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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to          .
 Commission file number 333-84486
 Land OLakes, Inc.
 (Exact name of Registrant as Specified in Its Charter)
 Minnesota
    
    41-0365145(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)4001 Lexington Avenue NorthArden Hills, Minnesota
    
    55112(Address of Principal Executive Offices)
    
    (Zip Code)
 (651) 481-2222  (Registrants Telephone Number, Including Area Code)  Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 þ o
 o þ
   Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer:
þ
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PART I.Forward Looking Statements
    
    
    3Item 1.
    
    Business
    
    
    3Business Segments
    
    
    3Description of the Cooperative
    
    
    10Item 1A.
    
    Risk Factors
    
    
    16Item 2.
    
    Properties
    
    
    25Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART II.Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    27Item 6.
    
    Selected Financial Data
    
    
    27Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    57Item 8.
    
    Financial Statements and Supplementary Data
    
    
    58Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    58Item 9A.
    
    Controls and Procedures
    
    
    59Item 9B.
    
    Other Information
    
    
    59PART III.Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    60Item 11.
    
    Executive Compensation
    
    
    64Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    81Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    81Item 14.
    
    Principal Accountant Fees and Services
    
    
    82PART IV.Item 15.
    
    Exhibits, Financial Statement Schedules
    
    
    83Signatures
    
    
    86Articles of Incorporation and By-Laws, as AmendedSeverance Agreement - Christopher PolicinskiStatements Regarding the Computation of Ratios of Earnings to Fixed ChargesSubsidiaries of the RegistrantCertification Pursuant to Section 302Certification Pursuant to Section 302Section 1350 Certification of CEOSection 1350 Certification of CFO
  2




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  Website
 www.landolakesinc.com.
 
 PART I
 
 Item 1. Business.
  Overview
  
 Business Segments
  Dairy Foods
 Overview. LAND O
LAKES, Indian Maiden Alpine Lace, New
Yorker.
 3




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Products.
 Butter. LAND O LAKES
 Spreads. LAND O LAKES
 Cheese. LAND O LAKES, Alpine Lace New Yorker LAND O LAKES
 Other.
 Raw Milk Wholesaling.
 New Products.
 Sales, Marketing and Advertising.
   Distribution.
 Production.
 4




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Supply and Raw Materials.
 Customers.
 Research and Development.
 Competition.
 Feed
 Overview. Purina, Chow Checkerboard Nine Square LAND O LAKES Lake Country
  5




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Products.
 Complete Feed. Purina, Chow Checkerboard Nine Square
 Supplements.
 Premixes.
 Simple Blends.
 Milk Replacers. Maxi Care, Cows Match Amplifier Max
 Ingredient Merchandising.
 Sales, Marketing and Advertising.
 Distribution.
 Production.
 6




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Supply and Raw Materials.
 Customers.
 Research and Development.
 Competition. Purina, Chow Checkerboard Nine Square
 Seed
 Overview. CROPLAN
GENETICS NK brand,
Asgrow brand DEKALB brand,
 Products.
 Sales, Marketing and Advertising. ® ® CROPLAN GENETICS brand NK brand, Asgrow brand DEKALB brand, ®
 7




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WinField Solutions WinField Solutions, LLC AgriSolutions products CROPLAN GENETICS® seed, Seed Solutions
 Distribution.
 Supply and Production.
 Customers.
 Research and Development.
 Competition. Answer Plot® events and Expert Seller
 Agronomy
 Overview. WinField
 Products. AgriSolutions Origin
 Sales, Marketing and Advertising.
 Production, Source of Supply and Raw Materials.
 8




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Customers.
 Distribution.
 Research and Development.
 Competition.
 Layers
 Overview.
 Products.
 Customers and Distribution.
 Sales and Marketing. LAND O LAKES
 Competition.
 Other
  9




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Joint Ventures and Investments
  Agriliance LLC
  Agronomy Company of Canada Ltd.
  Advanced Food Products, LLC
  CoBank ACB
  Ag Processing Inc
  
 Description of the Cooperative
  10




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Structure and Membership
       Governance
  11




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Earnings
  Patronage Income and Equity
         12




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Employees
  Patents, Trademarks and Intellectual Property
  LAND O LAKES, Indian Maiden Alpine Lace, New Yorker, Extra Melt Maxi Care,
Amplifier Max, Cows Match, Omolene, CROPLAN GENETICS, AgriSolutions, Origin, WinField Solutions MoArk. LAND O
LAKES, Indian Maiden Maxi Care, Cows Match Amplifier Max, Purina, Chow Checkerboard Nine Square
 LAND O LAKES Indian Maiden Grip n Go
   Environmental Matters
  13




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Regulatory Matters
    14




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Item 1A. Risk Factors.
             16




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® ® ®
     17




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
 
           18




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19




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
    
    restrictions on our ability to transfer our ownership interest in the joint venture;
    
    no right to receive distributions without the unanimous consent of the members of the joint venture; and
    
    non-competition arrangements restricting our ability to engage independently in the
same line of business as the joint venture.
        
 
 
 
 
 
 20




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
       
 
 
    21




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24




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Item 2. Properties.
  Total Number
    
    Total Numberof Facilities
    
    of FacilitiesBusiness Segment
    
    Owned
    
    Leased
    
    Regional Location of FacilitiesDairy Foods
    
    12(1)
    
    3
    
    Midwest(2)  10West(3)  2East(4)  3South(5)  0Feed
    
    96(6)
    
    44
    
    Midwest  72West  32East  12South 24Seed
    
    16
    
    5
    
    Midwest  12West  9Agronomy
    
    23
    
    57
    
    Midwest  52West  14East  5South  9Layers
    
    21
    
    29
    
    Midwest  11West  27East  11South  1
 
 (1)
    
    Includes a non edible foods manufacturing facility and 1 closed facility.(2)
    
    The Midwest region includes the states of Ohio, Michigan, Indiana, Illinois, Wisconsin,
Minnesota, Iowa, Missouri, Oklahoma, Kansas, Nebraska, South Dakota and North Dakota and
Ontario, Canada.(3)
    
    The West region includes the states of Montana, Wyoming, Colorado, Texas, New Mexico,
Arizona, Utah, Idaho, Washington, Oregon, Nevada, California, Alaska and Hawaii.(4)
    
    The East region includes the states of Maine, New Hampshire, Vermont, New York,
Massachusetts, Rhode Island, Connecticut, Pennsylvania, New Jersey, Delaware and Maryland.(5)
    
    The South region includes the states of West Virginia, Virginia, North Carolina, Kentucky,
Tennessee, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana and Arkansas.(6)
    
    Includes 8 closed facilities.  25




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Item 3. Legal Proceedings.
  ® ® ® ® ®
    26




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Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters.
        
 Item 6. Selected Financial Data.
   27




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Years Ended December 31,2007
    
    
    2006(14)
    
    
    2005(14)
    
    
    2004(14)
    
    
    2003(14)($ in Millions)Statement of Operations Data:Net sales
    
    $
    8,924.9
    
    
    $
    7,102.3
    
    
    $
    7,336.1
    
    
    $
    7,497.3
    
    
    $
    6,164.4Cost of sales
    
    
    8,157.7
    
    
    
    6,441.4
    
    
    
    6,751.1
    
    
    
    6,903.6
    
    
    
    5,580.2Gross profit
    
    
    767.2
    
    
    
    660.9
    
    
    
    585.0
    
    
    
    593.7
    
    
    
    584.2Selling, general and administrative
    
    
    622.2
    
    
    
    515.5
    
    
    
    494.9
    
    
    
    501.0
    
    
    
    464.6Restructuring and impairment charges(1)
    
    
    3.9
    
    
    
    21.2
    
    
    
    6.4
    
    
    
    7.8
    
    
    
    6.3Gain on insurance settlement
    
    
    (5.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings from operations
    
    
    147.0
    
    
    
    124.2
    
    
    
    83.7
    
    
    
    84.9
    
    
    
    113.3Interest expense, net
    
    
    48.9
    
    
    
    58.4
    
    
    
    79.9
    
    
    
    83.1
    
    
    
    81.0Other expense (income), net(2)
    
    
    (37.1
    )
    
    
    (18.8
    )
    
    
    9.2
    
    
    
    (7.5
    )
    
    
    (24.5
    )Gain on sale of investment in CF Industries, Inc(3)
    
    
    
    
    
    
    
    
    
    
    (102.4
    )
    
    
    
    
    
    
    Loss on impairment of investment in CF Industries, Inc(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.5
    
    
    
    Equity in earnings of affiliated companies
    
    
    (68.2
    )
    
    
    (13.6
    )
    
    
    (41.3
    )
    
    
    (62.2
    )
    
    
    (49.6
    )Minority interest in earnings of subsidiaries
    
    
    1.5
    
    
    
    1.4
    
    
    
    1.3
    
    
    
    1.6
    
    
    
    6.4Earnings before income taxes and discontinued operations
    
    
    201.9
    
    
    
    96.8
    
    
    
    137.0
    
    
    
    33.4
    
    
    
    100.0Income tax expense
    
    
    38.1
    
    
    
    7.9
    
    
    
    7.3
    
    
    
    2.9
    
    
    
    17.8Net earnings from continuing operations
    
    
    163.8
    
    
    
    88.9
    
    
    
    129.7
    
    
    
    30.5
    
    
    
    82.2Earnings (loss) from discontinued operations, net of
income taxes(5)
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    (6.8
    )
    
    
    (4.9
    )Net earnings
    
    $
    163.8
    
    
    $
    88.9
    
    
    $
    131.8
    
    
    $
    23.7
    
    
    $
    77.3Other Financial Data:Depreciation and amortization
    
    $
    84.1
    
    
    $
    95.2
    
    
    $
    99.3
    
    
    $
    107.2
    
    
    $
    111.5Unrealized hedging gains(losses)(6)
    
    
    12.9
    
    
    
    7.6
    
    
    
    5.3
    
    
    
    (23.1
    )
    
    
    19.5Capital expenditures
    
    
    91.1
    
    
    
    83.8
    
    
    
    70.4
    
    
    
    96.1
    
    
    
    71.7Cash patronage paid to members(7)
    
    
    20.4
    
    
    
    24.0
    
    
    
    15.1
    
    
    
    11.4
    
    
    
    4.2Equity revolvement paid to members(8)
    
    
    37.6
    
    
    
    56.6
    
    
    
    53.6
    
    
    
    23.2
    
    
    
    20.2
 28




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Years Ended December 31,2007
    
    2006(14)
    
    2005(14)
    
    2004(14)
    
    2003(14)($ in Millions)Balance Sheet Data (at end of period):Cash and cash equivalents
    
    $
    116.8
    
    
    $
    79.7
    
    
    $
    179.7
    
    
    $
    73.1
    
    
    $
    110.3Restricted cash(9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.3
    
    
    
    20.1Working capital(10)
    
    
    461.3
    
    
    
    292.7
    
    
    
    193.6
    
    
    
    316.0
    
    
    
    411.9Property, plant and equipment, net
    
    
    551.8
    
    
    
    665.1
    
    
    
    668.6
    
    
    
    710.2
    
    
    
    726.5Total assets
    
    
    4,431.8
    
    
    
    3,014.9
    
    
    
    3,063.0
    
    
    
    3,169.0
    
    
    
    3,355.9Total debt(11)
    
    
    558.3
    
    
    
    517.6
    
    
    
    556.5
    
    
    
    905.9
    
    
    
    1,073.2Capital securities of trust subsidiary
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7Minority interests
    
    
    6.2
    
    
    
    8.8
    
    
    
    6.0
    
    
    
    9.4
    
    
    
    62.7Total equities
    
    
    1,032.2
    
    
    
    932.7
    
    
    
    891.5
    
    
    
    840.0
    
    
    
    862.1
 Years Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003($ in Millions)Selected Segment Financial Information:Dairy FoodsNet sales
    
    $
    4,176.8
    
    
    $
    3,241.3
    
    
    $
    3,684.1
    
    
    $
    3,797.3
    
    
    $
    2,883.4Earnings (loss) from operations
    
    
    80.6
    
    
    
    68.0
    
    
    
    31.3
    
    
    
    37.0
    
    
    
    26.3Depreciation and amortization
    
    
    26.3
    
    
    
    40.0
    
    
    
    41.2
    
    
    
    39.6
    
    
    
    42.4Capital expenditures
    
    
    18.0
    
    
    
    19.4
    
    
    
    20.5
    
    
    
    53.1
    
    
    
    28.2FeedNet sales
    
    
    3,061.6
    
    
    
    2,711.4
    
    
    
    2,586.9
    
    
    
    2,626.6
    
    
    
    2,467.2Earnings from operations
    
    
    56.0
    
    
    
    60.6
    
    
    
    61.4
    
    
    
    12.8
    
    
    
    56.1Depreciation and amortization
    
    
    27.8
    
    
    
    30.7
    
    
    
    32.0
    
    
    
    38.5
    
    
    
    44.0Capital expenditures
    
    
    42.2
    
    
    
    33.6
    
    
    
    25.9
    
    
    
    26.3
    
    
    
    24.0SeedNet sales
    
    
    917.0
    
    
    
    756.0
    
    
    
    653.9
    
    
    
    518.8
    
    
    
    466.2Earnings from operations
    
    
    39.1
    
    
    
    39.3
    
    
    
    30.5
    
    
    
    19.9
    
    
    
    15.0Depreciation and amortization
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.3
    
    
    
    2.5
    
    
    
    2.2Capital expenditures
    
    
    2.0
    
    
    
    2.7
    
    
    
    2.4
    
    
    
    1.6
    
    
    
    0.5Agronomy(12)Net sales
    
    
    287.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (loss) from operations
    
    
    (48.2
    )
    
    
    (13.1
    )
    
    
    (27.6
    )
    
    
    (12.8
    )
    
    
    (14.0
    )Depreciation and amortization
    
    
    8.5
    
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.1Capital expenditures
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Layers(13)Net sales
    
    
    513.9
    
    
    
    398.4
    
    
    
    407.0
    
    
    
    541.3
    
    
    
    317.8(Loss) earnings from operations
    
    
    26.4
    
    
    
    (26.9
    )
    
    
    (11.1
    )
    
    
    26.8
    
    
    
    28.5Depreciation and amortization
    
    
    8.1
    
    
    
    8.7
    
    
    
    10.3
    
    
    
    10.8
    
    
    
    6.3Capital expenditures
    
    
    5.1
    
    
    
    11.0
    
    
    
    17.7
    
    
    
    8.9
    
    
    
    3.8Other/EliminationsNet sales
    
    
    (31.9
    )
    
    
    (4.7
    )
    
    
    4.3
    
    
    
    13.2
    
    
    
    29.9Earnings (loss) from operations
    
    
    (6.9
    )
    
    
    (3.7
    )
    
    
    (0.8
    )
    
    
    1.3
    
    
    
    1.4Depreciation and amortization
    
    
    11.1
    
    
    
    7.2
    
    
    
    7.4
    
    
    
    9.7
    
    
    
    10.5Capital expenditures
    
    
    23.4
    
    
    
    17.0
    
    
    
    4.0
    
    
    
    6.2
    
    
    
    15.1
  29




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NOTES TO SELECTED FINANCIAL DATA
 
 (1)
    
    The following table summarizes restructuring and impairment charges: Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in millions)Restructuring charges
    
    $
    0.5
    
    
    $
    1.5
    
    
    $
    0.3
    
    
    $
    2.4
    
    
    $
    3.5Impairment of assets
    
    
    3.5
    
    
    
    19.7
    
    
    
    6.1
    
    
    
    5.4
    
    
    
    2.8Total
    
    $
    4.0
    
    
    $
    21.2
    
    
    $
    6.4
    
    
    $
    7.8
    
    
    $
    6.3
   (2)
    
    The following table summarizes other expense (income), net: Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in millions)Gain on divestiture of businesses
    
    $
    (28.5
    )
    
    $
    (9.0
    )
    
    $
    
    
    
    $
    (1.5
    )
    
    $
    (0.7
    )Gain on sale of investments, excluding CF Industries, Inc.
    
    
    (8.7
    )
    
    
    (8.0
    )
    
    
    (1.1
    )
    
    
    (0.6
    )
    
    
    (0.9
    )Gain on sale of intangibles
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    11.0
    
    
    
    
    
    
    
    0.5Gain on legal settlements
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (5.4
    )
    
    
    (22.8
    )Total
    
    $
    (37.2
    )
    
    $
    (18.8
    )
    
    $
    9.3
    
    
    $
    (7.5
    )
    
    $
    (24.5
    )
 (3)
    
    In 2005, we recorded a $102.4 million gain on sale of our investment in CF Industries, Inc., a
domestic manufacturer of crop nutrients.(4)
    
    In 2004, we reduced the carrying value of our investment in CF Industries, Inc. by $36.5
million.(5)
    
    Earnings (loss) from discontinued operations reflects the results of our swine production
operations, which were sold in 2005.(6)
    
    Derivative commodity instruments, primarily futures and options contracts, are marked-to-market
each month and gains and losses on open positions are recognized in earnings.(7)
    
    Cash patronage paid to members reflects the portion of earnings allocated to members for the
prior fiscal year distributed in cash in the following fiscal year. Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in millions)20% required for tax deduction
    
    $
    13.4
    
    
    $
    16.4
    
    
    $
    11.0
    
    
    $
    7.9
    
    
    $
    2.8Discretionary
    
    
    7.0
    
    
    
    7.6
    
    
    
    4.1
    
    
    
    3.5
    
    
    
    1.4Total
    
    $
    20.4
    
    
    $
    24.0
    
    
    $
    15.1
    
    
    $
    11.4
    
    
    $
    4.2
 (8)
    
    Equity revolvement reflects the distribution of earnings previously allocated to members and
not paid out initially as cash patronage. It also includes equity revolvements to deceased members
and deceased members of local cooperatives, and age retirement payments. 30




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Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in millions)RevolvementDairy Foods(a)
    
    $
    13.9
    
    
    $
    17.0
    
    
    $
    17.1
    
    
    $
    19.9
    
    
    $
    18.0Ag Services
    
    
    23.7
    
    
    
    39.6
    
    
    
    36.5
    
    
    
    3.3
    
    
    
    2.2Total
    
    $
    37.6
    
    
    $
    56.6
    
    
    $
    53.6
    
    
    $
    23.2
    
    
    $
    20.2
  (9)
    
    Cash held in a restricted account was required to support the CPI property and equipment lease.
This lease was prepaid in 2005 and the restricted cash was released.(10)
    
    Working capital is defined as current assets (less cash and cash equivalents and restricted
cash) minus current liabilities (less notes and short-term obligations, and current portion of
long-term debt).(11)
    
    Total debt includes notes and short-term obligations and excludes the 7.45% Capital Securities
due on March 15, 2028, of our trust subsidiary.(12)
    
    Through September 1, 2007 our Agronomy segment consisted primarily of our 50% ownership in
Agriliance LLC, a joint venture with CHS Inc. accounted for under the equity method. 
Effective September 1, 2007, Agriliance distributed a portion of its assets, primarily its
wholesale crop protection products (CPP) assets and its wholesale crop nutrients (CN) assets to
its parent companies. Based on ownership interests, each parent was entitled to receive 50% of the
CN and CPP assets distributed.  The distribution transaction was net settled, with the CN assets
distributed to CHS and CPP assets distributed to the Company, and the results of CPP are included
in our consolidated financial statements from that date forward.  Agriliance continues as a 50/50
joint venture operating its retail agronomy distribution businesses and continues to be accounted
for under the equity method.(13)
    
    Through June 30, 2003, our Layers business, MoArk, was unconsolidated and accounted for under
the equity method. Effective July 1, 2003, MoArk was consolidated in our financial statements.
Financial statements for periods prior to July 1, 2003 have not been restated.(14)
    
    The effects of the immaterial adjustments for Agriliance vendor rebates within our Agriliance
investment using the equity method of accounting on selected consolidated financial data are
presented below: Years Ended December 31,2006
    
    2005
    
    2004
    
    2003($ in Millions)Statement of Operations Data:Equity in earnings of affiliated companies  as
previously reported
    
    
    (13.3
    )
    
    
    (36.7
    )
    
    
    (58.4
    )
    
    
    (57.2
    )Adjustment
for vendor rebates (earned) deferred
    
    
    (0.3
    )
    
    
    (4.6
    )
    
    
    (3.8
    )
    
    
    7.6Equity in earnings of affiliated companies  as adjusted
    
    
    (13.6
    )
    
    
    (41.3
    )
    
    
    (62.2
    )
    
    
    (49.6
    )Earnings before income taxes and discontinued
operations- as previously reported
    
    
    96.5
    
    
    
    132.3
    
    
    
    29.6
    
    
    
    107.6Adjustment for vendor rebates earned (deferred)
    
    
    0.3
    
    
    
    4.7
    
    
    
    3.8
    
    
    
    (7.6
    )Earnings before income taxes and discontinued
operations- as adjusted
    
    
    96.8
    
    
    
    137.0
    
    
    
    33.4
    
    
    
    100.0Income tax expense  as previously reported
    
    
    7.8
    
    
    
    5.5
    
    
    
    1.4
    
    
    
    20.7Adjustment for vendor rebates
    
    
    0.1
    
    
    
    1.8
    
    
    
    1.5
    
    
    
    (2.9
    )Income tax expense  as adjusted
    
    
    7.9
    
    
    
    7.3
    
    
    
    2.9
    
    
    
    17.8Net earnings from continuing operations- as previously
reported
    
    
    88.7
    
    
    
    126.8
    
    
    
    28.2
    
    
    
    86.9Adjustment for vendor rebates earned (deferred)
    
    
    0.2
    
    
    
    2.9
    
    
    
    2.3
    
    
    
    (4.7
    )Net earnings from continuing operations- as adjusted
    
    
    88.9
    
    
    
    129.7
    
    
    
    30.5
    
    
    
    82.2
 31




---



##### Table of Contents



Years Ended December 31,2006
    
    2005
    
    2004
    
    2003($ in Millions)Net earnings- as previously reported
    
    
    88.7
    
    
    
    128.9
    
    
    
    21.4
    
    
    
    82.0Adjustment for vendor rebates earned (deferred)
    
    
    0.2
    
    
    
    2.9
    
    
    
    2.3
    
    
    
    (4.7
    )Net earnings  as adjusted
    
    
    88.9
    
    
    
    131.8
    
    
    
    23.7
    
    
    
    77.3Balance Sheet Data (at end of period):Working capital  as previously reported
    
    
    285.4
    
    
    
    186.2
    
    
    
    306.8
    
    
    
    401.2Adjustment for vendor rebates
    
    
    7.3
    
    
    
    7.4
    
    
    
    9.2
    
    
    
    10.7Working capital  as adjusted
    
    
    292.7
    
    
    
    193.6
    
    
    
    316.0
    
    
    
    411.9Total assets  as previously reported
    
    
    3,026.7
    
    
    
    3,075.0
    
    
    
    3,183.9
    
    
    
    3,373.2Adjustment for vendor rebates
    
    
    (11.8
    )
    
    
    (12.0
    )
    
    
    (14.9
    )
    
    
    (17.3
    )Total assets  as adjusted
    
    
    3,014.9
    
    
    
    3,063.0
    
    
    
    3,169.0
    
    
    
    3,355.9Total equities  as previously reported
    
    
    944.5
    
    
    
    903.6
    
    
    
    854.9
    
    
    
    879.4Adjustment for vendor rebates
    
    
    (11.8
    )
    
    
    (12.1
    )
    
    
    (14.9
    )
    
    
    (17.3
    )Total equities  as adjusted
    
    
    932.7
    
    
    
    891.5
    
    
    
    840.0
    
    
    
    862.1
 
 Item 7. 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
Annual Report on Form 10-K . This discussion contains forward-looking statements based on current
expectations, assumptions, estimates and projections of our management. These forward-looking
statements involve risks and uncertainties. Actual results could differ materially from those
anticipated in these statements as a result of certain factors, as more fully described in Item
1A. Risk Factors and elsewhere in this Annual Report on Form 10-K . We undertake no obligation to
publicly update any forward-looking statements.
 Overview
 General
 Segments
  
    
    Dairy Foods produces, markets and sells products such as butter, spreads, cheese and other
dairy related products. Products are sold under well-recognized national brand names
including LAND O LAKES, the Indian Maiden logo and Alpine Lace, as well as under regional
brand names such as New Yorker.
 
    
    Feed is largely comprised of the operations of Land OLakes Purina Feed LLC (Land OLakes
Purina Feed), the Companys wholly owned subsidiary. Land OLakes Purina Feed develops,
produces, markets and distributes animal feeds such as ingredient feed, formula feed, milk
replacers, vitamins and additives.
 
    
    Seed is a supplier and distributor of crop seed products in the United States. A variety
of crop seed is sold, including alfalfa, corn, soybeans and forage and turf grasses.
 
    
    Agronomy consists primarily of operations of Winfield Solutions, LLC (Winfield), a wholly
owned subsidiary established in September 2007 upon the distribution of wholesale crop
protection product assets to the Company from Agriliance LLC. Winfield operates primarily as
a wholesale distributor of crop protection products, including herbicides, pesticides,
fungicides and adjuvant. Agronomy also includes the Companys 50% ownership in Agriliance LLC
(Agriliance), which operates retail agronomy distribution businesses.
 
    
    Layers consists of MoArk, LLC, a wholly owned subsidiary. MoArk produces and markets shell
eggs that are sold to retail and wholesale customers for consumer and industrial use
throughout the United States. MoArk also produced and marketed liquid egg products prior to
the sale of this operation on June 30, 2006.
 32




---



##### Table of Contents




    
    We also derive a portion of revenues and income from other related businesses, which are
insignificant to our overall results.
  Recent Developments
   ® ® ® ® ®
  33




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##### Table of Contents



Unconsolidated Businesses
  34




---



##### Table of Contents



December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005($ in millions)Earnings from unconsolidated businesses
    
    $
    68.2
    
    
    $
    13.7
    
    
    $
    41.3
      December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005($ in millions)Agriliance:Investment in Agriliance
    
    $
    150.9
    
    
    $
    105.6
    
    
    $
    93.4Equity in earnings from Agriliance
    
    
    50.6
    
    
    
    12.0
    
    
    
    40.1
      35




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##### Table of Contents



For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Agriliance net earnings
    
    $
    101.2
    
    
    $
    23.9
    
    
    $
    77.3
     Cooperative Structure
    Wholesaling and Brokerage Activities
  36




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##### Table of Contents



Seasonality
  Factors Affecting Comparability
 Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
    37




---



##### Table of Contents



December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005Per pound market price average for year:Butter
    
    $
    1.37
    
    
    $
    1.24
    
    
    $
    1.55Block cheese
    
    
    1.76
    
    
    
    1.24
    
    
    
    1.49Per pound market price at year end:Butter
    
    
    1.25
    
    
    
    1.20
    
    
    
    1.35Block cheese
    
    
    2.03
    
    
    
    1.33
    
    
    
    1.37
 Feed.
     Layers.
 Discontinued Operations
  38




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##### Table of Contents



Derivative Commodity Instruments
  December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005($ in millions)Unrealized hedging gain
    
    $
    12.9
    
    
    $
    7.6
    
    
    $
    2.7
 Results of Operations
 For the Years Ended December 312007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Net$ Amount
    
    
    Sales
    
    
    $ Amount
    
    
    Sales
    
    
    $ Amount
    
    
    Sales($ in millions)Net sales
    
    $
    8,924.9
    
    
    
    100.0
    
    
    $
    7,102.3
    
    
    
    100.0
    
    
    $
    7,336.1
    
    
    
    100.0Cost of sales
    
    
    8,157.7
    
    
    
    91.4
    
    
    
    6,441.4
    
    
    
    90.7
    
    
    
    6,751.1
    
    
    
    92.0Gross profit
    
    
    767.2
    
    
    
    8.6
    
    
    
    660.9
    
    
    
    9.3
    
    
    
    585.0
    
    
    
    8.0Selling, general and administrative
    
    
    622.2
    
    
    
    7.0
    
    
    
    515.5
    
    
    
    7.3
    
    
    
    494.9
    
    
    
    6.8Restructuring and impairment charges
    
    
    3.9
    
    
    
    0.1
    
    
    
    21.2
    
    
    
    0.3
    
    
    
    6.4
    
    
    
    0.1Gain on insurance settlement
    
    
    (5.9
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings from operations
    
    
    147.0
    
    
    
    1.6
    
    
    
    124.2
    
    
    
    1.7
    
    
    
    83.7
    
    
    
    1.1Interest expense, net
    
    
    48.9
    
    
    
    0.5
    
    
    
    58.4
    
    
    
    0.8
    
    
    
    79.9
    
    
    
    1.1Other expense (income), net
    
    
    (37.1
    )
    
    
    (0.4
    )
    
    
    (18.8
    )
    
    
    (0.3
    )
    
    
    9.3
    
    
    
    0.1Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102.4
    )
    
    
    (1.4
    )Equity in earnings of affiliated companies
    
    
    (68.2
    )
    
    
    (0.7
    )
    
    
    (13.6
    )
    
    
    (0.2
    )
    
    
    (41.3
    )
    
    
    (0.6
    )Minority interest in earnings of subsidiaries
    
    
    1.5
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    1.3
    
    
    
    Earnings before income taxes and discontinued operations
    
    
    201.9
    
    
    
    2.2
    
    
    
    96.8
    
    
    
    1.4
    
    
    
    137.0
    
    
    
    1.9Income tax expense
    
    
    38.1
    
    
    
    0.4
    
    
    
    7.9
    
    
    
    0.1
    
    
    
    7.3
    
    
    
    0.1Net earnings from continuing operations
    
    
    163.8
    
    
    
    1.8
    
    
    
    88.9
    
    
    
    1.3
    
    
    
    129.7
    
    
    
    1.8Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    Net earnings
    
    $
    163.8
    
    
    
    1.8
    
    
    $
    88.9
    
    
    
    1.3
    
    
    $
    131.8
    
    
    
    1.8
 39




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##### Table of Contents



Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Overview of Results
 For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Net earnings
    
    $
    163.8
    
    
    $
    88.9
    
    
    $
    74.9
  For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Net sales
    
    $
    8,924.9
    
    
    $
    7,102.3
    
    
    $
    1,822.6
  For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Gross profit
    
    $
    767.2
    
    
    $
    660.9
    
    
    $
    106.3
  For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Selling, general and administrative expense
    
    $
    622.2
    
    
    $
    515.5
    
    
    $
    106.7
  40




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##### Table of Contents



For the years ended December 31,2007
    
    2006
    
    Decrease($ in millions)Restructuring and impairment charges
    
    $
    4.0
    
    
    $
    21.2
    
    
    $
    (17.2
    )
   For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Gain on insurance settlement
    
    $
    5.9
    
    
    $
    0.0
    
    
    $
    5.9
  For the years ended December 31,2007
    
    2006
    
    Decrease($ in millions)Interest expense, net
    
    $
    48.9
    
    
    $
    58.4
    
    
    $
    (9.5
    )
  For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Equity in earnings of affiliated companies
    
    $
    68.2
    
    
    $
    13.7
    
    
    $
    54.5
  For the years ended December 31,2007
    
    2006
    
    Increase($ in millions)Income tax expense
    
    $
    38.1
    
    
    $
    7.9
    
    
    $
    30.2
 41




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##### Table of Contents



Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the Years Ended December 312007
    
    2006
    
    %Change($ in millions)Net sales
    
    $
    4,176.8
    
    
    $
    3,241.3
    
    
    
    28.9
    %Gross profit
    
    
    277.5
    
    
    
    239.4
    
    
    
    15.9
    %Gross profit as a % of sales
    
    
    6.6
    %
    
    
    7.4
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    963.3Volume impact
    
    
    224.5Acquisitions and divestitures
    
    
    (252.3
    )Total increase
    
    $
    935.5
  Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    41.8Volume impact
    
