expense, net
    
    
    8,894
    
    
    
    15,242
    
    
    
    23,720
    
    
    
    31,740Other income, net
    
    
    (28,482
    )
    
    
    (8,033
    )
    
    
    (28,296
    )
    
    
    (15,870
    )Equity in earnings of affiliated companies
    
    
    (58,169
    )
    
    
    (38,231
    )
    
    
    (65,119
    )
    
    
    (29,729
    )Minority interest in earnings of subsidiaries
    
    
    330
    
    
    
    410
    
    
    
    586
    
    
    
    585Earnings before income taxes
    
    
    124,641
    
    
    
    36,451
    
    
    
    190,474
    
    
    
    65,666Income tax expense
    
    
    20,204
    
    
    
    1,699
    
    
    
    31,100
    
    
    
    4,802Net earnings
    
    $
    104,437
    
    
    $
    34,752
    
    
    $
    159,374
    
    
    $
    60,864Applied to:Member equitiesAllocated patronage
    
    $
    64,395
    
    
    $
    12,629
    
    
    $
    100,861
    
    
    $
    37,018Deferred equities
    
    
    3,833
    
    
    
    3,129
    
    
    
    4,884
    
    
    
    (182
    )68,228
    
    
    
    15,758
    
    
    
    105,745
    
    
    
    36,836Retained earnings
    
    
    36,209
    
    
    
    18,994
    
    
    
    53,629
    
    
    
    24,028$
    104,437
    
    
    $
    34,752
    
    
    $
    159,374
    
    
    $
    60,864
  4




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Six Months EndedJune 30,2007
    
    
    2006($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    159,374
    
    
    $
    60,864Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    40,544
    
    
    
    47,542Amortization of deferred financing costs
    
    
    1,233
    
    
    
    1,198Bad debt expense
    
    
    736
    
    
    
    1,079Proceeds from patronage revolvement received
    
    
    3,075
    
    
    
    4,960Non-cash patronage income
    
    
    (1,018
    )
    
    
    (819
    )Deferred income tax (benefit) expense
    
    
    (22,211
    )
    
    
    12,306(Increase) decrease in other assets
    
    
    (4,511
    )
    
    
    8,367(Decrease) increase in other liabilities
    
    
    (4,367
    )
    
    
    212Insurance recovery  business interruption
    
    
    4,551
    
    
    
    Restructuring and impairment charges
    
    
    1,689
    
    
    
    4,281Gain on divestiture of businesses
    
    
    (28,481
    )
    
    
    (8,033
    )Loss (gain) on sale of investments
    
    
    185
    
    
    
    (7,837
    )Gain on insurance settlement
    
    
    (5,941
    )
    
    
    Equity in earnings of affiliated companies
    
    
    (65,119
    )
    
    
    (29,729
    )Dividends from investments in affiliated companies
    
    
    24,682
    
    
    
    3,190Minority interests
    
    
    586
    
    
    
    585Other
    
    
    (20
    )
    
    
    885Changes in current assets and liabilities, net of divestitures:Receivables
    
    
    (81,979
    )
    
    
    95,078Inventories
    
    
    (112,737
    )
    
    
    5,931Other current assets
    
    
    350,343
    
    
    
    306,369Accounts payable
    
    
    (168,307
    )
    
    
    (459,697
    )Accrued expenses
    
    
    86,693
    
    
    
    (2,115
    )Net cash provided by operating activities
    
    
    179,000
    
    
    
    44,617Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (43,475
    )
    
    
    (33,636
    )Acquisitions
    
    
    (58
    )
    
    
    (84,187
    )Payments for investments
    
    
    (656
    )
    
    
    (2,478
    )Proceeds from sale of investments
    
    
    475
    
    
    
    7,837Net proceeds from divestiture of businesses
    
    
    211,851
    
    
    
    28,655Proceeds from sale of property, plant and equipment
    
    
    4,430
    
    
    
    873Other
    
    
    (957
    )
    
    
    (1,108
    )Net cash provided (used) by investing activities
    
    
    171,610
    
    
    
    (84,044
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    3,712
    
    
    
    (22,037
    )Proceeds from issuance of long-term debt
    
    
    6,153
    
    
    
    1,999Principal payments on long-term debt
    
    
    (28,798
    )
    
    
    (33,810
    )Payments for redemption of member equities
    
    
    (35,265
    )
    
    
    (42,897
    )Other
    
    
    (180
    )
    
    
    (512
    )Net cash used by financing activities
    
    
    (54,378
    )
    
    
    (97,257
    )Net cash used by operating activities of discontinued operations
    
    
    
    
    
    
    (347
    )Net increase (decrease) in cash and cash equivalents
    
    
    296,232
    
    
    
    (137,031
    )Cash and cash equivalents at beginning of the period
    
    
    79,707
    
    
    
    179,704Cash and cash equivalents at end of the period
    
    $
    375,939
    
    
    $
    42,673Supplementary Disclosure of Cash Flow InformationCash paid during periods for:Interest
    
    $
    28,909
    
    
    $
    30,114Income taxes
    
    
    7,694
    
    
    
    896
  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
  6




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##### Table of Contents



2. Receivables
  June 30,
    
    
    December 31,2007
    
    
    2006Trade accounts
    
    $
    458,244
    
    
    $
    469,230Notes and contracts
    
    
    82,884
    
    
    
    73,469Other
    
    
    126,044
    
    
    
    72,435667,172
    
    
    
    615,134Less allowance for doubtful accounts
    
    
    11,128
    
    
    
    10,554Total receivables, net
    
    $
    656,044
    
    
    $
    604,580
   3. Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    166,095
    
    
    $
    152,548Work in process
    
    
    4,308
    
    
    
    3,914Finished goods
    
    
    393,220
    
    
    
    315,472Total inventories
    
    $
    563,623
    
    
    $
    471,934
 4. Investments
  June 30,
    
    
    December 31,2007
    
    
    2006Agriliance LLC
    
    $
    166,917
    
    
    $
    124,719Ag Processing Inc.
    
    
    34,692
    
    
    
    33,975Advanced Food Products, LLC
    
    
    33,064
    
    
    
    32,933Agronomy Company of Canada Ltd.
    
    
    18,262
    
    
    
    16,834Universal Cooperatives, Inc.
    
    
    7,859
    
    
    
    7,986Delta Egg Farm, LLC
    
    
    4,522
    
    
    
    3,890CoBank, ACB
    
    
    4,304
    
    
    
    7,198Prairie Farms Dairy, Inc.
    
    
    3,761
    
    
    
    3,696Golden Oval Eggs, LLC
    
    
    3,526
    
    
    
    4,265Melrose Dairy Proteins, LLC
    
    
    3,281
    
    
    
    5,741Other  principally cooperatives and joint ventures
    
    
    36,658
    
    
    
    28,965Total investments
    
    $
    316,846
    
    
    $
    270,202
 7




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##### Table of Contents



For the three
    
    For the threemonths ended
    
    months endedJune 30,
    
    June 30,2007
    
    2006Net sales
    
    $
    1,918,870
    
    
    $
    1,781,839Gross profit
    
    
    217,626
    
    
    
    165,423Net earnings
    
    
    113,246
    
    
    
    75,478For the six
    
    For the sixmonths ended
    
    months endedJune 30,
    
    June 30,2007
    
    2006Net sales
    
    $
    2,648,015
    
    
    $
    2,407,620Gross profit
    
    
    306,548
    
    
    
    231,278Net earnings
    
    
    123,599
    
    
    
    64,711June 30,
    
    December 31,2007
    
    2006Current assets
    
    $
    1,567,026
    
    
    $
    1,518,133Non-current assets
    
    
    159,170
    
    
    
    164,917Current liabilities
    
    
    1,250,197
    
    
    
    1,302,148Non-current liabilities
    
    
    142,164
    
    
    
