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




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INDEX
 PART I.Forward Looking Statements
    
    
    3Item 1.
    
    Business
    
    
    3Business Segments
    
    
    3Description of the Cooperative
    
    
    11Item 1A.
    
    Risk Factors
    
    
    17Item 2.
    
    Properties
    
    
    27Item 3.
    
    Legal Proceedings
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28PART II.Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    28Item 6.
    
    Selected Financial Data
    
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    54Item 8.
    
    Financial Statements and Supplementary Data
    
    
    55Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    56Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    56PART III.Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    56Item 11.
    
    Executive Compensation
    
    
    60Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    76Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    76Item 14.
    
    Principal Accountant Fees and Services
    
    
    77PART IV.Item 15.
    
    Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    80First Amendment to Amended and Restated Five-Year Credit AgreementStatement Regarding Computation of Ratios of Earnings to Fixed ChargesSubsidiaries of the RegistrantSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification
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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, LAND O LAKES
 Other.
 Raw Milk Wholesaling.
 New Products. LAND O LAKES
 Sales, Marketing and Advertising.
   Distribution.
 4




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Production.
  Supply and Raw Materials.
 Customers.
 Research and Development.
 Competition.
 5




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Feed
 Overview. Purina, Chow Checkerboard Nine Square LAND O LAKES Lake Country
  Products.
 Complete Feed. Purina, Chow Checkerboard Nine Square
 Supplements.
 Premixes.
 Simple Blends.
 Milk Replacers. Maxi Care, Cows Match Amplifier Max
 Ingredient Merchandising.
 6




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Sales, Marketing and Advertising.
 Distribution.
 Production.
 Supply and Raw Materials.
 Customers.
 Research and Development.
 Competition. Purina, Chow Checkerboard Nine Square
 7




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Seed
 Overview. CROPLAN GENETICS NK Brand, Asgrow Dekalb,
 Products.
 Sales, Marketing and Advertising. CROPLAN GENETICS NK Brand, Asgrow DeKalb, Total Farm Solutions
 Distribution.
 Supply and Production.
 Customers.
 Research and Development.
 Competition. Total Farm Solutions
 8




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Agronomy
  Layers
 Overview.
   Products.
 Customers and Distribution.
 Sales and Marketing. LAND O LAKES
 Competition.
 9




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Other
  Joint Ventures and Investments
  Agriliance LLC
  Products.
 Sales and Marketing. Total Farm Solutions
 Production, Source of Supply and Raw Materials.
 Customers and Distribution.
 Competition.
 10




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Governance.
 Advanced Food Products, LLC
  CoBank
  Ag Processing Inc
  
 Description of the Cooperative
    11




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Structure and Membership
       Governance
   12




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Earnings
  Patronage Income and Equity
     1 2
  Employees
  13




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Patents, Trademarks and Intellectual Property
  LAND
O LAKES, Indian Maiden Alpine Lace, New Yorker, Extra Melt, CROPLAN GENETICS, Maxi Care,
Amplifier Max, Cows Match, Omolene 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
   14




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Regulatory Matters
   15




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Item 1A. Risk Factors.
          17




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®
    18




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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.
       21




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-
 -
 -
  -
         22




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-
 -
 -
 -
       25




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Item 2. Properties.
  Total Number
    
    Total Numberof Facilities
    
    of FacilitiesBusiness Segment
    
    Owned
    
    Leased
    
    Regional Location of FacilitiesDairy Foods
    
    
    11
    (1)
    
    
    3
    
    
    Midwest(2)  9West(3)  2East(4)  3South(5)  0Feed
    
    
    98
    (6)
    
    
    41
    
    
    Midwest  74West  32East  12South 21Seed
    
    
    18
    
    
    
    5
    
    
    Midwest  14West  9Agronomy
    
    
    4
    
    
    
    0
    
    
    Midwest  4Layers
    
    
    19
    
    
    
    29
    
    
    Midwest  11West  27East  9South  1
 
 (1)
    
    Includes a non edible foods manufacturing 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 7 closed facilities.  27




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\

Item 3. Legal Proceedings.
  ®
   
 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.
     28




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Item 6. Selected Financial Data.
  Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002($ in Millions)Statement of Operations Data:Net sales
    
    $
    7,102.3
    
    
    $
    7,336.1
    
    
    $
    7,497.3
    
    
    $
    6,164.4
    
    
    $
    5,735.8Cost of sales
    
    
    6,441.4
    
    
    
    6,751.1
    
    
    
    6,903.6
    
    
    
    5,580.2
    
    
    
    5,229.9Gross profit
    
    
    660.9
    
    
    
    585.0
    
    
    
    593.7
    
    
    
    584.2
    
    
    
    505.9Selling, general and administrative
    
    
    515.5
    
    
    
    494.9
    
    
    
    501.0
    
    
    
    464.6
    
    
    
    466.5Restructuring and impairment charges(1)
    
    
    21.2
    
    
    
    6.4
    
    
    