    
    (7.8
    )Unrealized hedging
    
    
    (6.4
    )Acquisitions and divestitures
    
    
    10.5Total increase
    
    $
    38.1
  42




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##### Table of Contents



Feed
 For the Years Ended December 312007
    
    2006
    
    % Change($ in millions)Net sales
    
    $
    3,061.6
    
    
    $
    2,711.4
    
    
    
    12.9
    %Gross profit
    
    
    299.9
    
    
    
    298.6
    
    
    
    0.4
    %Gross profit as a % of sales
    
    
    9.8
    %
    
    
    11.0
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    552.5Volume impact
    
    
    (153.4
    )Acquisitions and divestitures
    
    
    (48.9
    )Total increase
    
    $
    350.2
  Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    24.7Volume impact
    
    
    (21.0
    )Unrealized hedging
    
    
    3.6Acquisitions and divestitures
    
    
    (6.0
    )Total increase
    
    $
    1.3
  43




---



##### Table of Contents



Seed
 For the Years Ended December 312007
    
    2006
    
    % Change($ in millions)Net sales
    
    $
    917.0
    
    
    $
    756.0
    
    
    
    21.3
    %Gross profit
    
    
    117.9
    
    
    
    107.1
    
    
    
    10.1
    %Gross profit as a % of sales
    
    
    12.9
    %
    
    
    14.2
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    60.0Volume impact
    
    
    101.0Total increase
    
    $
    161.0
 ®
 Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    0.3Volume impact
    
    
    10.5Total increase
    
    $
    10.8
 ® ®
 Layers
 For the Years Ended December 312007
    
    2006
    
    % Change($ in millions)Net sales
    
    $
    513.9
    
    
    $
    398.4
    
    
    
    29.0
    %Gross profit
    
    
    79.8
    
    
    
    21.4
    
    
    
    272.9
    %Gross profit as a % of sales
    
    
    15.5
    %
    
    
    5.4
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    158.8Volume impact
    
    
    11.3Acquisitions and divestitures
    
    
    (54.6
    )Total increase
    
    $
    115.5
  44




---



##### Table of Contents



Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    62.3Volume impact
    
    
    0.5Unrealized hedging
    
    
    0.3Acquisitions and divestitures
    
    
    (4.7
    )Total increase
    
    $
    58.4
  Agronomy
  Net Sales
  Gross Profit
  Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Overview of Results
 For the years ended December 31,2006
    
    2005
    
    Decrease($ in millions)Net earnings
    
    $
    88.9
    
    
    $
    131.8
    
    
    $
    (42.9
    )
  45




---



##### Table of Contents



For the years ended December 31,2006
    
    2005
    
    Decrease($ in millions)Net sales
    
    $
    7,102.3
    
    
    $
    7,336.1
    
    
    
    ($233.8
    )
  For the years ended December 31,2006
    
    2005
    
    Increase($ in millions)Gross profit
    
    $
    660.9
    
    
    $
    585.0
    
    
    $
    75.9
  For the years ended December 31,2006
    
    2005
    
    Increase($ in millions)Selling, general and administrative expense
    
    $
    515.5
    
    
    $
    494.9
    
    
    $
    20.6
  For the years ended December 31,2006
    
    2005
    
    Increase($ in millions)Restructuring and impairment charges
    
    $
    21.2
    
    
    $
    6.4
    
    
    $
    14.8
   46




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##### Table of Contents



For the years ended December 31,2006
    
    2005
    
    Decrease($ in millions)Interest expense, net
    
    $
    58.4
    
    
    $
    79.9
    
    
    $
    (21.5
    )
  For the years ended December 31,2006
    
    2005
    
    Decrease($ in millions)Equity in earnings of affiliated companies
    
    $
    13.7
    
    
    $
    41.3
    
    
    $
    (27.6
    )
  For the years ended December 31,2006
    
    2005
    
    Increase($ in millions)Income tax expense
    
    $
    7.9
    
    
    $
    7.3
    
    
    $
    0.6
  Net Sales and Gross Profit by Business Segment
  Dairy Foods
 For the Years Ended December 312006
    
    2005
    
    %Change($ in millions)Net sales
    
    $
    3,241.3
    
    
    $
    3,684.1
    
    
    
    (12.0
    %)Gross profit
    
    
    239.4
    
    
    
    186.6
    
    
    
    28.3
    %Gross profit as a % of sales
    
    
    7.4
    %
    
    
    5.1
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    (437.6
    )Volume impact
    
    
    (5.2
    )Total decrease
    
    $
    (442.8
    )
 47




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##### Table of Contents



Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    35.7Volume impact
    
    
    6.4Unrealized hedging
    
    
    10.7Total increase
    
    $
    52.8
  Feed
 For the Years Ended December 312006
    
    2005
    
    % Change($ in millions)Net sales
    
    $
    2,711.4
    
    
    $
    2,586.9
    
    
    
    4.8
    %Gross profit
    
    
    298.6
    
    
    
    290.6
    
    
    
    2.8
    %Gross profit as a % of sales
    
    
    11.0
    %
    
    
    11.2
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    2.5Volume impact
    
    
    19.7Acquisitions and divestitures
    
    
    102.3Total increase
    
    $
    124.5
  Gross Profit Variance
    
    Increase(decrease)($ in millions)Margin / product mix impact
    
    $
    3.9Volume impact
    
    
    2.5Unrealized hedging
    
    
    (3.6
    )Acquisitions and divestitures
    
    
    5.2Total increase
    
    $
    8.0
  48




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##### Table of Contents



Seed
 For the Years Ended December 312006
    
    2005
    
    % Change($ in millions)Net sales
    
    $
    756.0
    
    
    $
    653.9
    
    
    
    15.6
    %Gross profit
    
    
    107.1
    
    
    
    84.4
    
    
    
    26.9
    %Gross profit as a % of sales
    
    
    14.2
    %
    
    
    12.9
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    47.9Volume impact
    
    
    50.1Acquisitions and divestitures
    
    
    4.1Total increase
    
    $
    102.1
  Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    13.6Volume impact
    
    
    5.5Unrealized hedging
    
    
    2.2Acquisitions and divestitures
    
    
    1.4Total increase
    
    $
    22.7
 ®
 Layers
 For the Years Ended December 312006
    
    2005
    
    % Change($ in millions)Net sales
    
    $
    398.4
    
    
    $
    407.0
    
    
    
    (2.1
    %)Gross profit
    
    
    21.4
    
    
    
    21.9
    
    
    
    (2.3
    %)Gross profit as a % of sales
    
    
    5.4
    %
    
    
    5.4
    %
 Increase(decrease)Net Sales Variance
    
    ($ in millions)Pricing / product mix impact
    
    $
    44.9Volume impact
    
    
    4.9Acquisitions
and divestitures
    
    
    (58.4
    )Total decrease
    
    $
    (8.6
    )
  49




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##### Table of Contents



Increase(decrease)Gross Profit Variance
    
    ($ in millions)Margin / product mix impact
    
    $
    3.6Volume impact
    
    
    3.1Unrealized hedging
    
    
    (0.7
    )Acquisitions and divestitures
    
    
    (6.5
    )Total decrease
    
    $
    (0.5
    )
  Liquidity and Capital Resources
 Overview
         2007
    
    2006($ in millions)Cash and cash equivalents
    
    $
    116.8
    
    
    $
    79.7Availability on revolving credit facility
    
    
    196.0
    
    
    
    174.4Availability on receivable securitization program
    
    
    230.0
    
    
    
    200.0Total liquidity
    
    $
    542.8
    
    
    $
    454.1
 50




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##### Table of Contents



Cash Flows
  Operating Activities
 2007
    
    2006
    
    2005($ in millions)Net earnings
    
    $
    163.8
    
    
    $
    88.9
    
    
    $
    131.8Earnings from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (2.2
    )Adjustments to reconcile net earnings to net cash provided by operating
activities
    
    
    10.5
    
    
    
    118.6
    
    
    
    33.8Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    154.5
    
    
    
    (11.0
    )
    
    
    110.2Net cash provided by operating activities
    
    
    328.8
    
    
    
    196.5
    
    
    
    273.6
 Operating Activities
 Investing Activities
 2007
    
    2006
    
    2005($ in millions)Additions to property, plant and equipment
    
    $
    (91.1
    )
    
    $
    (83.8
    )
    
    $
    (70.4
    )Acquisitions
    
    
    (2.9
    )
    
    
    (88.1
    )
    
    
    (46.1
    )Investments in affiliates
    
    
    (331.7
    )
    
    
    (4.9
    )
    
    
    (5.6
    )Distributions from investments in affiliates
    
    
    25.0
    
    
    
    
    
    
    
    Net settlement on repositioning investment in joint venture
    
    
    (87.9
    )
    
    
    
    
    
    
    Net proceeds from divestiture of businesses
    
    
    212.1
    
    
    
    42.5
    
    
    
    2.6Proceeds from sale of investments
    
    
    0.6
    
    
    
    9.3
    
    
    
    316.9Proceeds from sale of property, plant and equipment
    
    
    10.5
    
    
    
    1.7
    
    
    
    22.2Insurance proceeds for replacement assets
    
    
    8.6
    
    
    
    
    
    
    
    Change in notes receivable
    
    
    (18.4
    )
    
    
    15.8
    
    
    
    (15.2
    )Other
    
    
    (0.1
    )
    
    
    7.2
    
    
    
    20.9Net cash (used) provided by investing activities
    
    
    (275.3
    )
    
    
    (100.3
    )
    
    
    225.3
 Investing Activities
 51




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##### Table of Contents



Financing Activities
 2007
    
    2006
    
    2005($ in millions)Increase (decrease) in short-term debt
    
    $
    75.4
    
    
    $
    (98.5
    )
    
    $
    21.3Proceeds from issuance of long-term debt
    
    
    8.3
    
    
    
    16.4
    
    
    
    2.0Principal payments on long-term debt and capital lease obligations
    
    
    (41.8
    )
    
    
    (36.6
    )
    
    
    (379.9
    )Payments for redemption of member equities
    
    
    (58.0
    )
    
    
    (80.6
    )
    
    
    (68.7
    )Payments for debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    (11.0
    )Payments for debt issuance costs
    
    
    
    
    
    
    (1.5
    )
    
    
    Other
    
    
    (0.3
    )
    
    
    4.9
    
    
    
    (2.0
    )Net cash used by financing activities
    
    
    (16.4
    )
    
    
    (195.9
    )
    
    
    (438.3
    )
 Financing Activities.
 Cash Requirements
  Payments Due by Year (as of December 31, 2007)Less Than
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsContractual Commitments
    
    (In thousands)Debt and leases:Revolving credit facility(1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Receivables securitization facility (2)
    
    
    70,000
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    Other short-term borrowings (3)
    
    
    62,170
    
    
    
    62,170
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    616,784
    
    
    
    5,182
    
    
    
    184,661
    
    
    
    201,541
    
    
    
    225,400Operating leases
    
    
    113,346
    
    
    
    42,077
    
    
    
    43,109
    
    
    
    20,844
    
    
    
    7,316Other:Swine contract payments (4)
    
    
    83,892
    
    
    
    35,180
    
    
    
    34,483
    
    
    
    14,229
    
    
    
    Non-cancelable purchase commitments (5)
    
    
    2,783,019
    
    
    
    2,705,633
    
    
    
    77,386
    
    
    
    
    
    
    
    Other obligations(6)
    
    
    10,736
    
    
    
    2,879
    
    
    
    4,001
    
    
    
    3,156
    
    
    
    700Total contractual obligations(7)
    
    $
    3,739,947
    
    
    $
    2,923,121
    
    
    $
    343,640
    
    
    $
    239,770
    
    
    $
    233,416
 
     52




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##### Table of Contents



Guarantees and Indemnification Obligations
   Principal Debt Facilities
   53




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##### Table of Contents



54




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##### Table of Contents



Capital Leases
  Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  Inventory Valuation.
 Derivative Commodity Instruments.
 Rebates Receivable. Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor
 55




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##### Table of Contents



Allowance for Doubtful Accounts.
 Recoverability of Long-Lived Assets.
 Income Taxes, Tax Valuation, and Uncertain Tax Positions. Accounting for Uncertainties in Income Taxes.
  Trade Promotion and Consumer Incentive Activities.
 Pension and Other Post-Retirement Plans.
  Recent Accounting Pronouncements
   56




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Commodity Risk
  57




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##### Table of Contents



At December 31,2007
    
    2006Notional
    
    Fair
    
    Notional
    
    FairAmount
    
    Value
    
    Amount
    
    Value($ in thousands)Commodity futures and options contractsCommitments to purchase
    
    $
    213,544
    
    
    $
    28,856
    
    
    $
    168,336
    
    
    $
    10,508Commitments to sell
    
    
    (80,577
    )
    
    
    (11,501
    )
    
    
    (91,642
    )
    
    
    (4,932
    )
 Year Ended December 31,2007
    
    2006Realized
    
    
    
    
    
    RealizedNotional
    
    Gains
    
    Notional
    
    GainsAmount
    
    (Losses)
    
    Amount
    
    (Losses)($ in thousands)Commodity futures and options contractsTotal volume of exchange traded contracts:Commitments to purchase
    
    $
    1,791,876
    
    
    $
    29,395
    
    
    $
    908,773
    
    
    $
    (32,225
    )Commitments to sell
    
    
    (1,887,775
    )
    
    
    8,285
    
    
    
    (1,097,202
    )
    
    
    10,980
 Interest Rate Risk
   Inflation Risk
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  58




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##### Table of Contents



Item 9A. Controls and Procedures.
 Evaluation of disclosure controls and procedures
   Managements report on internal control over financial reporting
   Material Weakness Identified as
of December 31, 2007:
   Remediation
and Changes in Internal Control over Financial Reporting:
  Change in internal controls
  By       /s/ Chris PolicinskiChristopher J. PolicinskiPresident and Chief Executive OfficerBy    /s/ DANIEL KNUTSONDaniel E. KnutsonChief Financial Officer Non-Attestation by the Companys auditors
  
 Item 9B. Other Information.
  59




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    TitleChris Policinski
    
    
    49
    
    
    President and Chief Executive OfficerDaniel Knutson
    
    
    51
    
    
    Senior Vice President and Chief Financial OfficerSteve Dunphy
    
    
    50
    
    
    Executive Vice President and Chief Operating
Officer, Dairy Foods Value AddedAlan Pierson
    
    
    57
    
    
    Executive Vice President and Chief Operating
Officer, Dairy Foods IndustrialFernando Palacios
    
    
    48
    
    
    Executive Vice President and Chief Operating
Officer, FeedMike Vandelogt
    
    
    53
    
    
    Executive Vice President and Chief Operating
Officer  SeedRodney Schroeder
    
    
    52
    
    
    Executive Vice President and Chief Operating
Officer  Crop Protection ProductsDavid Seehusen
    
    
    61
    
    
    Executive Vice President, Ag Business Development
and Member ServicesJean-Paul Ruiz-Funes
    
    
    50
    
    
    Senior Vice President, Corporate Strategy and
Business DevelopmentBarry Wolfish
    
    
    51
    
    
    Senior Vice President, Corporate Marketing StrategyJim Fife
    
    
    58
    
    
    Senior Vice President, Public AffairsPeter Janzen
    
    
    48
    
    
    Senior Vice President, General CounselKaren Grabow
    
    
    58
    
    
    Senior Vice President, Human ResourcesDave Andresen
    
    
    54
    
    
    DirectorRobert Bignami
    
    
    65
    
    
    DirectorHarley Buys
    
    
    55
    
    
    DirectorDennis Cihlar
    
    
    58
    
    
    DirectorMark Clark
    
    
    45
    
    
    DirectorBen Curti
    
    
    57
    
    
    DirectorJim Hager
    
    
    56
    
    
    DirectorPete Kappelman
    
    
    45
    
    
    Director, Chairman of the BoardCornell Kasbergen
    
    
    50
    
    
    DirectorPaul Kent, Jr.
    
    
    57
    
    
    DirectorLarry Kulp
    
    
    65
    
    
    DirectorCharles Lindner
    
    
    55
    
    
    DirectorRobert Marley
    
    
    56
    
    
    DirectorJim Miller
    
    
    66
    
    
    DirectorRonnie Mohr
    
    
    59
    
    
    Director, First Vice Chairman of the BoardRon Muzzall
    
    
    45
    
    
    DirectorJames Netto
    
    
    48
    
    
    DirectorDouglas Reimer
    
    
    57
    
    
    Director, SecretaryRichard Richey
    
    
    59
    
    
    DirectorFloyd Trammell
    
    
    52
    
    
    DirectorMyron Voth
    
    
    54
    
    
    DirectorThomas Wakefield
    
    
    58
    
    
    DirectorAl Wanner
    
    
    60
    
    
    DirectorJohn
Zonneveld, Jr.
    
    
    54
    
    
    DirectorHoward Liszt
    
    
    61
    
    
    Nonvoting Advisory MemberRobert Thompson
    
    
    62
    
    
    Nonvoting Advisory MemberMary Shefland
    
    
    57
    
    
    Nonvoting Advisory Member
  60




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##### Table of Contents



Chris Policinski,
 Daniel Knutson,
 Fernando Palacios,
 Alan Pierson
 Steve Dunphy
 Mike Vandelogt,
 Rod Schroeder,
 Dave Seehusen
 Jean-Paul Ruiz-Funes
 Barry Wolfish
 Jim Fife,
 61




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##### Table of Contents



Peter Janzen,
 Karen Grabow,
 Dave Andresen
 Robert Bignami
 Harley Buys
 Dennis Cihlar
 Mark Clark
 Ben Curti
 Jim Hager
 Pete Kappelman
 Cornell Kasbergen
 Paul Kent, Jr.
 Larry Kulp
 Charles Lindner
 Robert Marley
 Jim Miller
 Ronnie Mohr
 62




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##### Table of Contents



Ron Muzzall
 James Netto
 Douglas Reimer
 Richard Richey
 Floyd Trammell
 Myron Voth
 Thomas Wakefield
 Al Wanner
 John Zonneveld, Jr.
 Mary Shefland
 Howard Liszt
 Professor Robert Thompson
 63




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##### Table of Contents



Item 11. Executive Compensation.
 Overview
    Philosophy
  
    
    Deliver market-competitive compensation
    
    Reflect an acceptable degree of internal equity among executive officers; that is,
comparable compensation opportunities for positions of comparable content and ability to
impact company performance
    
    Provide a sharpened focus on key financial measures, reward executives for success in
meeting and exceeding financial goals, and motivate executives to exceed financial goals
 64




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##### Table of Contents




    
    Reinforce a culture of performance
    
    Be affordable in the context of Board-approved short and long-term financial goals
 Process
     Andersons, Inc
    
    Archer-Daniels-Midland Co.
    
    Campbell Soup Co.
    
    Chemtura Corp.Chiquita Brands Intl. Inc.
    
    CHS Inc.
    
    Coca-Cola Co.
    
    ConAgra Foods Inc.Dean Foods Co.
    
    Del Monte Foods Co.
    
    Dow Chemical Co.
    
    Du PontEastman Chemical Co.
    
    General Mills Inc.
    
    Gold Kist Holdings Inc.
    
    Heinz Co.Hershey Co.
    
    Hormel Foods Corp.
    
    Kellogg Co.
    
    Kraft Foods Inc.McCormick & Company Inc.
    
    Monsanto Co.
    
    Pepsico Inc.
    
    Pilgrims Pride Corp.Ralcorp Holdings Inc.
    
    Sara Lee Corp.
    
    Scotts Miracle-Gro
    
    Seaboard Corp.Smithfield Foods Inc.
    
    J.M. Smucker Co.
    
    Sysco Corp.
    
    Tyson Foods Inc.UAP Holding Corp.
    
    WM Wrigley Jr. Co.
 Compensation Structure
  
    
    Annual base salary
    
    Annual and long-term variable compensation
    
    Long-term equity value incentive compensation
    
    Retirement benefits
    
    Perquisites and other personal benefits
   65




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##### Table of Contents



Annual Base Salary.
   Annual and Long-Term Variable Compensation.
  
    
    The Executive Committee is responsible for reviewing and approving the plan design while
management is responsible for recommending the plan design.
    
    All executive officers are eligible to participate in the variable compensation plans.
The President may, in the Presidents sole discretion, exclude an executive officer from
either or both plans for business reasons. No exclusions were made, with respect to named
executive officers, under either plan for payments earned in 2007.
    
    The President reserves the right to, in the Presidents sole discretion, increase,
reduce, or withhold awards under the plans to executive officers where unusual
circumstances warrant. This discretion was not exercised in 2007 to any named executive
officer. There is no provision in either plan to recoup payment from an executive officer
once payment has been made.
    
    Unique nonrecurring business events that have a substantial impact on the Companys
financial results in a given year may be excluded from the calculations for determining
awards from the plans. An example would be a major gain or loss from an acquisition or
divestiture. Amounts to be excluded are determined by the President and reported to the
Executive Committee. The Executive Committee must approve any amounts to be excluded for
purposes of determining the Presidents award.
    
    The Board of Directors annually approves the financial targets for each plan. In
addition, the actual results for the measures in each plan are reviewed and approved by the
Executive Committee after the performance period closes. Along with this, the total of the
calculated award amounts for all executive officers is reviewed by the Executive Committee
annually.
    
    The Executive Committee approves the calculated awards for the President and has the
sole discretion to increase, reduce, or withhold calculated awards for the President under
the plans where unusual circumstances warrant.
    
    Amounts earned under the variable compensation plans by named executive officers in 2007
are shown in the Non-equity Incentive Plan column of the Summary Compensation Table.
    
    Executive officers can elect in advance to defer all or a portion of their earned
awards. Earnings under both plans are included as eligible earnings for purposes of our
qualified and non-qualified retirement programs.
 66




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##### Table of Contents



Annual Variable Compensation .
 
    
    Recognize and reward achievement of both overall Company results and business unit results.
 
    
    Integrate business strategies with the compensation structure and align individual efforts
in achieving Company and business unit results.
 
    
    Provide a market-competitive variable compensation element.
   Measure as % of Total Target AwardOpportunityBusiness UnitCorporate Officer
    
    OfficerTotal Company ROE
    
    
    20
    %
    
    
    20
    %Total Company Pre-tax Earnings
    
    
    65
    %
    
    
    30
    %Business Unit Pre-tax Earnings
    
    
    0
    %
    
    
    35
    %Individual Objectives
    
    
    15
    %
    
    
    15
    %Total
    
    
    100
    %
    
    
    100
    %
  
    
    Actual performance must reach 85% of the Board-approved plan (the Plan) in order for an
award for that measure to be earned. At 85% performance on all measures, an award of 45.8% of
target is earned.
 
    
    Actual performance must reach 100% of Plan in order for a target award for that measure to
be earned.
 
    
    For the ROE measure, performance must reach 200% of Plan for the maximum award for the
measure to be earned. For the Pre-tax Earnings measure, performance must reach 175% of Plan
in order for the maximum award for the measure to be earned.
   67




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##### Table of Contents



Executive Long-Term Variable Compensation Plan (LTIP).
 
    
    Link executive pay with long-term business performance.
 
    
    Align management and member interests.
 
    
    Provide for a competitive pay element and encourage retention of key executives.
 
    
    Drive performance of individual business units.
   
    
    Actual performance on both measures must reach 85% of Plan in order for payments to be
earned. At 85% performance on both measures, an award of 40% of target is earned.
 
    
    Actual performance on both measures must reach Plan, or actual performance on at least one
measure must exceed Plan in order for a target award to be earned.
 
    
    Actual performance on both measures must reach 110% of Plan in order for the maximum award
of 125% of target to be earned.
 
    
    The financial goals for corporate executive officers are tied 100% to Company results. For
the performance periods of 2005-07 and 2006-08, the financial goals for executive officers
assigned to a business unit are tied 100% to the business unit. For the performance period of
2007-09 the financial goals for executive officers assigned to a business unit are tied 50% to
Company results and 50% to the business unit. This change was made to increase officer focus
on total company performance.
   68




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Long-Term Equity Value Incentive Compensation.
        69




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##### Table of Contents



Retirement Benefits.
 1.
    
    Land OLakes Employee Retirement Plan2.
    
    Non-Qualified Excess Benefit Plan (IRS Limits)3.
    
    Land OLakes Employee Savings and Supplemental Retirement Plan4.
    
    Non-Qualified Excess Benefit Savings Plan5.
    
    Land OLakes Non-Qualified Deferred Compensation Plan
 Land OLakes Employee Retirement Plan (Pension Plan) and Land OLakes Non-Qualified Excess Benefit
Plan (IRS Limits).
      Land OLakes Employee Savings and Supplemental Retirement Plan (401(k) Plan).
 70




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##### Table of Contents



Non-Qualified Executive Excess Benefit Savings Plan.
   Land OLakes Non-Qualified Deferred Compensation Plan.
    71




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##### Table of Contents



1.
    
    The approval by the members of our Company of a reorganization, merger, share exchange or
consolidation in each case, where parties who were members of the Company immediately prior to
such reorganization, merger, share exchange or consolidation do not, immediately thereafter,
hold more than fifty percent (50%) of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged, surviving or consolidated company; or a
liquidation or dissolution of the Company or of the sale of all or substantially all of the
Companys assets;
 2.
    
    Consummation of a business combination between the Company and an entity which has either
assets or sales equal to or greater than eighty percent (80%) of the assets or sales,
respectively, of the Company as determined with reference to the companys most recent annual
report; or
 3.
    
    A change of fifty percent (50%) in the Executive Officers of the Company at the level of Vice
President and above within a consecutive twelve (12) month period.
 Other Personal Benefits and Perquisites.
 Severance Agreement.
  1.
    
    Change of Control or Other Substantial Change of Circumstances, and2.
    
    Any of the following termination events:
 a.
    
    The Presidents involuntary termination prior to and in anticipation of, or
within twenty-four (24) months after a Change of Control, orb.
    
    the Presidents Voluntary Termination for Good Reason within twenty-four (24)
months after a Change of Control, orc.
    
    the Presidents involuntary termination prior to and in anticipation of, or
within twelve (12) months after a Substantial Change of Circumstance other than a Change
of Control.
  72




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##### Table of Contents



EXECUTIVE COMMITTEE REPORT
   /s/ Pete Kappelman

Pete Kappelman
    
    
    
    /s/ Ronnie Mohr

Ronnie Mohr/s/ John Zonneveld
    
    
    
    /s/ Doug ReimerJohn Zonneveld
    
    
    
    Doug Reimer/s/ Cornell Kasbergen
    
    
    
    /s/ Paul KentCornell Kasbergen
    
    
    
    Paul Kent/s/ Robert Marley
    
    
    
    /s/ Jim HagerRobert Marley
    
    
    
    Jim Hager
 73




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SUMMARY COMPENSATION TABLE
  (a)
    
    (b)
    
    (c)
    
    (d)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)Change inPension ValueandValue
    
    Non-
    
    NonqualifiedAppreciation
    
    Equity
    
    Deferred
    
    All OtherRight Unit
    
    Incentive
    
    Compensation
    
    CompensationSalary
    
    Bonus
    
    Awards1
    
    Plan2
    
    Earnings3
    
    4, 5, 6
    
    TotalName & Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Christopher J. Policinski
    
    
    2007
    
    
    $
    823,558
    
    
    $
    
    
    
    $
    1,013,521
    
    
    $
    2,055,998
    
    
    $
    127,959
    
    
    $
    70,314
    
    
    $
    4,091,350President & Chief Executive Officer
    
    
    2006
    
    
    
    750,000
    
    
    
    
    
    
    
    311,774
    
    
    
    682,800
    
    
    
    121,671
    
    
    
    131,283
    
    
    
    1,997,528Daniel E. Knutson
    
    
    2007
    
    
    $
    481,875
    
    
    $
    
    
    
    $
    819,653
    
    
    $
    956,331
    
    
    $
    80,864
    
    
    $
    60,371
    
    
    $
    2,399,094Senior Vice President &
Chief Financial Officer
    
    
    2006
    
    
    
    451,690
    
    
    
    
    
    
    
    280,067
    
    
    
    308,414
    
    
    
    279,162
    
    
    
    42,876
    
    
    
    1,362,209David L. Seehusen
    
    
    2007
    
    
    $
    294,478
    
    
    $
    
    
    
    $
    370,105
    
    
    $
    589,900
    
    
    $
    621,345
    
    
    $
    49,027
    
    
    $
    1,924,855Executive Vice President,
Ag Business Development
& Member Services
    
    
    2006
    
    
    
    265,700
    
    
    
    
    
    
    
    121,755
    
    
    
    404,703
    
    
    
    366,640
    
    
    
    31,628
    
    
    
    1,190,426Fernando J. Palacios
    
    
    2007
    
    
    $
    511,766
    
    
    $
    
    
    
    $
    500,489
    
    
    $
    756,996
    
    
    $
    47,201
    
    
    $
    84,397
    
    
    $
    1,900,849Executive Vice President
& Chief Operating Officer
- Feed
    
    
    2006
    
    
    
    445,303
    
    
    
    
    
    
    
    161,188
    
    
    
    300,045
    
    
    
    78,761
    
    
    
    52,084
    
    
    
    1,037,381Peter S. Janzen
    
    
    2007
    
    
    $
    395,508
    
    
    $
    
    
    
    $
    196,122
    
    
    $
    616,608
    
    
    $
    94,739
    
    
    $
    45,556
    
    
    $
    1,348,533Senior Vice President,
General Counsel
    
    
    2006
    
    
    
    352,008
    
    
    
    
    
    
    
    72,267
    
    
    
    198,532
    
    
    
    153,199
    
    
    
    29,624
    
    
    
    805,630
 
 1)
    
    The amounts in column (f) reflect the fiscal year 2006 and 2007 expense recognized for
financial reporting purposes, in conformance with FAS 123(R), of grants made under the Land OLakes
Cooperative Incentive Plan (CVIP) and include amounts from grants made in 2007 and prior years.2)
    
    The amounts in column (g) reflect earnings under the Land OLakes Annual Variable Compensation
and Long-Term Variable Compensation Plans, the details of which are outlined in the accompanying
Compensation Discussion and Analysis report.3)
    
    The amounts in column (h) reflect the actuarial increase in the present value of benefits under
the Land OLakes qualified and non-qualified pension plans. The amounts are based on assumptions
and measurement dates that are the same as those used for the valuation of pension liabilities in
the Fiscal 2007 annual report.4)
    
    The amounts in column (i) reflect the sum total of the value of the following elements provided
to all named executive officers:
 -
    
    Imputed income and associated tax gross-up for the value of company-provided executive
life and disability insurance-
    
    Matching contributions made by Land OLakes under the Land OLakes Savings and
Supplemental Retirement Plan (401(k))-
    
    Matching contributions made by Land OLakes under the Land OLakes non-qualified deferred
compensation and excess benefit savings plans-
    
    Car allowance
 5)
    
    The amount in column (i) for Mr. Policinski also includes monthly dues for membership in a
country club.6)
    
    The amount in column (i) for Mr. Palacios also includes company-paid expenses for travel from
his Florida home to Land OLakes headquarters in Minnesota.
 74




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##### Table of Contents



GRANTS OF PLAN-BASED AWARDS IN 2007
 Estimated Future Payouts Under Non-EquityIncentive Plan Awards1(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (j)
    
    (k)
    
    (l)All Other ValueAppreciationRights (VAR)Unit Awards:Number of
    
    
    
    
    
    Grant DateSecurities
    
    
    
    
    
    Fair Value ofUnderlying
    
    VAR Unit
    
    VAR unitName
    
    Grant Date2
    
    Threshold ($)3
    
    Target($)
    
    Maximum ($)
    
    VAR Units
    
    Exercise Price
    
    Awards4Christopher J.
Policinski (CEO)
    
    
    1/1/2007
    
    
    $
    330,000
    
    
    $
    825,000
    
    
    $
    1,031,250
    
    
    
    12,000
    
    
    $
    49.86
    
    
    
    Daniel E. Knutson
(CFO)
    
    
    1/1/2007
    
    
    $
    157,338
    
    
    $
    393,345
    
    
    $
    491,681
    
    
    
    5,250
    
    
    $
    49.86
    
    
    
    Fernando J. Palacios
    
    
    1/1/2007
    
    
    $
    164,160
    
    
    $
    410,400
    
    
    $
    513,000
    
    
    
    5,250
    
    
    $
    49.86
    
    
    
    David L. Seehusen
    
    
    1/1/2007
    
    
    $
    94,400
    
    
    $
    236,000
    
    
    $
    295,000
    
    
    
    2,250
    
    
    $
    49.86
    
    
    
    Peter S. Janzen
    
    
    1/1/2007
    
    
    $
    98,168
    
    
    $
    245,419
    
    
    $
    306,774
    
    
    
    2,250
    
    
    $
    49.86
    
    
    
    
 
 1)
    
    Information displayed reflects participation in the 2007-09 performance period of the Land
OLakes Executive Long-term Variable Compensation Plan (LTIP).2)
    
    All grants made for a fiscal year under the Land OLakes Cooperative Value Incentive Plan
(CVIP) are deemed to have a grant date of January 1 of the year. Each grant has the same exercise
price, as the CVIP valuation is performed once a year based on prior fiscal year results. The 2007
grant shown for Mr. Policinski was approved by the Executive Committee of the Board on December 11,
2006, while the 2007 grants for the other named executive officers were approved by Mr. Policinski
on February 12, 2007.3)
    
    Estimated award when threshold performance level of 85% of target is achieved. Under the LTIP
terms, for performance below this level, no payment is carried.4)
    
    Since this a formula plan, management does not use Black-Scholes or any other similar modeling
tool to calculate the grant date fair value of the underlying unit awards, even though such amounts
could be calculated. 75




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END
 Value Appreciation Rights (VAR) Unit Awards(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)Equity IncentivePlan Awards:Number of
    
    Number of
    
    Number ofSecurities
    
    Securities
    
    SecuritiesUnderlying
    
    Underlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    UnexercisedVAR Units (#)
    
    VAR Units (#)
    
    Unearned VAR
    
    VAR Units
    
    VAR UnitsName
    
    Date of Grant
    
    Exercisable1
    
    Unexercisable
    
    Units (#)
    
    Exercise Price
    
    Expiration Date2Christopher J.
    