    131,465Total equity
    
    
    333,835
    
    
    
    249,437For the six months ended June 30, 2007, the Company received $19.6 million of dividend
distributions from Agriliance compared with $0 for the six months ended June 30, 2006. See note 13
for discussion of the pending acquisition of Agriliances crop protection products business.5. Goodwill and Other Intangible AssetsGoodwillThe carrying amount of goodwill by segment is as follows:June 30,
    
    
    December 31,2007
    
    
    2006Feed
    
    $
    127,684
    
    
    $
    127,893Dairy Foods
    
    
    69,915
    
    
    
    83,799Layers
    
    
    58,631
    
    
    
    58,982Agronomy
    
    
    42,416
    
    
    
    45,461Seed
    
    
    10,374
    
    
    
    10,392Total goodwill
    
    $
    309,020
    
    
    $
    326,527The decrease in Dairy Foods goodwill is primarily due to $13.4 million of goodwill
associated with the April 2007 sale of the Cheese & Protein International, LLC cheese operations.
See Note 12 for further information.Other Intangible AssetsA summary of other intangible assets is as follows:June 30,
    
    
    December 31,2007
    
    
    2006Amortized other intangible assets:Patents, less accumulated amortization of $6,666 and $6,063, respectively
    
    $
    10,045
    
    
    $
    10,648Trademarks, less accumulated amortization of $2,642 and $2,498, respectively
    
    
    1,328
    
    
    
    1,472Other intangible assets, less accumulated amortization of $11,282 and $10,578, respectively
    
    
    5,593
    
    
    
    6,298Total amortized other intangible assets
    
    
    16,966
    
    
    
    18,418Total non-amortized other intangible assets  trademarks and dealer networks
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    93,591
    
    
    $
    95,043
  8




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##### Table of Contents



6. Debt Obligations
 Notes and Short-term Obligations
      Long-term Debt
  June 30,
    
    
    December 31,2007
    
    
    2006Senior unsecured notes  due 2011 (8.75%)
    
    $
    193,743
    
    
    $
    196,452Senior secured notes  due 2010 (9.00%)
    
    
    175,000
    
    
    
    175,000Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700MoArk, LLC debt  due 2007 through 2023 (7.98% weighted average)
    
    
    30,279
    
    
    
    44,004Industrial development revenue bonds and other secured notes
payable  due 2007 through 2016 (3.56% to 6.00%)
    
    
    4,855
    
    
    
    14,868Capital lease obligations (5.22% to 8.95%)
    
    
    6,975
    
    
    
    7,776Other debt
    
    
    24,657
    
    
    
    21,231626,209
    
    
    
    650,031Less current portion
    
    
    10,780
    
    
    
    10,972Total long-term debt
    
    $
    615,429
    
    
    $
    639,059
   9




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##### Table of Contents



7. Other Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net earnings
    
    $
    104,437
    
    
    $
    34,752
    
    
    $
    159,374
    
    
    $
    60,864Unrealized loss on available-for-sale-investment securities
    
    
    
    
    
    
    (90
    )
    
    
    (194
    )
    
    
    (58
    )Foreign currency translation adjustment
    
    
    971
    
    
    
    448
    
    
    
    1,241
    
    
    
    542Total comprehensive income
    
    $
    105,408
    
    
    $
    35,110
    
    
    $
    160,421
    
    
    $
    61,348
 8. Income Taxes
   9. Pension and Other Postretirement Plans
  Other PostretirementPension Benefits
    
    
    Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    3,567
    
    
    $
    4,850
    
    
    $
    183
    
    
    $
    175Interest cost
    
    
    8,296
    
    
    
    7,925
    
    
    
    981
    
    
    
    975Expected return on assets
    
    
    (9,263
    )
    
    
    (8,650
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    3,237
    
    
    
    3,425
    
    
    
    736
    
    
    
    675Amortization of prior service cost
    
    
    (122
    )
    
    
    (125
    )
    
    
    
    
    
    
    75Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    150Net periodic benefit cost
    
    $
    5,715
    
    
    $
    7,425
    
    
    $
    2,007
    
    
    $
    2,050
  10




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##### Table of Contents



Other PostretirementPension Benefits
    
    
    Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    7,133
    
    
    $
    9,700
    
    
    $
    365
    
    
    $
    350Interest cost
    
    
    16,592
    
    
    
    15,850
    
    
    
    1,962
    
    
    
    1,950Expected return on assets
    
    
    (18,526
    )
    
    
    (17,300
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    6,473
    
    
    
    6,850
    
    
    
    1,472
    
    
    
    1,350Amortization of prior service cost
    
    
    (244
    )
    
    
    (250
    )
    
    
    
    
    
    
    150Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    300Net periodic benefit cost
    
    $
    11,428
    
    
    $
    14,850
    
    
    $
    4,013
    
    
    $
    4,100
   10. Restructuring and Impairment Charges
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Restructuring charges
    
    $
    113
    
    
    $
    140
    
    
    $
    379
    
    
    $
    1,498Impairment charges
    
    
    188
    
    
    
    2,783
    
    
    
    1,310
    
    
    
    2,783Total restructuring and impairment charges
    
    $
    301
    
    
    $
    2,923
    
    
    $
    1,689
    
    
    $
    4,281
 Restructuring Charges
   Impairment charges
   11. Gain on Insurance Settlement
  11




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##### Table of Contents



12. Other Income, Net
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gain on divestiture
    
    $
    (28,481
    )
    
    $
    (8,033
    )
    
    $
    (28,481
    )
    
    $
    (8,033
    )Loss (gain) on sale of investments
    
    
    (1
    )
    
    
    
    
    
    
    185
    
    
    
    (7,837
    )Total other income, net
    
    $
    (28,482
    )
    
    $
    (8,033
    )
    
    $
    (28,296
    )
    
    $
    (15,870
    )
    13. Acquisitions and Pending Acquisition
   14. Contingencies
   12




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##### Table of Contents



15. Segment Information
        13




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##### Table of Contents



Other/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminations
    
    
    ConsolidatedFor the three months ended June 30, 2007:Net sales (1)
    
    $
    993,032
    
    
    $
    704,318
    
    
    $
    223,345
    
    
    $
    
    
    
    $
    111,012
    
    
    $
    (9,691
    )
    
    $
    2,022,016Cost of sales (2)
    
    
    906,943
    
    
    
    639,288
    
    
    
    195,090
    
    
    
    (2
    )
    
    
    98,778
    
    
    
    (7,497
    )
    
    
    1,832,600Selling, general and administrative
    
    
    49,740
    
    
    
    63,347
    
    
    
    19,618
    
    
    
    6,811
    
    
    
    7,201
    
    
    
    1,125
    
    
    
    147,842Restructuring and impairment charges
    
    
    42
    
    
    
    71
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Interest expense (income), net
    
    
    4,837
    
    
    
    6,393
    
    
    
    (1,878
    )
    
    
    (2,613
    )
    
    
    3,611
    
    
    
    (1,456
    )
    
    
    8,894Other income, net
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (28,482
    )Equity in loss (earnings) of affiliated companies
    
    
    863
    
    
    
    (398
    )
    
    
    1
    
    
    
    (57,345
    )
    
    
    (1,290
    )
    
    
    
    
    
    
    (58,169
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330Earnings (loss) before income taxes
    
    $
    59,088
    
    
    $
    1,228
    
    
    $
    10,326
    
    
    $
    53,149
    
    
    $
    2,712
    
    
    $
    (1,862
    )
    
    $
    124,641For the three months ended June 30, 2006:Net sales (1)
    
    $
    775,972
    
    
    $
    645,840
    
    
    $
    162,589
    
    
    $
    
    
    
    $
    105,304
    
    
    $
    (2,400
    )
    
    $
    1,687,305Cost of sales (2)
    