    7.8
    
    
    
    6.3
    
    
    
    31.4Earnings from operations
    
    
    124.2
    
    
    
    83.7
    
    
    
    84.9
    
    
    
    113.3
    
    
    
    8.0Interest expense, net
    
    
    58.4
    
    
    
    79.9
    
    
    
    83.1
    
    
    
    81.0
    
    
    
    76.4Other expense (income), net(2)
    
    
    (18.8
    )
    
    
    9.3
    
    
    
    (7.5
    )
    
    
    (24.4
    )
    
    
    (163.9
    )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
    
    
    (13.3
    )
    
    
    (36.7
    )
    
    
    (58.4
    )
    
    
    (57.3
    )
    
    
    (24.2
    )Minority interest in earnings of subsidiaries
    
    
    1.4
    
    
    
    1.3
    
    
    
    1.6
    
    
    
    6.4
    
    
    
    5.5Earnings before income taxes and discontinued operations
    
    
    96.5
    
    
    
    132.3
    
    
    
    29.6
    
    
    
    107.6
    
    
    
    114.2Income tax expense
    
    
    7.8
    
    
    
    5.5
    
    
    
    1.4
    
    
    
    20.7
    
    
    
    4.4Net earnings from continuing operations
    
    
    88.7
    
    
    
    126.8
    
    
    
    28.2
    
    
    
    86.9
    
    
    
    109.8Earnings (loss) from discontinued operations, net of
income taxes(5)
    
    
    
    
    
    
    2.1
    
    
    
    (6.8
    )
    
    
    (4.9
    )
    
    
    (13.4
    )Net earnings
    
    $
    88.7
    
    
    $
    128.9
    
    
    $
    21.4
    
    
    $
    82.0
    
    
    $
    96.4Other Financial Data:Depreciation and amortization
    
    $
    97.5
    
    
    $
    108.0
    
    
    $
    112.8
    
    
    $
    119.2
    
    
    $
    105.0Unrealized hedging gains(losses)(6)
    
    
    7.6
    
    
    
    5.3
    
    
    
    (23.1
    )
    
    
    19.5
    
    
    
    (20.7
    )Capital expenditures
    
    
    83.8
    
    
    
    70.4
    
    
    
    96.1
    
    
    
    71.7
    
    
    
    84.8Cash patronage paid to members(7)
    
    
    24.0
    
    
    
    15.1
    
    
    
    11.4
    
    
    
    4.2
    
    
    
    20.2Equity revolvement paid to members(8)
    
    
    56.6
    
    
    
    53.6
    
    
    
    23.2
    
    
    
    20.2
    
    
    
    17.7Balance Sheet Data (at end of period):Cash and cash equivalents
    
    $
    79.7
    
    
    $
    179.7
    
    
    $
    73.1
    
    
    $
    110.3
    
    
    $
    64.3Restricted cash(9)
    
    
    
    
    
    
    
    
    
    
    20.3
    
    
    
    20.1
    
    
    
    Working capital(10)
    
    
    285.4
    
    
    
    186.2
    
    
    
    306.8
    
    
    
    401.2
    
    
    
    370.9Property, plant and equipment, net
    
    
    665.1
    
    
    
    668.6
    
    
    
    710.2
    
    
    
    726.5
    
    
    
    677.8Total assets
    
    
    3,055.1
    
    
    
    3,095.1
    
    
    
    3,199.8
    
    
    
    3,373.1
    
    
    
    3,221.3Total debt(11)
    
    
    517.6
    
    
    
    556.5
    
    
    
    905.9
    
    
    
    1,073.2
    
    
    
    1,067.3Capital securities of trust subsidiary
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7
    
    
    
    190.7Minority interests
    
    
    8.8
    
    
    
    6.0
    
    
    
    9.4
    
    
    
    62.7
    
    
    
    53.7Total equities
    
    
    944.5
    
    
    
    903.6
    
    
    
    854.9
    
    
    
    879.4
    
    
    
    895.8
 29




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Years Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002($ in Millions)Selected Segment Financial Information:Dairy FoodsNet sales
    
    $
    3,241.3
    
    
    $
    3,684.1
    
    
    $
    3,797.3
    
    
    $
    2,883.4
    
    
    $
    2,855.1Earnings (loss) from operations
    
    
    68.0
    
    
    
    31.3
    
    
    
    37.0
    
    
    
    26.3
    
    
    
    (20.5
    )Depreciation and amortization
    
    
    40.0
    
    
    
    42.7
    
    
    
    39.6
    
    
    
    43.0
    
    
    
    36.8Capital expenditures
    
    
    19.4
    
    
    
    20.5
    
    
    
    53.1
    
    
    
    28.2
    
    
    
    32.3FeedNet sales
    
    
    2,711.4
    
    
    
    2,586.9
    
    
    
    2,626.6
    
    
    
    2,467.2
    
    
    
    2,444.7Earnings from operations
    
    
    60.6
    
    
    
    61.4
    
    
    