    
    1/1/2007
    
    
    
    3,000
    
    
    
    9,000
    
    
    
    
    
    
    $
    49.86
    
    
    
    Policinski (CEO)
    
    
    1/1/2006
    
    
    
    6,000
    
    
    
    6,000
    
    
    
    
    
    
    $
    41.11
    
    
    
    1/1/2005
    
    
    
    3,937.5
    
    
    
    1,312.5
    
    
    
    
    
    
    $
    34.47
    
    
    
    1/1/2004
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.11
    
    
    
    1/1/2003
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    1/1/2002
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    1/1/2001
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Daniel E. Knutson
    
    
    1/1/2007
    
    
    
    1,312.5
    
    
    
    3,937.5
    
    
    
    
    
    
    $
    49.86
    
    
    
    (CFO)
    
    
    1/1/2006
    
    
    
    2,625
    
    
    
    2,625
    
    
    
    
    
    
    $
    41.11
    
    
    
    1/1/2005
    
    
    
    3,937.5
    
    
    
    1,312.5
    
    
    
    
    
    
    $
    34.47
    
    
    
    1/1/2004
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.11
    
    
    
    1/1/2003
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    1/1/2002
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    1/1/2001
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Fernando J. Palacios
    
    
    1/1/2007
    
    
    
    1,312.5
    
    
    
    3,937.5
    
    
    
    
    
    
    $
    49.86
    
    
    
    1/1/2006
    
    
    
    2,625
    
    
    
    2,625
    
    
    
    
    
    
    $
    41.11
    
    
    
    1/1/2005
    
    
    
    3,937.5
    
    
    
    1,312.5
    
    
    
    
    
    
    $
    34.47
    
    
    
    1/1/2004
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.11
    
    
    
    1/1/2003
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    1/1/2002
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    35.691/1/2001
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50David L. Seehusen
    
    
    1/1/2007
    
    
    
    562.5
    
    
    
    1,687.5
    
    
    
    
    
    
    $
    49.86
    
    
    
    1/1/2006
    
    
    
    1,125
    
    
    
    1,125
    
    
    
    
    
    
    $
    41.11
    
    
    
    1/1/2005
    
    
    
    1,687.5
    
    
    
    562.5
    
    
    
    
    
    
    $
    34.47
    
    
    
    1/1/2004
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.11
    
    
    
    1/1/2003
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    1/1/2002
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    1/1/2001
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Peter S. Janzen
    
    
    1/1/2007
    
    
    
    562.5
    
    
    
    1,687.5
    
    
    
    
    
    
    $
    49.86
    
    
    
    1/1/2006
    
    
    
    1,125
    
    
    
    1,125
    
    
    
    
    
    
    $
    41.11
    
    
    
    1/1/2005
    
    
    
    1,687.5
    
    
    
    562.5
    
    
    
    
    
    
    $
    34.47
    
    
    
    1/1/2004
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.11
    
    
    
    1/1/2003
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    1/1/2002
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    1/1/2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    
 
 1)
    
    Value Appreciation Right (VAR) Units and the vesting schedule are described in the Land OLakes
Cooperative Value Incentive Plan (CVIP) section of the accompanying Compensation Discussion and
Analysis report.2)
    
    At the end of a 10-year holding period, on grants made in 2005 and later, undistributed
appreciation is converted to an interest-crediting valuation and the CVIP valuation is no longer
applied. Distribution is made to participants based on a schedule elected by the participant. VAR
Unit value must be distributed to the participant no later than the year following the year in
which the participant reaches Normal Retirement Age as defined in the Land OLakes Pension Plan.
Elected distribution schedules are overridden in the event of the participants termination of
employment or death. In the event of termination of employment, payment of vested value is made
within 90 days and all unvested VAR Units are cancelled. In the event of death, payment of vested
value is made in February of the following year and all unvested VAR Units are cancelled. 76




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##### Table of Contents



NON-QUALIFIED DEFERRED COMPENSATION IN 2007
 (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)Executive
    
    Registrant
    
    Aggregate
    
    
    
    
    
    AggregateContributions in
    
    Contributions in
    
    Earnings in
    
    Aggregate
    
    Balance atLast Fiscal
    
    Last Fiscal
    
    Last Fiscal
    
    Withdrawals/
    
    Last FiscalYear1
    
    Year2
    
    Year
    
    Distributions
    
    Year EndName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Christopher J.
Policinski (CEO)
    
    $
    
    
    
    $
    24,402
    
    
    $
    17,760
    
    
    $
    
    
    
    $
    272,378Daniel E. Knutson
(CFO)
    
    $
    130,000
    
    
    $
    19,053
    
    
    $
    55,475
    
    
    $
    
    
    
    $
    940,193Fernando J. Palacios
    
    $
    170,018
    
    
    $
    21,376
    
    
    $
    31,510
    
    
    $
    
    
    
    $
    533,032David L. Seehusen
    
    $
    11,455
    
    
    $
    9,301
    
    
    $
    32,265
    
    
    $
    
    
    
    $
    520,803Peter S. Janzen
    
    $
    
    
    
    $
    9,897
    
    
    $
    1,355
    
    
    $
    
    
    
    $
    20,776
 
 1)
    
    Contributions made under terms of the Land OLakes Non-Qualified Deferred Compensation Plan,
which is detailed in the accompanying Compensation Discussion and Analysis report.2)
    
    Registrant Contributions provided under terms of the Land OLakes Non-Qualified Deferred
Compensation and Excess Benefit Savings Plan, details of which are outlined in the accompanying
Compensation Discussion and Analysis report. 77




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##### Table of Contents



PENSION BENEFITS TABLEPresent Value of
    
    PaymentsNumber of
    
    Accumulated
    
    During LastYears Credited
    
    Benefit2
    
    Fiscal YearName
    
    Plan Name1
    
    Service
    
    $
    
    $Christopher J.
    
    Land OLakes, Inc. Employee Retirement Plan
    
    10.500
    
    $305,672
    
    $0Policinski (CEO)
    
    Land OLakes, Inc.
    
    10.500
    
    300,388
    
    0Supplemental Executive
Retirement PlanDaniel E. Knutson
    
    Land OLakes, Inc. Employee Retirement Plan
    
    29.917
    
    790,503
    
    0(CFO)
    
    Land OLakes, Inc.
    
    29.917
    
    564,953
    
    0Supplemental Executive
Retirement PlanFernando J. Palacios
    
    Land
OLakes, Inc. Employee Retirement Plan
    
    7.083
    
    115,982
    
    0Land OLakes, Inc.
    
    7.083
    
    128,112
    
    0Supplemental Executive
Retirement PlanDavid L. Seehusen
    
    Land
OLakes, Inc. Employee Retirement Plan
    
    34.750
    
    1,590,092
    
    0Land OLakes, Inc.
    
    34.750
    
    1,287,197
    
    0Supplemental Executive
Retirement PlanPeter S. Janzen
    
    Land
OLakes, Inc. Employee Retirement Plan
    
    24.000
    
    303,220
    
    0Land OLakes, Inc.
    
    24.000
    
    255,877
    
    0Supplemental Executive
Retirement Plan
 
 (1)
    
    The Land OLakes qualified and non-qualified pension plans are detailed in the accompanying
Compensation Discussion and Analysis report(2)
    
    The Present Value of Accumulated Benefit is based on assumptions and measurement dates that
are the same as those used for the valuation of pension liabilities in the Fiscal 2007 annual
report. Post-retirement mortality rates are based on the RP-2000 Combined Healthy Participant
mortality table projected eight years using scale AA. The rates are gender specific for the
Land OLakes, Inc. Employee Retirement Plan. Male rates are used for the Land OLakes, Inc.
Supplemental Executive Retirement Plan. Each named executive officer is assumed to live to and
retire at the earliest retirement age at which unreduced benefits are available. Details of
the qualified pension benefit calculations are as follows:  78




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79




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##### Table of Contents



Potential Payments Upon Termination or Change in Control
     ValueEquivalent ofAcceleratedSalary and
    
    
    
    
    
    Unvested VARIncentive1
    
    Benefits2
    
    Units
    
    Outplacement
    
    TotalChristopher J. Policinski
(CEO)
    
    $
    5,307,747
    
    
    $
    56,459
    
    
    $
    399,219
    
    
    $
    20,000
    
    
    $
    5,783,425
 
 1.
    
    Amount reflects three times base salary and target annual incentive, plus pro-rated target
LTIP.2.
    
    Includes continuation payment of medical and executive life / LTD benefits.  Unvested /Salary and
    
    
    
    
    
    Forfeited VARIncentive1
    
    Benefits2
    
    Units
    
    Outplacement
    
    TotalChristopher J. Policinski
(CEO)
    
    $
    1,665,221
    
    
    $
    37,639
    
    
    
    N/A
    
    
    $
    20,000
    
    
    $
    1,722,860
 
 1.
    
    Amount reflects two times base salary.2.
    
    Includes continuation payment of medical and executive life / LTD benefits. 80




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##### Table of Contents



(a)
    
    (b)
    
    (f)Fees Earned orPaid in Cash1
    
    TotalName
    
    ($)
    
    ($)Robert Bignami
    
    $
    36,750
    
    
    $
    36,750Lynn Boadwine
    
    
    40,050
    
    
    
    40,050Harley Buys
    
    
    39,300
    
    
    
    39,300Dennis Cihlar
    
    
    38,700
    
    
    
    38,700Ben Curti
    
    
    45,900
    
    
    
    45,900Richard Epard
    
    
    7,450
    
    
    
    7,450Jim Hager
    
    
    41,400
    
    
    
    41,400Gordon Hoover
    
    
    40,000
    
    
    
    40,000Pete Kappelman
    
    
    73,400
    
    
    
    73,400Cornell Kasbergen
    
    
    43,950
    
    
    
    43,950Paul Kent, JR.
    
    
    52,650
    
    
    
    52,650Larry Kulp
    
    
    41,550
    
    
    
    41,550Charles Lindner
    
    
    39,300
    
    
    
    39,300Howard Liszt
    
    
    49,500
    
    
    
    49,500Manuel Maciel, Jr.
    
    
    16,900
    
    
    
    16,900Robert Marley
    
    
    42,150
    
    
    
    42,150Jim Miller
    
    
    42,150
    
    
    
    42,150Ronnie Mohr
    
    
    43,350
    
    
    
    43,350Ron Muzzall
    
    
    42,600
    
    
    
    42,600James Netto
    
    
    40,800
    
    
    
    40,800Art Perdue
    
    
    45,750
    
    
    
    45,750Doug Reimer
    
    
    43,800
    
    
    
    43,800Rich Richey
    
    
    40,200
    
    
    
    40,200Mary Shefland
    
    
    37,350
    
    
    
    37,350Robert Thompson
    
    
    50,000
    
    
    
    50,000Floyd Trammell
    
    
    41,100
    
    
    
    41,100Myron Voth
    
    
    37,350
    
    
    
    37,350Tom Wakefield
    
    
    42,600
    
    
    
    42,600Al Wanner
    
    
    18,300
    
    
    
    18,300John Zonneveld, Jr.
    
    
    50,100
    
    
    
    50,100
 
 1)
    
    Reflects amounts earned in 2007 for retainer, representation/attendance fees (Per Diem), and
Board termination stipend. Directors can defer all or portions of both the retainer and the Per
Diem and the amounts displayed reflect amounts earned prior to any deferrals. Annual retainer for
the Board Chairman is set at $50,000 while the annual retainer for all other Directors is $30,000.
The Per Diem for all Directors is set at $300. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  81




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##### Table of Contents



Item 14. Principal Accountant Fees and Services.
  2007
    
    
    2006($ in thousands)Audit fees
    
    $
    1,242
    
    
    $
    934Audit-related fees(1)
    
    
    150
    
    
    
    106Audit and audit-related fees
    
    
    1,392
    
    
    
    1,040Tax fees(2)
    
    
    9
    
    
    
    15Total fees
    
    $
    1,401
    
    
    $
    1,055
 
 (1)
    
    Audit-related fees consist principally of fees for audits of financial statements of
certain employee benefit plans in 2007.(2)
    
    Tax fees in 2007 and 2006 consist of benefit plan filings and international services.  82




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules.
 (a) Documents filed as part of this Annual Report on Form 10-K :
 
    
    Consolidated Financial Statements:
 Land OLakes, Inc.Financial Statements for the years ended December 31, 2007, 2006 and 2005Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    89Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    90Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    
    
    91Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    
    92Consolidated statements of equities and comprehensive income for the years ended December 31,
2007, 2006 and 2005
    
    
    93Notes to Consolidated Financial Statements
    
    
    94MoArk, LLCFinancial Statements for the years ended December 22, 2007, December 23, 2006 and December 24, 2005Report of Moore Stephens Frost, Independent Registered Public Accounting Firm
    
    132Consolidated Balance Sheets as of December 22, 2007 and December 23, 2006
    
    133Consolidated Statement of Operations for the years ended December 22, 2007, December 23, 2006 and
December 24, 2005
    
    135Consolidated Statement of Members Equity for the years ended December 22, 2007, December 23, 2006
and December 24, 2005
    
    136Consolidated Statement of Cash Flows for the years ended December 22, 2007, December 23, 2006 and
December 24, 2005
    
    137Notes to Consolidated Financial Statements
    
    139Agriliance LLCFinancial Statements (unaudited) for the three months ended November 30, 2007 and the three
months ended November 30, 2006 (Restated)Consolidated Balance Sheets as of November 30, 2007 and August 31, 2007
    
    
    158Consolidated Statements of Operations for the three months ended November 30, 2007 and 2006
    
    
    159Consolidated Statements of Cash Flows for the three months ended November 30, 2007 and 2006
    
    
    160Notes to Consolidated Financial Statements
    
    
    161Financial Statements for the years ended August 31, 2007, 2006 and 2005 (Restated)Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    163Consolidated Balance Sheets as of August 31, 2007 and 2006
    
    
    164Consolidated Statements of Operations for the years ended August 31, 2007, 2006 and 2005
    
    
    165Consolidated Statements of Cash Flows for the years ended August 31, 2007, 2006 and 2005
    
    
    166Consolidated Statements of Members Equity for the years ended August 31, 2007, 2006 and 2005
    
    
    167Notes to Consolidated Financial Statements
    
    
    168
 83




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##### Table of Contents



(b)
 
 Exhibit Index
 Exhibit
    
    Description3.1
    
    Articles of Incorporation and By-Laws, as amended, February 2008. *4.1
    
    Indenture dated as of November 14, 2001, among Land OLakes, Inc. and certain of its subsidiaries, and
U.S. Bank, including Form of 8 3/4% Senior Notes due 2011 and Form of 83/4% Senior Notes due 2011. (1)4.2
    
    Form of New Note under the
Indenture dated as of November 14, 2001 (included as part of Exhibit 4.5). (1)4.3
    
    Indenture dated as of December 23, 2003, among Land OLakes, Inc., and certain of its subsidiaries, and
U.S. Bank, National Association, including Form of 9% Senior Notes due 2010. (3)4.4
    
    Lien Subordination and Inter creditor Agreement dated as of December 23, 2003, by and among Land OLakes,
Inc., and certain of its subsidiaries, JP Morgan Chase Bank and U.S. Bank, National Association. (3)4.5
    
    Form of New Note under the Indenture dated as of December 23, 2003 (included as part of Exhibit 4.12). (3)4.6
    
    Second Priority Collateral Agreement dated as of December 23, 2003, by and among Land OLakes, Inc. and
certain of its subsidiaries, and U.S. Bank National Association. (3)4.7
    
    Indenture dated as of March 25, 1998 for the 7.45% Capital Securities due March 25, 2028. (3)10.1
    
    Amended and Restated Five-Year Revolving Credit Agreement among Land OLakes, Inc., as Borrower and
JPMorgan Chase Bank, NA, dated as of October 11, 2001, amended and restated as of August 29, 2006. (4)10.2
    
    First Amendment to the Amended and
Restated Five-Year Revolving Credit Agreement, dated as of February 7,
2007 (6)10.3
    
    Second Amendment to the Amended and
Restated Five-Year Revolving Credit Agreement, dated as of September
4, 2007. (7)10.4
    
    Guarantee and Collateral Agreement among Land OLakes, Inc. and certain of its subsidiaries and The Chase
Manhattan Bank, dated as of October 11, 2001. (1)10.5
    
    Third Amended and Restated Receivables Purchase Agreement dated as of September 4, 2007, among Land
OLakes, Inc. LOL SPV, LLC, and CoBank, ACB. (7)10.6
    
    Purchase and Sale Agreement, dated as of December 18, 2001, by and among Land OLakes, Inc., Land OLakes
Purina Feed LLC, Purina Mills, LLC, Winfield Solutions, LLC and LOL SPV, LLC. (1)10.7
    
    First Amendment to the Purchase and Sale Agreement, dated as of March 31, 2004. (3)10.8
    
    Second Amendment to the Purchase and Sale Agreement, dated as of October 22, 2004. (3)10.9
    
    Third Amendment to the Purchase and Sale Agreement, dated as of September 7, 2006. (4)10.10
    
    Fourth Amendment to the Purchase and Sale Agreement, dated as of September 4, 2007 (7)10.11
    
    License Agreement among Ralston Purina Company, Purina Mills, Inc. and BP Nutrition Limited dated as of
October 1,1986. (1)10.12
    
    Ground Lease between Land OLakes, Inc. and Arden Hills Associates dated as of May 31, 1980. (1)10.13
    
    Operating Lease between Arden Hills Associates and Land OLakes, Inc. dated as of May 31, 1980. (1)10.14
    
    Operating Agreement of Agriliance LLC among United Country Brands, LLC, Cenex Harvest States
Cooperatives, Farmland Industries, Inc. and Land OLakes, Inc. dated as of January 4, 2000. (1)10.15
    
    Trademark License Agreement by and between Land OLakes, Inc. and Dean Foods dated as of July 10, 2000.
(1)10.16
    
    Agreement Regarding Distribution of Assets by and between United Country Brands, LLC, its parent
organization, CHS Inc. and Winfield Solutions, LLC, and its parent organization, Land OLakes, Inc. (7)10.17
    
    Executive Annual Variable Compensation Plan of Land OLakes. (1)10.18
    
    Land OLakes Long Term Incentive Plan. (1)10.19
    
    Land OLakes Non-Qualified Deferred Compensation Plan. (1)10.20
    
    Land OLakes Non-Qualified Executive Excess Benefit Plan (IRS Limits). (1)10.21
    
    Land OLakes Non-Qualified Executive Excess Benefit Plan (1989 Formula). (1)10.22
    
    Land OLakes Non-Qualified Executive Excess Benefit Savings Plan. (1)
 84




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##### Table of Contents



Exhibit
    
    Description10.23
    
    California Cooperative Value Incentive Plan of Land OLakes.(2)10.24
    
    Amended Land OLakes Long Term Incentive Plan. (1)10.25
    
    Amended California Cooperative Value Incentive Plan of Land OLakes. (1)10.26
    
    Land OLakes Cooperative Value Incentive Plan. (5)10.27
    
    Land OLakes Cooperative Value Incentive Plan (2005). (5)10.28
    
    Severance Agreement by and between Christopher Policinski and Land OLakes, Inc., dated as of October 1,
2005. *12
    
    Statement regarding the computation of ratios of earnings to fixed charges*21
    
    Subsidiaries of the Registrant*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 the identical exhibit to the Registrants Registration Statement
on Form S-4 filed March 18, 2002.(2)
    
    Incorporated by reference to the identical exhibit to the Registrants Registration Statement
on Form S-4 filed May 9, 2002.(3)
    
    Incorporated by reference to the identical exhibit filed with the Companys Form 10-K on
March 30, 2004.(4)
    
    Incorporated by reference to the identical exhibit filed with the Companys Form 10-Q for the
period ending September 30, 2006.(5)
    
    Incorporated by reference to the identical exhibit filed with the Companys Form 10-K for
the year ending December 31, 2005.(6)
    
    Incorporated by reference to the identical exhibit filed with the Companys Form 10-K for
the year ending December 31, 2006.(7)
    
    Incorporated by reference to the identical exhibit filed with the Companys Form 10-Q for
the period ending September 30, 2007.#
    
    Management contract, compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K*
    
    Filed electronically herewith. 85




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##### Table of Contents



SIGNATURES
  LAND OLAKES, INC.By
    
    /s/ DANIEL KNUTSONDaniel KnutsonSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
  /s/ CHRISTOPHER J. POLICINSKI
    
    President and Chief Executive Officer (Principal Executive Officer)Christopher J. Policinski/s/ DANIEL KNUTSON
    
    Senior Vice President and Chief Financial Officer (Principal Financial and Accounting
Officer)Daniel Knutson/s/ DAVE ANDRESEN
    
    DirectorDave Andresen/s/ ROBERT BIGNAMI
    
    DirectorRobert Bignami/s/ HARLEY BUYS
    
    DirectorHarley Buys/s/ DENNIS CIHLAR
    
    DirectorDennis Cihlar/s/ MARK CLARK
    
    DirectorMark Clark/s/ BEN CURTI
    
    DirectorBen Curti/s/ JIM HAGER
    
    DirectorJim Hager/s/ PETE KAPPELMAN
    
    Director, Chairman of the BoardPete Kappelman/s/ CORNELL KASBERGEN
    
    DirectorCornell Kasbergen/s/ PAUL KENT, JR.
    
    DirectorPaul Kent, Jr./s/ LARRY KULP
    
    DirectorLarry Kulp/s/ CHARLES LINDNER
    
    DirectorCharles Lindner/s/ ROBERT MARLEY
    
    DirectorRobert Marley
 86




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##### Table of Contents



/s/ JIM MILLER
    
    DirectorJim Miller/s/ RONNIE MOHR
    
    DirectorRonnie Mohr/s/ RON MUZZALL
    
    DirectorRon Muzzall/s/ JAMES NETTO
    
    DirectorJames Netto/s/ DOUGLAS REIMER
    
    DirectorDouglas Reimer/s/ RICHARD RICHEY
    
    DirectorRichard Richey/s/ FLOYD TRAMMELL
    
    DirectorFloyd Trammell/s/ MYRON VOTH
    
    DirectorMyron Voth/s/ THOMAS WAKEFIELD
    
    DirectorThomas Wakefield/s/ AL WANNER
    
    DirectorAl Wanner/s/ JOHN ZONNEVELD, JR.
    
    DirectorJohn Zonneveld, Jr.
 87




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##### Table of Contents



SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15 (d) OF THE ACT
BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Land OLakes, Inc.Financial Statements for the years ended December 31, 2007, 2006 and 2005Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    89Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    90Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    
    
    91Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    
    92Consolidated statements of equities and comprehensive income for the years ended December 31,
2007, 2006 and 2005
    
    
    93Notes to Consolidated Financial Statements
    
    
    94MoArk, LLCFinancial Statements for the years ended December 22, 2007, December 23, 2006 and December 24, 2005Report of Moore Stephens Frost, Independent Registered Public Accounting Firm
    
    132Consolidated Balance Sheets as of December 22, 2007 and December 23, 2006
    
    133Consolidated Statement of Operations for the years ended December 22, 2007, December 23, 2006 and
December 24, 2005
    
    135Consolidated Statement of Members Equity for the years ended December 22, 2007, December 23, 2006
and December 24, 2005
    
    136Consolidated Statement of Cash Flows for the years ended December 22, 2007, December 23, 2006 and
December 24, 2005
    
    137Notes to Consolidated Financial Statements
    
    139Agriliance LLCFinancial Statements (unaudited) for the three months ended November 30, 2007 and the three
months ended November 30, 2006 (Restated)Consolidated Balance Sheets as of November 30, 2007 and August 31, 2007
    
    
    158Consolidated Statements of Operations for the three months ended November 30, 2007 and 2006
    
    
    159Consolidated Statements of Cash Flows for the three months ended November 30, 2007 and 2006
    
    
    160Notes to Consolidated Financial Statements
    
    
    161Financial Statements for the years ended August 31, 2007, 2006 and 2005 (Restated)Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    163Consolidated Balance Sheets as of August 31, 2007 and 2006
    
    
    164Consolidated Statements of Operations for the years ended August 31, 2007, 2006 and 2005
    
    
    165Consolidated Statements of Cash Flows for the years ended August 31, 2007, 2006 and 2005
    
    
    166Consolidated Statements of Members Equity for the years ended August 31, 2007, 2006 and 2005
    
    
    167Notes to Consolidated Financial Statements
    
    
    168
 88




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 89




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##### Table of Contents



LAND OLAKES, INC.
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    December 31,2007
    
    2006($ in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    116,839
    
    
    $
    79,707Receivables, net
    
    
    1,006,707
    
    
    
    604,580Inventories
    
    
    964,515
    
    
    
    471,396Prepaid expenses
    
    
    856,033
    
    
    
    350,423Other current assets
    
    
    76,178
    
    
    
    57,904Total current assets
    
    
    3,020,272
    
    
    
    1,564,010Investments
    
    
    303,978
    
    
    
    251,089Property, plant and equipment, net
    
    
    551,752
    
    
    
    665,069Goodwill, net
    
    
    318,224
    
    
    
    326,527Other intangibles, net
    
    
    119,167
    
    
    
    95,043Other assets
    
    
    118,438
    
    
    
    113,191Total assets
    
    $
    4,431,831
    
    
    $
    3,014,929Liabilities and EquitiesCurrent liabilities:Notes and short-term obligations
    
    $
    132,170
    
    
    $
    58,300Current portion of long-term debt
    
    
    5,182
    
    
    
    10,972Accounts payable
    
    
    1,150,353
    
    
    
    529,850Customer advances
    
    
    926,240
    
    
    
    419,516Accrued expenses
    
    
    337,476
    
    
    
    223,603Patronage refunds and other member
equities payable
    
    
    28,065
    
    
    
    18,626Total current liabilities
    
    
    2,579,486
    
    
    
    1,260,867Long-term debt
    
    
    611,602
    
    
    
    639,059Employee benefits and other liabilities
    
    
    202,400
    
    
    
    173,446Minority interests
    
    
    6,175
    
    
    
    8,830Commitments and contingenciesEquities:Capital stock
    
    
    1,701
    
    
    
    1,828Member equities
    
    
    937,126
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (61,931
    )
    
    
    (66,276
    )Retained earnings
    
    
    155,272
    
    
    
    92,992Total equities
    
    
    1,032,168
    
    
    
    932,727Total liabilities and equities
    
    $
    4,431,831
    
    
    $
    3,014,929
  90




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##### Table of Contents



LAND OLAKES, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2007
    
    
    2006
    
    
    2005($ in thousands)Net sales
    
    $
    8,924,895
    
    
    $
    7,102,289
    
    
    $
    7,336,128Cost of sales
    
    
    8,157,684
    
    
    
    6,441,368
    
    
    
    6,751,111Gross profit
    
    
    767,211
    
    
    
    660,921
    
    
    
    585,017Selling, general and administrative
    
    
    622,231
    
    
    
    515,557
    
    
    
    494,971Restructuring and impairment charges
    
    
    3,970
    
    
    
    21,169
    
    
    
    6,381Gain on insurance settlement
    
    
    (5,941
    )
    
    
    
    
    
    
    Earnings from operations
    
    
    146,951
    
    
    
    124,195
    
    
    
    83,665Interest expense, net
    
    
    48,918
    
    
    
    58,360
    
    
    
    79,873Other (income) expense, net
    
    
    (37,157
    )
    
    
    (18,791
    )
    
    
    9,295Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in earnings of affiliated companies
    
    
    (68,183
    )
    
    
    (13,674
    )
    
    
    (41,343
    )Minority interest in earnings of subsidiaries
    
    
    1,469
    
    
    
    1,449
    
    
    
    1,354Earnings before income taxes and discontinued operations
    
    
    201,904
    
    
    
    96,851
    
    
    
    136,932Income tax expense
    
    
    38,107
    
    
    
    7,906
    
    
    
    7,305Net earnings from continuing operations
    
    
    163,797
    
    
    
    88,945
    
    
    
    129,627Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    2,167Net earnings
    
    $
    $163,797
    
    
    $
    $88,945
    
    
    $
    131,794Applied to:Member equitiesAllocated patronage
    
    $
    97,147
    
    
    $
    72,002
    
    
    $
    118,273Deferred equities
    
    
    5,496
    
    
    
    3,015
    
    
    
    1,847102,643
    
    
    
    75,017
    
    
    
    120,120Retained earnings
    
    
    61,154
    
    
    
    13,928
    
    
    
    11,674$
    163,797
    
    
    $
    88,945
    
    
    $
    131,794
  91




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##### Table of Contents



LAND OLAKES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2007
    
    
    2006
    
    
    2005($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    163,797
    
    
    $
    88,945
    
    
    $
    131,794Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (2,167
    )Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    84,140
    
    
    
    95,239
    
    
    
    99,312Amortization of deferred financing costs
    
    
    2,253
    
    
    
    2,226
    
    
    
    8,733Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    11,014Bad debt expense
    
    
    22,579
    
    
    
    1,421
    
    
    
    1,967Proceeds from patronage revolvement received
    
    
    6,706
    
    
    
    9,163
    
    
    
    8,123Non-cash patronage income
    
    
    (2,543
    )
    