    
    720,539
    
    
    
    580,777
    
    
    
    140,706
    
    
    
    2
    
    
    
    101,966
    
    
    
    (523
    )
    
    
    1,543,467Selling, 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
    
    $
    173
    
    
    $
    (1,089
    )
    
    $
    6,853
    
    
    $
    38,383
    
    
    $
    (5,738
    )
    
    $
    (2,131
    )
    
    $
    36,451For the six months ended June 30, 2007:Net sales (1)
    
    $
    1,873,339
    
    
    $
    1,453,114
    
    
    $
    659,390
    
    
    $
    
    
    
    $
    230,942
    
    
    $
    (12,486
    )
    
    $
    4,204,299Cost of sales (2)
    
    
    1,712,061
    
    
    
    1,316,599
    
    
    
    575,309
    
    
    
    (2
    )
    
    
    204,408
    
    
    
    (11,042
    )
    
    
    3,797,333Selling, general and administrative
    
    
    97,680
    
    
    
    123,459
    
    
    
    39,854
    
    
    
    11,612
    
    
    
    15,109
    
    
    
    2,139
    
    
    
    289,853Restructuring and impairment charges
    
    
    109
    
    
    
    595
    
    
    
    688
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    1,689Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Interest expense (income), net
    
    
    11,083
    
    
    
    13,176
    
    
    
    (684
    )
    
    
    (5,064
    )
    
    
    7,923
    
    
    
    (2,714
    )
    
    
    23,720Other income, net
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    (28,296
    )Equity in loss (earnings) of affiliated companies
    
    
    1,358
    
    
    
    (879
    )
    
    
    (54
    )
    
    
    (61,835
    )
    
    
    (3,702
    )
    
    
    (7
    )
    
    
    (65,119
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    586Earnings (loss) before income taxes
    
    $
    79,529
    
    
    $
    5,519
    
    
    $
    44,277
    
    
    $
    55,289
    
    
    $
    6,907
    
    
    $
    (1,047
    )
    
    $
    190,474For the six months ended June 30, 2006:Net sales (1)
    
    $
    1,584,949
    
    
    $
    1,338,916
    
    
    $
    551,898
    
    
    $
    
    
    
    $
    213,046
    
    
    $
    (4,786
    )
    
    $
    3,684,023Cost of sales (2)
    
    
    1,487,526
    
    
    
    1,205,522
    
    
    
    469,099
    
    
    
    5
    
    
    
    201,450
    
    
    
    (2,935
    )
    
    
    3,360,667Selling, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585(Loss) earnings before income taxes
    
    $
    (2,745
    )
    
    $
    2,182
    
    
    $
    47,115
    
    
    $
    31,991
    
    
    $
    (12,050
    )
    
    $
    (827
    )
    
    $
    65,666(1) Net sales includes intersegment sales of:Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    
    ConsolidatedFor the three months ended: June 30, 2007
    
    $
    9,639
    
    
    $
    5,662
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (15,301
    )
    
    $
    For the three months ended: June 30, 2006
    
    
    1,212
    
    
    
    4,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,772
    )
    
    
    For the six months ended: June 30, 2007
    
    
    12,685
    
    
    
    10,733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,418
    )
    
    
    For the six months ended: June 30, 2006
    
    
    2,788
    
    
    
    10,432
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,220
    )
    
    
    (2) Cost of sales includes unrealized
hedging losses (gains) of:Other/Dairy Foods
    
    Feed
    
    Seed
    
    Agronomy
    
    Layers
    
    Eliminations
    
    ConsolidatedFor the three months ended: June 30, 2007
    
    $
    3,953
    
    
    $
    1,391
    
    
    $
    (1,595
    )
    
    $
    
    
    
    $
    (1,643
    )
    
    $
    832
    
    
    $
    2,938For the three months ended: June 30, 2006
    
    
    (2,147
    )
    
    
    134
    
    
    
    (454
    )
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    (2,238
    )For the six months ended: June 30, 2007
    
    
    1,464
    
    
    
    4,277
    
    
    
    406
    
    
    
    
    
    
    
    (144
    )
    
    
    507
    
    
    
    6,510For the six months ended: June 30, 2006
    
    
    (2,589
    )
    
    
    253
    
    
    
    (193
    )
    
    
    
    
    
    
    (262
    )
    
    
    282
    
    
    
    (2,509
    )
  14




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##### Table of Contents



16. Consolidating Financial Information
     15




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
June 30, 2007
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    318,714
    
    
    $
    2,306
    
    
    $
    54,919
    
    
    $
    
    
    
    $
    375,939Receivables, net
    
    
    399,876
    
    
    
    249,107
    
    
    
    410,911
    
    
    
    (403,850
    )
    
    
    656,044Intercompany receivables, net
    
    
    57,819
    
    
    
    
    
    
    
    6,786
    
    
    
    (64,605
    )
    
    
    Inventories
    
    
    330,420
    
    
    
    185,902
    
    
    
    47,301
    
    
    
    
    
    
    
    563,623Prepaid expenses
    
    
    18,306
    
    
    
    3,080
    
    
    
    2,040
    
    
    
    
    
    
    
    23,426Other current assets
    
    
    45,895
    
    
    
    14,524
    
    
    
    3,158
    
    
    
    
    
    
    
    63,577Total current assets
    
    
    1,171,030
    
    
    
    454,919
    
    
    
    525,115
    
    
    
    (468,455
    )
    
    
    1,682,609Investments
    
    
    1,044,526
    
    
    
    51,425
    
    
    
    8,488
    
    
    
    (787,593
    )
    
    
    316,846Property, plant and equipment, net
    
    
    187,884
    
    
    
    239,431
    
    
    
    85,049
    
    
    
    
    
    
    
    512,364Goodwill, net
    
    
    168,676
    
    
    
    81,612
    
    
    
    58,732
    
    
    
    
    
    
    
    309,020Other intangibles, net
    
    
    4,001
    
    
    
    87,683
    
    
    
    1,907
    
    
    
    
    
    
    
    93,591Other assets
    
    
    38,447
    
    
    
    34,962
    
    
    
    60,877
    
    
    
    (3,609
    )
    
    
    130,677Total assets
    
    $
    2,614,564
    
    
    $
    950,032
    
    
    $
    740,168
    
    
    $
    (1,259,657
    )
    
    $
    3,045,107LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,205
    
    
    $
    460,042
    
    
    $
    (402,764
    )
    
    $
    60,483Current portion of long-term debt
    
    
    449
    
    
    
    405
    
    
    
    9,926
    
    
    
    
    
    
    
    10,780Accounts payable
    
    
    636,286
    
    
    
    146,821
    
    
    
    21,420
    
    
    
    (2,158
    )
    
    
    802,369Intercompany payables, net
    
    
    
    
    
    
    64,357
    
    
    
    248
    
    
    
    (64,605
    )
    
    
    Accrued expenses
    
    
    169,640
    
    
    
    102,686
    
    
    
    20,558
    
    
    
    (2,537
    )
    
    
    290,347Patronage refunds and other member equities payable
    
    
    30,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,027Total current liabilities
    
    
    836,402
    
    
    
    317,474
    
    
    
    512,194
    
    
    
    (472,064
    )
    
    
    1,194,006Long-term debt
    
    
    583,966
    
    
    
    846
    
    
    
    30,617
    
    
    
    
    
    
    
    615,429Employee benefits and other liabilities
    
    
    136,984
    
    
    
    29,535
    
    
    
    6,891
    
    
    
    
    
    
    
    173,410Minority interests
    
    
    
    
    
    
    830
    
    
    
    4,220
    
    
    
    
    
    
    
    5,050Commitments and contingenciesEquities:Capital stock
    
    
    1,754
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,754Additional paid-in capital
    
    
    
    
    
    
    319,779
    
    
    
    132,209
    
    
    