    12.8
    
    
    
    56.1
    
    
    
    41.7Depreciation and amortization
    
    
    31.2
    
    
    
    35.2
    
    
    
    38.5
    
    
    
    44.9
    
    
    
    46.6Capital expenditures
    
    
    33.6
    
    
    
    25.9
    
    
    
    26.3
    
    
    
    24.0
    
    
    
    26.0SeedNet sales
    
    
    756.0
    
    
    
    653.9
    
    
    
    518.8
    
    
    
    466.2
    
    
    
    396.8Earnings from operations
    
    
    39.3
    
    
    
    30.5
    
    
    
    19.9
    
    
    
    15.0
    
    
    
    8.7Depreciation and amortization
    
    
    2.5
    
    
    
    2.3
    
    
    
    2.5
    
    
    
    2.2
    
    
    
    3.0Capital expenditures
    
    
    2.7
    
    
    
    2.4
    
    
    
    1.6
    
    
    
    0.5
    
    
    
    0.6Agronomy(12)Net sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from operations
    
    
    (13.1
    )
    
    
    (27.6
    )
    
    
    (12.8
    )
    
    
    (14.0
    )
    
    
    (18.9
    )Depreciation and amortization
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.1Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Layers(13)Net sales
    
    
    398.4
    
    
    
    407.0
    
    
    
    541.3
    
    
    
    317.8
    
    
    
    (Loss) earnings from operations
    
    
    (26.9
    )
    
    
    (11.1
    )
    
    
    26.8
    
    
    
    28.5
    
    
    
    (2.1
    )Depreciation and amortization
    
    
    8.7
    
    
    
    10.3
    
    
    
    10.8
    
    
    
    6.3
    
    
    
    0.9Capital expenditures
    
    
    11.0
    
    
    
    17.7
    
    
    
    8.9
    
    
    
    3.8
    
    
    
    Other/EliminationsNet sales
    
    
    (4.7
    )
    
    
    4.3
    
    
    
    13.2
    
    
    
    29.9
    
    
    
    39.2Earnings (loss) from operations
    
    
    (3.6
    )
    
    
    (0.8
    )
    
    
    1.3
    
    
    
    1.4
    
    
    
    (1.0
    )Depreciation and amortization
    
    
    8.8
    
    
    
    11.6
    
    
    
    15.3
    
    
    
    16.8
    
    
    
    11.6Capital expenditures
    
    
    17.0
    
    
    
    4.0
    
    
    
    6.2
    
    
    
    15.1
    
    
    
    25.9
  NOTES TO SELECTED FINANCIAL DATA
 
 (1)
    
    The following table summarizes restructuring and impairment charges: Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002($s in millions)Restructuring charges
    
    $
    1.5
    
    
    $
    0.3
    
    
    $
    2.4
    
    
    $
    3.5
    
    
    $
    13.2Impairment of assets
    
    
    19.7
    
    
    
    6.1
    
    
    
    5.4
    
    
    
    2.8
    
    
    
    18.2Total
    
    $
    21.2
    
    
    $
    6.4
    
    
    $
    7.8
    
    
    $
    6.3
    
    
    $
    31.4
  30




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(2)
    
    The following table summarizes other expense (income), net:
 Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002($s in millions)Gain on divestiture of businesses
    
    $
    (9.0
    )
    
    $
    
    
    
    $
    (1.5
    )
    
    $
    (0.7
    )
    
    $
    (5.1
    )(Gain) loss on sale of investments, excluding CF Industries
    
    
    (8.0
    )
    
    
    (1.1
    )
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    0.9Gain on sale of intangibles
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    (4.2
    )Loss on extinguishment of debt
    
    
    
    
    
    
    11.0
    
    
    
    
    
    
    
    0.5
    
    
    
    Gain on legal settlements
    
    
    
    
    
    
    (0.6
    )
    
    
    (5.4
    )
    
    
    (22.8
    )
    
    
    (155.5
    )Total
    
    $
    (18.8
    )
    
    $
    9.3
    
    
    $
    (7.5
    )
    
    $
    (24.4
    )
    
    $
    (163.9
    )
 (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 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002($s in millions)20% required for tax deduction
    
    $
    16.4
    
    
    $
    11.0
    
    
    $
    7.9
    
    
    $
    2.8
    
    
    $
    14.1Discretionary
    
    
    7.6
    
    
    
    4.1
    
    
    
    3.5
    
    
    
    1.4
    
    
    
    6.1Total
    
    $
    24.0
    
    
    $
    15.1
    
    
    $
    11.4
    
    
    $
    4.2
    
    
    $
    20.2
  Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002($s in millions)RevolvementDairy Foods
    
    $
    17.0
    
    
    $
    17.1
    
    
    $
    19.9
    
    
    $
    18.0
    
    
    $
    15.2Ag Services(a)
    
    
    39.6
    
    
    
    36.5
    
    
    
    3.3
    
    
    
    2.2
    
    
    