    
    (1,827
    )
    
    
    (1,852
    )Insurance recovery  business interruption
    
    
    4,551
    
    
    
    
    
    
    
    Deferred income tax (benefit) expense
    
    
    (29,655
    )
    
    
    13,500
    
    
    
    6,956(Increase) decrease in other assets
    
    
    (3,766
    )
    
    
    2,893
    
    
    
    4,128Increase in other liabilities
    
    
    1,975
    
    
    
    2,895
    
    
    
    3,570Restructuring and impairment charges
    
    
    3,970
    
    
    
    21,169
    
    
    
    6,381Gain from divestiture of businesses
    
    
    (28,474
    )
    
    
    (8,987
    )
    
    
    Gain on sale of investments
    
    
    (8,683
    )
    
    
    (7,980
    )
    
    
    (103,581
    )Gain on insurance settlement
    
    
    (5,941
    )
    
    
    
    
    
    
    Equity in earnings of affiliated companies
    
    
    (68,183
    )
    
    
    (13,674
    )
    
    
    (41,343
    )Dividends from investments in affiliated companies
    
    
    33,699
    
    
    
    4,736
    
    
    
    35,250Minority interests
    
    
    1,469
    
    
    
    1,449
    
    
    
    1,354Other
    
    
    (3,638
    )
    
    
    (3,610
    )
    
    
    (6,254
    )Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (294,145
    )
    
    
    38,156
    
    
    
    (14,618
    )Inventories
    
    
    (206,950
    )
    
    
    (19,587
    )
    
    
    (6,058
    )Prepaid and other current assets
    
    
    (512,438
    )
    
    
    (60,948
    )
    
    
    (46,339
    )Accounts payable
    
    
    586,712
    
    
    
    (51,624
    )
    
    
    100,868Customer advances
    
    
    506,724
    
    
    
    23,643
    
    
    
    63,287Accrued expenses
    
    
    74,619
    
    
    
    59,332
    
    
    
    13,035Net cash provided by operating activities
    
    
    328,778
    
    
    
    196,530
    
    
    
    273,560Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (91,061
    )
    
    
    (83,763
    )
    
    
    (70,424
    )Acquisitions
    
    
    (2,930
    )
    
    
    (88,060
    )
    
    
    (46,101
    )Investments in affiliates
    
    
    (331,674
    )
    
    
    (4,950
    )
    
    
    (5,566
    )Distributions from investments in affiliated companies
    
    
    25,000
    
    
    
    
    
    
    
    Net settlement on repositioning investment in joint venture
    
    
    (87,875
    )
    
    
    
    
    
    
    Net proceeds from divestiture of businesses
    
    
    212,101
    
    
    
    42,466
    
    
    
    2,635Proceeds from sale of investments
    
    
    626
    
    
    
    9,274
    
    
    
    316,900Proceeds from sale of property, plant and equipment
    
    
    10,502
    
    
    
    1,754
    
    
    
    22,197Insurance proceeds for replacement assets
    
    
    8,635
    
    
    
    
    
    
    
    Change in notes receivable
    
    
    (18,406
    )
    
    
    15,781
    
    
    
    (15,228
    )Other
    
    
    (202
    )
    
    
    7,183
    
    
    
    20,881Net cash (used) provided by investing activities
    
    
    (275,284
    )
    
    
    (100,315
    )
    
    
    225,294Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    75,399
    
    
    
    (98,541
    )
    
    
    21,256Proceeds from issuance of long-term debt
    
    
    8,337
    
    
    
    16,451
    
    
    
    2,022Principal payments on long-term debt and capital lease obligations
    
    
    (41,798
    )
    
    
    (36,549
    )
    
    
    (379,900
    )Payments for debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    (11,014
    )Payments for debt issuance costs
    
    
    
    
    
    
    (1,543
    )
    
    
    Payments for redemption of member equities
    
    
    (58,049
    )
    
    
    (80,614
    )
    
    
    (68,714
    )Other
    
    
    (251
    )
    
    
    4,933
    
    
    
    (1,993
    )Net cash used by financing activities
    
    
    (16,362
    )
    
    
    (195,863
    )
    
    
    (438,343
    )Net cash (used) provided by operating activities of discontinued operations
    
    
    
    
    
    
    (349
    )
    
    
    3,922Net cash provided by investing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    42,135Net increase (decrease) in cash and cash equivalents
    
    
    37,132
    
    
    
    (99,997
    )
    
    
    106,568Cash and cash equivalents at beginning of year
    
    
    79,707
    
    
    
    179,704
    
    
    
    73,136Cash and cash equivalents at end of year
    
    $
    116,839
    
    
    $
    79,707
    
    
    $
    179,704
  92




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##### Table of Contents



LAND OLAKES, INC.
 CONSOLIDATED STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME
 AccumulatedOtherCapital
    
    
    Member Equities
    
    
    Comprehensive
    
    
    Retained
    
    
    TotalStock
    
    
    Allocated
    
    
    Deferred
    
    
    Net
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equities($ in thousands)Balance, December 31, 2004
    
    $
    2,059
    
    
    $
    877,137
    
    
    $
    (24,378
    )
    
    $
    852,759
    
    
    $
    (73,792
    )
    
    $
    58,939
    
    
    $
    839,965Capital stock issued
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Capital stock redeemed
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101
    )Portion of member equities stated as
current liability
    
    
    
    
    
    
    (5,967
    )
    
    
    
    
    
    
    (5,967
    )
    
    
    
    
    
    
    
    
    
    
    (5,967
    )Cash patronage and redemption of member
equities
    
    
    
    
    
    
    (68,714
    )
    
    
    
    
    
    
    (68,714
    )
    
    
    
    
    
    
    
    
    
    
    (68,714
    )Redemption included in prior years
liabilities
    
    
    
    
    
    
    22,317
    
    
    
    
    
    
    
    22,317
    
    
    
    
    
    
    
    
    
    
    
    22,317Other, net
    
    
    
    
    
    
    (3,181
    )
    
    
    (161
    )
    
    
    (3,342
    )
    
    
    
    
    
    
    534
    
    
    
    (2,808
    )Comprehensive income:2005 earnings, as applied
    
    
    
    
    
    
    118,273
    
    
    
    1,847
    
    
    
    120,120
    
    
    
    
    
    
    
    11,674
    
    
    
    131,794Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,371
    )
    
    
    
    
    
    
    (1,371
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,423Patronage refunds payable
    
    
    
    
    
    
    (23,655
    )
    
    
    
    
    
    
    (23,655
    )
    
    
    
    
    
    
    
    
    
    
    (23,655
    )Balance, December 31, 2005
    
    
    1,967
    
    
    
    916,210
    
    
    
    (22,692
    )
    
    
    893,518
    
    
    
    (75,163
    )
    
    
    71,147
    
    
    
    891,469Capital stock issued
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Capital stock redeemed
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )Cash patronage and redemption of member
equities
    
    
    
    
    
    
    (80,614
    )
    
    
    
    
    
    
    (80,614
    )
    
    
    
    
    
    
    
    
    
    
    (80,614
    )Redemption included in prior years
liabilities
    
    
    
    
    
    
    29,622
    
    
    
    
    
    
    
    29,622
    
    
    
    
    
    
    
    
    
    
    
    29,622Equities issued for prior merger
    
    
    
    
    
    
    13,896
    
    
    
    
    
    
    
    13,896
    
    
    
    
    
    
    
    
    
    
    
    13,896Other, net
    
    
    
    
    
    
    (8,614
    )
    
    
    (16
    )
    
    
    (8,630
    )
    
    
    
    
    
    
    7,917
    
    
    
    (713
    )Comprehensive income:2006 earnings, as applied
    
    
    
    
    
    
    72,002
    
    
    
    3,015
    
    
    
    75,017
    
    
    
    
    
    
    
    13,928
    
    
    
    88,945Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,887
    
    
    
    
    
    
    
    8,887Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,832Patronage refunds payable
    
    
    
    
    
    
    (18,626
    )
    
    
    
    
    
    
    (18,626
    )
    
    
    
    
    
    
    
    
    
    
    (18,626
    )Balance, December 31, 2006
    
    
    1,828
    
    
    
    923,876
    
    
    
    (19,693
    )
    
    
    904,183
    
    
    
    (66,276
    )
    
    
    92,992
    
    
    
    932,727Capital stock issued
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Capital stock redeemed
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133
    )Cash patronage and redemption of member
equities
    
    
    
    
    
    
    (58,049
    )
    
    
    
    
    
    
    (58,049
    )
    
    
    
    
    
    
    
    
    
    
    (58,049
    )Redemption included in prior years
liabilities
    
    
    
    
    
    
    18,626
    
    
    
    
    
    
    
    18,626
    
    
    
    
    
    
    
    
    
    
    
    18,626Other, net
    
    
    
    
    
    
    (2,209
    )
    
    
    (3
    )
    
    
    (2,212
    )
    
    
    
    
    
    
    1,126
    
    
    
    (1,086
    )Comprehensive income:2007 earnings, as applied
    
    
    
    
    
    
    97,147
    
    
    
    5,496
    
    
    
    102,643
    
    
    
    
    
    
    
    61,154
    
    
    
    163,797Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,787
    
    
    
    
    
    
    
    66,787Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,584Adjustment to initially apply FASB
Statement No. 158, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,442
    )
    
    
    
    
    
    
    (62,442
    )Patronage refunds payable
    
    
    
    
    
    
    (28,065
    )
    
    
    
    
    
    
    (28,065
    )
    
    
    
    
    
    
    
    
    
    
    (28,065
    )Balance, December 31, 2007
    
    $
    1,701
    
    
    $
    951,326
    
    
    $
    (14,200
    )
    
    $
    937,126
    
    
    $
    (61,931
    )
    
    $
    155,272
    
    
    $
    1,032,168
  93




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands in tables)
 1. Summary of Operations and Significant Accounting Policies
 Nature of Operations
  Statement Presentation
   Fiscal Years
  Cash and Cash Equivalents
  Vendor Rebates Receivable
 Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor
 Inventories
  94




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##### Table of Contents



Vendor Prepayments
  Investments
  Property, Plant and Equipment
  Goodwill and Other Intangible Assets
   Recoverability of Long-Lived Assets
  Revenue Recognition
  95




---



##### Table of Contents



Advertising and Promotion Costs
  Research and Development
  Share-Based Compensation
  Income Taxes
   Recent Accounting Pronouncements
    96




---



##### Table of Contents



Accounting Estimates
  2. Adjustments to Prior Years Consolidated Financial Statements
    97




---



##### Table of Contents



PreviouslyReported
    
    Adjustments
    
    Adjusted2006
    
    2006
    
    2006Other current assets
    
    $
    50,594
    
    
    $
    7,310
    
    
    $
    57,904Total current assets
    
    
    1,556,700
    
    
    
    7,310
    
    
    
    1,564,010Investments
    
    
    270,202
    
    
    
    (19,113
    )
    
    
    251,089Total assets
    
    
    3,026,732
    
    
    
    (11,803
    )
    
    
    3,014,929Accrued expenses
    
    
    223,597
    
    
    
    6
    
    
    
    223,603Total current liabilities
    
    
    1,260,861
    
    
    
    6
    
    
    
    1,260,867Retained earnings
    
    
    104,801
    
    
    
    (11,809
    )
    
    
    92,992Total equities
    
    
    944,536
    
    
    
    (11,809
    )
    
    
    932,727Total liabilities and equities
    
    
    3,026,732
    
    
    
    (11,803
    )
    
    
    3,014,929
   Previously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Adjustments
    
    Adjusted
    
    Reported
    
    Adjustments
    
    Adjusted2006
    
    2006
    
    2006
    
    2005
    
    2005
    
    2005Equity in earnings
of affiliated
companies
    
    $
    (13,295
    )
    
    $
    (379
    )
    
    $
    (13,674
    )
    
    $
    (36,692
    )
    
    $
    (4,651
    )
    
    $
    (41,343
    )Earnings before
income taxes and
discontinued
operations
    
    
    96,472
    
    
    
    379
    
    
    
    96,851
    
    
    
    132,281
    
    
    
    4,651
    
    
    
    136,932Income tax expense
    
    
    7,806
    
    
    
    100
    
    
    
    7,906
    
    
    
    5,505
    
    
    
    1,800
    
    
    
    7,305Net earnings from
continuing
operations
    
    
    88,666
    
    
    
    279
    
    
    
    88,945
    
    
    
    126,776
    
    
    
    2,851
    
    
    
    129,627Net earnings
    
    
    88,666
    
    
    
    279
    
    
    
    88,945
    
    
    
    128,943
    
    
    
    2,851
    
    
    
    131,794
  Previously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Adjustments
    
    Adjusted
    
    Reported
    
    Adjustments
    
    Adjusted2006
    
    2006
    
    2006
    
    2005
    
    2005
    
    2005Net earnings
    
    $
    88,666
    
    
    $
    279
    
    
    $
    88,945
    
    
    $
    128,943
    
    
    $
    2,851
    
    
    $
    131,794Deferred income tax
expense
    
    
    13,355
    
    
    
    145
    
    
    
    13,500
    
    
    
    5,177
    
    
    
    1,779
    
    
    
    6,956Equity in earnings
of affiliated
companies
    
    
    (13,295
    )
    
    
    (379
    )
    
    
    (13,674
    )
    
    
    (36,692
    )
    
    
    (4,651
    )
    
    
    (41,343
    )Change in accrued
expenses
    
    
    59,377
    
    
    
    (45
    )
    
    
    59,332
    
    
    
    13,014
    
    
    
    21
    
    
    
    13,035Net cash provided
by operating
activities
    
    
    196,530
    
    
    
    
    
    
    
    196,530
    
    
    
    273,560
    
    
    
    
    
    
    
    273,560
 3. Repositioning of Agronomy Assets
  98




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##### Table of Contents



Receivables
    
    $
    104,096Inventories
    
    
    307,152Other current assets
    
    
    712Property, plant and equipment
    
    
    30,338Goodwill
    
    
    22,246Other intangibles
    
    
    27,051Investments
    
    
    1,325Other assets
    
    
    307Accounts payable
    
    
    (32,633
    )Accrued expenses
    
    
    (58,939
    )Employee benefits and other liabilities
    
    
    (5,341
    )Net assets distributed and acquired
    
    $
    396,314
    Pro forma(unaudited)2007
    
    2006Net sales
    
    $
    9,918,695
    
    
    $
    8,270,020Net earnings
    
    
    147,053
    
    
    
    128,040
 99




---



##### Table of Contents



4. Receivables
  2007
    
    2006Trade accounts
    
    $
    834,070
    
    
    $
    469,230Notes and contracts
    
    
    92,207
    
    
    
    73,469Vendor rebates
    
    
    26,050
    
    
    
    40,520Other
    
    
    68,730
    
    
    
    31,9151,021,057
    
    
    
    615,134Less allowance for doubtful accounts
    
    
    (14,350
    )
    
    
    (10,554
    )Total receivables, net
    
    $
    1,006,707
    
    
    $
    604,580
    5. Inventories
  2007
    
    2006Raw materials
    
    $
    190,586
    
    
    $
    155,505Work in process
    
    
    5,058
    
    
    
    3,914Finished goods
    
    
    768,871
    
    
    
    311,977Total inventories
    
    $
    964,515
    
    
    $
    471,396
 6. Investments
  2007
    
    2006Agriliance LLC
    
    $
    150,945
    
    
    $
    105,606Ag Processing Inc
    
    
    32,832
    
    
    
    33,975Advanced Food Products, LLC
    
    
    34,287
    
    
    
    32,933Agronomy Company of Canada Ltd.
    
    
    21,909
    
    
    
    16,834Universal Cooperatives, Inc.
    
    
    7,802
    
    
    
    7,986Delta Egg Farm, LLC
    
    
    7,579
    
    
    
    3,890CoBank, ACB
    
    
    4,396
    
    
    
    7,198Prairie Farms Dairy, Inc.
    
    
    3,518
    
    
    
    3,696Melrose Dairy Proteins, LLC
    
    
    3,856
    
    
    
    5,741Golden Oval Eggs, LLC
    
    
    
    
    
    
    4,265Other  principally cooperatives and joint ventures
    
    
    36,854
    
    
    
    28,965Total investments
    
    $
    303,978
    
    
    $
    251,089
  100




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##### Table of Contents



Agriliance LLC
    
    2007
    
    2006Net sales
    
    $
    3,446,817
    
    
    $
    3,704,121Gross profit
    
    
    446,315
    
    
    
    338,713Net earnings
    
    
    101,170
    
    
    
    23,971Current assets
    
    
    696,332
    
    
    
    1,479,908Non-current assets
    
    
    66,099
    
    
    
    164,917Current liabilities
    
    
    426,674
    
    
    
    1,302,148Non-current liabilities
    
    
    33,867
    
    
    
    131,465Total equity
    
    
    301,890
    
    
    
    211,212
  7. Property, Plant and Equipment
  2007
    
    2006Machinery and equipment
    
    $
    617,193
    
    
    $
    731,576Buildings and building equipment
    
    
    346,809
    
    
    
    383,124Land and land improvements
    
    
    64,554
    
    
    
    66,418Software
    
    
    89,242
    
    
    
    62,885Construction in progress
    
    
    35,142
    
    
    
    38,2421,152,940
    
    
    
    1,282,245Less accumulated depreciation
    
    
    601,188
    
    
    
    617,176Total property, plant and equipment, net
    
    $
    551,752
    
    
    $
    665,069
 8. Goodwill and Other Intangible Assets
 Goodwill
  2007
    
    2006Feed
    
    $
    127,404
    
    
    $
    127,893Dairy Foods
    
    
    69,451
    
    
    
    83,799Layers
    
    
    58,280
    
    
    
    58,982Agronomy
    
    
    52,371
    
    
    
    45,461Seed
    
    
    10,718
    
    
    
    10,392Total goodwill
    
    $
    318,224
    
    
    $
    326,527
   101




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##### Table of Contents



Other Intangible Assets
  2007
    
    2006Amortized other intangible assets:Patents, less accumulated amortization of $7,250 and $6,063, respectively
    
    $
    9,461
    
    
    $
    10,648Trademarks, less accumulated amortization of $1,592 and $2,498, respectively
    
    
    4,102
    
    
    
    1,472Dealer networks and customer relationships, less accumulated amortization of
$301 and $0, respectively
    
    
    47,239
    
    
    
    Other intangible assets, less accumulated amortization of $5,342 and $10,578,
respectively
    
    
    6,740
    
    
    
    6,298Total amortized other intangible assets
    
    
    67,542
    
    
    
    18,418Total non-amortized other intangible assets  trademarks and license agreements
    
    
    51,625
    
    
    
    76,625Total other intangible assets
    
    $
    119,167
    
    
    $
    95,043
   9. Debt Obligations
 Notes and Short-term Obligations
     102




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##### Table of Contents



Long-term Debt
  2007
    
    2006Senior unsecured notes  due 2011 (8.75%)
    
    $
    192,743
    
    
    $
    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 2008 through 2023 (7.84% weighted average)
    
    
    29,520
    
    
    
    44,004Capital lease obligations (5.92% to 8.95%)
    
    
    6,349
    
    
    
    7,776Industrial development revenue bonds
    
    
    
    
    
    
    14,800Other debt
    
    
    22,472
    
    
    
    21,299$
    616,784
    
    
    $
    650,031Less current portion
    
    
    5,182
    
    
    
    10,972Total long-term debt
    
    $
    611,602
    
    
    $
    639,059
         103




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##### Table of Contents



Year
    
    Amount2008
    
    $
    5,1822009
    
    
    4,9222010
    
    
    179,7392011
    
    
    197,5532012
    
    
    3,9882013 and thereafter
    
    
    225,400
 10. Other Comprehensive Income
 2007
    
    2006
    
    2005Net earnings
    
    $
    163,797
    
    
    $
    88,945
    
    
    $
    131,794Minimum pension liability adjustment (net of income
taxes of $(39,871) in 2007, $(5,734) in 2006 and $1,592 in 2005)
    
    
    64,366
    
    
    
    9,108
    
    
    
    (2,603
    )Unrealized gain (loss) on available-for-sale investment securities
    
    
    275
    
    
    
    (404
    )
    
    
    (155
    )Foreign currency translation adjustment, net of income taxes
    
    
    2,146
    
    
    
    183
    
    
    
    1,387Total comprehensive income
    
    $
    230,584
    
    
    $
    97,832
    
    
    $
    130,423
   2007
    
    2006Pension and other postretirement adjustments, net of income taxes
    
    $
    (65,606
    )
    
    $
    (67,529
    )Unrealized gain on available-for-sale investment securities
    
    
    275
    
    
    
    Foreign currency translation adjustment, net of income taxes
    
    
    3,400
    
    
    
    1,253Accumulated other comprehensive loss
    
    $
    (61,931
    )
    
    $
    (66,276
    )
 11. Fair Value of Financial Instruments
   104




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##### Table of Contents



2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueLoans receivable, net
    
    $
    124,346
    
    
    $
    124,332
    
    
    $
    102,564
    
    
    $
    101,933Senior unsecured notes due 2011
    
    
    192,743
    
    
    
    200,812
    
    
    
    196,452
    
    
    
    206,673Senior secured notes due 2010
    
    
    175,000
    
    
    
    188,885
    
    
    
    175,000
    
    
    
    187,632MoArk fixed rate debt
    
    
    29,520
    
    
    
    27,284
    
    
    
    31,004
    
    
    
    29,968Capital
Securities of Trust Subsidiary due 2028
    
    
    190,700
    
    
    
    165,455
    
    
    
    190,700
    
    
    
    158,508
  2007
    
    2006Notional
    
    Fair
    
    Notional
    
    FairAmount
    
    Value
    
    Amount
    
    ValueCommodity futures and options contracts:Commitments to purchase
    
    $
    213,544
    
    
    $
    28,856
    
    
    $
    168,336
    
    
    $
    10,508Commitments to sell
    
    
    (80,577
    )
    
    
    (11,501
    )
    
    
    (91,642
    )
    
    
    (4,932
    )
 12. Income Taxes
  2007
    
    2006
    
    2005Current expense (benefit)Federal
    
    $
    59,355
    
    
    $
    (6,757
    )
    
    $
    (563
    )State
    
    
    8,407
    
    
    
    1,163
    
    
    
    91267,762
    
    
    
    (5,594
    )
    
    
    349Deferred expense (benefit)Federal
    
    
    (25,253
    )
    
    
    12,155
    
    
    
    5,923State
    
    
    (4,402
    )
    
    
    1,345
    
    
    
    1,033(29,655
    )
    
    
    13,500
    
    
    
    6,956Income tax expense
    
    $
    38,107
    
    
    $
    7,906
    
    
    $
    7,305
   105




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##### Table of Contents



2007
    
    2006
    
    2005Statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Patronage refunds
    
    
    (16.8
    )
    
    
    (22.3
    )
    
    
    (30.2
    )State income tax, net of federal benefit
    
    
    1.3
    
    
    
    1.7
    
    
    
    0.9Amortization of goodwill
    
    
    0.7
    
    
    
    9.7
    
    
    
    Effect of foreign operations
    
    
    (0.1
    )
    
    
    (1.0
    )
    
    
    (0.7
    )Disposal of investment
    
    
    (0.1
    )
    
    
    (1.0
    )
    
    
    Additional tax (benefit)
    
    
    0.4
    
    
    
    (13.1
    )
    
    
    1.4Meals and entertainment
    
    
    1.0
    
    
    
    1.2
    
    
    
    0.6Tax credits
    
    
    (0.5
    )
    
    
    (0.8
    )
    
    
    (0.5
    )Other, net
    
    
    (2.0
    )
    
    
    (1.2
    )
    
    
    (1.2
    )Effective tax rate
    
    
    18.9
    %
    
    
    8.2
    %
    
    
    5.3
    %
  2007
    
    2006Deferred tax assets related to:Deferred patronage
    
    $
    38,370
    
    
    $
    43,262Accrued expenses
    
    
    88,858
    
    
    
    71,024Allowance for doubtful accounts
    
    
    12,334
    
    
    
    3,824Asset impairments
    
    
    8,808
    
    
    
    7,439Joint ventures
    
    
    26,002
    
    
    
    5,576Net operating loss carryforwards
    
    
    8,301
    
    
    
    11,510Deferred revenue
    
    
    1,4,58
    
    
    
    Deferred tax credits
    
    
    
    
    
    
    4,140Gross deferred tax assets
    
    
    184,131
    
    
    
    146,775Valuation allowance
    
    
    (16,082
    )
    
    
    Total deferred tax assets
    
    
    168,049
    
    
    
    146,775Deferred tax liabilities related to:Property, plant and equipment
    
    
    77,743
    
    
    
    96,319Inventories
    
    
    9,461
    
    
    
    6,724Intangibles
    
    
    28,829
    
    
    
    15,859Deferred revenue
    
    
    
    
    
    
    3,078Other, net
    
    
    1,173
    
    
    
    244Total deferred tax liabilities
    
    
    117,206
    
    
    
    122,224Net deferred tax assets
    
    $
    50,843
    
    
    $
    24,551
   2007
    
    2006Other current assets
    
    $
    40,700
    
    
    $
    28,536Other assets
    
    
    10,143
    
    
    
    Employee benefits and other liabilities
    
    
    
    
    
    
    (3,985
    )Total net deferred tax assets
    
    $
    50,843
    
    
    $
    24,551
  106




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##### Table of Contents



Gross unrecognized tax benefits at January 1, 2007
    
    $
    14,065Increases in tax positions for current year
    
    
    1,686Increases in tax positions for prior years
    
    
    1,436Gross unrecognized tax benefits at December 31, 2007
    
    $
    17,187
    13. Pension and Other Postretirement Plans
     Pre-SFAS No. 158With AdditionalMinimum
    
    SFAS No. 158Liability (AML)
    
    Adoption
    
    Post SFASAdjustments
    
    Adjustments
    
    No. 158Investments
    
    $
    305,262
    
    
    $
    (1,284
    )
    
    $
    303,978Other assets
    
    
    80,555
    
    
    
    37,883
    
    
    
    118,438Employee benefits and other liabilities
    
    
    103,359
    
    
    
    99,041
    
    
    
    202,400Accumulated other comprehensive income (loss), net of tax
    
    
    511
    
    
    
    (62,442
    )
    
    
    (61,931
    )Accumulated other comprehensive income (loss), pre-tax
    
    
    (5,123
    )
    
    
    (101,122
    )
    
    
    (106,245
    )
 107




---



##### Table of Contents



Obligation and Funded Status at December 31
 Pension BenefitsQualified Plan
    
    Non-qualified Plans2007
    
    2006
    
    2007
    
    2006Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    539,631
    
    
    $
    508,860
    
    
    $
    55,425
    
    
    $
    53,749Service cost
    
    
    13,725
    
    
    
    18,665
    
    
    
    540
    
    
    
    416Interest cost
    
    
    30,103
    
    
    
    29,126
    
    
    
    3,080
    
    
    
    3,027Plan amendments
    
    
    
    
    
    
    (11,321
    )
    
    
    
    
    
    
    (645
    )Actuarial (gain) loss
    
    
    (53,198
    )
    
    
    15,171
    
    
    
    (3,673
    )
    
    
    1,712Benefits paid
    
    
    (21,554
    )
    
    
    (20,870
    )
    
    
    (4,270
    )
    
    
    (2,834
    )Benefit obligation at end of year
    
    $
    508,707
    
    
    $
    539,631
    
    
    $
    51,102
    
    
    $
    55,425Change in plan assets:Fair value of plan assets
at beginning of year
    
    $
    478,317
    
    
    $
    425,740
    
    
    $
    
    
    
    $
    Actual gain on plan assets
    
    
    43,106
    
    
    
    53,447
    
    
    
    
    
    
    
    Company contributions
    
    
    20,000
    
    
    
    20,000
    
    
    
    4,270
    
    
    
    2,834Benefits paid
    
    
    (21,554
    )
    
    
    (20,870
    )
    
    
    (4,270
    )
    
    
    (2,834
    )Fair value of plan assets at end of year
    
    $
    519,869
    
    
    $
    478,317
    
    
    $
    
    
    
    $
    Amounts recognized in the consolidated balance sheets consist of:Other assets
    
    $
    11,162
    
    
    $
    507
    
    
    $
    
    
    
    $
    Accrued expenses
    
    
    
    
    
    
    
    
    
    
    (4,287
    )
    
    
    Employee benefits and other liabilities
    
    
    
    
    
    
    (23,441
    )
    
    
    (46,815
    )
    
    
    (50,200
    )Accumulated other comprehensive
loss before income taxes
    
    
    N/A
    
    
    
    101,274
    
    
    
    N/A
    
    
    
    7,556Net amount recognized
    
    $
    11,162
    
    
    $
    78,340
    
    
    $
    (51,102
    )
    
    $
    (42,644
    )Amounts recognized in accumulated other comprehensive income
(pre-tax) as of December 31, 2007 consists of:Prior service cost
    
    $
    432
    
    
    
    N/A
    
    
    $
    (1,514
    )
    
    
    N/ANet loss (gain)
    
    
    68,615
    
    
    
    N/A
    
    
    
    10,067
    
    
    
    N/AEnding balance
    
    $
    69,047
    
    
    
    N/A
    
    
    $
    8,553
    
    
    
    N/AReconciliation of funded status:Funded status
    
    $
    11,162
    
    
    $
    (61,314
    )
    
    $
    (51,102
    )
    
    $
    (55,425
    )Unrecognized net actuarial loss
    
    
    N/A
    
    
    
    139,147
    
    
    
    N/A
    
    
    
    14,856Unrecognized prior service cost
    
    
    N/A
    
    
    
    507
    
    
    
    N/A
    
    
    
    (2,075
    )Net amount recognized
    
    $
    11,162
    
    
    $
    78,340
    
    
    $
    (51,102
    )
    
    $
    (42,644
    )
   Pension BenefitsQualified Plan
    
    Non-qualified Plans2007
    
    2006
    
    2007
    
    2006Projected benefit obligation
    
    $
    508,707
    
    
    $
    539,631
    
    
    $
    51,102
    
    
    $
    55,425Accumulated benefit obligation
    
    
    473,933
    
    
    
    501,758
    
    
    
    47,199
    
    
    
    50,200Fair value of plan assets
    
    
    519,869
    
    
    
    478,317
    
    
    
    
    
    
    
    
  108




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##### Table of Contents



Obligation and Funded Status at December 31
 Other Postretirement Benefits2007
    
    2006Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    71,972
    
    
    $
    69,999Service cost
    
    
    729
    
    
    
    666Interest cost
    
    
    3,923
    
    
    
    3,990Plan amendments
    
    
    
    
    
    
    (3,153
    )Plan participants contributions
    
    
    2,774
    
    
    
    2,594Medicare Part D reimbursements
    
    
    545
    
    
    
    601Actuarial loss (gain)
    
    
    (10,323
    )
    
    
    5,691Benefits paid
    
    
    (7,020
    )
    
    
    (8,416
    )Benefit obligation at end of year
    
    $
    62,600
    
    
    $
    71,972Change in plan assets:Company contributions
    
    $
    4,246
    
    
    $
    5,822Plan participants contributions
    
    
    2,774
    
    
    
    2,594Benefits paid
    
    
    (7,020
    )
    
    
    (8,416
    )Fair value of plan assets at end of year
    
    $
    
    
    
    $
    Amounts recognized in the consolidated balance
sheets consist of:Accrued expenses
    
    $
    (4,575
    )
    
    $
    (8,200
    )Employee benefits and other liabilities
    
    
    (58,025
    )
    
    
    (23,987
    )Net amount recognized
    
    $
    (62,600
    )
    