    (451,988
    )
    
    
    Member equities
    
    
    960,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960,950Accumulated other comprehensive loss
    
    
    (65,229
    )
    
    
    (49
    )
    
    
    
    
    
    
    49
    
    
    
    (65,229
    )Retained earnings
    
    
    159,737
    
    
    
    281,517
    
    
    
    54,000
    
    
    
    (335,517
    )
    
    
    159,737Total equities
    
    
    1,057,212
    
    
    
    601,347
    
    
    
    186,246
    
    
    
    (787,593
    )
    
    
    1,057,212Total liabilities and equities
    
    $
    2,614,564
    
    
    $
    950,032
    
    
    $
    740,168
    
    
    $
    (1,259,657
    )
    
    $
    3,045,107
 16




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1,119,703
    
    
    $
    762,468
    
    
    $
    139,845
    
    
    $
    
    
    
    $
    2,022,016Cost of sales
    
    
    1,015,199
    
    
    
    690,917
    
    
    
    126,484
    
    
    
    
    
    
    
    1,832,600Gross profit
    
    
    104,504
    
    
    
    71,551
    
    
    
    13,361
    
    
    
    
    
    
    
    189,416Selling, general and administrative
    
    
    73,194
    
    
    
    66,768
    
    
    
    7,880
    
    
    
    
    
    
    
    147,842Restructuring and impairment charges
    
    
    230
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    301Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    31,080
    
    
    
    10,653
    
    
    
    5,481
    
    
    
    
    
    
    
    47,214Interest expense (income), net
    
    
    3,473
    
    
    
    (953
    )
    
    
    6,374
    
    
    
    
    
    
    
    8,894Other income, net
    
    
    (1
    )
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,482
    )Equity in earnings of affiliated companies
    
    
    (96,548
    )
    
    
    (442
    )
    
    
    (1,428
    )
    
    
    40,249
    
    
    
    (58,169
    )Minority interest in earnings of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    330Earnings before income taxes
    
    
    124,156
    
    
    
    40,529
    
    
    
    205
    
    
    
    (40,249
    )
    
    
    124,641Income tax expense
    
    
    19,719
    
    
    
    142
    
    
    
    343
    
    
    
    
    
    
    
    20,204Net earnings (loss)
    
    $
    104,437
    
    
    $
    40,387
    
    
    $
    (138
    )
    
    $
    (40,249
    )
    
    $
    104,437
 17




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    2,218,394
    
    
    $
    1,695,786
    
    
    $
    290,119
    
    
    $
    
    
    
    $
    4,204,299Cost of sales
    
    
    2,000,926
    
    
    
    1,537,171
    
    
    
    259,236
    
    
    
    
    
    
    
    3,797,333Gross profit
    
    
    217,468
    
    
    
    158,615
    
    
    
    30,883
    
    
    
    
    
    
    
    406,966Selling, general and administrative
    
    
    143,069
    
    
    
    130,399
    
    
    
    16,385
    
    
    
    
    
    
    
    289,853Restructuring and impairment charges
    
    
    796
    
    
    
    595
    
    
    
    298
    
    
    
    
    
    
    
    1,689Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    72,867
    
    
    
    33,562
    
    
    
    14,200
    
    
    
    
    
    
    
    121,365Interest expense (income), net
    
    
    18,566
    
    
    
    (1,334
    )
    
    
    6,488
    
    
    
    
    
    
    
    23,720Other expense (income), net
    
    
    185
    
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,296
    )Equity in earnings of affiliated companies
    
    
    (134,500
    )
    
    
    (952
    )
    
    
    (4,441
    )
    
    
    74,774
    
    
    
    (65,119
    )Minority interest in earnings of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    586Earnings before income taxes
    
    
    189,352
    
    
    
    64,329
    
    
    
    11,567
    
    
    
    (74,774
    )
    
    
    190,474Income tax expense
    
    
    29,978
    
    
    
    268
    
    
    
    854
    
    
    
    
    
    
    
    31,100Net earnings
    
    $
    159,374
    
    
    $
    64,061
    
    
    $
    10,713
    
    
    $
    (74,774
    )
    
    $
    159,374
 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, 2007
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    159,374
    
    
    $
    64,061
    
    
    $
    10,713
    
    
    $
    (74,774
    )
    
    $
    159,374Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    20,984
    
    
    
    14,804
    
    
    
    4,756
    
    
    
    
    
    
    
    40,544Amortization of deferred financing costs
    
    
    872
    
    
    
    288
    
    
    
    73
    
    
    
    
    
    
    
    1,233Bad debt expense
    
    
    766
    
    
    
    (41
    )
    
    
    11
    
    
    
    
    
    
    
    736Proceeds from patronage revolvement received
    
    
    3,070
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    3,075Non-cash patronage income
    
    
    (969
    )
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (1,018
    )Deferred income tax expense (benefit)
    
    
    3,560
    
    
    
    (25,771
    )
    
    
    
    
    
    
    
    
    
    
    (22,211
    )(Increase) decrease in other assets
    
    
    (3,708
    )
    
    
    (925
    )
    
    
    
    
    
    
    122
    
    
    
    (4,511
    )Decrease in other liabilities
    
    
    (4,143
    )
    
    
    (224
    )
    
    
    
    
    
    
    
    
    
    
    (4,367
    )Insurance recovery  business interruption
    
    
    
    
    
    
    4,551
    
    
    
    
    
    
    
    
    
    
    
    4,551Restructuring and impairment charges
    
    
    796
    
    
    
    595
    
    
    
    298
    
    
    
    
    
    
    
    1,689Gain on divestiture of business
    
    
    
    
    
    
    (28,481
    )
    
    
    
    
    
    
    
    
    
    
    (28,481
    )Loss on sale of investment
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Equity in earnings of affiliated companies
    
    
    (134,500
    )
    
    
    (952
    )
    
    
    (4,441
    )
    
    
    74,774
    
    
    
    (65,119
    )Dividends from investments in affiliated companies
    
    
    20,424
    
    
    
    183
    
    
    
    4,075
    
    
    
    
    
    
    
    24,682Minority interests
    
    
    
    
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    586Other
    
    
    414
    
    
    
    (196
    )
    
    
    (238
    )
    
    
    
    
    
    
    (20
    )Changes in current assets and liabilities, net of divestitures:Receivables
    
    
    (120,730
    )
    
    
    17,467
    
    
    
    30,079
    
    
    
    (8,795
    )
    
    
    (81,979
    )Inventories
    
    
    (103,187
    )
    
    
    (698
    )
    
    
    (8,852
    )
    
    
    
    
    
    
    (112,737
    )Other current assets
    
    
    332,942
    
    
    
    16,546
    
    
    
    855
    
    
    
    
    
    
    
    350,343Accounts payable
    
    
    (102,011
    )
    
    
    (51,508
    )
    
    
    (9,782
    )
    
    
    (5,006
    )
    
    
    (168,307
    )Accrued expenses
    
    
    81,301
    
    
    
    9,057
    
    
    
    (3,762
    )
    
    
    97
    
    
    
    86,693Net cash provided by operating activities
    
    
    155,440
    
    
    
    12,771
    
    
    
    24,371
    
    
    
    (13,582
    )
    
    
    179,000Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (22,843
    )
    
    
    (17,798
    )
    
    
    (2,834
    )
    
    
    
    
    
    
    (43,475
    )Acquisitions
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )Payments for investments
    
    
    (500
    )
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (656
    )Proceeds from sale of investments
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Net proceeds from divestiture of business
    
    
    211,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211,851Proceeds from sale of property, plant and equipment
    
    
    2,263
    
    
    
    2,111
    
    
    
    56
    
    
    
    
    
    
    
    4,430Other
    
    
    (82
    )
    
    
    (227
    )
    
    
    (648
    )
    
    
    
    
    