    2.5Total
    
    $
    56.6
    
    
    $
    53.6
    
    
    $
    23.2
    
    
    $
    20.2
    
    
    $
    17.7
 (a) Included equity revolvements to deceased members of local cooperatives.
 (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.
 31




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(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 excludes the 7.45% Capital Securities due on March 15, 2028, of our trust
subsidiary.(12)
    
    In 2000, we contributed all of our revenue generating agronomy assets to Agriliance LLC a
joint venture with CHS Inc. in exchange for a 50% interest in Agriliance. Our share of earnings or
losses in Agriliance is reported under the equity method of accounting, and accordingly, Agronomy,
which primarily consists of our Agriliance joint venture, has no net sales. Loss from operations
reflects overhead allocated to selling, general, and administrative expense and does not include
the equity earnings from Agriliance.(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.
 
 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
 We operate our business predominantly in the United States in five segments: Dairy Foods,
Feed, Seed, Agronomy and
Layers.
    
    Dairy Foods develops, produces, markets and sells premium butter, spreads, cheese and other dairy products.
    
    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 to both commercial and lifestyle customers.
    
    Seed develops, markets and sells seed for a variety of crops, including alfalfa, corn, soybeans and forage and turf grasses.
    
    Agronomy consists primarily of our 50% ownership in Agriliance LLC, which is accounted for under the equity method.
Agriliance markets and sells two primary products lines: crop protection (including herbicides and pesticides) and crop
nutrients (including fertilizer and micronutrients).
    
    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.
    
    We also derive a portion of revenues and income from other related businesses, which are insignificant to our overall
results.
  32




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##### Table of Contents



Unconsolidated Businesses
  December 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2004($s in millions)Earnings from unconsolidated businesses
    
    $
    13.3
    
    
    $
    36.7
    
    
    $
    58.4Cash flow from investments in unconsolidated businesses
    
    
    4.7
    
    
    
    35.3
    
    
    
    47.8
   December 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2004($s in millions)Agriliance:Investment in Agriliance
    
    $
    124.7
    
    
    $
    112.9
    
    
    $
    101.3Equity in earnings from Agriliance
    
    
    11.6
    
    
    
    35.5
    
    
    
    39.3Cash distributions from Agriliance
    
    
    0.0
    
    
    
    28.9
    
    
    
    32.1
      For the years ended December 31,2006
    
    2005
    
    Decrease($s in millions)Agriliance net earnings
    
    $
    23.2
    
    
    $
    71.0
    
    
    $
    (47.8
    )
 33




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##### Table of Contents



Cooperative Structure
    Wholesaling and Brokerage Activities
    34




---



##### Table of Contents



Seasonality
  Factors Affecting Comparability
 Dairy and Agricultural Commodity Inputs and Outputs
  Dairy Foods.
    December 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2004Per pound market price average for year:Butter
    
    $
    1.24
    
    
    $
    1.55
    
    
    $
    1.82Block cheese
    
    
    1.24
    
    
    
    1.49
    
    
    
    1.65Per pound market price at year end:Butter
    
    
    1.20
    
    
    
    1.35
    
    
    
    1.54Block cheese
    
    
    1.33
    
    
    
    1.37
    
    
    
    1.49
 Feed.
 35




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##### Table of Contents



Layers.
 Acquisitions/Joint Ventures/Divestitures
    36




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##### Table of Contents



Discontinued Operations
  Derivative Commodity Instruments
  December 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2004($s in millions)Unrealized hedging gain (loss)
    
    $
    7.6
    
    
    $
    2.7
    
    
    $
    (19.8
    )
 Results of Operations
 For the Years Ended December 312006
    
    2005
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Net$ Amount
    
    
    Sales
    
    
    $ Amount
    
    
    Sales
    
    
    $ Amount
    
    
    Sales($s in millions)Net sales
    
    $
    7,102.3
    
    
    
    
    
    
    $
    7,336.1
    
    
    
    
    
    
    $
    7,497.3Cost of sales
    
    
    6,441.4
    
    
    
    90.7
    
    
    
    6,751.1
    
    
    
    92.0
    
    
    
    6,903.6
    
    
    
    92.1Gross profit
    
    
    660.9
    
    
    
    9.1
    
    
    
    585.0
    
    
    
    7.7
    
    
    
    593.7
    
    
    
    7.8Selling, general and administrative
    
    
    515.5
    
    
    
    7.1
    
    
    
    494.9
    
    
    
    6.6
    
    
    
    501.0
    
    
    
    6.5Restructuring and impairment charges
    
    
    21.2
    
    
    
    0.3
    
    
    
    6.4
    
    
    
    0.1
    
    
    
    7.8
    
    
    
    0.1Earnings from operations
    
    
    124.2
    
    
    
    1.7
    
    
    
    83.7
    
    
    
    1.1
    
    
    
    84.9
    
    
    
    1.1Interest expense, net
    
    
    58.4
    
    
    
    0.8
    
    
    
    79.9
    
    
    