    $
    (32,187
    )Amounts recognized in accumulated other comprehensive
income (pre-tax) consists of:Net transition obligation
    
    $
    2,138
    
    
    
    N/ANet loss (gain)
    
    
    23,953
    
    
    
    N/AEnding Balance
    
    $
    26,091
    
    
    
    N/AReconciliation of funded status:Funded status
    
    $
    (62,600
    )
    
    $
    (71,972
    )Unrecognized net actuarial loss
    
    
    N/A
    
    
    
    37,219Unrecognized prior service cost
    
    
    N/A
    
    
    
    Unrecognized transition obligation
    
    
    N/A
    
    
    
    2,566Net amount recognized
    
    $
    (62,600
    )
    
    $
    (32,187
    )
  Pension Benefits
    
    Other Postretirement Benefits2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Service cost
    
    $
    14,265
    
    
    $
    19,081
    
    
    $
    17,440
    
    
    $
    729
    
    
    $
    666
    
    
    $
    650Interest cost
    
    
    33,183
    
    
    
    32,153
    
    
    
    30,023
    
    
    
    3,923
    
    
    
    3,990
    
    
    
    3,913Expected return on assets
    
    
    (37,601
    )
    
    
    (35,040
    )
    
    
    (33,577
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    12,946
    
    
    
    14,134
    
    
    
    10,946
    
    
    
    2,943
    
    
    
    2,615
    
    
    
    2,465Amortization of prior service cost
    
    
    (487
    )
    
    
    (469
    )
    
    
    (430
    )
    
    
    
    
    
    
    266
    
    
    
    266Curtailment
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition
obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428
    
    
    
    643
    
    
    
    643Net periodic benefit cost
    
    $
    22,306
    
    
    $
    30,034
    
    
    $
    24,402
    
    
    $
    8,023
    
    
    $
    8,180
    
    
    $
    7,937
 109




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##### Table of Contents



Additional Information
  Other PostretirementPension Benefits
    
    Benefits2007
    
    
    
    2006
    
    
    
    2007
    
    
    
    2006Discount rate
    
    
    6.55
    %
    
    
    5.70
    %
    
    
    6.55
    %
    
    
    5.70
    %Rate of long-term return on plan assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    4.50
    %
    
    
    4.25
    %
    
    
    N/A
    
    
    
    N/A
  Pension Benefits
    
    Other Postretirement Benefits2007
    
    
    
    2006
    
    
    
    2005
    
    
    
    2007
    
    
    
    2006
    
    
    
    2005Discount rate
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of long-term return on plan assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   2007
    
    2006Health care cost trend rate assumed for next year
    
    
    10.00
    %
    
    
    10.00
    %Rate to which the cost trend is assumed to decline (ultimate trend rate)
    
    
    5.00
    %
    
    
    5.00
    %Year that rate reaches ultimate trend rate
    
    
    2015
    
    
    
    2014
  1 percentage
    
    1 percentagepoint increase
    
    point decreaseEffect on total of service and interest cost
    
    $
    261
    
    
    $
    (227
    )Effect on postretirement benefit obligation
    
    
    4,569
    
    
    
    (3,970
    )
 Plan Assets
  Asset category
    
    2007
    
    2006
    
    TargetU.S. equity securities
    
    
    49
    %
    
    
    56
    %
    
    
    50
    %International equity securities
    
    
    15
    %
    
    
    12
    %
    
    
    15
    %Fixed income securities and bonds
    
    
    36
    %
    
    
    32
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  110




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##### Table of Contents



Cash Flow
   Other
    
    HealthQualified
    
    Non-qualified
    
    Postretirement
    
    Care SubsidyPension Plan
    
    Pension Plans
    
    Benefits
    
    Receipts2008
    
    $
    25,000
    
    
    $
    4,300
    
    
    $
    5,500
    
    
    $
    (900
    )2009
    
    
    26,000
    
    
    
    4,500
    
    
    
    5,900
    
    
    
    (1,000
    )2010
    
    
    28,000
    
    
    
    4,600
    
    
    
    6,200
    
    
    
    (1,100
    )2011
    
    
    29,000
    
    
    
    4,600
    
    
    
    6,500
    
    
    
    (1,200
    )2012
    
    
    31,000
    
    
    
    3,600
    
    
    
    6,800
    
    
    
    (1,300
    )2013-2017
    
    
    190,000
    
    
    
    21,200
    
    
    
    35,100
    
    
    
    (8,300
    )
 Other Benefit Plans
   14. Share-Based Compensation
   111




---



##### Table of Contents



15. Equities
    Common
    
    PreferredA
    
    
    
    B
    
    
    
    C
    
    
    
    DDecember 31, 2004
    
    
    1,057
    
    
    
    4,344
    
    
    
    183
    
    
    
    1,118
    
    
    
    81,388New Members
    
    
    8
    
    
    
    168
    
    
    
    
    
    
    
    31
    
    
    
    Redemptions
    
    
    (61
    )
    
    
    (394
    )
    
    
    (8
    )
    
    
    (125
    )
    
    
    (3,072
    )December 31, 2005
    
    
    1,004
    
    
    
    4,118
    
    
    
    175
    
    
    
    1,024
    
    
    
    78,316New Members
    
    
    2
    
    
    
    234
    
    
    
    
    
    
    
    203
    
    
    
    Redemptions
    
    
    (47
    )
    
    
    (326
    )
    
    
    (8
    )
    
    
    (204
    )
    
    
    (8,632
    )December 31, 2006
    
    
    959
    
    
    
    4,026
    
    
    
    167
    
    
    
    1,023
    
    
    
    69,684New Members
    
    
    4
    
    
    
    251
    
    
    
    2
    
    
    
    228
    
    
    
    Redemptions
    
    
    (54
    )
    
    
    (348
    )
    
    
    (6
    )
    
    
    (195
    )
    
    
    (7,268
    )December 31, 2007
    
    
    909
    
    
    
    3,929
    
    
    
    163
    
    
    
    1,056
    
    
    
    62,416
    16. Other Acquisitions
   112




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##### Table of Contents



17. Restructuring and Impairment Charges
 2007
    
    2006
    
    2005Restructuring charges
    
    $
    460
    
    
    $
    1,482
    
    
    $
    328Impairment charges
    
    
    3,510
    
    
    
    19,687
    
    
    
    6,053Total restructuring and impairment charges
    
    $
    3,970
    
    
    $
    21,169
    
    
    $
    6,381
 Restructuring charges
    Impairment charges
    18. Gain on Insurance Settlement
  113




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##### Table of Contents



19. Other (Income) Expense, Net
 2007
    
    2006
    
    2005Gain on divestiture of businesses
    
    $
    (28,474
    )
    
    $
    (8,987
    )
    
    $
    Gain on sale of investments, excluding CF Industries
    
    
    (8,683
    )
    
    
    (7,980
    )
    
    
    (1,135
    )Gain on sale of intangibles
    
    
    
    
    
    
    (1,824
    )
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    11,014Gain on legal settlements
    
    
    
    
    
    
    
    
    
    
    (584
    )Total
    
    $
    (37,157
    )
    
    $
    (18,791
    )
    
    $
    9,295
         114




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##### Table of Contents



20. Discontinued Operations
  21. Commitments and Contingencies
      ® ® ® ® ®
  115




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116




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##### Table of Contents



22. Segment Information
         2006
    
    2005Equity in earnings of affiliated companies  as previously reported
    
    $
    (13,997
    )
    
    $
    (37,870
    )Adjustment for vendor rebates (earned) deferred
    
    
    (379
    )
    
    
    (4,651
    )Equity in earnings of affiliated companies  as adjusted
    
    
    (14,376
    )
    
    
    (42,521
    )Earnings before income taxes and discontinued operations- as previously reported
    
    
    11,778
    
    
    
    95,480Adjustment for vendor rebates earned (deferred)
    
    
    379
    
    
    
    4,651Earnings before income taxes and discontinued operations- as adjusted
    
    
    12,157
    
    
    
    100,131Total assets  as previously reported
    
    
    191,983
    
    
    
    187,565Adjustment for vendor rebates deferred
    
    
    (19,113
    )
    
    
    (19,492
    )Total assets  as adjusted
    
    
    172,870
    
    
    
    168,073
 117




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 TotalOther/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminated
    
    
    ConsolidatedFor the year ended December 31, 2007Net sales
    
    $
    4,176,844
    
    
    $
    3,061,591
    
    
    $
    917,020
    
    
    $
    287,373
    
    
    $
    513,948
    
    
    $
    (31,881
    )
    
    $
    8,924,895Cost of sales(1)
    
    
    3,899,365
    
    
    
    2,761,697
    
    
    
    799,108
    
    
    
    293,015
    
    
    
    434,168
    
    
    
    (29,669
    )
    
    
    8,157,684Selling, general and administrative
    
    
    194,925
    
    
    
    249,214
    
    
    
    78,118
    
    
    
    42,532
    
    
    
    52,737
    
    
    
    4,705
    
    
    
    622,231Restructuring and impairment charges
    
    
    1,989
    
    
    
    645
    
    
    
    688
    
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    3,970Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Interest expense (income) net
    
    
    22,278
    
    
    
    25,592
    
    
    
    (4,764
    )
    
    
    (3,318
    )
    
    
    14,898
    
    
    
    (5,768
    )
    
    
    48,918Other (income) expense, net
    
    
    (28,481
    )
    
    
    7
    
    
    
    
    
    
    
    (8,796
    )
    
    
    (72
    )
    
    
    185
    
    
    
    (37,157
    )Equity in earnings of affiliated companies
    
    
    (652
    )
    
    
    (2,030
    )
    
    
    (40
    )
    
    
    (52,436
    )
    
    
    (13,018
    )
    
    
    (7
    )
    
    
    (68,183
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,469Earnings (loss) before income taxes and
discontinued operations
    
    $
    87,420
    
    
    $
    30,938
    
    
    $
    43,910
    
    
    $
    16,376
    
    
    $
    24,587
    
    
    $
    (1,327
    )
    
    $
    201,904For the year ended December 31, 2006Net sales
    
    $
    3,241,251
    
    
    $
    2,711,390
    
    
    $
    755,976
    
    
    $
    
    
    
    $
    398,394
    
    
    $
    (4,722
    )
    
    $
    7,102,289Cost of sales(1)
    
    
    3,001,831
    
    
    
    2,412,747
    
    
    
    648,924
    
    
    
    
    
    
    
    377,031
    
    
    
    835
    
    
    
    6,441,368Selling, general and administrative
    
    
    167,163
    
    
    
    238,026
    
    
    
    67,791
    
    
    
    13,105
    
    
    
    31,442
    
    
    
    (1,970
    )
    
    
    515,557Restructuring and impairment charges
    
    
    4,290
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    16,814
    
    
    
    
    
    
    
    21,169Interest expense (income) net
    
    
    31,915
    
    
    
    25,220
    
    
    
    (638
    )
    
    
    (10,886
    )
    
    
    17,210
    
    
    
    (4,461
    )
    
    
    58,360Other (income) expense, net
    
    
    (9,662
    )
    
    
    (1,097
    )
    
    
    
    
    
    
    
    
    
    
    (8,033
    )
    
    
    1
    
    
    
    (18,791
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,456
    )
    
    
    (1,727
    )
    
    
    (203
    )
    
    
    (14,376
    )
    
    
    4,083
    
    
    
    5
    
    
    
    (13,674
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,444
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,449Earnings (loss) before income taxes and
discontinued operations
    
    $
    47,170
    
    
    $
    36,712
    
    
    $
    40,097
    
    
    $
    12,157
    
    
    $
    (40,153
    )
    
    $
    868
    
    
    $
    96,851For the year ended December 31, 2005Net sales
    
    $
    3,684,069
    
    
    $
    2,586,870
    
    
    $
    653,871
    
    
    $
    
    
    
    $
    406,965
    
    
    $
    4,353
    
    
    $
    7,336,128Cost of sales(1)
    
    
    3,497,502
    
    
    
    2,296,280
    
    
    
    569,503
    
    
    
    
    
    
    
    385,062
    
    
    
    2,764
    
    
    
    6,751,111Selling, general and administrative
    
    
    151,147
    
    
    
    227,433
    
    
    
    53,827
    
    
    
    27,574
    
    
    
    32,588
    
    
    
    2,402
    
    
    
    494,971Restructuring and impairment charges
    
    
    4,121
    
    
    
    1,770
    
    
    
    
    
    
    
    
    
    
    
    433
    
    
    
    57
    
    
    
    6,381Interest expense (income), net
    
    
    34,889
    
    
    
    26,320
    
    
    
    1,146
    
    
    
    6,248
    
    
    
    14,235
    
    
    
    (2,965
    )
    
    
    79,873Other (income) expense, net
    
    
    (14
    )
    
    
    (1,603
    )
    
    
    
    
    
    
    11,014
    
    
    
    
    
    
    
    (102
    )
    
    
    9,295Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated companies
    
    
    (3,969
    )
    
    
    (1,341
    )
    
    
    
    
    
    
    (42,521
    )
    
    
    6,477
    
    
    
    11
    
    
    
    (41,343
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,349
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,354Earnings (loss) before income taxes and
discontinued operations
    
    $
    393
    
    
    $
    36,662
    
    
    $
    29,390
    
    
    $
    100,131
    
    
    $
    (31,830
    )
    
    $
    2,186
    
    
    $
    136,9322007Total assets
    
    $
    865,046
    
    
    $
    1,062,686
    
    
    $
    676,510
    
    
    $
    1,291,667
    
    
    $
    288,134
    
    
    $
    247,788
    
    
    $
    4,431,831Intersegment sales
    
    
    23,011
    
    
    
    25,508
    
    
    
    
    
    
    
    2,613
    
    
    
    
    
    
    
    (51,132
    )
    
    
    Depreciation and amortization
    
    
    26,342
    
    
    
    27,756
    
    
    
    2,430
    
    
    
    8,459
    
    
    
    8,078
    
    
    
    11,075
    
    
    
    84,140Capital expenditures
    
    
    18,004
    
    
    
    42,189
    
    
    
    2,012
    
    
    
    290
    
    
    
    5,143
    
    
    
    23,423
    
    
    
    91,0612006Total assets
    
    $
    873,789
    
    
    $
    956,105
    
    
    $
    542,004
    
    
    $
    172,870
    
    
    $
    262,159
    
    
    $
    208,002
    
    
    $
    3,014,929Intersegment sales
    
    
    5,753
    
    
    
    18,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,900
    )
    
    
    Depreciation and amortization
    
    
    39,951
    
    
    
    30,725
    
    
    
    2,528
    
    
    
    6,114
    
    
    
    8,739
    
    
    
    7,182
    
    
    
    95,239Capital expenditures
    
    
    19,418
    
    
    
    33,594
    
    
    
    2,705
    
    
    
    
    
    
    
    11,019
    
    
    
    17,027
    
    
    
    83,7632005Total assets
    
    $
    899,019
    
    
    $
    920,956
    
    
    $
    451,069
    
    
    $
    168,073
    
    
    $
    311,558
    
    
    $
    312,294
    
    
    $
    3,062,969Intersegment sales
    
    
    3,187
    
    
    
    13,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,605
    )
    
    
    Depreciation and amortization
    
    
    41,151
    
    
    
    31,986
    
    
    
    2,257
    
    
    
    6,088
    
    
    
    10,251
    
    
    
    7,579
    
    
    
    99,312Capital expenditures
    
    
    20,462
    
    
    
    25,912
    
    
    
    2,374
    
    
    
    
    
    
    
    17,714
    
    
    
    3,962
    
    
    
    70,424(1) Cost of sales includes the year-to-year
change in unrealized hedging (gains) losses of:2007
    
    $
    (48
    )
    
    $
    (5,905
    )
    
    $
    (2,737
    )
    
    $
    
    
    
    $
    (475
    )
    
    $
    (1,120
    )
    
    $
    (10,285
    )2006
    
    
    (6,486
    )
    
    
    (2,257
    )
    
    
    (2,729
    )
    
    
    
    
    
    
    (118
    )
    
    
    1,234
    
    
    
    (10,356
    )2005
    
    
    4,201
    
    
    
    (5,815
    )
    
    
    (518
    )
    
    
    
    
    
    
    (844
    )
    
    
    
    
    
    
    (2,976
    )
  118




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 23. Quarterly Financial Information (Unaudited)
  Restated
    
    Restated
    
    RestatedFirst
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Full Year2007Net sales
    
    $
    2,182,283
    
    
    $
    2,022,016
    
    
    $
    2,134,573
    
    
    $
    2,586,023
    
    
    $
    8,924,895Gross profit
    
    
    217,550
    
    
    
    189,416
    
    
    
    162,288
    
    
    
    197,957
    
    
    
    767,211Net earnings
    
    
    52,631
    
    
    
    79,497
    
    
    
    5,239
    
    
    
    26,430
    
    
    
    163,797
  2007
    
    2007
    
    2007First
    
    Second
    
    ThirdQuarter
    
    Quarter
    
    QuarterCost of sales  as previously reported
    
    $
    1,964,733
    
    
    $
    1,832,600
    
    
    $
    1,967,905Adjustment for vendor rebates (earned) deferred
    
    
    
    
    
    
    
    
    
    
    4,380Cost of sales  as adjusted
    
    
    1,194,733
    
    
    
    1,832,600
    
    
    
    1,972,285Gross profit  as previously reported
    
    
    217,550
    
    
    
    189,416
    
    
    
    166,668Adjustment for vendor rebates earned (deferred)
    
    
    
    
    
    
    
    
    
    
    (4,380
    )Gross profit  as adjusted
    
    
    217,550
    
    
    
    189,416
    
    
    
    162,288Earnings from operations  as previously reported
    
    
    74,151
    
    
    
    47,214
    
    
    
    8,442Adjustment for vendor rebates earned (deferred)
    
    
    
    
    
    
    
    
    
    
    (4,380
    )Earnings from operations  as adjusted
    
    
    74,151
    
    
    
    47,214
    
    
    
    4,062Equity in earnings of affiliated companies  as previously
reported
    
    
    (6,950
    )
    
    
    (58,169
    )
    
    
    7,075Adjustment for vendor rebates (earned) deferred
    
    
    3,735
    
    
    
    40,388
    
    
    
    (17,392
    )Equity in earnings of affiliated companies  as adjusted
    
    
    (3,215
    )
    
    
    (17,781
    )
    
    
    (10,317
    )Earnings before income taxes and discontinued operations- as
previously reported
    
    
    65,833
    
    
    
    124,641
    
    
    
    670Adjustment for vendor rebates earned (deferred)
    
    
    (3,735
    )
    
    
    (40,388
    )
    
    
    13,012Earnings before income taxes and discontinued operations- as
adjusted
    
    
    62,098
    
    
    
    84,253
    
    
    
    13,682Income tax expense  as previously reported
    
    
    10,896
    
    
    
    20,204
    
    
    
    3,466Adjustment for vendor rebates
    
    
    (1,429
    )
    
    
    (15,448
    )
    
    
    4,977Income tax expense  as adjusted
    
    
    9,467
    
    
    
    4,756
    
    
    
    8,443Net earnings from continuing operations- as previously reported
    
    
    54,937
    
    
    
    104,437
    
    
    
    (2,796
    )Adjustment for vendor rebates earned (deferred)
    
    
    (2,306
    )
    
    
    (24,940
    )
    
    
    8,035Net earnings from continuing operations- as adjusted
    
    
    52,631
    
    
    
    79,497
    
    
    
    5,239Net earnings- as previously reported
    
    
    54,937
    
    
    
    104,437
    
    
    
    (2,796
    )Adjustment for vendor rebates earned (deferred)
    
    
    (2,306
    )
    
    
    (24,940
    )
    
    
    8,035Net earnings  as adjusted
    
    
    52,631
    
    
    
    79,497
    
    
    
    5,239
 119




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##### Table of Contents



Restated
    
    Restated
    
    Restated
    
    RestatedFirst
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Full Year2006Net sales
    
    $
    1,996,718
    
    
    $
    1,687,305
    
    
    $
    1,524,579
    
    
    $
    1,893,687
    
    
    $
    7,102,289Gross profit
    
    
    179,518
    
    
    
    143,838
    
    
    
    125,411
    
    
    
    212,154
    
    
    
    660,921Net earnings
    
    
    30,339
    
    
    
    19,087
    
    
    
    (12,667
    )
    
    
    52,186
    
    
    
    88,945
 Restated
    
    Restated
    
    Restated
    
    RestatedFirst
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Full YearEquity in earnings of affiliated companies  as previously
reported
    
    $
    8,502
    
    
    $
    (38,231
    )
    
    $
    2,383
    
    
    $
    14,051
    
    
    $
    (13,295
    )Adjustment for vendor rebates (earned) deferred
    
    
    (6,846
    )
    
    
    25,369
    
    
    
    (6,526
    )
    
    
    (12,376
    )
    
    
    (379
    )Equity in earnings of affiliated companies  as adjusted
    
    
    1,656
    
    
    
    (12,862
    )
    
    
    (4,143
    )
    
    
    1,675
    
    
    
    (13,674
    )Earnings before income taxes and discontinued operations- as
previously reported
    
    
    29,215
    
    
    
    36,451
    
    
    
    (26,979
    )
    
    
    57,785
    
    
    
    96,472Adjustment for vendor rebates earned (deferred)
    
    
    6,846
    
    
    
    (25,369
    )
    
    
    6,526
    
    
    
    12,376
    
    
    
    379Earnings before income taxes and discontinued operations- as
adjusted
    
    
    36,061
    
    
    
    11,082
    
    
    
    (20,453
    )
    
    
    70,161
    
    
    
    96,851Income tax expense  as previously reported
    
    
    3,103
    
    
    
    1,699
    
    
    
    (10,282
    )
    
    
    13,286
    
    
    
    7,806Adjustment for vendor rebates
    
    
    2,619
    
    
    
    (9,704
    )
    
    
    2,496
    
    
    
    4,689
    
    
    
    100Income tax expense  as adjusted
    
    
    5,722
    
    
    
    (8,005
    )
    
    
    (7,786
    )
    
    
    17,975
    
    
    
    7,906Net earnings from continuing operations- as previously reported
    
    
    26,112
    
    
    
    34,752
    
    
    
    (16,697
    )
    
    
    44,499
    
    
    
    88,666Adjustment for vendor rebates earned (deferred)
    
    
    4,227
    
    
    
    (15,665
    )
    
    
    4,030
    
    
    
    7,687
    
    
    
    279Net earnings from continuing operations- as adjusted
    
    
    30,339
    
    
    
    19,087
    
    
    
    (12,667
    )
    
    
    52,186
    
    
    
    88,945Net earnings- as previously reported
    
    
    26,112
    
    
    
    34,752
    
    
    
    (16,697
    )
    
    
    44,499
    
    
    
    88,666Adjustment for vendor rebates earned (deferred)
    
    
    4,227
    
    
    
    (15,665
    )
    
    
    4,030
    
    
    
    7,687
    
    
    
    279Net earnings  as adjusted
    
    
    30,339
    
    
    
    19,087
    
    
    
    (12,667
    )
    
    
    52,186
    
    
    
    88,945
 24. Related Party Transactions
  2007
    
    2006
    
    2005Sales
    
    $
    721,227
    
    
    $
    406,627
    
    
    $
    401,818Purchases
    
    
    111,812
    
    
    
    92,372
    
    
    
    82,500Services provided
    
    
    18,819
    
    
    
    17,650
    
    
    
    20,321
 2007
    
    2006Notes receivable
    
    $
    12,656
    
    
    $
    28,338Accounts receivable
    
    
    51,707
    
    
    
    18,922Accounts payable
    
    
    23,014
    
    
    
    9,041
 120




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##### Table of Contents



25. Allowance for Doubtful Accounts
  Balance atBeginning
    
    Charges to
    
    
    
    
    
    Charge-
    
    
    
    
    
    Balance atDescription
    
    of Year
    
    Expense(b)
    
    Recoveries
    
    offs
    
    Other(a)
    
    End of YearYear ended December 31, 2007
    
    $
    10,554
    
    
    $
    3,025
    
    
    $
    2,036
    
    
    $
    (2,717
    )
    
    $
    1,452
    
    
    $
    14,350Year ended December 31, 2006
    
    
    14,310
    
    
    
    1,421
    
    
    
    782
    
    
    
    (4,323
    )
    
    
    (1,636
    )
    
    
    10,554Year ended December 31, 2005
    
    
    15,538
    
    
    
    1,967
    
    
    
    1,076
    
    
    
    (3,681
    )
    
    
    (590
    )
    
    
    14,310
 
 (a)
    
    Includes accounts acquisitions and the impact of consolidations.(b)
    
    Excludes the 2007 effect of the $19.6 million charge to bad debt expense for the Golden Oval note receivable as discussed in Note 26. 26. Subsequent Events
    121




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##### Table of Contents



27. Consolidating Financial Information
        122




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2007
 LandOLakes, Inc.
    
    
    
    
    
    NonParent
    
    
    Consolidated
    
    
    -GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,411
    
    
    $
    17,036
    
    
    $
    87,392
    
    
    $
    
    
    
    $
    116,839Receivables, net
    
    
    352,798
    
    
    
    544,941
    
    
    
    872,574
    
    
    
    (763,606
    )
    
    
    1,006,707Intercompany receivables
    
    
    
    
    
    
    146,951
    
    
    
    
    
    
    
    (146,951
    )
    
    
    Inventories
    
    
    390,236
    
    
    
    527,014
    
    
    
    47,265
    
    
    
    
    
    
    
    964,515Prepaid expenses
    
    
    454,073
    
    
    
    398,820
    
    
    
    3,140
    
    
    
    
    
    
    
    856,033Other current assets
    
    
    55,602
    
    
    
    19,637
    
    
    
    939
    
    
    
    
    
    
    
    76,178Total current assets
    
    
    1,265,120
    
    
    
    1,654,399
    
    
    
    1,011,310
    
    
    
    (910,557
    )
    
    
    3,020,272Investments
    
    
    1,361,795
    
    
    
    48,312
    
    
    
    15,492
    
    
    
    (1,121,621
    )
    
    
    303,978Property, plant and equipment, net
    
    
    197,175
    
    
    
    270,044
    
    
    
    84,533
    
    
    
    
    
    
    
    551,752Goodwill, net
    
    
    211,900
    
    
    
    47,632
    
    
    
    58,692
    
    
    
    
    
    
    
    318,224Other intangibles, net
    
    
    3,586
    
    
    
    113,440
    
    
    
    2,141
    
    
    
    
    
    
    
    119,167Other assets
    
    
    32,281
    
    
    
    35,927
    
    
    
    53,965
    
    
    
    (3,735
    )
    
    
    118,438Total assets
    
    $
    3,071,857
    
    
    $
    2,169,754
    
    
    $
    1,226,133
    
    
    $
    (2,035,913
    )
    
    $
    4,431,831LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    
    
    
    $
    3,815
    
    
    $
    879,785
    
    
    $
    (751,430
    )
    
    $
    132,170Current portion of long-term debt
    
    
    1,879
    
    
    
    396
    
    
    
    2,907
    
    
    
    
    
    
    
    5,182Accounts payable
    
    
    498,081
    
    
    
    629,981
    
    
    
    34,408
    
    
    
    (12,117
    )
    
    
    1,150,353Intercompany payables
    
    
    90,209
    
    
    
    55,855
    
    
    
    887
    
    
    
    (146,951
    )
    
    
    Customer advances
    
    
    514,069
    
    
    
    410,870
    
    
    
    1,301
    
    
    
    
    
    
    
    926,240Accrued expenses
    
    
    157,360
    
    
    
    152,233
    
    
    
    31,677
    
    
    
    (3,794
    )
    
    
    337,476Patronage refunds and other member
equities payable
    
    
    28,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,065Total current liabilities
    
    
    1,289,663
    
    
    
    1,253,150
    
    
    
    950,965
    
    
    
    (914,292
    )
    
    
    2,579,486Long-term debt
    
    
    578,380
    
    
    
    142
    
    
    
    33,080
    
    
    
    
    
    
    
    611,602Employee benefits and other liabilities
    
    
    171,646
    
    
    
    25,002
    
    
    
    5,752
    
    
    
    
    
    
    
    202,400Minority interests
    
    
    
    
    
    
    1,558
    
    
    
    4,617
    
    
    
    
    
    
    
    6,175Commitments and contingenciesEquities:Capital stock
    
    
    1,701
    
    
    
    
    
    
    
    2,909
    
    
    
    (2,909
    )
    
    
    1,701Additional paid-in capital
    
    
    
    
    
    
    639,343
    
    
    
    118,230
    
    
    
    (757,573
    )
    
    
    Member equities
    
    
    937,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    937,126Accumulated other comprehensive
(loss) earnings
    
    
    (61,931
    )
    
    
    (189
    )
    
    
    476
    
    
    
    (287
    )
    
    
    (61,931
    )Retained earnings
    
    
    155,272
    
    
    
    250,748
    
    
    
    110,104
    
    
    
    (360,852
    )
    
    
    155,272Total equities
    
    
    1,032,168
    
    
    
    889,902
    
    
    
    231,719
    
    
    
    (1,121,621
    )
    
    
    1,032,168Total liabilities and equities
    
    $
    3,071,857
    
    
    $
    2,169,754
    
    
    $
    1,226,133
    
    
    $
    (2,035,913
    )
    
    $
    4,431,831
 123




---



##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2007
 LandOLakes,
    
    
    
    
    
    NonInc. Parent
    
    
    Consolidated
    
    
    -GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    4,804,249
    
    
    $
    3,507,453
    
    
    $
    613,193
    
    
    $
    
    
    
    $
    8,924,895Cost of sales
    
    
    4,440,713
    
    
    
    3,190,183
    
    
    
    526,788
    
    
    
    
    
    
    
    8,157,684Gross profit
    
    
    363,536
    
    
    
    317,270
    
    
    
    86,405
    
    
    
    
    
    
    
    767,211Selling, general and administrative
    
    
    302,570
    
    
    
    288,266
    
    
    
    31,395
    
    
    
    
    
    
    
    622,231Restructuring and impairment charges
    
    
    2,677
    
    
    
    595
    
    
    
    698
    
    
    
    
    
    
    
    3,970Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Earnings from operations
    
    
    58,289
    
    
    
    34,350
    
    
    
    54,312
    
    
    
    
    
    
    
    146,951Interest expense (income), net
    
    
    54,844
    
    
    
    1,592
    
    
    
    (7,518
    )
    
    
    
    
    
    
    48,918Other income, net
    
    
    (8,611
    )
    
    
    (28,474
    )
    
    
    (72
    )
    
    
    
    
    
    
    (37,157
    )Equity in earnings of affiliated companies
    
    
    (185,068
    )
    
    
    (2,399
    )
    
    
    (17,283
    )
    
    
    136,567
    
    
    
    (68,183
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    
    
    
    
    1,469
    
    
    
    
    
    
    
    1,469Earnings before income taxes
    
    
    197,124
    
    
    
    63,631
    
    
    
    77,716
    
    
    
    (136,567
    )
    
    
    201,904Income tax expense
    
    
    33,327
    
    
    
    502
    
    
    
    4,278
    
    
    
    
    
    
    
    38,107Net earnings
    
    $
    163,797
    
    
    $
    63,129
    
    
    $
    73,438
    
    
    $
    (136,567
    )
    
    $
    163,797
 124




---



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
 For the Year Ended December 31, 2007
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    163,797
    
    
    $
    63,129
    
    
    $
    73,438
    
    
    $
    (136,567
    )
    
    $
    163,797Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:Depreciation and amortization
    
    
    41,708
    
    
    
    33,490
    
    
    
    8,942
    
    
    
    
    
    
    
    84,140Amortization of deferred financing costs
    
    
    1,819
    
    
    
    288
    
    
    
    146
    
    
    