    
    (957
    )Net cash provided (used) by investing activities
    
    
    191,106
    
    
    
    (15,914
    )
    
    
    (3,582
    )
    
    
    
    
    
    
    171,610Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (476
    )
    
    
    (101
    )
    
    
    (9,293
    )
    
    
    13,582
    
    
    
    3,712Proceeds from issuance of long-term debt
    
    
    1,983
    
    
    
    930
    
    
    
    3,240
    
    
    
    
    
    
    
    6,153Principal payments on long-term debt
    
    
    (2,872
    )
    
    
    (10,991
    )
    
    
    (14,935
    )
    
    
    
    
    
    
    (28,798
    )Payments for redemption of member equities
    
    
    (35,265
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,265
    )Other
    
    
    (178
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (180
    )Net cash used by financing activities
    
    
    (36,808
    )
    
    
    (10,164
    )
    
    
    (20,988
    )
    
    
    13,582
    
    
    
    (54,378
    )Net increase (decrease) in cash and cash equivalents
    
    
    309,738
    
    
    
    (13,307
    )
    
    
    (199
    )
    
    
    
    
    
    
    296,232Cash and cash equivalents at beginning of period
    
    
    8,976
    
    
    
    15,613
    
    
    
    55,118
    
    
    
    
    
    
    
    79,707Cash and cash equivalents at end of period
    
    $
    318,714
    
    
    $
    2,306
    
    
    $
    54,919
    
    
    $
    
    
    
    $
    375,939
 19




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,976
    
    
    $
    15,613
    
    
    $
    55,118
    
    
    $
    
    
    
    $
    79,707Receivables, net
    
    
    300,803
    
    
    
    266,680
    
    
    
    449,742
    
    
    
    (412,645
    )
    
    
    604,580Intercompany receivables, net
    
    
    77,042
    
    
    
    
    
    
    
    
    
    
    
    (77,042
    )
    
    
    Inventories
    
    
    227,258
    
    
    
    205,021
    
    
    
    39,655
    
    
    
    
    
    
    
    471,934Prepaid expenses
    
    
    367,900
    
    
    
    7,528
    
    
    
    2,850
    
    
    
    
    
    
    
    378,278Other current assets
    
    
    28,192
    
    
    
    19,199
    
    
    
    3,203
    
    
    
    
    
    
    
    50,594Total current assets
    
    
    1,010,171
    
    
    
    514,041
    
    
    
    550,568
    
    
    
    (489,687
    )
    
    
    1,585,093Investments
    
    
    1,134,363
    
    
    
    42,809
    
    
    
    8,323
    
    
    
    (915,293
    )
    
    
    270,202Property, plant and equipment, net
    
    
    183,580
    
    
    
    388,410
    
    
    
    93,079
    
    
    
    
    
    
    
    665,069Goodwill, net
    
    
    184,414
    
    
    
    83,019
    
    
    
    59,094
    
    
    
    
    
    
    
    326,527Other intangibles, net
    
    
    4,789
    
    
    
    88,255
    
    
    
    1,999
    
    
    
    
    
    
    
    95,043Other assets
    
    
    28,392
    
    
    
    36,557
    
    
    
    51,729
    
    
    
    (3,487
    )
    
    
    113,191Total assets
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    2,005
    
    
    $
    3,306
    
    
    $
    469,335
    
    
    $
    (416,346
    )
    
    $
    58,300Current portion of long-term debt
    
    
    449
    
    
    
    403
    
    
    
    10,120
    
    
    
    
    
    
    
    10,972Accounts payable
    
    
    765,044
    
    
    
    198,329
    
    
    
    28,553
    
    
    
    2,848
    
    
    
    994,774Intercompany payables, net
    
    
    
    
    
    
    74,513
    
    
    
    2,529
    
    
    
    (77,042
    )
    
    
    Accrued expenses
    
    
    91,267
    
    
    
    93,629
    
    
    
    24,320
    
    
    
    (2,634
    )
    
    
    206,582Patronage refunds and other member equities payable
    18,506
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    18,626Total current liabilities
    
    
    877,271
    
    
    
    370,180
    
    
    
    534,977
    
    
    
    (493,174
    )
    
    
    1,289,254Long-term debt
    
    
    586,030
    
    
    
    10,911
    
    
    
    42,118
    
    
    
    
    
    
    
    639,059Employee benefits and other liabilities
    
    
    137,872
    
    
    
    27,542
    
    
    
    8,032
    
    
    
    
    
    
    
    173,446Minority interests
    
    
    
    
    
    
    4,808
    
    
    
    4,022
    
    
    
    
    
    
    
    8,830Commitments and contingenciesEquities:Capital stock
    
    
    1,828
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,828Additional paid-in capital
    
    
    
    
    
    
    504,118
    
    
    
    139,820
    
    
    
    (643,938
    )
    
    
    Member equities
    
    
    904,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (66,276
    )
    
    
    (16
    )
    
    
    
    
    
    
    16
    
    
    
    (66,276
    )Retained earnings
    
    
    104,801
    
    
    
    235,448
    
    
    
    35,786
    
    
    
    (271,234
    )
    
    
    104,801Total equities
    
    
    944,536
    
    
    
    739,650
    
    
    
    175,643
    
    
    
    (915,293
    )
    
    
    944,536Total liabilities and equities
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125
 20




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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
    
    $
    762,289
    
    
    $
    793,294
    
    
    $
    131,722
    
    
    $
    
    
    
    $
    1,687,305Cost of sales
    
    
    693,247
    
    
    
    722,646
    
    
    
    127,574
    
    
    
    
    
    
    
    1,543,467Gross profit
    
    
    69,042
    
    
    
    70,648
    
    
    
    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
    
    
    4,620
    
    
    
    6,816
    
    
    
    (5,597
    )
    
    
    
    
    
    
    5,839Interest expense, net
    
    
    13,898
    
    
    
    675
    
    
    
    669
    
    
    
    
    
    
    
    15,242Other expense (income), net
    
    
    12,872
    
    
    
    
    
    
    
    (20,905
    )
    
    
    
    
    
    
    (8,033
    )Equity in (earnings) loss of affiliated
companies
    
    
    (58,134
    )
    
    
    (70
    )
    
    
    1,821
    
    
    
    18,152
    
    
    
    (38,231
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    410
    
    
    
    
    
    
    
    410Earnings before income taxes
    
    
    35,984
    
    
    
    6,221
    
    
    
    12,408
    
    
    
    (18,152
    )
    
    
    36,451Income tax expense (benefit)
    
    
    1,232
    
    
    
    473
    
    
    
    (6
    )
    
    
    
    
    
    
    1,699Net earnings
    
    $
    34,752
    
    
    $
    5,738
    
    
    $
    12,414
    
    
    $
    (18,152
    )
    
    $
    34,752
 21




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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
    
    $
    1,798,451
    
    
    $
    1,627,625
    
    
    $
    257,947
    
    
    $
    
    
    
    $
    3,684,023Cost of sales
    
    
    1,636,166
    
    
    
    1,479,775
    
    
    
    244,726
    
    
    
    
    
    
    
    3,360,667Gross 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 expense (income), 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 (loss) earnings of
subsidiaries
    
    
    (61
    )
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    585Earnings before income taxes
    
    
    65,314
    
    
    
    17,549
    
    
    
    10,860
    
    
    
    (28,057
    )
    
    
    65,666Income tax expense (benefit)
    
    
    4,450
    
    
    
    626
    
    
    
    (274
    )
    
    
    
    
    
    
    4,802Net earnings
    
    $
    60,864
    
    
    $
    16,923
    
    
    $
    11,134
    
    
    $
    (28,057
    )
    
    $
    60,864
 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, 2006
 LandOLakes, Inc.
    