    1.1
    
    
    
    83.1
    
    
    
    1.1Other expense (income), net
    
    
    (18.8
    )
    
    
    (0.3
    )
    
    
    9.3
    
    
    
    0.1
    
    
    
    (7.5
    )
    
    
    (0.1
    )Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    (102.4
    )
    
    
    (1.4
    )
    
    
    
    
    
    
    Loss on impairment of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.5
    
    
    
    0.5Equity in earnings of affiliated companies
    
    
    (13.3
    )
    
    
    (0.2
    )
    
    
    (36.7
    )
    
    
    (0.5
    )
    
    
    (58.4
    )
    
    
    (0.8
    )Minority interest in earnings of subsidiaries
    
    
    1.4
    
    
    
    0.0
    
    
    
    1.3
    
    
    
    0.0
    
    
    
    1.6
    
    
    
    0.0Earnings before income taxes and discontinued operations
    
    
    96.5
    
    
    
    1.3
    
    
    
    132.3
    
    
    
    1.8
    
    
    
    29.6
    
    
    
    0.4Income tax expense
    
    
    7.8
    
    
    
    0.1
    
    
    
    5.5
    
    
    
    0.1
    
    
    
    1.4
    
    
    
    Net earnings from continuing operations
    
    
    88.7
    
    
    
    1.2
    
    
    
    126.8
    
    
    
    1.7
    
    
    
    28.2
    
    
    
    0.4Earnings (loss) from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    (6.8
    )
    
    
    (0.1
    )Net earnings
    
    $
    88.7
    
    
    
    1.2
    
    
    $
    128.9
    
    
    
    1.7
    
    
    $
    21.4
    
    
    
    0.3
 37




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##### Table of Contents



Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Overview of Results
 For the years ended December 31,2006
    
    2005
    
    Decrease($s in millions)Net earnings
    
    $
    88.7
    
    
    $
    128.9
    
    
    $
    (40.2
    )
  For the years ended December 31,2006
    
    2005
    
    Decrease($s in millions)Net sales
    
    $
    7,102.3
    
    
    $
    7,336.1
    
    
    
    ($233.8
    )
  For the years ended December 31,2006
    
    2005
    
    Increase($s in millions)Gross profit
    
    $
    660.9
    
    
    $
    585.0
    
    
    $
    75.9
  For the years ended December 31,2006
    
    2005
    
    Increase($s in millions)Selling, general and administrative expense
    
    $
    515.5
    
    
    $
    494.9
    
    
    $
    20.6
  38




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##### Table of Contents



For the years ended December 31,2006
    
    2005
    
    Increase($s in millions)Restructuring and impairment charges
    
    $
    21.2
    
    
    $
    6.4
    
    
    $
    14.8
   For the years ended December 31,2006
    
    2005
    
    Decrease($s in millions)Interest expense, net
    
    $
    58.4
    
    
    $
    79.9
    
    
    $
    (21.5
    )
  For the years ended December 31,2006
    
    2005
    
    Decrease($s in millions)Equity in earnings of affiliated companies
    
    $
    13.3
    
    
    $
    36.7
    
    
    $
    (23.4
    )
  Net Sales and Gross Profit by Business Segment
  39




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##### Table of Contents



Dairy Foods
 For the Years Ended December 312006
    
    2005
    
    %Change($s 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
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    (437.6
    )Volume impact
    
    
    (5.2
    )Total decrease
    
    $
    (442.8
    )
  IncreaseGross Profit Variance
    
    (decrease)($s 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($s 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
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    2.5Volume impact
    
    
    19.7Acquisitions and divestitures
    
    
    102.3Total increase
    
    $
    124.5
 40




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    3.9Volume impact
    
    
    2.5Unrealized hedging
    
    
    (3.6
    )Acquisitions and divestitures
    
    
    5.2Total increase
    
    $
    8.0
  Seed
 For the Years Ended December 312006
    
    2005
    
    % Change($s 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
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    47.9Volume impact
    
    
    50.1Acquisitions and divestitures
    
    
    4.1Total increase
    
    $
    102.1
  41




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($s 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($s in millions)Net sales
    
    $
    398.4
    
    
    $
    407.0
    
    
    
    (2.1
    %)Gross profit
    
    
    21.3
    
    
    
    21.9
    
    
    
    (2.7
    %)Gross profit as a % of sales
    
    
    5.3
    %
    
    
    5.4
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    44.9Volume impact
    
    
    4.9Acquisitions and divestitures
    
    
    (58.4
    )Total decrease
    
    $
    (8.6
    )
  IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    3.5Volume impact
    
    
    3.1Unrealized hedging
    
    
    (0.7
    )Acquisitions and divestitures
    
    
    (6.5
    )Total decrease
    
    $
    (0.6
    )
  Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 of Results
 For the years ended December 31,2005
    