    
    
    
    
    2,253Bad debt expense
    
    
    20,834
    
    
    
    1,736
    
    
    
    9
    
    
    
    
    
    
    
    22,579Proceeds from patronage revolvement received
    
    
    6,701
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    6,706Non-cash patronage income
    
    
    (2,410
    )
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    (2,543
    )Insurance recovery  business interruption
    
    
    
    
    
    
    4,551
    
    
    
    
    
    
    
    
    
    
    
    4,551Deferred income tax benefit
    
    
    (6,785
    )
    
    
    (22,870
    )
    
    
    
    
    
    
    
    
    
    
    (29,655
    )Increase in other assets
    
    
    (754
    )
    
    
    (2,064
    )
    
    
    (948
    )
    
    
    
    
    
    
    (3,766
    )Increase (decrease) in other liabilities
    
    
    1,436
    
    
    
    545
    
    
    
    (6
    )
    
    
    
    
    
    
    1,975Restructuring and impairment charges
    
    
    2,677
    
    
    
    595
    
    
    
    698
    
    
    
    
    
    
    
    3,970Gain on divestiture of business
    
    
    
    
    
    
    (28,474
    )
    
    
    
    
    
    
    
    
    
    
    (28,474
    )Gain on sale of investments
    
    
    (8,611
    )
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    (8,683
    )Gain on insurance settlement
    
    
    
    
    
    
    (5,941
    )
    
    
    
    
    
    
    
    
    
    
    (5,941
    )Equity in earnings of affiliated companies
    
    
    (185,068
    )
    
    
    (2,399
    )
    
    
    (17,283
    )
    
    
    136,567
    
    
    
    (68,183
    )Dividends from investments in affiliated
companies
    
    
    20,643
    
    
    
    2,461
    
    
    
    10,595
    
    
    
    
    
    
    
    33,699Minority interests
    
    
    
    
    
    
    
    
    
    
    1,469
    
    
    
    
    
    
    
    1,469Other
    
    
    (1,939
    )
    
    
    (275
    )
    
    
    (1,424
    )
    
    
    
    
    
    
    (3,638
    )Changes in current assets and liabilities, net
of acquisitions and divestitures:Receivables
    
    
    (52,740
    )
    
    
    (187,257
    )
    
    
    (405,109
    )
    
    
    350,961
    
    
    
    (294,145
    )Inventories
    
    
    (9,488
    )
    
    
    (188,315
    )
    
    
    (9,147
    )
    
    
    
    
    
    
    (206,950
    )Prepaids and other current assets
    
    
    (130,594
    )
    
    
    (384,149
    )
    
    
    2,305
    
    
    
    
    
    
    
    (512,438
    )Accounts payable
    
    
    115,127
    
    
    
    479,888
    
    
    
    6,662
    
    
    
    (14,965
    )
    
    
    586,712Customer advances
    
    
    130,012
    
    
    
    379,008
    
    
    
    (2,296
    )
    
    
    
    
    
    
    506,724Accrued expenses
    
    
    (19,687
    )
    
    
    88,088
    
    
    
    7,378
    
    
    
    (1,160
    )
    
    
    74,619Net cash provided (used) by operating activities
    
    
    86,678
    
    
    
    231,907
    
    
    
    (324,643
    )
    
    
    334,836
    
    
    
    328,778Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (41,948
    )
    
    
    (43,641
    )
    
    
    (5,472
    )
    
    
    
    
    
    
    (91,061
    )Acquisitions
    
    
    (58
    )
    
    
    
    
    
    
    (2,872
    )
    
    
    
    
    
    
    (2,930
    )Investments in affiliates
    
    
    (331,399
    )
    
    
    
    
    
    
    (275
    )
    
    
    
    
    
    
    (331,674
    )Distributions from investment is affiliated
companies
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Net settlement on repositioning investment in
joint venture
    
    
    77,550
    
    
    
    (165,425
    )
    
    
    
    
    
    
    
    
    
    
    (87,875
    )Net proceeds from divestitures of businesses
    
    
    211,851
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    212,101Proceeds from sale of investments
    
    
    475
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    626Proceeds from sale of property, plant and equipment
    
    
    3,568
    
    
    
    3,526
    
    
    
    3,408
    
    
    
    
    
    
    
    10,502Insurance proceeds for replacement assets
    
    
    
    
    
    
    8,635
    
    
    
    
    
    
    
    
    
    
    
    8,635Change in notes receivable
    
    
    (92
    )
    
    
    26
    
    
    
    (18,588
    )
    
    
    248
    
    
    
    (18,406
    )Other
    
    
    209
    
    
    
    (227
    )
    
    
    (184
    )
    
    
    
    
    
    
    (202
    )Net cash used by investing activities
    
    
    (54,844
    )
    
    
    (197,106
    )
    
    
    (23,582
    )
    
    
    248
    
    
    
    (275,284
    )Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (476
    )
    
    
    509
    
    
    
    410,450
    
    
    
    (335,084
    )
    
    
    75,399Proceeds from issuance of long-term debt
    
    
    2,757
    
    
    
    1,830
    
    
    
    3,750
    
    
    
    
    
    
    
    8,337Principal payments on long-term debt and capital
lease obligations
    
    
    (9,190
    )
    
    
    (12,607
    )
    
    
    (20,001
    )
    
    
    
    
    
    
    (41,798
    )Payments for redemption of member equities
    
    
    (58,049
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,049
    )Distributions to members
    
    
    36,811
    
    
    
    (23,111
    )
    
    
    (13,700
    )
    
    
    
    
    
    
    Other
    
    
    (252
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (251
    )Net cash (used) provided by financing activities
    
    
    (28,399
    )
    
    
    (33,378
    )
    
    
    380,499
    
    
    
    (335,084
    )
    
    
    (16,362
    )Net increase in cash
    
    
    3,435
    
    
    
    1,423
    
    
    
    32,274
    
    
    
    
    
    
    
    37,132Cash and cash equivalents at beginning of year
    
    
    8,976
    
    
    
    15,613
    
    
    
    55,118
    
    
    
    
    
    
    
    79,707Cash and cash equivalents at end of year
    
    $
    12,411
    
    
    $
    17,036
    
    
    $
    87,392
    
    
    $
    
    
    
    $
    116,839
 125




---



##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
 December 31, 2006
 LandOLakes, Inc.Parent
    
    
    Consolidated
    
    
    Non-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
    
    
    77,042
    
    
    
    
    
    
    
    
    
    
    
    (77,042
    )
    
    
    Inventories
    
    
    227,258
    
    
    
    204,814
    
    
    
    39,324
    
    
    
    
    
    
    
    471,396Prepaid expenses
    
    
    339,507
    
    
    
    7,735
    
    
    
    3,181
    
    
    
    
    
    
    
    350,423Other current assets
    
    
    35,502
    
    
    
    19,199
    
    
    
    3,203
    
    
    
    
    
    
    
    57,904Total current assets
    
    
    989,088
    
    
    
    514,041
    
    
    
    550,568
    
    
    
    (489,687
    )
    
    
    1,564,010Investments
    
    
    1,115,250
    
    
    
    42,809
    
    
    
    8,323
    
    
    
    (915,293
    )
    
    
    251,089Property, 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
    
    $
    2,505,513
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,014,929LIABILITIES 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
    
    
    335,955
    
    
    
    165,950
    
    
    
    25,097
    
    
    
    2,848
    
    
    
    529,850Intercompany payables
    
    
    
    
    
    
    74,513
    
    
    
    2,529
    
    
    
    (77,042
    )
    
    
    Customer advances
    
    
    384,057
    
    
    
    31,862
    
    
    
    3,597
    
    
    
    
    
    
    
    419,516Accrued expenses
    
    
    107,792
    
    
    
    94,146
    
    
    
    24,299
    
    
    
    (2,634
    )
    
    
    223,603Patronage refunds and other member
equities payable
    
    
    18,626
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,626Total current liabilities
    
    
    848,884
    
    
    
    370,180
    
    
    
    534,977
    
    
    
    (493,174
    )
    
    
    1,260,867Long-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
    
    
    92,992
    
    
    
    235,448
    
    
    
    35,786
    
    
    
    (271,234
    )
    
    
    92,992Total equities
    
    
    932,727
    
    
    
    739,650
    
    
    
    175,643
    
    
    
    (915,293
    )
    
    
    932,727Total liabilities and equities
    
    $
    2,505,513
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,014,929
 126




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Year Ended December 31, 2006
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    3,269,031
    
    
    $
    3,336,244
    
    
    $
    497,014
    
    
    $
    
    
    
    $
    7,102,289Cost of sales
    
    
    2,958,004
    
    
    
    3,015,590
    
    
    
    467,774
    
    
    
    
    
    
    
    6,441,368Gross profit
    
    
    311,027
    
    
    
    320,654
    
    
    
    29,240
    
    
    
    
    
    
    
    660,921Selling, general and administrative
    
    
    227,057
    
    
    
    254,241
    
    
    
    34,259
    
    
    
    
    
    
    
    515,557Restructuring and impairment charges
    
    
    4,291
    
    
    
    64
    
    
    
    16,814
    
    
    
    
    
    
    
    21,169Earnings (loss) from operations
    
    
    79,679
    
    
    
    66,349
    
    
    
    (21,833
    )
    
    
    
    
    
    
    124,195Interest expense (income), net
    
    
    46,140
    
    
    
    13,391
    
    
    
    (1,171
    )
    
    
    
    
    
    
    58,360Other income, net
    
    
    (9,661
    )
    
    
    (1,097
    )
    
    
    (8,033
    )
    
    
    
    
    
    
    (18,791
    )Equity in (earnings) loss of affiliated companies
    
    
    (50,180
    )
    
    
    (1,477
    )
    
    
    3,348
    
    
    
    34,635
    
    
    
    (13,674
    )Minority interest in (loss) earnings of subsidiaries
    
    
    (62
    )
    
    
    
    
    
    
    1,511
    
    
    
    
    
    
    
    1,449Earnings (loss) before income taxes
    
    
    93,442
    
    
    
    55,532
    
    
    
    (17,488
    )
    
    
    (34,635
    )
    
    
    96,851Income tax expense
    
    
    4,497
    
    
    
    1,562
    
    
    
    1,847
    
    
    
    
    
    
    
    7,906Net earnings (loss)
    
    $
    88,945
    
    
    $
    53,970
    
    
    $
    (19,335
    )
    
    $
    (34,635
    )
    
    $
    88,945
 127




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
 For the Year Ended December 31, 2006
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    88,945
    
    
    $
    53,970
    
    
    $
    (19,335
    )
    
    $
    (34,635
    )
    
    $
    88,945Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    40,196
    
    
    
    44,897
    
    
    
    10,146
    
    
    
    
    
    
    
    95,239Amortization of deferred financing costs
    
    
    2,109
    
    
    
    79
    
    
    
    38
    
    
    
    
    
    
    
    2,226Bad debt (recovery) expense
    
    
    (588
    )
    
    
    2,025
    
    
    
    (16
    )
    
    
    
    
    
    
    1,421Proceeds from patronage revolvement received
    
    
    8,882
    
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    9,163Non-cash patronage income
    
    
    (1,765
    )
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (1,827
    )Deferred income tax expense
    
    
    13,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500Decrease (increase) in other assets
    
    
    4,984
    
    
    
    (2,044
    )
    
    
    (47
    )
    
    
    
    
    
    
    2,893Increase (decrease) in other liabilities
    
    
    2,972
    
    
    
    (64
    )
    
    
    (13
    )
    
    
    
    
    
    
    2,895Restructuring and impairment charges
    
    
    4,291
    
    
    
    64
    
    
    
    16,814
    
    
    
    
    
    
    
    21,169Gain on divestiture of businesses
    
    
    
    
    
    
    (954
    )
    
    
    (8,033
    )
    
    
    
    
    
    
    (8,987
    )(Gain) loss on sale of investments
    
    
    (8,078
    )
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    (7,980
    )Equity in (earnings) loss of affiliated companies
    
    
    (50,180
    )
    
    
    (1,477
    )
    
    
    3,348
    
    
    
    34,635
    
    
    
    (13,674
    )Dividends from investments in affiliated
companies
    
    
    2,034
    
    
    
    1,202
    
    
    
    1,500
    
    
    
    
    
    
    
    4,736Minority interests
    
    
    (62
    )
    
    
    
    
    
    
    1,511
    
    
    
    
    
    
    
    1,449Other
    
    
    (2,011
    )
    
    
    (7
    )
    
    
    (1,592
    )
    
    
    
    
    
    
    (3,610
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (3,024
    )
    
    
    (78,658
    )
    
    
    (342,468
    )
    
    
    462,306
    
    
    
    38,156Inventories
    
    
    11,804
    
    
    
    (30,965
    )
    
    
    (426
    )
    
    
    
    
    
    
    (19,587
    )Prepaids and other current assets
    
    
    (54,440
    )
    
    
    (6,693
    )
    
    
    185
    
    
    
    
    
    
    
    (60,948
    )Accounts payable
    
    
    (95,710
    )
    
    
    55,603
    
    
    
    (17,834
    )
    
    
    6,317
    
    
    
    (51,624
    )Customer advances
    
    
    32,054
    
    
    
    (10,597
    )
    
    
    2,186
    
    
    
    
    
    
    
    23,643Accrued expenses
    
    
    41,047
    
    
    
    14,207
    
    
    
    7,186
    
    
    
    (3,108
    )
    
    
    59,332Net cash provided (used) by operating activities
    
    
    36,960
    
    
    
    40,905
    
    
    
    (346,850
    )
    
    
    465,515
    
    
    
    196,530Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (36,123
    )
    
    
    (34,647
    )
    
    
    (12,993
    )
    
    
    
    
    
    
    (83,763
    )Acquisitions
    
    
    (84,187
    )
    
    
    (3,873
    )
    
    
    
    
    
    
    
    
    
    
    (88,060
    )Investment in affiliates
    
    
    (22,925
    )
    
    
    
    
    
    
    (4,025
    )
    
    
    22,000
    
    
    
    (4,950
    )Net proceeds from divestitures of businesses
    
    
    
    
    
    
    5,407
    
    
    
    37,059
    
    
    
    
    
    
    
    42,466Proceeds from sale of investments
    
    
    8,372
    
    
    
    902
    
    
    
    
    
    
    
    
    
    
    
    9,274Proceeds from sale of property, plant and equipment
    
    
    358
    
    
    
    1,193
    
    
    
    203
    
    
    
    
    
    
    
    1,754Change in notes receivable
    
    
    21,802
    
    
    
    885
    
    
    
    (2,149
    )
    
    
    (4,757
    )
    
    
    15,781Other
    
    
    1,184
    
    
    
    3,901
    
    
    
    2,098
    
    
    
    
    
    
    
    7,183Net cash (used) provided by investing activities
    
    
    (111,519
    )
    
    
    (26,232
    )
    
    
    20,193
    
    
    
    17,243
    
    
    
    (100,315
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    1,329
    
    
    
    1,037
    
    
    
    359,851
    
    
    
    (460,758
    )
    
    
    (98,541
    )Proceeds from issuance of long-term debt
    
    
    2,341
    
    
    
    710
    
    
    
    13,400
    
    
    
    
    
    
    
    16,451Principal payments on long-term debt and capital
lease obligations
    
    
    (959
    )
    
    
    (807
    )
    
    
    (34,783
    )
    
    
    
    
    
    
    (36,549
    )Payments for debt issuance costs
    
    
    (1,536
    )
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (1,543
    )Distribution to members
    
    
    6,500
    
    
    
    
    
    
    
    (6,500
    )
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (80,614
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,614
    )Other
    
    
    (622
    )
    
    
    
    
    
    
    27,555
    
    
    
    (22,000
    )
    
    
    4,933Net cash (used) provided by financing activities
    
    
    (73,561
    )
    
    
    940
    
    
    
    359,516
    
    
    
    (482,758
    )
    
    
    (195,863
    )Net cash used by operating activities of
discontinued operations
    
    
    (349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349
    )Net (decrease) increase in cash
    
    
    (148,469
    )
    
    
    15,613
    
    
    
    32,859
    
    
    
    
    
    
    
    (99,997
    )Cash and cash equivalents at beginning of year
    
    
    157,445
    
    
    
    
    
    
    
    22,259
    
    
    
    
    
    
    
    179,704Cash and cash equivalents at end of year
    
    $
    8,976
    
    
    $
    15,613
    
    
    $
    55,118
    
    
    $
    
    
    
    $
    79,707
 128




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
 For the Year Ended December 31, 2005
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    3,414,033
    
    
    $
    3,227,703
    
    
    $
    694,392
    
    
    $
    
    
    
    $
    7,336,128Cost of sales
    
    
    3,173,271
    
    
    
    2,915,261
    
    
    
    662,579
    
    
    
    
    
    
    
    6,751,111Gross profit
    
    
    240,762
    
    
    
    312,442
    
    
    
    31,813
    
    
    
    
    
    
    
    585,017Selling, general and administrative
    
    
    215,731
    
    
    
    240,958
    
    
    
    38,282
    
    
    
    
    
    
    
    494,971Restructuring and impairment charges
    
    
    4,179
    
    
    
    1,769
    
    
    
    433
    
    
    
    
    
    
    
    6,381Earnings (loss) from operations
    
    
    20,852
    
    
    
    69,715
    
    
    
    (6,902
    )
    
    
    
    
    
    
    83,665Interest expense, net
    
    
    72,846
    
    
    
    1,471
    
    
    
    5,556
    
    
    
    
    
    
    
    79,873Other expense (income), net
    
    
    10,335
    
    
    
    (1,040
    )
    
    
    
    
    
    
    
    
    
    
    9,295Gain on sale of investment in CF Industries, Inc.
    
    
    (102,446
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,446
    )Equity in (earnings) loss of affiliated companies
    
    
    (96,670
    )
    
    
    (1,369
    )
    
    
    6,477
    
    
    
    50,219
    
    
    
    (41,343
    )Minority interest in earnings of subsidiaries
    
    
    240
    
    
    
    142
    
    
    
    972
    
    
    
    
    
    
    
    1,354Earnings (loss) before income taxes and
discontinued operations
    
    
    136,547
    
    
    
    70,511
    
    
    
    (19,907
    )
    
    
    (50,219
    )
    
    
    136,932Income tax expense (benefit)
    
    
    6,920
    
    
    
    2,844
    
    
    
    (2,459
    )
    
    
    
    
    
    
    7,305Net earnings (loss) from continuing operations
    
    
    129,627
    
    
    
    67,667
    
    
    
    (17,448
    )
    
    
    (50,219
    )
    
    
    129,627Earnings from discontinued operations, net of
income taxes
    
    
    2,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,167Net earnings (loss)
    
    $
    131,794
    
    
    $
    67,667
    
    
    $
    (17,448
    )
    
    $
    (50,219
    )
    
    $
    131,794
 129




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
 For the Year Ended December 31, 2005
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    131,794
    
    
    $
    67,667
    
    
    $
    (17,448
    )
    
    $
    (50,219
    )
    
    $
    131,794Earnings from discontinued operations, net of income
tax benefit
    
    
    (2,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,167
    )Adjustments to reconcile net earnings to net cash
(used) provided by operating activities:Depreciation and amortization
    
    
    42,237
    
    
    
    38,434
    
    
    
    18,641
    
    
    
    
    
    
    
    99,312Amortization of deferred financing costs
    
    
    7,188
    
    
    
    1,222
    
    
    
    323
    
    
    
    
    
    
    
    8,733Loss on extinguishment of debt
    
    
    11,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,014Bad debt expense
    
    
    762
    
    
    
    1,029
    
    
    
    176
    
    
    
    
    
    
    
    1,967Proceeds from patronage revolvement received
    
    
    5,551
    
    
    
    2,572
    
    
    
    
    
    
    
    
    
    
    
    8,123Non-cash patronage income
    
    
    (408
    )
    
    
    (1,444
    )
    
    
    
    
    
    
    
    
    
    
    (1,852
    )Deferred income tax expense
    
    
    6,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,956Decrease (increase) in other assets
    
    
    5,558
    
    
    
    (1,556
    )
    
    
    (205
    )
    
    
    331
    
    
    
    4,128Increase (decrease) in other liabilities
    
    
    4,554
    
    
    
    (984
    )
    
    
    
    
    
    
    
    
    
    
    3,570Restructuring and impairment charges
    
    
    4,179
    
    
    
    1,769
    
    
    
    433
    
    
    
    
    
    
    
    6,381Gain on sale of investments
    
    
    (102,547
    )
    
    
    (1,034
    )
    
    
    
    
    
    
    
    
    
    
    (103,581
    )Equity in (earnings) loss of affiliated companies
    
    
    (96,670
    )
    
    
    (1,369
    )
    
    
    6,477
    
    
    
    50,219
    
    
    
    (41,343
    )Dividends from investments in affiliated
companies
    
    
    33,201
    
    
    
    1,323
    
    
    
    726
    
    
    
    
    
    
    
    35,250Minority interests
    
    
    240
    
    
    
    142
    
    
    
    972
    
    
    
    
    
    
    
    1,354Other
    
    
    (319
    )
    
    
    (644
    )
    
    
    (5,291
    )
    
    
    
    
    
    
    (6,254
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (259,014
    )
    
    
    73,724
    
    
    
    10,639
    
    
    
    160,033
    
    
    
    (14,618
    )Inventories
    
    
    283
    
    
    
    (19,278
    )
    
    
    12,937
    
    
    
    
    
    
    
    (6,058
    )Prepaids and other current assets
    
    
    (13,320
    )
    
    
    (2,180
    )
    
    
    (30,839
    )
    
    
    
    
    
    
    (46,339
    )Accounts payable
    
    
    49,139
    
    
    
    60,663
    
    
    
    4,331
    
    
    
    (13,265
    )
    
    
    100,868Customer advances
    
    
    50,990
    
    
    
    10,886
    
    
    
    1,411
    
    
    
    
    
    
    
    63,287Accrued expenses
    
    
    (11,171
    )
    
    
    26,037
    
    
    
    (1,357
    )
    
    
    (474
    )
    
    
    13,035Net cash (used) provided by operating activities
    
    
    (131,970
    )
    
    
    256,979
    
    
    
    1,926
    
    
    
    146,625
    
    
    
    273,560Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (17,882
    )
    
    
    (26,669
    )
    
    
    (25,873
    )
    
    
    
    
    
    
    (70,424
    )Acquisitions, net of cash acquired
    
    
    (38,304
    )
    
    
    (7,797
    )
    
    
    
    
    
    
    
    
    
    
    (46,101
    )Investment in affiliates
    
    
    (93,616
    )
    
    
    
    
    
    
    (5,450
    )
    
    
    93,500
    
    
    
    (5,566
    )Net proceeds from divestitures of businesses
    
    
    
    
    
    
    
    
    
    
    2,635
    
    
    
    
    
    
    
    2,635Proceeds from sale of investments
    
    
    315,900
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    316,900Proceeds from sale of property, plant and equipment
    
    
    397
    
    
    
    9,218
    
    
    
    12,582
    
    
    
    
    
    
    
    22,197Change in notes receivable
    
    
    (18,883
    )
    
    
    3,706
    
    
    
    (51
    )
    
    
    
    
    
    
    (15,228
    )Other
    
    
    21,061
    
    
    
    (1
    )
    
    
    (179
    )
    
    
    
    
    
    
    20,881Net cash provided (used) by investing activities
    
    
    168,673
    
    
    
    (20,543
    )
    
    
    (16,336
    )
    
    
    93,500
    
    
    
    225,294Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    172,787
    
    
    
    (36,594
    )
    
    
    22,688
    
    
    
    (137,625
    )
    
    
    21,256Proceeds from issuance of long-term debt
    
    
    (129
    )
    
    
    629
    
    
    
    1,522
    
    
    
    
    
    
    
    2,022Principal payments on long-term and capital lease
obligations
    
    
    (264,247
    )
    
    
    
    
    
    
    (106,653
    )
    
    
    (9,000
    )
    
    
    (379,900
    )Payments for debt extinguishment costs
    
    
    (11,014
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,014
    )Distribution to members
    
    
    183,830
    
    
    
    (183,830
    )
    
    
    
    
    
    
    
    
    
    
    Payments for redemption of member equities
    
    
    (68,714
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,714
    )Other
    
    
    (2,957
    )
    
    
    2
    
    
    
    94,462
    
    
    
    (93,500
    )
    
    
    (1,993
    )Net cash provided (used) by financing activities
    
    
    9,556
    
    
    
    (219,793
    )
    
    
    12,019
    
    
    
    (240,125
    )
    
    
    (438,343
    )Net cash provided by operating activities of
discontinued operations
    
    
    3,922
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,922Net cash provided by investing activities of
discontinued operations
    
    
    42,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,135Net increase (decrease) in cash
    
    
    92,316
    
    
    
    16,643
    
    
    
    (2,391
    )
    
    
    
    
    
    
    106,568Cash and cash equivalents at beginning of year
    
    
    65,129
    
    
    
    (16,643
    )
    
    
    24,650
    
    
    
    
    
    
    
    73,136Cash and cash equivalents at end of year
    
    $
    157,445
    
    
    $
    
    
    
    $
    22,259
    
    
    $
    
    
    
    $
    179,704
 130




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##### Table of Contents



(MOORE STEPHENS FROST LOGO)CERTIFIED PUBLIC ACCOUNTANTS
                            
                 A Professional Limited Company
    
    425 West Capitol, Suite 3300
Little Rock, Arkansas 72201
501-376-9241 800-766-9241
Fax: 501-374-5520
www.msfrost.com
 Report of Independent Registered Public Accounting Firm
 
    -s- Moore Stephens FrostCertified Public Accountants 
 Moore Stephens Frost is an independent firm associated with Moore Stephens International
Limited.
 132




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Consolidated Balance Sheets
 December 22, 2007 and December 23, 2006
 2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    28,234,319
    
    
    $
    2,638,607Accounts receivable  trade, less allowance for doubtful
accounts of $672,963 and $712,601 in 2007 and
2006, respectively
    
    
    56,086,392
    
    
    
    37,270,440Inventories
    
    
    36,655,219
    
    
    
    32,607,392Refundable income taxes
    
    
    
    
    
    
    317,195Current portion of notes receivable
    
    
    39,766
    
    
    
    205,641Prepaid expenses and other current assets
    
    
    3,710,541
    
    
    
    2,025,910Assets held for sale
    
    
    67,685
    
    
    
    250,922Total current assets
    
    
    124,793,922
    
    
    
    75,316,107Property, plant and equipmentLand
    
    
    6,747,524
    
    
    
    6,747,524Land improvements
    
    
    1,343,836
    
    
    
    1,349,692Buildings and leasehold improvements
    
    
    40,613,330
    
    
    
    40,305,799Machinery and equipment
    
    
    63,886,757
    
    
    
    65,422,523Vehicles
    
    
    8,079,844
    
    
    
    7,752,837Furniture and fixtures
    
    
    1,362,869
    
    
    
    1,331,634Construction in progress
    
    
    954,512
    
    
    
    1,164,426122,988,672
    
    
    
    124,074,435Less accumulated depreciation
    
    
    (44,859,599
    )
    
    
    (41,360,758
    )Net property, plant and equipment
    
    
    78,129,073
    
    
    
    82,713,677Investments, intangible and other assetsNotes receivable, less current portion
    
    
    29,827
    
    
    
    3,106,792Investment in affiliates
    
    
    10,988,297
    
    
    
    4,578,520Other assets
    
    
    969,072
    
    
    
    296,623Intangible assets  finite-lived, net
    
    
    1,694,115
    
    
    
    1,868,671Goodwill
    
    
    58,279,535
    
    
    
    58,981,819Total investments, intangibles and other assets
    
    
    71,960,846
    
    
    
    68,832,425Total assets
    
    $
    274,883,841
    
    
    $
    226,862,209
 133




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2007
    
    
    2006Liabilities and Members EquityCurrent liabilitiesAccounts payable
    
    $
    29,772,004
    
    
    $
    17,683,467Accrued wages, salaries and bonuses
    
    
    4,520,122
    
    
    
    4,963,222Accrued expenses and other current liabilities
    
    
    16,971,875
    
    
    
    12,291,602Income taxes payable
    
    
    1,543,493
    
    
    
    51,870Current maturities of long-term debt and
capital lease obligations
    
    
    2,906,851
    
    
    
    3,193,910Current deferred income taxes
    
    
    359,758
    
    
    
    1,428,039Total current liabilities
    
    
    56,074,103
    
    
    
    39,612,110Long-term debt and capital lease obligations,
less current maturities
    
    
    32,961,622
    
    
    
    48,585,924Deferred income taxes
    
    
    5,523,304
    
    
    
    7,809,040Members equity
    
    
    180,324,812
    
    
    
    130,855,135Total liabilities and members equity
    
    $
    274,883,841
    
    
    $
    226,862,209


134



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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statements of Operations
 For the Years Ended December 22, 2007,
December 23, 2006 and December 24, 2005
 2007
    
    
    2006
    
    
    2005Net sales
    
    $
    513,947,844
    
    
    $
    398,394,377
    
    
    $
    406,965,095Cost of sales
    
    
    435,799,068
    
    
    
    377,414,014
    
    
    
    385,673,833Gross profit
    
    
    78,148,776
    
    
    
    20,980,363
    
    
    
    21,291,262ExpensesGeneral and administrative
    
    
    12,397,247
    
    
    
    15,836,729
    
    
    
    23,159,719Selling
    
    
    14,984,769
    
    
    
    14,755,012
    
    
    
    14,982,068Goodwill impairment
    
    
    
    
    
    
    16,814,281
    
    
    
    Total expenses
    
    
    27,382,016
    
    
    
    47,406,022
    
    
    
    38,141,787Operating income (loss)
    
    
    50,766,760
    
    
    
    (26,425,659
    )
    
    
    (16,850,525
    )Other income (expense)Interest expense
    
    
    (3,085,121
    )
    
    
    (4,774,509
    )
    
    
    (5,737,363
    )Interest and other income
    
    
    1,688,564
    
    
    
    2,051,715
    
    
    
    2,004,171Equity in earnings (losses) of affiliates
    
    
    17,283,183
    
    
    
    (3,348,339
    )
    
    
    (6,477,425
    )Gain (loss) on sale of assets
    
    
    (184,575
    )
    
    
    7,889,656
    
    
    
    5,718,015Total other income (expense)
    
    
    15,702,051
    
    
    
    1,818,523
    
    
    
    (4,492,602
    )Income (loss) before income taxes
    
    
    66,468,811
    
    
    
    (24,607,136
    )
    
    
    (21,343,127
    )Income tax expense (benefit)
    
    
    2,596,850
    
    
    
    406,409
    
    
    
    (3,581,937
    )Net income (loss)
    
    $
    63,871,961
    
    
    $
    (25,013,545
    )
    
    $
    (17,761,190
    )
  135




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statements of Members Equity
 For the Years Ended December 22, 2007,
December 23, 2006 and December 24, 2005
 Balance  December 26, 2004
    
    $
    134,686,040Net loss
    
    
    (17,761,190
    )Balance  December 24, 2005
    
    
    116,924,850Member contribution
    
    
    45,443,830Net loss
    
    
    (25,013,545
    )Distributions to member
    
    
    (6,500,000
    )Balance  December 23, 2006
    
    
    130,855,135Net income
    
    
    63,871,961Distributions to member
    
    
    (14,402,284
    )Balance  December 22, 2007
    
    $
    180,324,812
  136




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statements of Cash Flows
 For the Years Ended December 22, 2007,
December 23, 2006 and December 24, 2005
 2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income (loss)
    
    $
    63,871,961
    
    
    $
    (25,013,545
    )
    
    $
    (17,761,190
    )Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activitiesDepreciation
    
    
    8,428,333
    
    
    
    8,475,516
    
    
    
    7,406,448Amortization
    
    
    174,557
    
    
    
    261,937
    
    
    
    374,162(Gain) loss on sale of assets
    
    
    256,812
    
    
    
    143,747
    
    
    
    (6,043,797
    )Loss on sale of assets held for sale
    
    
    (72,237
    )
    
    
    (8,033,403
    )
    
    
    Equity in (earnings) and losses of affiliates
    
    
    (17,283,182
    )
    
    
    3,348,339
    
    
    
    6,477,425Net change in operating assets held for sale
    
    
    
    
    
    
    (2,394,632
    )
    
    
    (10,479
    )Change in deferred income taxes
    
    
    (3,354,017
    )
    
    
    (1,207,437
    )
    
    
    (7,199,484
    )Goodwill impairment
    
    
    
    
    
    
    16,814,281
    
    
    
    Changes in operating assets and liabilitiesAccounts receivable  trade
    
    
    (18,014,230
    )
    
    
    2,359,269
    
    
    
    716,381Inventories
    
    
    (4,047,827
    )
    
    
    (2,173,190
    )
    
    
    465,433Refundable income taxes
    
    
    317,195
    
    
    
    (317,195
    )
    
    
    863,258Prepaid expenses and other current assets
    
    
    (1,684,631
    )
    
    
    436,106
    
    
    
    (62,057
    )Accounts payable
    
    
    12,088,537
    
    
    
    (3,351,108
    )
    
    
    (3,185,887
    )Accrued expenses and other current liabilities
    
    
    4,237,173
    
    
    
    3,549,268
    
    
    
    4,537,041Income taxes payable
    
    
    1,491,623
    
    
    
    (690,330
    )
    
    
    742,200Net cash provided (used) by operating activities
    
    
    46,410,067
    
    
    
    (7,792,377
    )
    
    
    (12,680,546
    )Cash flows from investing activitiesProceeds from sale of property, plant and equipment
    
    
    51,706
    
    
    
    240,333
    
    
    
    12,539,058Purchases of property, plant and equipment
    
    
    (4,811,989
    )
    
    
    (11,019,137
    )
    
    
    (15,310,448
    )Purchase of subsidiaries, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (250,000
    )Distributions from affiliates
    
    
    11,124,327
    
    
    
    
    
    
    
    Investments of affiliates
    
    
    
    
    
    
    (2,525,000
    )
    
    
    (4,772,154
    )Proceeds from sale of assets and liabilities held for sale
    
    
    72,237
    
    
    
    60,000,000
    
    
    
    Other assets
    
    
    (672,450
    )
    
    
    (226,683
    )
    
    
    127,149Collections on notes receivable
    
    
    3,242,840
    
    
    
    83,570
    
    
    
    131,249Net cash provided (used) by investing activities
    
    
    9.006,671
    
    
    
    46.553,083
    
    
    
    (7,535.146
    )
 137




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Cash flows from financing activitiesNet borrowings (repayments) on notes payable
    
    $
    
    
    
    $
    (19,000,000
    )
    
    $
    19,000,000Proceeds from long-term debt
    
    
    
    
    
    
    13,000,000
    
    
    
    Repayments of long-term debt
    
    
    (14,484,200
    )
    
    
    (28,132,588
    )
    
    
    (13,653,172
    )Repayments of capital lease obligations
    
    
    (1,636,826
    )
    
    
    (1,521,801
    )
    
    
    (1,419,589
    )Distributions to members, net
    
    
    (13,700,000
    )
    
    
    (6,500,000
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (29,821,026
    )
    
    
    (42,154,389
    )
    
    
    3,927,239Net increase (decrease) in cash and cash equivalents
    
    
    25,595,712
    
    
    
    (3,393,683
    )
    
    
    (16,288,453
    )Cash and cash equivalents  beginning of year
    
    
    2,638,607
    
    
    
    6,032,290
    
    
    
    22,320,743Cash and cash equivalents  end of year
    
    $
    28,234,319
    
    
    $
    2,638,607
    
    
    $
    6,032,290Supplementary disclosures of cash flow informationCash paid during the year forInterest, including capital interest of $315,000
during 2006
    
    $
    3,260,330
    
    
    $
    5,384,015
    
    
    $
    5,666,853Income taxes (net of refunds received)
    
    
    3,726,609
    
    
    
    3,567,198
    
    
    
    1,046,453Supplementary disclosures of non-cash transactionsPurchase of property, plant and equipment through
capital lease obligations
    
    $
    209,665
    
    
    $
    
    
    
    $
    50,792Goodwill contributed by (distributed to) member
    
    
    (702,284
    )
    
    
    45,443,830
    
    
    
    
  138




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 1. Summary of Significant Accounting Policies
 a.
    