    
    
    
    
    
    Non-Parent
    
    
    Consolidated
    
    
    GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    60,864
    
    
    $
    16,923
    
    
    $
    11,134
    
    
    $
    (28,057
    )
    
    $
    60,864Adjustments to reconcile net earnings to net
cash provided 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
    )Dividends from investments in affiliated companies
    
    
    1,703
    
    
    
    587
    
    
    
    900
    
    
    
    
    
    
    
    3,190Minority interests
    
    
    (61
    )
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    585Other
    
    
    (720
    )
    
    
    (30
    )
    
    
    1,635
    
    
    
    
    
    
    
    885Changes in current assets and liabilities, net of 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 by operating activities
    
    
    3,132
    
    
    
    36,091
    
    
    
    148
    
    
    
    5,246
    
    
    
    44,617Cash 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
    
    
    
    
    
    
    
    873Other
    
    
    2,059
    
    
    
    (3,144
    )
    
    
    (23
    )
    
    
    
    
    
    
    (1,108
    )Net cash (used) provided by investing activities
    
    
    (108,872
    )
    
    
    (15,920
    )
    
    
    18,748
    
    
    
    22,000
    
    
    
    (84,044
    )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
    
    
    (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
 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 30,2007
    
    2006
    
    2007
    
    2006($ in millions)Earnings from unconsolidated businesses
    
    $
    58.2
    
    
    $
    38.2
    
    
    $
    65.1
    
    
    $
    29.7Cash flow from investments in unconsolidated businesses
    
    
    2.0
    
    
    
    0.5
    
    
    
    24.7
    
    
    
    3.2
    24




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##### Table of Contents



For the three months
    
    For the six monthsended June 30,
    
    ended June 30,2007
    
    2006
    
    2007
    
    2006($ in millions)Equity in earnings from Agriliance
    
    $
    56.6
    
    
    $
    37.7
    
    
    $
    61.8
    
    
    $
    32.4Cash distributions from Agriliance
    
    
    0.0
    
    
    
    0.0
    
    
    
    19.6
    
    
    
    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 30,2007
    
    2006
    
    2007
    
    2006Per pound market price average:Butter
    
    $
    1.45
    
    
    $
    1.17
    
    
    $
    1.35
    
    
    $
    1.20Block cheese
    
    
    1.73
    
    
    
    1.18
    
    
    
    1.54
    
    
    
    1.21
 Feed.
     Layers.
 Derivative Commodity Instruments
  26




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##### Table of Contents



For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006($ in millions)
    
    ($ in millions)Unrealized hedging gain (loss)
    
    $
    (2.1
    )
    
    $
    2.5
    
    
    $
    (3.9
    )
    
    $
    2.6
 Results of Operations
 Three months ended June 30, 2007 as compared to three months ended June 30, 2006
 Overview of Results
 For the three months ended June 30,Increase2007
    
    2006
    
    (Decrease)($ in millions)Net earnings
    
    $
    104.4
    
    
    $
    34.8
    
    
    $
    69.6Increased net earnings were primarily driven by improved margins and volumes in Dairy Foods
and Agronomy, higher average egg market prices in the Layers segment, and the after-tax gain on
sale of Cheese and Protein International of $21.2 million. Partially offsetting these positive
impacts were unrealized after-tax hedging losses of $1.3 million for the three months ended June 30, 2007 versus
unrealized after-tax hedging gains of $1.5 million for the three months ended June 30, 2006. In addition, offsetting these
positive impacts was a $13.6 million favorable tax ruling resulting in an income tax benefit for the three months
ended June 30, 2006.Net sales
    
    $
    2,022.0
    
    
    $
    1,687.3
    
    
    $
    334.7Increased net sales for the three months ended June 30, 2007 compared to the same period in
2006 were due mainly to increased market prices in Dairy Foods, Feed and Layers. A discussion of
net sales by business segment is found below under the caption, Net Sales and Gross Profit by
Business Segment.Gross profit
    
    $
    189.4
    
    
    $
    143.8
    
    
    $
    45.6Gross profit increased in the three months ended June 30, 2007 primarily due to higher margins
in Dairy Foods and Layers. 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
    
    $
    147.8
    
    
    $
    135.1
    
    
    $
    12.7The increase in selling, general and administrative expenses compared to the prior year was
primarily due to higher expenses in most segments due to incentive accruals and consulting fees,
partially offset by lower expenses in Layers due to the divestiture of the liquid egg operations in
June of 2006.Restructuring and impairment charges
    
    $
    0.3
    
    
    $
    2.9
    
    
    $
    (2.6
    )During the three months ended June 30, 2007, Seed incurred a $0.2 million impairment charge
related to a software asset. In addition, Feed incurred a $0.1 million impairment charge related
to the closure of its Leoti, KS plant as part of the formation of a feedlot joint venture. For the
three months ended June 30, 2006, Dairy Foods recorded a $2.8 million impairment charge related to
an outstanding note receivable from the former sale of a cheese facility in Gustine, CA.Gain on insurance settlement
    
    $
    5.9
    
    
    $
    0.0
    
    
    $
    5.9During the three months ended June 30, 2007, Feed recorded a $5.9 million gain on insurance
settlement related to a feed plant in Statesville, North Carolina that was destroyed by fire and
shut down in December 2005. The Company holds insurance coverage for property damage and business
interruption which provides recovery for a significant portion of the loss. The insured value of
the property exceeds its net book value, and in the three months ended June 30, 2007, the Company
recorded a gain on insurance settlement of $5.9 million. For the three months ended June 30, 2007,
the Company received $4.6 million of proceeds for business interruption recoveries which were
accrued in prior periods. Business interruption recoveries are recorded as a reduction to cost of
sales in the Feed segment.Interest expense, net
    
    $
    8.9
    
    
    $
    15.2
    
    
    $
    (6.3
    )
  27




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##### Table of Contents



For the three months ended June 30,Increase2007
    
    2006
    
    (Decrease)($ in millions)Equity in earnings of affiliated companies
    
    $
    58.2
    
    
    $
    38.2
    
    
    $
    20.0Results for the three months ended June 30, 2007 included equity in earnings from Agriliance
of $56.6 million compared to $37.7 million for the same period of 2006. A discussion of net
earnings for Agriliance can be found under the caption Overview  General  Unconsolidated
Businesses.Income tax expense
    
    $
    20.2
    
    
    $
    1.7
    
    
    $
    18.5
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the three months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    993.0
    
    
    $
    776.0
    
    
    
    28.0
    %Gross profit
    
    
    86.1
    
    
    
    55.4
    
    
    
    55.4
    %Gross profit % of
net sales
    
    
    8.7
    %
    
    
    7.1
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    212.8Volume impact
    
    
    86.6Acquisitions and divestitures
    
    
    (82.4
    )Total increase
    
    $
    217.0
  Gross Profit Variance
    
    Increase($ in millions)Margin / product mix impact
    
    $
    41.3Volume impact
    
    
    (8.1
    )Unrealized hedging
    
    
    (6.1
    )Acquisitions and divestitures
    
    
    3.6Total increase
    
    $
    30.7
 28




---



##### Table of Contents



Feed
 For the three months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    704.3
    
    
    $
    645.8
    
    
    
    9.1
    %Gross profit
    
    
    65.0
    
    
    
    65.1
    
    
    
    (0.2
    )%Gross profit % of net sales
    
    
    9.2
    %
    
    
    10.1
    %
 Net Sales Variance
    
    Increase (decrease)($ in millions)Pricing / product mix impact
    
    $
    108.0Volume impact
    
    
    (37.9
    )Acquisitions and divestitures
    
    
    (11.6
    )Total increase
    
    $
    58.5
  Gross Profit Variance
    
    Increase (decrease)($ in millions)Margin / product mix impact
    
    $
    7.7Volume impact
    
    
    (5.4
    )Unrealized hedging
    
    
    (1.3
    )Acquisitions and divestitures
    
    
    (1.1
    )Total decrease
    
    $
    (0.1
    )
  29




---



##### Table of Contents



Seed
 For the three months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    223.3
    