    2004
    
    Increase($s in millions)Net earnings
    
    $
    128.9
    
    
    $
    21.4
    
    
    $
    107.5
 42




---



##### Table of Contents



For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Net sales
    
    $
    7,336.1
    
    
    $
    7,497.3
    
    
    $
    (161.2
    )
  For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Gross profit
    
    $
    585.0
    
    
    $
    593.7
    
    
    $
    (8.7
    )
  For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Selling, general and administrative expense
    
    $
    494.9
    
    
    $
    501.0
    
    
    $
    (6.1
    )
  For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Restructuring and impairment charges
    
    $
    6.4
    
    
    $
    7.8
    
    
    $
    (1.4
    )
  43




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##### Table of Contents



For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Interest expense, net
    
    $
    79.9
    
    
    $
    83.1
    
    
    $
    (3.2
    )
  For the years ended December 31,2005
    
    2004
    
    Decrease($s in millions)Equity in earnings of affiliated companies
    
    $
    36.7
    
    
    $
    58.4
    
    
    $
    (21.7
    )
  Net Sales and Gross by Business Segment
 Dairy Foods
 For the Years Ended December 312005
    
    2004
    
    %Change($s in Millions)Net sales
    
    $
    3,684.1
    
    
    $
    3,797.3
    
    
    
    (3.0
    %)Gross profit
    
    
    186.6
    
    
    
    197.8
    
    
    
    (5.7
    %)Gross profit as a % of sales
    
    
    5.1
    %
    
    
    5.2
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    (120.3
    )Volume impact
    
    
    7.1Total decrease
    
    $
    (113.2
    )
  44




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    (10.9
    )Volume impact
    
    
    1.3Unrealized hedging
    
    
    (1.6
    )Total decrease
    
    $
    (11.2
    )
  Feed
 For the Years Ended December 312005
    
    2004
    
    % Change($s in millions)Net sales
    
    $
    2,586.9
    
    
    $
    2,626.6
    
    
    
    (1.5)
    %Gross profit
    
    
    290.6
    
    
    
    256.5
    
    
    
    13.3
    %Gross profit as a % of sales
    
    
    11.2
    %
    
    
    9.8
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    (37.7
    )Volume impact
    
    
    3.4One-time items
    
    
    (5.4
    )Total decrease
    
    $
    (39.7
    )
  IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    12.7Volume impact
    
    
    1.8Unrealized hedging
    
    
    19.4One-time items
    
    
    0.2Total increase
    
    $
    34.1
  45




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##### Table of Contents



Seed
 For the Years Ended December 312005
    
    2004
    
    % Change($s in millions)Net sales
    
    $
    653.9
    
    
    $
    518.8
    
    
    
    26.0
    %Gross profit
    
    
    84.4
    
    
    
    70.4
    
    
    
    19.9
    %Gross profit as a % of sales
    
    
    12.9
    %
    
    
    13.6
    %
 IncreaseNet Sales Variance
    
    (decrease)($s in millions)Pricing / product mix impact
    
    $
    42.3Volume impact
    
    
    108.5Divestiture
    
    
    (15.7
    )Total increase
    
    $
    135.1
  IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    0.4Volume impact
    
    
    12.3Unrealized hedging
    
    
    3.5One-time items
    
    
    (2.2
    )Total increase
    
    $
    14.0
  Layers
 For the Years Ended December 312005
    
    2004
    
    % Change($s in millions)Net sales
    
    $
    407.0
    
    
    $
    541.3
    
    
    
    (24.8
    %)Gross profit
    
    
    21.9
    
    
    
    65.3
    
    
    
    (66.5
    %)Gross profit as a % of sales
    
    
    5.4
    %
    
    
    12.1
    %
 IncreaseNet Sales Variance
    
    (decrease)($s millions)Pricing / product mix impact
    
    $
    (144.4
    )Volume impact
    
    
    10.1Total decrease
    
    $
    (134.3
    )
  46




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##### Table of Contents



IncreaseGross Profit Variance
    
    (decrease)($s in millions)Margin / product mix impact
    
    $
    (46.6
    )Volume impact
    
    
    1.2Unrealized hedging
    
    
    2.0Total decrease
    
    $
    (43.4
    )
  Liquidity and Capital Resources
 Overview
        2006
    
    2005($ in millions)Cash and cash equivalents
    
    $
    79.7
    
    
    $
    179.7Availability on revolving credit facility
    
    
    174.4
    
    
    
    147.6Availability on receivable securitization program
    
    
    200.0
    
    
    
    200.0Total liquidity
    
    $
    454.1
    
    
    $
    527.3
 47




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##### Table of Contents



Cash Flows
  Operating Activities
 2006
    
    2005
    
    2004($ in millions)Net earnings
    
    $
    88.7
    
    
    $
    128.9
    
    
    $
    21.4(Earnings) loss from discontinued operations
    
    
    
    
    
    
    (2.2
    )
    
    
    6.7Adjustments to reconcile net earnings to net cash provided by operating
activities
    
    
    115.7
    
    
    
    45.8
    
    
    