    Basis of presentation Moark, LLC (Moark) is a top tier marketer and producer of
shell eggs that are sold to retail and wholesale customers for consumer and industrial use
throughout the United States. Its operations up through June 2006 also included processed
egg products, see Note 7. Moark operates 48 facilities in the states of California,
Colorado, Connecticut, Iowa, New Mexico, Missouri and Ohio.
  b.
    
    Principles of consolidation The consolidated financial statements include the accounts
of Moark and all subsidiaries in which Moark has the ability to exercise significant control
over operating and financial policies. The entities (collectively referred to as the
Company) which are included in the consolidated financial statements are Moark, LLC,
Premier Farms, LLC, Moark Egg Corporation, Norco Ranch Holding Company, Inc., Norco Ranch,
Inc., Hi Point Industries, LLC, L&W Egg Products, Inc., Kofkoff Egg Farm, LLC, Whip-O-Will
Egg Farms, LLC, Pacheco Egg Farms, LLC, Kofkoff Feed, Inc., Colchester Foods, Inc.,
Fitchville Realty, Inc., Egg Express, Inc., McAnally Enterprises, LLC, Southern New England
Egg, LLC, Cutler at Abbeville, LLC, Sunbest Farms of Iowa, LLC, and Sunbest Foods of Iowa,
Inc. See Note 7 regarding the sale of the Companys liquid egg operations. All significant
intercompany balances and transactions have been eliminated.c.
    
    Business environment The Company operates as a marketer and producer of shell eggs
covering the majority of the United States. Its operations up through June 2006 also
included processed egg products. As such, it operates in an environment wherein the
commodity nature of both its products for sale and its primary raw materials causes sales
prices and production costs to fluctuate, often on a short-term basis, due to the worldwide
supply and demand situation for those commodities. The supply and demand factors for its
products for sale and the supply and demand factors for its primary raw materials correlate
to a degree, but are not the same, thereby causing margins between sales prices and
production costs to increase, to decrease, or to invert, often on a short-term basis.d.
    
    Limited liability company Since Moark is a limited liability company, no interest
holder of the Company shall be personally liable for the debts, obligations or liabilities
of Moark, unless the individual has signed a specific personal guarantee. Moark shall
dissolve upon the sale of all or substantially all of the property of Moark; the vote by
the managers to dissolve, winding up, or liquidation of the Company; entry of a decree of
judicial dissolution pursuant to a legal authority; or on December 31, 2050.e.
    
    Fiscal year  The Company uses a 52-53 week fiscal year ending during December. The
years ended December 22, 2007, December 23, 2006 and December 24, 2005 consisted of 52-week
periods.
 139




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Summary of Significant Accounting Policies (cont.)
 f.
    
    Estimates The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.g.
    
    Revenue recognition Revenue is recognized by the Company when the following criteria
are met: persuasive evidence of an agreement exists; delivery has occurred or services
have been rendered; the Companys price to the buyer is fixed and determinable; and
collectibility is reasonably assured.h.
    
    Cash equivalents For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid instruments with an original maturity of three months
or less to be cash equivalents.i.
    
    Accounts receivable The Company reviews their customer accounts on a periodic basis
and records a reserve for specific amounts that the Company feels may not be collected. In
addition, the Company has established a general reserve based on historical percentages of
bad debts. Amounts will be written off at the point when collection attempts on the
accounts have been exhausted. Management uses significant judgment in estimating
uncollectible amounts. In estimating uncollectible amounts, management considers factors
such as current overall economic conditions, industry-specific economic conditions,
historical customer performance and anticipated customer performance. Past due status is
determined based upon contractual terms. While management believes the Companys processes
effectively address its exposure to doubtful accounts, changes in economic, industry or
specific customer conditions may require adjustment to the allowance recorded by the
Company.j.
    
    Inventories Layer flock inventories are valued at amortized cost. All other
inventories are stated at the lower of cost, determined using the first-in, first-out
method, or market.k.
    
    Property, plant and equipment Property, plant and equipment contributed in connection
with the initial establishment of the Company was recorded at its estimated fair values at
the date of contribution. Additions to property, plant and equipment are recorded at
original cost. Depreciation is provided by the straight-line method over the estimated
useful lives of the related
assets.
  140




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 1.
    
    Summary of Significant Accounting Policies(cont.)
 l.
    
    Long-lived assets The Company reviews the carrying value of property and equipment
for impairment whenever triggering events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable from estimated future cash flows
expected to result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying amount exceeds the fair value of
assets. Based upon managements assessment of the existing assets, management recorded an
impairment loss of approximately $657,000, $0 and $423,000 during 2007, 2006 and 2005,
respectively. The impairment charge represents the excess of the carrying value of the
asset over its fair value. The impairment change is included in the Companys cost of
sales in the consolidated statements of operations.m.
    
    Goodwill As a result of certain acquisition and merger transactions, the Company has
recorded goodwill for the excess of the amount paid over the fair value of the assets
acquired at the date of the acquisition or merger. Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, requires companies to
evaluate goodwill for impairment at least on an annual basis. During the year ended
December 23, 2006, the Company recorded an impairment loss of $16,814,281 related to
goodwill, resulting from the impairment test completed, using a discounted cash flow
analysis that requires certain assumptions and estimates be made regarding industry
economic factors and future profitability. Based upon managements evaluation of goodwill
for possible impairment, it was determined that no impairment existed at December 22, 2007
or December 24, 2005.n.
    
    Franchise agreements Fees paid to acquire franchises are reported as intangible
assets  finite-lived, net of accumulated amortization and are being amortized to
operations over the life of the franchise on the straight-line method. The franchise
agreements granted certain rights to the Company to produce, sell and distribute certain
product lines for an initial term of 20 years with options to renew. The agreements
required an initial payment and monthly service fees based on a percentage of net sales of
the products sold. The Company has also agreed to comply with franchise requirements
relating to insurance limits, feed additives, packaging supplies and promotional
materials.n.
    
    Other assets Other assets consist primarily of long-term grower advances, the
long-term portion of a prepaid lease agreement and deposits. The prepaid lease agreement
is being expensed over the term of the lease.o
    
    Income taxes The Company utilizes the liability method of accounting for income taxes.
This method requires the Company to recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in its financial
statements or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement basis of assets and
liabilities and their related tax basis using enacted tax rates in effect for the years in
which the differences are expected to be recovered.
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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 1.
    
    Summary of Significant Accounting Policies(cont.)
     p.
    
    Advertising The Company expenses the costs of advertising as incurred. Advertising
costs for the years ended December 22, 2007, December 23, 2006 and December 24, 2005 were
approximately $7,047,000, $5,600,000 and $8,276,000, respectively.q.
    
    Shipping and handling All shipping and handling costs are expensed as incurred and
are included in cost of sales in the accompanying consolidated statements of operations.r.
    
    Fair value As of December 22, 2007, December 23, 2006 and December 24, 2005, the
stated value of the Companys long-term receivables approximates their fair value based on
current market rates for financial instruments of the same remaining maturities and with
similar credit quality.
 142




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 1.
    
    Summary of Significant Accounting Policies(cont.)
  2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount of
    
    Value of
    
    Amount of
    
    Value ofLiability
    
    Liability
    
    Liability
    
    LiabilityLong-term debt and capital
lease obligations
    
    $
    35,868,473
    
    
    $
    33,633,087
    
    
    $
    51,779,834
    
    
    $
    50,688,754
 s.
    
    Derivative commodity instruments The Company may from time-to-time use derivative
commodity instruments, primarily futures contracts, to reduce the exposure to changes in
grain commodity prices. These contracts are not designated as hedges under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The futures contracts are
marked to market each month and gains and losses (unrealized gains and losses) are
recognized in earnings. Currently the Company has no outstanding open positions; however
its parent, LOL, maintains open derivative contracts, which Moark may receive an
intercompany allocation of any resulting gains or losses when these positions are closed.
Allocations gains to Moark were approximately $1,319,400 during the year ended December
22, 2007.t.
    
    Reclassifications Certain reclassifications have been made to the December 23, 2006
amounts to conform to the December 22, 2007 presentation for accrued wages, salaries and
bonuses on the Companys consolidated balance sheets. The reclassifications had no impact
on the net income (loss).u.
    
    Recently issued accounting pronouncements In June 2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income Taxes. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition
measurement of a tax position taken or expected to be taken in a tax return. The
effective date of FIN 48 is generally as of the start of the first fiscal year beginning
after December 15, 2006. The Company adopted FIN 48 effective January 1, 2007. The
adoption of FIN 48 did not have a material effect on the Companys consolidated financial
statements.
  143




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Summary of Significant Accounting Policies (cont.)
    144




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Inventories
  2007
    
    
    2006Layer flocks and pullets
    
    $
    20,686,353
    
    
    $
    20,329,724Feed and feed ingredients
    
    
    8,929,497
    
    
    
    6,142,089Eggs and egg products
    
    
    3,348,281
    
    
    
    2,640,310Supplies and other
    
    
    3,691,088
    
    
    
    3,495,269$
    36,655,219
    
    
    $
    32,607,392
 Notes Receivable
  2007
    
    
    2006Note receivable from an individual; interest
at 8%; due in monthly installments of $34,942,
including interest. Repaid during 2007.
    
    $
    
    
    
    $
    3,242,840Various other notes receivables
    
    
    69,593
    
    
    
    69,59369,593
    
    
    
    3,312,433Less current portion
    
    
    39,766
    
    
    
    205,641Notes receivable, less current portion
    
    $
    29,827
    
    
    $
    3,106,792
  2008
    
    $
    39,7662009
    
    
    29,827$
    69,593
  145




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Capital Leases
   2007
    
    
    2006Land
    
    $
    200,000
    
    
    $
    200,000Buildings
    
    
    7,199,618
    
    
    
    7,199,618Machinery and equipment
    
    
    6,771,995
    
    
    
    7,585,221Accumulated amortization
    
    
    (6,219,754
    )
    
    
    (5,790,780
    )Net assets under capital leases
    
    $
    7,951,859
    
    
    $
    9,194,059
  2008
    
    $
    1,818,5152009
    
    
    1,677,0522010
    
    
    1,424,0002011
    
    
    1,424,0002012
    
    
    237,333Total minimum lease payments
    
    
    6,580,900Less amounts representing interest
    
    
    232,040Present value of future minimum lease payments
    
    $
    6,348,860
 146




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Intangible Assets  Finite-Lived
  Franchise Fees
    
    
    Other
    
    
    TotalOriginal cost
    
    $
    2,549,389
    
    
    $
    1,364,125
    
    
    $
    3,913,514Accumulated amortization,
December 24, 2005
    
    
    506,162
    
    
    
    1,276,744
    
    
    
    1,782,906Amortization
    
    
    174,556
    
    
    
    87,381
    
    
    
    261,937Accumulated amortization,
December 23, 2006
    
    
    680,718
    
    
    
    1,364,125
    
    
    
    2,044,843Amortization
    
    
    174,556
    
    
    
    
    
    
    
    174,556Accumulated amortization,
December 22, 2007
    
    
    855.274
    
    
    
    1,364,125
    
    
    
    2,219,399Net intangible assets  finite-lived
    
    $
    1,694,115
    
    
    $
    
    
    
    $
    1,694,115
 -
 2008
    
    $
    174,5562009
    
    
    174,5562010
    
    
    174,5562011
    
    
    174,5562012
    
    
    174,556Thereafter
    
    
    821,335$
    1,694,115
 147




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Goodwill
  2007
    
    
    2006Balance  beginning of the period
    
    $
    58,981,819
    
    
    $
    43,223,768Goodwill distributed to member
    
    
    (702,284
    )
    
    
    Goodwill contributed by member
    
    
    
    
    
    
    45,443,830Allocation to assets sold
    
    
    
    
    
    
    (12,871,498
    )Impairment of goodwill
    
    
    
    
    
    
    (16,814,281
    )Balance  end of the period
    
    $
    58,279,535
    
    
    $
    58,981,819
 Sale of Liquid Egg Operations
  Investment in Affiliates
  148




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Investment in Affiliates (cont.)
  Year Ended December 22, 2007Moark/FortRecoveryGrand Mesa
    
    Delta Egg
    
    Egg Marketing,Eggs, Inc.
    
    Farm. LLC
    
    LLC
    
    TotalCurrent assets
    
    $
    348,170
    
    
    $
    12,787,566
    
    
    $
    13,555,800
    
    
    $
    26,691,536Property, plant and equipment, net
    
    
    
    
    
    
    13,750,694
    
    
    
    
    
    
    
    13,750,694Other assets
    
    
    
    
    
    
    261,413
    
    
    
    69,016
    
    
    
    330,429Current liabilities
    
    
    492,645
    
    
    
    820,844
    
    
    
    6,793,217
    
    
    
    8,106,706Other liabilities
    
    
    
    
    
    
    8,830,000
    
    
    
    12,554
    
    
    
    8,842,554Stockholders or members equity (deficit)
    
    
    (144,475
    )
    
    
    17,148,829
    
    
    
    6,819,045
    
    
    
    23,823,399Net sales
    
    
    1,416,885
    
    
    
    28,023,872
    
    
    
    110,139,591
    
    
    
    139,580,348Cost of goods sold
    
    
    1,157,097
    
    
    
    19,481,790
    
    
    
    83,248,687
    
    
    
    103,887,574Selling, general and administrative
expenses
    
    
    129,551
    
    
    
    
    
    
    
    758,417
    
    
    
    887,968Net finance expense
    
    
    12,511
    
    
    
    657,726
    
    
    
    
    
    
    
    670,237Net other income (loss)
    
    
    439,085
    
    
    
    (7,288
    )
    
    
    
    
    
    
    431,797Net income
    
    
    556,811
    
    
    
    7,877,068
    
    
    
    26,132,487
    
    
    
    34,566,366
 Year Ended December 23. 2006Moark/FortRecoveryGrand Mesa
    
    Delta Egg
    
    Egg Marketing,Eggs, Inc.
    
    Farm, LLC
    
    LLC
    
    TotalCurrent assets
    
    $
    4,588,735
    
    
    $
    5,945,452
    
    
    $
    6,652,172
    
    
    $
    17,186,359Property, plant and equipment, net
    
    
    
    
    
    
    15,081,330
    
    
    
    
    
    
    
    15,081,330Other assets
    
    
    154,830
    
    
    
    262,355
    
    
    
    70,242
    
    
    
    487,427Current liabilities
    
    
    2,154,973
    
    
    
    2,687,377
    
    
    
    5,345,857
    
    
    
    10,188,207Other liabilities
    
    
    2,086,747
    
    
    
    8,830,000
    
    
    
    
    
    
    
    10,916,747Stockholders or members equity
    
    
    501,845
    
    
    
    9,771,760
    
    
    
    1,376,557
    
    
    
    11,650,162Net sales
    
    
    10,582,683
    
    
    
    17,322,774
    
    
    
    71,443,852
    
    
    
    99,349,309Cost of goods sold
    
    
    11,043,245
    
    
    
    15,299,411
    
    
    
    76,725,374
    
    
    
    103,068,030Selling, general and administrative
expenses
    
    
    766,729
    
    
    
    1,133,797
    
    
    
    598,291
    
    
    
    2,498,817Net finance expense (benefit)
    
    
    68,938
    
    
    
    789,276
    
    
    
    (132
    )
    
    
    858,082Income tax benefit
    
    
    (415,001
    )
    
    
    
    
    
    
    
    
    
    
    (415,001
    )Net income (loss)
    
    
    (881,228
    )
    
    
    100,290
    
    
    
    (5,879,681
    )
    
    
    (6,660,619
    )
 149




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Investment in Affiliates (cont.)
 Year Ended December 24, 2005Moark/Fort RecoveryGrand Mesa
    
    Delta Egg
    
    Egg Marketing,Eggs, Inc.
    
    Farm, LLC
    
    LLC
    
    TotalCurrent assets
    
    $
    2,372,673
    
    
    $
    4,910,132
    
    
    $
    7,402,039
    
    
    $
    14,684,844Property, plant and equipment, net
    
    
    1,616,384
    
    
    
    16,463,986
    
    
    
    
    
    
    
    18,080,370Other assets
    
    
    156,218
    
    
    
    279,248
    
    
    
    80,364
    
    
    
    515,830Current liabilities
    
    
    2,323,774
    
    
    
    667,839
    
    
    
    5,276,164
    
    
    
    8,267,777Other liabilities
    
    
    438,429
    
    
    
    11,278,000
    
    
    
    
    
    
    
    11,716,429Stockholders or members equity
    
    
    1,383,072
    
    
    
    9,707,527
    
    
    
    2,206,239
    
    
    
    13,296,838Net sales
    
    
    9,952,674
    
    
    
    14,958,481
    
    
    
    61,937,400
    
    
    
    86,848,555Cost of goods sold
    
    
    10,720,844
    
    
    
    15,323,125
    
    
    
    71,292,927
    
    
    
    97,336,896Selling, general and administrative
expenses
    
    
    661,200
    
    
    
    950,095
    
    
    
    420,518
    
    
    
    2,031,813Net finance expense
    
    
    28,410
    
    
    
    872,778
    
    
    
    
    
    
    
    901,188Income tax benefit
    
    
    (466,490
    )
    
    
    
    
    
    
    
    
    
    
    (466,490
    )Net loss
    
    
    (991,290
    )
    
    
    (2,187,517
    )
    
    
    (9,776,045
    )
    
    
    (12,954,852
    )
 Notes Payable
   150




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Long-Term Debt and Capital Lease Obligations
  2007
    
    
    2006Notes payable to a company and trusts; interest
at 8%; secured by the common stock of Norco
Ranch, Inc. and the membership interest of
McAnally Enterprises, LLC and Hi Point
Industries, LLC; payable in monthly installments
ranging from $34,880 to $135,394, including
interest, through April 2011 to February 2023.
    
    $
    29,399,065
    
    
    $
    30,621,238Capital lease obligation payable to a company;
interest imputed at 7.00%; payable in monthly
installments of $118,667, including interest, through
February 2012.
    
    
    5,769,006
    
    
    
    6,751,525Various capital lease obligations with a financing
company; interest ranging from 5.92% to 8.25%;
secured by certain equipment; payable in monthly
installments ranging from $1,342 to $19,023,
including interest, through dates ranging from
February 2008 through November 2009.
    
    
    579,854
    
    
    
    1,216,065Notes payables to an individual; secured by certain
equipment; payable in monthly installments,
including interest of $733, through August 2009.
    
    
    120,548
    
    
    
    191,006Credit agreements, consisting of: (1) a revolving
commitment not to exceed $40,000,000, subject
to a borrowing base computation, payable to a
lender group made up of certain banks and
agricultural credit associations; interest is to be
charged as defined (6.85% as of December 23,
2006) paid quarterly; secured by substantially all
assets of the Company and matures June 2009.
    
    
    
    
    
    
    13,000,00035,868,473
    
    
    
    51,779,834Less current maturities
    
    
    2,906,851
    
    
    
    3,193,910Long-term debt and capital lease obligations,
less current maturities
    
    $
    32,961,622
    
    
    $
    48,585,924
 151




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Long-Term Debt and Capital Lease Obligations (cont.)
  Long-Term
    
    
    Capital LeaseDebt
    
    
    Obligations
    
    
    Total2008
    
    $
    1,347,760
    
    
    $
    1,559,091
    
    
    $
    2,906,8512009
    
    
    1,429,798
    
    
    
    1,523,424
    
    
    
    2,953,2222010
    
    
    1,491,770
    
    
    
    1,388,597
    
    
    
    2,880,3672011
    
    
    1,479,426
    
    
    
    1,488,979
    
    
    
    2,968,4052012
    
    
    1,529,677
    
    
    
    388,769
    
    
    
    1,918,446Thereafter
    
    
    22,241,182
    
    
    
    
    
    
    
    22,241,182$
    29,519,613
    
    
    $
    6,348,860
    
    
    $
    35,868,473
  Outstanding Checks
  Income Taxes
  2007
    
    
    2006
    
    
    2005Current provision (benefit)
    
    $
    (757,167
    )
    
    $
    (801,028
    )
    
    $
    3,617,547Deferred provision (benefit)
    
    
    3,354,017
    
    
    
    1,207,437
    
    
    
    (7,199,484
    )$
    2,596,850
    
    
    $
    406,409
    
    
    $
    (3,581,937
    )
 152




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 12.
    
    Income Taxes(cont.)The Companys provision for income taxes varies from the statutory U.S. tax rate primarily
due to the effect of state income taxes, certain nondeductible expenses and the partnership tax
treatment for certain of the entities.Total gross deferred tax assets and liabilities are as follows:
 2007
    
    
    2006Deferred tax assets relate toNet operating loss carryforwards
    
    $
    2,869,442
    
    
    $
    2,046,666Accrued expenses
    
    
    99,171
    
    
    
    273,773Other
    
    
    62,690
    
    
    
    55,500Total deferred tax assets
    
    
    3,031,303
    
    
    
    2,375,939Deferred tax liabilities relate toSuspense account
    
    
    4,395,671
    
    
    
    6,593,506Inventory valuation
    
    
    1,193,227
    
    
    
    1,332,370Property, plant and equipment
    
    
    2,628,409
    
    
    
    2,999,802Joint ventures
    
    
    582,282
    
    
    
    566,920Other
    
    
    114,776
    
    
    
    120,420Total deferred tax liabilities
    
    
    8,914,365
    
    
    
    11,613,018Net deferred tax liabilities
    
    $
    5,883,062
    
    
    $
    9,237,079
 At December 22, 2007, the Company has net operating loss carryforwards for federal income
tax purposes of approximately $7,594,000 available to offset future taxable income. Unless
utilized, these carryforwards will begin expiring in 2027. These carryforwards have been used
to reduce deferred tax liabilities that would otherwise exist for consolidated financial
statement purposes.The Company has recorded accruals for additional taxes and interest the Company may be
required to pay in various tax jurisdictions related to management fees that have been deducted
in arriving at taxable income. During the course of examinations by various taxing authorities,
adjustments or proposed adjustments may be asserted. The Company evaluates such items on a case
by case basis and adjusts the accrual for contingent liabilities as deemed necessary. At
December 22, 2007, the liability of $988,366 for uncertain tax positions is classified as a
current liability. There where no changes during 2007 with respect to this accrual.
 153




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 12.
    
    Income Taxes(cont.)The effective tax rate differs from the statutory rate primarily as a result of the
following:
 2007
    
    2006
    
    2005Statutory rate
    
    
    35.0
    %
    
    
    -35.0
    %
    
    
    -35.0
    %Partnership (income) loss
    
    
    -31.1
    %
    
    
    22.5
    %
    
    
    21.9
    %State income taxes, net of federal
provision (benefit)
    
    
    0.5
    %
    
    
    -1.5
    %
    
    
    -1.6
    %Goodwill related to sale of liquid
egg operations
    
    
    
    
    
    
    16.5
    %
    
    
    Other
    
    
    -0.5
    %
    
    
    -0.8
    %
    
    
    -2.1
    %Effective rate
    
    
    3.9
    %
    
    
    1.7
    %
    
    
    -16.8
    %
 13.
    
    Related PartiesThe Company is related by common ownership to other corporations and proprietorships
engaged in operations related to the commercial shell egg industry. The Company also held an
equity interest in an affiliated Company, which was engaged in related operations. The Company
sells products to and purchases products from certain of these related entities. In addition,
the Company pays a member fees for environmental services and certain royalty fees.Activity between the Company and these related entities and the balances owed to and from
these entities are summarized as follows:
 2007
    
    
    2006
    
    
    2005Sales to related parties
    
    $
    19,412,162
    
    
    $
    9,063,496
    
    
    $
    3,964,000Purchases from and payments of fees to
related parties
    
    
    83,627,424
    
    
    
    48,743,660
    
    
    
    47,172,000Interest to related party
    
    
    
    
    
    
    104,176
    
    
    
    Accounts receivable from related parties
    
    
    4,763,671
    
    
    
    1,369,284
    
    
    
    367,000Accounts payable to related parties
    
    
    6,489,054
    
    
    
    3,212,003
    
    
    
    5,769,000
 154




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 13.
    
    Related Parties(cont.)The Company also has guaranteed certain loan agreements for Delta of which the Company is
a 50% owner. The Company is responsible for 50% of the outstanding balance on these guaranteed
notes totaling approximately $8,830,000 and $10,854,000 as of December 22, 2007 and December
23, 2006, respectively. It is estimated that these notes are fully secured by collateral of the
borrower.The Company was a party to a consulting agreement with one of its members for an annual
amount of approximately $1,445,000 due February 1 of each year which was canceled during
January 2006. Included in the consolidated statements of operations for the year ended
December 24, 2005 is $1,445,000 related to this agreement.A subsidiary of one of the Companys members has written insurance policies for the
Company providing for general liability, property and workers compensation insurance policies
covering most of the Companys employees. Premiums during the years ended December 22, 2007,
December 23, 2006 and December 24, 2005 were approximately $2,495,000, $3,053,000 and
$3,611,000, respectively.14.
    
    Commitments and Contingencies
 a.
    
    Non-cancelable operating leases of certain vehicles, equipment and real estate
expire in various years through 2013. These leases generally contain renewal options for
periods ranging from two years to five years and require the Company to pay all executory
costs (property taxes, maintenance and insurance).Future minimum lease payments at December 22, 2007 are as follows:
 Fiscal Year2008
    
    $
    3,268,9772009
    
    
    2,882,2002010
    
    
    1,845,6502011
    
    
    1,726,0002012
    
    
    1,428,000Thereafter
    
    
    228,000$
    11,378,827
 Rent expense for all operating leases approximated $4,577,000, $5,070,000 and
$5,900,000 for the years ended December 22, 2007, December 23, 2006 and December 24, 2005,
respectively. Included in operating leases are certain leases with related parties.
Payments to the related parties in connection with these leases totaled approximately
$410,000 during the year ended December 24, 2005.
 155




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Commitments and Contingencies (cont.)
 b.
    
    The Company has a defined contribution retirement plan that contains a 401(k) salary
deferral feature that covers essentially all of the full-time employees of Moark and its
affiliated companies. Those who have attained the age of 18 and who have completed minimum
periods of service are eligible to participate. The Company makes matching contributions
as required by the plan document and is permitted to make discretionary contributions if
desired by the Companys management.
  c.
    
    The Company contributes to a multiemployer benefit plan certain of its employees.
The contributions during 2007, 2006 and 2005 were approximately $183,000, $171,000 and
$166,000, respectively.
 d.
    
    The Company is self-insured for health insurance purposes. The Company has obtained
stop-loss insurance policies to cover losses in excess of $150,000 per employee and
aggregate losses in excess of $4,900,000 per plan year. Provisions have been made in
these consolidated financial statements to cover losses incurred under this
self-insurance program.e.
    
    The Company is self-insured for workers compensation insurance purposes. Provisions
have been made in these consolidated financial statements to cover losses incurred under
this self- insurance program.f.
    
    The Company has outstanding commodity contracts for the future purchases of grain at
December 22, 2007. These commitments are not in excess of the current operating
requirements of the Company.g.
    
    At various times, the Company may be involved in litigation incidental to its
operations. Currently, there are no material legal proceedings outstanding.h.
    