    
    $
    162.6
    
    
    
    37.3
    %Gross profit
    
    
    28.3
    
    
    
    21.9
    
    
    
    29.2
    %Gross profit % of
net sales
    
    
    12.7
    %
    
    
    13.5
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    10.3Volume impact
    
    
    50.4Total increase
    
    $
    60.7
 ® ®
 IncreaseGross Profit Variance
    
    (decrease)($ in millions)Margin / product mix impact
    
    $
    5.2Volume impact
    
    
    0.1Unrealized hedging
    
    
    1.1Total increase
    
    $
    6.4
 ®
 Layers
 For the three months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    111.0
    
    
    $
    105.3
    
    
    
    5.4
    %Gross profit
    
    
    12.2
    
    
    
    3.3
    
    
    
    269.7
    %Gross profit %
of net sales
    
    
    11.0
    %
    
    
    3.1
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    30.4Volume impact
    
    
    4.4Acquisitions and divestitures
    
    
    (29.1
    )Total increase
    
    $
    5.7
  30




---



##### Table of Contents



Gross Profit Variance
    
    Increase (decrease)($ in millions)Margin / product mix impact
    
    $
    8.1Volume impact
    
    
    0.6Unrealized hedging
    
    
    1.6Acquisitions and divestitures
    
    
    (1.4
    )Total increase
    
    $
    8.9
  Six months ended June 30, 2007 as compared to six months ended June 30, 2006
 Overview of Results
 For the six months ended June 30,Increase2007
    
    2006
    
    (Decrease)($ in millions)Net earnings
    
    $
    159.4
    
    
    $
    60.9
    
    
    $
    98.5Increased net earnings were primarily driven by
improved margins in Dairy Foods,
Agronomy and Feed and higher egg market prices in Layers. Adding to these increases was the
after-tax gain on the sale of Cheese and Protein International of $21.2 million. Net earnings were
negatively impacted by unrealized, after-tax hedging losses of $2.4 million for the six months
ended June 30, 2007 versus
unrealized, after-tax hedging gains of
$1.6 million for the six months ended June 30, 2006, and lower earnings in
Seed. In addition, offsetting these positive impacts was a $13.6 million favorable tax ruling resulting in an income tax benefit
for the six months ended June 30, 2006.Net sales
    
    $
    4,204.3
    
    
    $
    3,684.0
    
    
    $
    520.3The increase in net sales was primarily due to favorable market conditions across all
segments. A discussion of net sales by business segment is found below under the caption, Net
Sales and Gross Profit by Business Segment.Gross profit
    
    $
    407.0
    
    
    $
    323.4
    
    
    $
    83.6Gross profit increased in the six months ended June 30, 2007 primarily due to higher margins
in Dairy Foods and Layers. 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
    
    $
    289.9
    
    
    $
    266.7
    
    
    $
    23.2The increase in selling, general and
administrative expenses compared to the prior year was
primarily due to higher expenses in most segments due
to incentive accruals and consulting fees and a loss on legal settlement in Dairy Foods partially offset by
lower expenses in Layers due to the liquid egg divestiture in June 2006.Restructuring and impairment charges
    
    $
    1.7
    
    
    $
    4.3
    
    
    $
    (2.6
    )During the six months ended June 30, 2007, Feed announced the closure of a plant in Columbus,
WI, which resulted in a $0.3 million restructuring charge. Feed also announced the closure of its
Leoti, KS plant as part of the formation of a feedlot joint venture, which resulted in an
impairment charge of $0.3 million. Seed incurred a $0.5 million impairment charge related to
structural deterioration of a soybean facility in Vincent, IA as well as a $0.2 million impairment
charge related to a software asset. Layers incurred an impairment charge of $0.3 million for the
closure of two farms. For the six months ended June 30, 2006, Dairy Foods closed a facility in
Greenwood, WI and as a result recorded a restructuring charge of $1.5 million primarily related to
a contractual obligation for waste-water treatment. In 2006, Dairy Foods also recorded a $2.8 million
impairment charge related to an outstanding note receivable from the former sale of a cheese
facility in Gustine, CA.Gain on insurance settlement
    
    $
    5.9
    
    
    $
    0.0
    
    
    $
    5.9
   31




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##### Table of Contents



For the six months ended June 30,Increase2007
    
    2006
    
    (Decrease)($ in millions)Interest expense, net
    
    $
    23.7
    
    
    $
    31.7
    
    
    $
    (8.0
    )The decrease in interest expense was due to debt reduction efforts. Long-term debt has
decreased $9.9 million at June 30, 2007 compared to June 30, 2006 primarily due to the payoff of
pollution control bonds related to the Cheese and Protein International facility. In addition,
interest income has increased $2.6 million over the prior year related to earnings on investments.Equity in earnings of affiliated companies
    
    $
    65.1
    
    
    $
    29.7
    
    
    $
    35.4Results for the six months ended June 30, 2007 included equity in earnings from Agriliance of
$61.8 million compared to $32.4 million for the same period of 2006. A discussion of net earnings
for Agriliance can be found under the caption, Overview  General  Unconsolidated Businesses.
In Layers, equity method investments had earnings of $3.4 million for the six months ended June 30,
2007, compared to equity losses of $2.6 million for the six months ended June 30, 2006.Income tax expense
    
    $
    31.1
    
    
    $
    4.8
    
    
    $
    26.3
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the six months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    1,873.3
    
    
    $
    1,584.9
    
    
    
    18.2
    %Gross profit
    
    
    161.3
    
    
    
    97.4
    
    
    
    65.6
    %Gross profit % of
net sales
    
    
    8.6
    %
    
    
    6.1
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    265.6Volume impact
    
    
    84.7Acquisitions and divestitures
    
    
    (61.9
    )Total increase
    
    $
    288.4
 32




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($ in millions)Margin / product mix impact
    
    $
    72.4Volume impact
    
    
    (18.9
    )Unrealized hedging
    
    
    (4.1
    )Acquisitions and divestitures
    
    
    14.5Total increase
    
    $
    63.9
  Feed
 For the six months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    1,453.1
    
    
    $
    1,338.9
    
    
    
    8.5
    %Gross profit
    
    
    136.5
    
    
    
    133.4
    
    
    
    2.3
    %Gross profit % of net sales
    
    
    9.4
    %
    
    
    10.0
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    191.0Volume impact
    
    
    (56.3
    )Acquisitions and divestitures
    
    
    (20.5
    )Total increase
    
    $
    114.2
  33




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($ in millions)Margin / product mix impact
    
    $
    17.1Volume impact
    
    
    (7.7
    )Unrealized hedging
    
    
    (4.0
    )Acquisitions and divestitures
    
    
    (2.3
    )Total increase
    
    $
    3.1
  Seed
 For the six months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    659.4
    
    
    $
    551.9
    
    
    
    19.5
    %Gross profit
    
    
    84.1
    
    
    
    82.8
    
    
    
    1.6
    %Gross profit % of
net sales
    
    
    12.8
    %
    
    
    15.0
    %
 IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    44.2Volume impact
    
    
    63.3Total increase
    
    $
    107.5
  IncreaseGross Profit Variance
    
    (decrease)($ in millions)Margin / product mix impact
    
    $
    (4.3
    )Volume impact
    
    
    6.2Unrealized hedging
    
    
    (0.6
    )Total increase
    
    $
    1.3
 ® ®
 Layers
 For the six months ended June 30,2007
    
    2006
    
    % change($ in millions)Net sales
    
    $
    230.9
    
    
    $
    213.0
    
    
    
    8.4
    %Gross profit
    
    
    26.5
    
    
    
    11.6
    
    
    