    150.0Changes in current assets and liabilities, net of acquisitions and divestitures
    
    
    7.9
    
    
    
    85.8
    
    
    
    71.8Net cash provided by operating activities
    
    
    212.3
    
    
    
    258.3
    
    
    
    249.9
 Operating Activities
 Investing Activities
 2006
    
    2005
    
    2004($ in millions)Additions to property, plant and equipment
    
    $
    (83.8
    )
    
    $
    (70.4
    )
    
    $
    (96.1
    )Acquisitions
    
    
    (88.1
    )
    
    
    (46.1
    )
    
    
    (12.1
    )Payments for investments
    
    
    (4.9
    )
    
    
    (5.6
    )
    
    
    (0.7
    )Net proceeds from divestiture of businesses
    
    
    42.5
    
    
    
    2.6
    
    
    
    13.1Proceeds from sale of investments
    
    
    9.3
    
    
    
    316.9
    
    
    
    2.3Proceeds from sale of property, plant and equipment
    
    
    1.7
    
    
    
    22.2
    
    
    
    12.0Other
    
    
    7.2
    
    
    
    20.9
    
    
    
    0.6Net cash (used) provided by investing activities
    
    
    (116.1
    )
    
    
    240.5
    
    
    
    (80.9
    )
 Investing Activities
 Financing Activities
 2006
    
    2005
    
    2004($ in millions)(Decrease) increase in short-term debt
    
    $
    (98.5
    )
    
    $
    21.3
    
    
    $
    (28.6
    )Proceeds from issuance of long-term debt
    
    
    16.4
    
    
    
    2.0
    
    
    
    17.4Principal payments on long-term debt and capital lease obligations
    
    
    (36.6
    )
    
    
    (379.9
    )
    
    
    (156.4
    )Payments for redemption of member equities
    
    
    (80.6
    )
    
    
    (68.7
    )
    
    
    (34.6
    )Payments for debt extinguishment costs
    
    
    
    
    
    
    (11.0
    )
    
    
    Payments for debt issuance costs
    
    
    (1.5
    )
    
    
    
    
    
    
    (4.3
    )Other
    
    
    4.9
    
    
    
    (2.0
    )
    
    
    (0.3
    )Net cash used by financing activities
    
    
    (195.9
    )
    
    
    (438.3
    )
    
    
    (206.8
    )
 48




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##### Table of Contents



Financing Activities.
 Cash Requirements
  Payments Due by Year (as of December 31, 2006)Less Than
    
    
    
    
    
    
    
    
    
    More ThanContractual Commitments
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years(In thousands)Debt and leases:Revolving credit facility(1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    650,031
    
    
    
    10,972
    
    
    
    10,664
    
    
    
    379,450
    
    
    
    248,945Operating leases
    
    
    96,616
    
    
    
    29,073
    
    
    
    43,752
    
    
    
    18,959
    
    
    
    4,832Other:Swine contract payments (2)
    
    
    127,018
    
    
    
    42,462
    
    
    
    48,985
    
    
    
    35,571
    
    
    
    Non-cancelable purchase commitments (3)
    
    
    2,337,831
    
    
    
    2,259,153
    
    
    
    67,438
    
    
    
    11,240
    
    
    
    Other obligations(4)
    
    
    13,364
    
    
    
    6,270
    
    
    
    2,863
    
    
    
    2,899
    
    
    
    1,332Total contractual obligations(5)
    
    $
    3,224,860
    
    
    $
    2,347,930
    
    
    $
    173,702
    
    
    $
    448,119
    
    
    $
    255,109
  (1)
    
    A $225 million facility, of which $174.4 million was available as of December 31, 2006. A total
of $50.6 million of the $225 million commitment was unavailable due to outstanding letters of
credit. This facility was undrawn as of December 31, 2006. For more information regarding the
credit facility, please see the caption below entitled Principal Debt Facilities.(2)
    
    Includes contractual commitments to purchase weaner pigs, feeder pigs, and producer services
accounted for in our Feed and Other segments. In Feed, we enter into commitments to purchase
weaner and feeder pigs from producers and generally have commitments to immediately resell the
animals to swine producers. Market exposure is managed by procuring contracts to resell the pigs
at terms that capture the pig cost and associated margin. In our Other segment, we account for
purchase commitments used to source feeder pigs for our Aligned System program. We sold our sow
herd and feeder pig inventory and the production facilities for our Aligned System program as part
of the sale of swine production assets to Maschhoff West LLC in February 2005, but retained
long-term agreements to supply feeder pigs to our local cooperative members. For the Aligned
System program, pigs are purchased from Maschhoff West LLC utilizing fixed or variable pricing and
immediately resold utilizing similar pricing under sales contracts with local cooperatives. Our
profit or loss from these programs is minimal.(3)
    
    Primarily for raw materials in Dairy Foods, Feed, Seed and Layers. These purchase commitments,
estimated for this table, are contracted on a short-term basis, typically for one year or less.(4)
    