    During 2007, the Company experienced a fire at its Anderson facility located in
Missouri. Damage was extensive and caused operations to cease. Costs of repair or
replacement of inventory, property, equipment and business interruption are covered under
the terms of applicable insurance policies, subject to deductibles. As of December 22,
2007, the Company had not received any cash proceeds from its insurance carrier and
recorded $1.1 million in other current assets related to inventory losses, clean-up
expenses and basis of property and equipment destroyed at the facility. All property and
equipment proceeds are expected to be reinvested to fully restore the Anderson operation.
 156




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 22, 2007, December 23, 2006 and December 24, 2005
 Concentrations of Credit Risk
      157




---



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
    
    
    RESTATEDNovember 30,
    
    
    August 31,2007
    
    
    2007($ in thousands)ASSETSCurrent assets:Cash
    
    $
    
    
    
    $
    7,423Trade receivables, net of allowance for doubtful accounts of $3,264 and $3,205, respectively
    
    
    199,000
    
    
    
    220,672Rebates receivable
    
    
    4,542
    
    
    
    62,901Other receivables
    
    
    1,181
    
    
    
    5,788Receivable from Land OLakes, Inc.
    
    
    34,731
    
    
    
    2,521Inventories
    
    
    100,635
    
    
    
    551,220Vendor prepayments
    
    
    21,240
    
    
    
    259,299Prepaid expenses
    
    
    1,426
    
    
    
    2,282Assets held for sale
    
    
    333,890
    
    
    
    341,521Total current assets
    
    
    696,645
    
    
    
    1,453,627Property, plant and equipment:Land and land improvements
    
    
    2,522
    
    
    
    13,029Buildings
    
    
    14,727
    
    
    
    67,454Machinery and equipment
    
    
    73,750
    
    
    
    114,770Construction in progress
    
    
    1,417
    
    
    
    710Total property, plant and equipment
    
    
    92,416
    
    
    
    195,963Less accumulated depreciation
    
    
    (51,729
    )
    
    
    (98,265
    )Net property, plant and equipment
    
    
    40,687
    
    
    
    97,698Other assets
    
    
    10,072
    
    
    
    17,389Total assets
    
    $
    747,404
    
    
    $
    1,568,714LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Cash overdraft
    
    $
    8,250
    
    
    $
    19,617Accounts payable
    
    
    204,915
    
    
    
    603,418Customer prepayments
    
    
    14,074
    
    
    
    207,438Accrued competitive allowance
    
    
    1,801
    
    
    
    60,738Accrued expenses
    
    
    34,215
    
    
    
    51,630Payable to CHS Inc.
    
    
    1,383
    
    
    
    5,911Other current liabilities
    
    
    3,423
    
    
    
    3,302Current portion of long-term debt
    
    
    613
    
    
    
    755Short-term debt
    
    
    65,028
    
    
    
    142,858Liabilities held for sale
    
    
    68,752
    
    
    
    123,007Total current liabilities
    
    
    402,454
    
    
    
    1,218,674Long-term debt, less current portion
    
    
    3,243
    
    
    
    104,684Other noncurrent liabilities
    
    
    14,045
    
    
    
    14,306Minority interests in subsidiaries
    
    
    15,640
    
    
    
    15,454Members equity:Contributed capital
    
    
    245,310
    
    
    
    159,089Retained earnings
    
    
    71,819
    
    
    
    61,614Accumulated other comprehensive loss
    
    
    (5,107
    )
    
    
    (5,107
    )Total members equity
    
    
    312,022
    
    
    
    215,596Total liabilities and members equity
    
    $
    747,404
    
    
    $
    1,568,714
  - 158 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedNovember 30,RESTATED2007
    
    
    2006($ in thousands)(Unaudited)Net sales
    
    $
    210,590
    
    
    $
    669,993Cost of sales
    
    
    141,856
    
    
    
    614,880Gross margin
    
    
    68,734
    
    
    
    55,113Selling, general, and administrative expense
    
    
    50,285
    
    
    
    71,025Restructuring and impairment charges
    
    
    5,559
    
    
    
    Gain on sale of assets
    
    
    (1,683
    )
    
    
    (1,060
    )Earnings (loss) from operations
    
    
    14,573
    
    
    
    (14,852
    )Interest expense, net
    
    
    2,496
    
    
    
    7,372Minority Interests
    
    
    1,872
    
    
    
    (325
    )Net earnings (loss)
    
    $
    10,205
    
    
    $
    (21,899
    )
  - 159 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedNovember 30,RESTATED2007
    
    
    2006($ in thousands)(Unaudited)Cash flows from operating activities:Net earnings (loss)
    
    $
    10,205
    
    
    $
    (21,899
    )Adjustments to reconcile net loss to net cash provided (used) by operating activities:Depreciation and amortization
    
    
    4,246
    
    
    
    5,732Restructuring and impairment charges
    
    
    5,559
    
    
    
    Bad debt expense
    
    
    600
    
    
    
    494Gain on sale of assets
    
    
    (440
    )
    
    
    (366
    )Minority interests
    
    
    1,872
    
    
    
    (325
    )Changes in other non-current assets and liabilities
    
    
    446
    
    
    
    5,033Changes in current assets and liabilities:Trade receivables
    
    
    18,198
    
    
    
    (246,492
    )Receivables/payables from related parties
    
    
    (22,887
    )
    
    
    (4,606
    )Rebates receivable
    
    
    (40,637
    )
    
    
    70,191Other receivables
    
    
    3,929
    
    
    
    1,218Inventories
    
    
    (18,306
    )
    
    
    7,419Vendor prepayments
    
    
    (18,861
    )
    
    
    (61,845
    )Accounts payable and customer prepayments
    
    
    (368,142
    )
    
    
    306,241Accrued competitive allowances
    
    
    5,461
    
    
    
    (11,644
    )Accrued expenses
    
    
    (14,512
    )
    
    
    5,396Assets held for sale
    
    
    7,631
    
    
    
    Liabilities held for sale
    
    
    (54,255
    )
    
    
    Other current assets and liabilities
    
    
    1,875
    
    
    
    487Net cash (used in) provided by operating activities
    
    
    (478,018
    )
    
    
    55,034Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (1,737
    )
    
    
    (10,060
    )Proceeds from sale of property, plant and equipment
    
    
    484
    
    
    
    353Proceeds from minority interest partners
    
    
    
    
    
    
    352Net cash used by investing activities
    
    
    (1,253
    )
    
    
    (9,355
    )Cash flows from financing activities:Change in short-term debt
    
    
    19,316
    
    
    
    (26,910
    )(Decrease) increase in cash overdrafts
    
    
    (11,367
    )
    
    
    (4,558
    )Capital contributions by members
    
    
    463,899
    
    
    
    Net cash provided by (used in) financing activities
    
    
    471,848
    
    
    
    (31,468
    )Net change in cash
    
    
    (7,423
    )
    
    
    14,211Cash at beginning of period
    
    
    7,423
    
    
    
    Cash at end of period
    
    $
    
    
    
    $
    14,211
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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Summary of Significant Accounting Policies
  2. Restatements to Prior Years Consolidated Financial Statements
   PreviouslyReported
    
    
    
    
    
    Restated3 months ended
    
    
    
    
    
    3 months endedNovember 30,
    
    
    
    
    
    November 30,2006
    
    Restatement
    
    2006Cost of sales
    
    $
    624,370
    
    
    $
    (9,490
    )
    
    $
    614,880Gross margin
    
    
    45,623
    
    
    
    9,490
    
    
    
    55,113Earnings from operations
    
    
    (24,342
    )
    
    
    9,490
    
    
    
    (14,852
    )Net loss
    
    
    (31,389
    )
    
    
    9,490
    
    
    
    (21,899
    )
  PreviouslyReported
    
    
    
    
    
    Restated3 months ended
    
    
    
    
    
    3 months endedNovember 30, 2006
    
    Restatement
    
    November 30, 2006Net loss
    
    $
    (31,389
    )
    
    $
    9,490
    
    
    $
    (21,899
    )Changes in rebate
receivables
    
    
    79,681
    
    
    
    (9,490
    )
    
    
    70,191Net cash provided
by operating
activities
    
    
    55,034
    
    
    
    
    
    
    
    55,034
 - 161 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 3. Repositioning of Businesses
  4. Borrowing Arrangements
   - 162 -




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Employers Accounting for Defined Benefit Pension and Other Postretirement Plans,
  /s/ KPMG LLP
  - 163 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED BALANCE SHEETS
 August 31, 2007 and 2006
 ($ in thousands)
 RESTATED2007
    
    
    2006ASSETSCurrent assets:Cash
    
    $
    7,423
    
    
    $
    9,552Trade receivables, net of allowance
for doubtful accounts of $3,205 and
$14,664 in 2007 and 2006, respectively.
    
    
    220,672
    
    
    
    294,213Rebates receivable
    
    
    62,901
    
    
    
    101,085Other receivables
    
    
    5,788
    
    
    
    8,782Receivable from Land O Lakes, Inc.
    
    
    2,521
    
    
    
    Inventories
    
    
    551,220
    
    
    
    659,335Vendor prepayments
    
    
    259,299
    
    
    
    103,664Prepaid expenses
    
    
    2,282
    
    
    
    9,360Assets held for sale
    
    
    341,521
    
    
    
    Total current assets
    
    
    1,453,627
    
    
    
    1,185,991Property, plant and equipment:Land and land improvements
    
    
    13,029
    
    
    
    18,971Buildings
    
    
    67,454
    
    
    
    71,692Machinery and equipment
    
    
    114,770
    
    
    
    162,624Construction in progress
    
    
    710
    
    
    
    22,622Total property, plant and equipment
    
    
    195,963
    
    
    
    275,909Less accumulated depreciation
    
    
    (98,265
    )
    
    
    (137,244
    )Net property, plant and equipment
    
    
    97,698
    
    
    
    138,665Other assets
    
    
    17,389
    
    
    
    27,700Total assets
    
    $
    1,568,714
    
    
    $
    1,352,356LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Cash overdraft
    
    $
    19,617
    
    
    $
    14,110Accounts payable
    
    
    603,418
    
    
    
    591,149Customer prepayments
    
    
    207,438
    
    
    
    135,226Accrued competitive allowances
    
    
    60,738
    
    
    
    55,432Accrued expenses
    
    
    51,630
    
    
    
    70,712Payable to Land OLakes, Inc.
    
    
    
    
    
    
    18,363Payable to CHS Inc.
    
    
    5,911
    
    
    
    4,169Other current liabilities
    
    
    3,302
    
    
    
    6,202Current portion of long-term debt
    
    
    755
    
    
    
    Short-term debt
    
    
    142,858
    
    
    
    107,875Liabilities held for sale
    
    
    123,007
    
    
    
    Total current liabilities
    
    
    1,218,674
    
    
    
    1,003,238Long-term debt, less current portion
    
    
    104,684
    
    
    
    104,621Other noncurrent liabilities
    
    
    14,306
    
    
    
    19,304Minority interest in subsidiaries
    
    
    15,454
    
    
    
    6,403Members equity:Contributed capital
    
    
    159,089
    
    
    
    159,089Retained earnings
    
    
    61,614
    
    
    
    60,763Accumulated other comprehensive loss
    
    
    (5,107
    )
    
    
    (1,062
    )Total members equity
    
    
    215,596
    
    
    
    218,790Total liabilities and members equity
    
    $
    1,568,714
    
    
    $
    1,352,356
  - 164 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years ended August 31, 2007, 2006 and 2005
 ($ in thousands)
 RESTATED2007
    
    
    2006
    
    
    2005Net sales
    
    $
    4,029,489
    
    
    $
    3,749,632
    
    
    $
    3,735,125Cost of sales
    
    
    3,617,912
    
    
    
    3,393,522
    
    
    
    3,337,877Gross margin
    
    
    411,577
    
    
    
    356,110
    
    
    
    397,248Selling, general and administrative expense
    
    
    314,073
    
    
    
    284,504
    
    
    
    282,631Restructuring and impairment charges
    
    
    27,750
    
    
    
    
    
    
    
    Gain on sale of assets
    
    
    (2,699
    )
    
    
    (5,606
    )
    
    
    (1,538
    )Earnings from operations
    
    
    72,453
    
    
    
    77,212
    
    
    
    116,155Minority interests
    
    
    5,668
    
    
    
    2,718
    
    
    
    2,256Interest expense, net
    
    
    26,734
    
    
    
    26,188
    
    
    
    13,060Net earnings
    
    $
    40,051
    
    
    $
    48,306
    
    
    $
    100,839
  - 165 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended August 31, 2007, 2006 and 2005
 ($ in thousands)
 RESTATED2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    40,051
    
    
    $
    48,306
    
    
    $
    100,839Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    29,476
    
    
    
    19,479
    
    
    
    18,922Non-cash portion of restructuring and impairment charges
    
    
    26,950
    
    
    
    
    
    
    
    Bad debt expense (benefit)
    
    
    4,251
    
    
    
    (3,218
    )
    
    
    5,599Minority interests
    
    
    5,668
    
    
    
    2,718
    
    
    
    2,256Gain on disposal of property, plant and equipment
    
    
    (2,699
    )
    
    
    (5,606
    )
    
    
    (1,538
    )Changes in other non-current assets and liabilities
    
    
    16,222
    
    
    
    673
    
    
    
    (13,833
    )Changes in current assets and liabilities:Trade receivables
    
    
    69,290
    
    
    
    27,243
    
    
    
    (19,809
    )Receivables/payables from related parties
    
    
    (18,972
    )
    
    
    23,522
    
    
    
    (17,865
    )Rebates receivable
    
    
    38,184
    
    
    
    (39,037
    )
    
    
    (11,027
    )Other receivables
    
    
    2,994
    
    
    
    (386
    )
    
    
    1,815Inventories
    
    
    108,115
    
    
    
    (122
    )
    
    
    (138,717
    )Vendor prepayments
    
    
    (155,635
    )
    
    
    67,455
    
    
    
    (40,329
    )Accounts payable and customer prepayments
    
    
    84,481
    
    
    
    (163,917
    )
    
    
    238,761Accrued competitive allowances
    
    
    5,306
    
    
    
    (6,708
    )
    
    
    4,988Accrued expenses
    
    
    (26,032
    )
    
    
    (11,311
    )
    
    
    10,396Assets and liabilities held for sale
    
    
    (221,675
    )
    
    
    
    
    
    
    Other current assets and liabilities
    
    
    4,009
    
    
    
    937
    
    
    
    (7,521
    )Net cash provided by (used in) operating activities
    
    
    9,984
    
    
    
    (39,972
    )
    
    
    132,937Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (26,549
    )
    
    
    (34,738
    )
    
    
    (35,119
    )Proceeds from sale of property, plant and equipment
    
    
    5,784
    
    
    
    7,253
    
    
    
    5,087Proceeds from minority interest partners
    
    
    3,383
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (17,382
    )
    
    
    (27,485
    )
    
    
    (30,032
    )Cash flows from financing activities:Proceeds from issuance of short-term debt
    
    
    34,983
    
    
    
    84,225
    
    
    
    23,650Proceeds from issuance of long-term debt
    
    
    818
    
    
    
    4,621
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    5,507
    
    
    
    11,818
    
    
    
    (28,259
    )Distribution of earnings to members
    
    
    (39,200
    )
    
    
    (57,801
    )
    
    
    (64,150
    )Assets and liabilities held for sale
    
    
    3,161
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    5,269
    
    
    
    42,863
    
    
    
    (68,759
    )Net change in cash
    
    
    (2,129
    )
    
    
    (24,594
    )
    
    
    34,146Cash at beginning of period
    
    
    9,552
    
    
    
    34,146
    
    
    
    Cash at end of period
    
    $
    7,423
    
    
    $
    9,552
    
    
    $
    34,146
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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY AND COMPREHENSIVE INCOME
 Years ended August 31, 2007, 2006 and 2005
 ($ in thousands)
 RESTATEDAccumulatedother
    
    
    TotalContributed
    
    
    Retained
    
    
    comprehensive
    
    
    members
    
    
    Comprehensivecapital
    
    
    earnings
    
    
    (loss)
    
    
    equity
    
    
    incomeBalance at August 31, 2004, as reported
    
    $
    159,089
    
    
    $
    91,673
    
    
    $
    (11,579
    )
    
    $
    239,183Adjustment to beginning retained earnings
    
    
    
    
    
    
    (98,104
    )
    
    
    
    
    
    
    (98,104
    )Balance at August 31, 2004, restated
    
    
    159,089
    
    
    
    (6,431
    )
    
    
    (11,579
    )
    
    
    141,079Net earnings
    
    
    
    
    
    
    100,839
    
    
    
    
    
    
    
    100,839
    
    
    $
    100,839Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    10,156
    
    
    
    10,156
    
    
    
    10,156Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    110,995Distributions payable to members
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    40,000Distributions paid to members
    
    
    
    
    
    
    (64,150
    )
    
    
    
    
    
    
    (64,150
    )Balance at August 31, 2005
    
    
    159,089
    
    
    
    70,258
    
    
    
    (1,423
    )
    
    
    227,924Net earnings
    
    
    
    
    
    
    48,306
    
    
    
    
    
    
    
    48,306
    
    
    $
    48,306Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    361
    
    
    
    361Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    48,667Distributions paid to members
    
    
    
    
    
    
    (57,801
    )
    
    
    
    
    
    
    (57,801
    )Balance at August 31, 2006
    
    
    159,089
    
    
    
    60,763
    
    
    
    (1,062
    )
    
    
    218,790Net earnings
    
    
    
    
    
    
    40,051
    
    
    
    
    
    
    
    40,051
    
    
    $
    40,051Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    115
    
    
    
    115Adjustment to initially apply FAS 158
    
    
    
    
    
    
    
    
    
    
    (4,160
    )
    
    
    (4,160
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,166Distributions paid to members
    
    
    
    
    
    
    (39,200
    )
    
    
    
    
    
    
    (39,200
    )Balance at August 31, 2007
    
    $
    159,089
    
    
    $
    61,614
    
    
    $
    (5,107
    )
    
    $
    215,596
  - 167 -




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Organization and Summary of Significant Accounting Policies
 (a) Organization
  (b) Statement Presentation
  (c) Revenue Recognition
  (d) Income Taxes
  (e) Inventories
  (f) Rebates Receivable (Restated)
 Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor,
 (g) Property, Plant, and Equipment
  168




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 (h) Derivative Commodity Instruments
 Accounting for Derivative
Instruments and Hedging Activities
 (i) Fair Value of Financial Instruments
 Disclosures about Fair Value of Financial Instruments,
 (j) Accounting Estimates
  (2) Restatements to Prior Years Consolidated Financial Statements
 Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor
   169




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
  Previously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Restatement
    
    Restated
    
    Reported
    
    Restatement
    
    Restated2007
    
    2007
    
    2007
    
    2006
    
    2006
    
    2006Rebates receivable
    
    $
    147,125
    
    
    $
    (84,224
    )
    
    $
    62,901
    
    
    $
    176,968
    
    
    $
    (75,883
    )
    
    $
    101,085Inventories
    
    
    552,520
    
    
    
    (1,300
    )
    
    
    551,220
    
    
    
    659,335
    
    
    
    
    
    
    
    659,335Assets held for sale
    
    
    352,061
    
    
    
    (10,540
    )
    
    
    341,521
    
    
    
    
    
    
    
    
    
    
    
    Total current assets
    
    
    1,549,691
    
    
    
    (96,064
    )
    
    
    1,453,627
    
    
    
    1,261,874
    
    
    
    (75,883
    )
    
    
    1,185,991Total assets
    
    
    1,664,778
    
    
    
    (96,064
    )
    
    
    1,568,714
    
    
    
    1,428,239
    
    
    
    (75,883
    )
    
    
    1,352,356Accrued competitive
allowances
    
    
    61,138
    
    
    
    (400
    )
    
    
    60,738
    
    
    
    55,432
    
    
    
    
    
    
    
    55,432Accrued expenses
    
    
    47,330
    
    
    
    4,300
    
    
    
    51,630
    
    
    
    66,512
    
    
    
    4,200
    
    
    
    70,712Total current liabilities
    
    
    1,214,774
    
    
    
    3,900
    
    
    
    1,218,674
    
    
    
    999,038
    
    
    
    4,200
    
    
    
    1,003,238Minority interests
    
    
    18,427
    
    
    
    (2,973
    )
    
    
    15,454
    
    
    
    8,146
    
    
    
    (1,743
    )
    
    
    6,403Retained earnings
    
    
    158,605
    
    
    
    (96,991
    )
    
    
    61,614
    
    
    
    139,103
    
    
    
    (78,340
    )
    
    
    60,763Total members equity
    
    
    312,587
    
    
    
    (96,991
    )
    
    
    215,596
    
    
    
    297,130
    
    
    
    (78,340
    )
    
    
    218,790Total liabilities and
members equity
    
    
    1,664,778
    
    
    
    (96,064
    )
    
    
    1,568,714
    
    
    
    1,428,239
    
    
    
    (75,883
    )
    
    
    1,352,356
  Previously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Restatement
    
    Restated
    
    Reported
    
    Restatement
    
    Restated2007
    
    2007
    
    2007
    
    2006
    
    2006
    
    2006Net sales
    
    $
    4,049,089
    
    
    $
    (19,600
    )
    
    $
    4,029,489
    
    
    $
    3,739,632
    
    
    $
    10,000
    
    
    $
    3,749,632Cost of sales
    
    
    3,618,431
    
    
    
    (519
    )
    
    
    3,617,912
    
    
    
    3,379,076
    
    
    
    14,446
    
    
    
    3,393,522Gross margin
    
    
    430,658
    
    
    
    (19,081
    )
    
    
    411,577
    
    
    
    360,556
    
    
    
    (4,446
    )
    
    
    356,110Restructure/
impairment
    
    
    26,950
    
    
    
    800
    
    
    
    27,750
    
    
    
    
    
    
    
    
    
    
    
    Earnings from
operations
    
    
    92,334
    
    
    
    (19,881
    )
    
    
    72,453
    
    
    
    81,658
    
    
    
    (4,446
    )
    
    
    77,212Minority interest
    
    
    6,898
    
    
    
    (1,230
    )
    
    
    5,668
    
    
    
    3,202
    
    
    
    (484
    )
    
    
    2,718Net earnings
    
    
    58,702
    
    
    
    (18,651
    )
    
    
    40,051
    
    
    
    52,268
    
    
    
    (3,962
    )
    
    
    48,306
 PreviouslyReported
    
    Restatement
    
    Restated2005
    
    2005
    
    2005Cost of sales
    
    $
    3,361,682
    
    
    $
    (23,805
    )
    
    $
    3,337,877Gross margin
    
    
    373,443
    
    
    
    23,805
    
    
    
    397,248Earnings from
operations
    
    
    92,350
    
    
    
    23,805
    
    
    
    116,155Minority interest
    
    
    2,177
    
    
    
    79
    
    
    
    2,256Net earnings
    
    
    77,113
    
    
    
    23,726
    
    
    
    100,839
 170




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
  2007
    
    
    2006
    
    
    2005Vendor rebates
    
    $
    (19,651
    )
    
    $
    (3,562
    )
    
    $
    23,726Sales returns
    
    
    700
    
    
    
    (400
    )
    
    
    Other
    
    
    300
    
    
    
    
    
    
    
    Total
    
    
    (18,651
    )
    
    
    (3,962
    )
    
    
    23,726
  Previously
    
    
    
    
    
    
    
    
    
    PreviouslyReported
    
    Restatement
    
    Restated
    
    Reported
    
    Restatement
    
    Restated2007
    
    2007
    
    2007
    
    2006
    
    2006
    
    2006Net earnings
    
    $
    58,702
    
    
    $
    (18,651
    )
    
    $
    40,051
    
    
    $
    52,268
    
    
    $
    (3,962
    )
    
    $
    48,306Changes in rebate
receivables
    
    
    29,843
    
    
    
    8,341
    
    
    
    38,184
    
    
    
    (43,083
    )
    
    
    4,046
    
    
    
    (39,037
    )Changes in minority interest
    
    
    6,898
    
    
    
    (1,230
    )
    
    
    5,668
    
    
    
    3,202
    
    
    
    (484
    )
    
    
    2,718Changes in inventories
    
    
    106,815
    
    
    
    1,300
    
    
    
    108,115
    
    
    
    (122
    )
    
    
    
    
    
    
    (122
    )Changes in accrued competitive
allowances
    
    
    5,706
    
    
    
    (400
    )
    
    
    5,306
    
    
    
    (6,708
    )
    
    
    
    
    
    
    (6,708
    )Changes in accrued expenses
    
    
    (26,132
    )
    
    
    100
    
    
    
    (26,032
    )
    
    
    (11,711
    )
    
    
    400
    
    
    
    (11,311
    )Changes in assets and
liabilities held
for sale
    
    
    (232,215
    )
    
    
    10,540
    
    
    
    (221,675
    )
    
    
    
    
    
    
    
    
    
    
    Net cash provided
by (used in)
operating
activities
    
    
    9,984
    
    
    
    
    
    
    
    9,984
    
    
    
    (39,972
    )
    
    
    
    
    
    
    (39,972
    )
 PreviouslyReported
    
    Restatement
    
    Restated2005
    
    2005
    
    2005Net earnings
    
    $
    77,113
    
    
    $
    23,726
    
    
    $
    100,839Changes in rebate receivables.
    
    
    12,778
    
    
    
    (23,805
    )
    
    
    (11,027
    )Minority interest
    
    
    2,177
    
    
    
    79
    
    
    
    2,256Net cash provided by (used
in) operating activities
    
    
    132,937
    
    
    
    
    
    
    
    132,937
 (3) Short-term Debt
    171




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 (4) Long-term Debt
    Year ending August 31:
    
    (In thousands)2008
    
    $
    7552009
    
    
    48,7652010
    
    
    7752011
    
    
    52,7872012
    
    
    1,2362013 and thereafter
    
    
    1,121Total
    
    $
    105,439
     (5) Receivables Purchase Facility
  172




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 (6) Pension and Other Postretirement Plans
   Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 (In Thousands)BeforeApplication
    
    
    
    
    
    After ApplicationOf Statement 158
    
    Adjustments
    
    Of Statement 158Other noncurrent assets
    
    $
    10,734
    
    
    $
    (5,492
    )
    
    $
    5,242Other noncurrent liabilities
    
    
    (8,555
    )
    
    
    1,332
    
    
    
    (7,223
    )Accumulated other comprehensive loss
    
    
    947
    
    
    
    4,160
    
    
    
    5,107
  (In Thousands)Pension Benefits
    
    
    Postretirement Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Benefit obligation
    
    $
    (112,905
    )
    
    $
    (107,418
    )
    
    $
    (4,600
    )
    
    $
    (4,974
    )Fair value of plan assets
    
    
    118,147
    
    
    
    104,467
    
    
    
    
    
    
    
    Funded status
    
    $
    5,242
    
    
    $
    (2,951
    )
    
    $
    (4,600
    )
    
    $
    (4,974
    )Amounts recognized in the balance sheet consist of:Other noncurrent assets
    
    $
    5,242
    
    
    
    N/A
    
    
    $
    
    
    
    
    N/AOther noncurrent liabilities
    
    
    
    
    
    
    N/A
    
    
    
    (4,513
    )
    
    
    N/APrepaid (accrued benefit)
    
    
    
    
    
    
    14,273
    
    
    
    
    
    
    
    (5,725
    )Amounts recognized in accumulated other
comprehensive income
    
    $
    5,158
    
    
    $
    
    
    
    $
    (1,354
    )
    
    $
    5,725
  173




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
  PostretirementPension Benefits
    
    Benefits2007
    
    2006
    
    2007
    
    2006Discount rate
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %Rate of compensation increase
    
    
    2.50
    %
    
    
    2.50
    %
    
    
    N/A
    
    
    
    N/A
  PostretirementPension Benefits
    
    Benefits2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Discount rate
    
    
    6.25
    %
    
    
    5.50
    %
    
    
    6.50
    %
    
    
    6.25
    %
    
    
    5.50
    %
    
    
    6.50
    %Expected long-term rate of return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    2.50
    %
    
    
    2.50
    %
    
    
    3.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   Year ended August 31,(In Thousands)Pension Benefits
    
    Postretirement Benefits2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Benefit cost
    
    $
    3,871
    
    
    $
    6,875
    
    
    $
    7,887
    
    
    $
    536
    
    
    $
    476
    
    
    $
    288Employer contribution
    
    
    
    
    
    
    
    
    
    
    35,910
    
    
    
    406
    
    
    
    406
    
    
    
    402Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343
    
    
    
    217
    
    
    
    Benefits paid
    
    
    2,685
    
    
    
    2,820
    
    
    
    3,010
    
    
    
    750
    
    
    
    623
    
    
    
    402
 Plan Assets
  Plan Assets at August 31Asset category
    
    2007
    
    2006Equity securities
    
    
    57.3
    %
    
    
    57.9
    %Debt securities
    
    
    31.0
    %
    
    
    30.7
    %Real Estate
    
    
    11.1
    %
    
    
    10.7
    %Other
    
    
    0.6
    %
    
    
    0.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  174




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AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 Cash Flows
    Expected Benefit
    
    
    Expected MedicarePayments
    
    
    Subsidy Receipts($ in thousands)
    
    
    ($ in thousands)2008
    
    $
    369
    
    
    $
    (18
    )2009
    
    
    364
    
    
    
    (19
    )2010
    
    
    359
    
    
    
    (21
    )2011
    
    
    335
    
    
    
    (23
    )2012
    
    
    340
    
    
    
    (24
    )2013-2017
    
    
    1,710
    
    
    
    (147
    )Total
    
    $
    3,477
    
    
    $
    (252
    )
 Other Plans
    175




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 (7) Related Party Transactions
  Year Ended August 31,2007
    
    2006
    
    2005($ in thousands)Land OLakes, Inc
    
    $
    11,813
    
    
    $
    12,459
    
    
    $
    12,887CHS Inc.
    
    
    6,443
    
    
    
    5,640
    
    
    
    5,070
  Year Ended August 31,2007
    
    2006
    
    2005($ in thousands)Land OLakes, Inc
    
    $
    12,008
    
    
    $
    10,666
    
    
    $
    9,254CHS Inc.
    
    
    217,741
    
    
    
    219,634
    
    
    
    199,852
  (8) Lease Commitments
   Year ending August 31,
    
    ($ in thousands)2008
    
    $
    12,1642009
    
    
    8,1472010
    
    
    4,5972011
    
    
    2,4512012
    
    
    1,0422013 and thereafter
    
    
    3,198
  (9) Contingencies
 (a) Environmental
  176




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
 (b) Guarantees
  (c) General
  (10) Restructuring and Impairment Charges
 (In thousands)2007
    
    2006
    
    2005Restructuring charge
    
    $
    6,381
    
    
    $
    
    
    
    $
    Impairment charges
    
    
    21,369
    
    
    
    
    
    
    
    Total
    
    
    27,750
    
    
    
    
    
    
    
    
     Cash
    
    $
    8,716Net trade receivables
    
    
    146,979Rebates receivables
    
    
    47,008Other receivables
    
    
    3,522Inventories
    
    
    119,030Vendor prepayments
    
    
    930Prepaid expenses
    
    
    77Net property, plant and equipment
    
    
    15,031Other assets
    
    
    228Assets held for sale
    
    $
    341,521
 177




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##### Table of Contents



AGRILIANCE LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
  Cash overdraft
    
    $
    (3,161
    )Accounts payable
    
    
    (92,092
    )Customer prepayments
    
    
    (1,467
    )Accrued expenses
    
    
    (24,452
    )Other current liabilities
    
    
    (1,835
    )Liabilities held for sale
    
    $
    (123,007
    )
 178