    128.4
    %Gross profit %
of net sales
    
    
    11.5
    %
    
    
    5.4
    %
 34




---



##### Table of Contents



IncreaseNet Sales Variance
    
    (decrease)($ in millions)Pricing / product mix impact
    
    $
    64.6Volume impact
    
    
    8.1Acquisitions and divestitures
    
    
    (54.8
    )Total increase
    
    $
    17.9
  IncreaseGross Profit Variance
    
    (decrease)($ in millions)Margin / product mix impact
    
    $
    17.5Volume impact
    
    
    1.2Unrealized hedging
    
    
    (0.1
    )Acquisitions and divestitures
    
    
    (3.7
    )Total increase
    
    $
    14.9
  Liquidity and Capital Resources
 Overview
       As of
    
    
    As of
    
    
    As ofJune 30,
    
    
    June 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2006($ in millions)Cash and cash equivalents
    
    $
    375.9
    
    
    $
    42.7
    
    
    $
    79.7Availability on revolving credit facility
    
    
    190.8
    
    
    
    149.4
    
    
    
    174.4Availability on receivable securitization program
    
    
    200.0
    
    
    
    155.0
    
    
    
    200.0Total liquidity
    
    $
    766.7
    
    
    $
    347.1
    
    
    $
    454.1
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##### Table of Contents



Cash Flows
  Operating Activities
 For the Six Months EndedJune 30,2007
    
    
    2006($ in millions)Net earnings
    
    $
    159.4
    
    
    $
    60.9Adjustments to reconcile net earnings to net cash used by operating activities
    
    
    (54.4
    )
    
    
    38.1Changes in current assets and liabilities, net of divestitures
    
    
    74.0
    
    
    
    (54.4
    )Net cash provided by operating activities
    
    $
    179.0
    
    
    $
    44.6
  Investing Activities
 For the Six Months EndedJune 30,2007
    
    
    2006($ in millions)Additions to property, plant and equipment
    
    $
    (43.5
    )
    
    $
    (33.6
    )Acquisitions
    
    
    (0.1
    )
    
    
    (84.2
    )Payments for investments
    
    
    (0.7
    )
    
    
    (2.5
    )Net proceeds from divestiture of businesses
    
    
    211.9
    
    
    
    28.7Proceeds from sale of investments
    
    
    0.5
    
    
    
    7.8Proceeds from sale of property, plant and equipment
    
    
    4.4
    
    
    
    0.9Other
    
    
    (0.9
    )
    
    
    (1.1
    )Net cash provided (used) by investing activities
    
    $
    171.6
    
    
    $
    (84.0
    )
   Financing Activities
 For the Six Months EndedJune 30,2007
    
    
    2006($ in millions)Increase (decrease) in short-term debt, net
    
    $
    3.7
    
    
    $
    (22.0
    )Proceeds from issuance of long-term debt
    
    
    6.2
    
    
    
    2.0Principal payments on long-term debt
    
    
    (28.8
    )
    
    
    (33.8
    )Payments for redemption of member equities
    
    
    (35.3
    )
    
    
    (43.0
    )Other
    
    
    (0.2
    )
    
    
    (0.5
    )Net cash used by financing activities
    
    $
    (54.4
    )
    
    $
    (97.3
    )
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##### Table of Contents



Principal Debt Facilities
        37




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##### Table of Contents



Capital Leases
  Recent Accounting Pronouncements
     38




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##### Table of Contents



Critical Accounting Policies
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control
  39




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
      
 Item 1A. Risk Factors
  
    
    COMPETITION IN THE INDUSTRY MAY REDUCE OUR SALES AND MARGINS.
    
    OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO POTENTIAL
CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR MARGINS, PARTICULARLY THOSE
RELATED TO OUR SALES OF ROUNDUP® READY ALFALFA.
    
    THE GEOGRAPHIC SHIFT IN DAIRY PRODUCTION HAS DECREASED SALES AND MARGINS AND COULD
CONTINUE TO NEGATIVELY IMPACT OUR SALES AND MARGINS.
    
    CHANGES IN CONSUMER PREFERENCES AND DISTRIBUTION CHANNELS COULD DECREASE OUR DAIRY
FOODS REVENUES AND CASH FLOWS.
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##### Table of Contents




    
    OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY WEATHER CONDITIONS.
    
    INCREASED ENERGY AND GAS COSTS COULD INCREASE OUR EXPENSES AND REDUCE OUR
PROFITABILITY.
    
    OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.
    
    CHANGES IN THE MARKET PRICES OF THE DAIRY AND AGRICULTURAL COMMODITIES THAT WE USE AS
INPUTS AS WELL AS THE PRODUCTS WE MARKET MAY CAUSE OUR MARGINS TO DECLINE AND REDUCE THE
LIKELIHOOD OF RECEIVING DIVIDENDS FROM OUR JOINT VENTURES.
    
    WE OPERATE THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO EARNINGS AND TO CONTROL THE
JOINT VENTURE ARE LIMITED.
    
    CERTAIN OF OUR BUSINESSES MAY BE ADVERSELY AFFECTED BY THEIR DEPENDENCE UPON THEIR
SUPPLIERS.
    
    OUR FINANCIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS
UNDER OUR DEBT FACILITIES AND TO OPERATE OUR BUSINESSES.
    
    SERVICING OUR INDEBTEDNESS REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
    
    DESPITE OUR LEVERAGE, WE WILL BE ABLE TO INCUR MORE DEBT, WHICH MAY INTENSIFY THE RISKS
ASSOCIATED WITH OUR LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR DEBT.
    
    IF CREDITORS OF OUR SUBSIDIARIES AND JOINT VENTURES MAKE CLAIMS WITH RESPECT TO THE
ASSETS AND EARNINGS OF THESE COMPANIES, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO REPAY OUR
INDEBTEDNESS AND WE MAY NOT RECEIVE THE CASH WE EXPECT FROM INTERCOMPANY TRANSFERS.
    
    RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO FINANCE FUTURE
OPERATIONS OR CAPITAL NEEDS OR TO ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE IN OUR
BEST INTERESTS.
    
    THE COLLATERAL PLEDGED IN SUPPORT OF OUR DEBT OBLIGATIONS MAY NOT BE VALUABLE ENOUGH TO
SATISFY ALL THE BORROWINGS SECURED BY THE COLLATERAL.
    
    A LOSS OF OUR COOPERATIVE TAX STATUS COULD INCREASE OUR TAX LIABILITY.
    
    OUR LIMITED ACCESS TO EQUITY MARKETS COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL EQUITY CAPITAL.
    
    INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD DAMAGE OUR
COMPETITIVE POSITION.
    
    OUR BRAND NAMES COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES WHO, BY THEIR ACT OR
OMISSION, COULD ADVERSELY AFFECT THE VALUE OF OUR BRAND NAMES.
    
    PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS.
    
    WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF OR LIABILITIES UNDER ENVIRONMENTAL
LAWS AND REGULATIONS APPLICABLE TO OUR OPERATIONS.
    
    STRIKES OR WORK STOPPAGES BY OUR UNIONIZED WORKERS COULD DISRUPT OUR BUSINESS.
    
    THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM OR OTHER KEY EMPLOYEES WILL
REMAIN WITH US.
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Item 6. Exhibits
 (a)
    
    Exhibits
 EXHIBIT
    
    DESCRIPTION3.1
    
    Restated Articles of Incorporation and By-Laws (as amended, February 2007).*10.1
    
    Asset Purchase and Sale Agreement by and among Cheese & Protein International LLC (as
seller) and Land OLakes, Inc., and Saputo Cheese USA Inc. (as buyer) and Saputo
Inc., dated February 20, 2007.*31.1
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed electronically herewith 42




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##### Table of Contents



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

Daniel E. KnutsonSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 
 43