    Primarily represent contractual commitments to purchase marketing and consulting services and
capital equipment.(5)
    
    Does not include contingent obligations under our pension and postretirement plans. For
accounting disclosures of our pension and postretirement obligations, see Note 11 in Item 8.
Financial Statements and Supplementary Data.   49




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##### Table of Contents



Guarantees and Indemnification Obligations
   Principal Debt Facilities
     50




---



##### Table of Contents



51




---



##### Table of Contents



Capital Leases
  Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  Inventory Valuation.
 Derivative Commodity Instruments.
 Allowance for Doubtful Accounts.
 Trade Promotion and Consumer Incentive Activities.
 Recoverability of Long-Lived Assets.
 52




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##### Table of Contents



Pension and Other Post-Retirement Plans.
  53




---



##### Table of Contents



Recent Accounting Pronouncements
       
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Commodity Risk
  54




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##### Table of Contents



At December 31,2006
    
    2005Notional
    
    Fair
    
    Notional
    
    FairAmount
    
    Value
    
    Amount
    
    Value($s in thousands)Commodity futures and options contractsCommitments to purchase
    
    $
    168,336
    
    
    $
    10,508
    
    
    $
    177,507
    
    
    $
    (433
    )Commitments to sell
    
    
    (91,642
    )
    
    
    (4,932
    )
    
    
    (61,162
    )
    
    
    (4,477
    )
 Year Ended December 31,2006
    
    2005Realized
    
    
    
    
    
    RealizedNotional
    
    Gains
    
    Notional
    
    GainsAmount
    
    (Losses)
    
    Amount
    
    (Losses)($s in thousands)Commodity futures and options contractsTotal volume of exchange traded contracts:Commitments to purchase
    
    $
    908,773
    
    
    $
    (32,225
    )
    
    $
    1,150,192
    
    
    $
    21,305Commitments to sell
    
    
    (1,097,202
    )
    
    
    10,980
    
    
    
    (1,080,452
    )
    
    
    (18,904
    )
 Interest Rate Risk
   Inflation Risk
  
 Item 8. Financial Statements and Supplementary Data.
  55




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of disclosure controls and procedures.
  Change in internal controls
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    TitleChris Policinski
    
    
    48
    
    
    President and Chief Executive OfficerDaniel Knutson
    
    
    50
    
    
    Senior Vice President and Chief Financial OfficerSteve Dunphy
    
    
    49
    
    
    Executive Vice President and Chief Operating
Officer, Dairy Foods Value AddedAlan Pierson
    
    
    56
    
    
    Executive Vice President and Chief Operating
Officer, Dairy Foods IndustrialFernando Palacios
    
    
    47
    
    
    Executive Vice President and Chief Operating
Officer, FeedDavid Seehusen
    
    
    60
    
    
    Executive Vice President and Chief Operating
Officer  SeedBarry Wolfish
    
    
    50
    
    
    Vice President, Corporate Strategy & Business DevelopmentJim Fife
    
    
    57
    
    
    Vice President, Public AffairsPeter Janzen
    
    
    47
    
    
    Vice President, General CounselKaren Grabow
    
    
    57
    
    
    Vice President, Human ResourcesRobert Bignami
    
    
    64
    
    
    DirectorLynn Boadwine
    
    
    43
    
    
    DirectorHarley Buys
    
    
    54
    
    
    DirectorDennis Cihlar
    
    
    57
    
    
    DirectorBen Curti
    
    
    56
    
    
    DirectorJim Hager
    
    
    55
    
    
    DirectorGordon Hoover
    
    
    49
    
    
    DirectorPete Kappelman
    
    
    44
    
    
    Director, Chairman of the Board
 56




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##### Table of Contents



Name
    
    Age
    
    TitleCornell Kasbergen
    
    
    49
    
    
    DirectorPaul Kent, Jr.
    
    
    56
    
    
    DirectorLarry Kulp
    
    
    64
    
    
    DirectorCharles Lindner
    
    
    54
    
    
    DirectorRobert Marley
    
    
    55
    
    
    DirectorJim Miller
    
    
    65
    
    
    DirectorRonnie Mohr
    
    
    58
    
    
    Director, First Vice Chairman of the BoardRon Muzzall
    
    
    44
    
    
    DirectorJames Netto
    
    
    47
    
    
    DirectorArt Perdue
    
    
    62
    
    
    DirectorDouglas Reimer
    
    
    56
    
    
    Director, SecretaryRichard Richey
    
    
    58
    
    
    DirectorFloyd Trammell
    
    
    51
    
    
    DirectorMyron Voth
    
    
    53
    
    
    DirectorThomas Wakefield
    
    
    57
    
    
    DirectorJohn Zonneveld, Jr.
    
    
    53
    
    
    DirectorHoward Liszt
    
    
    60
    
    
    Nonvoting Advisory MemberRobert Thompson
    
    
    61
    
    
    Nonvoting Advisory MemberMary Shefland
    
    
    56
    
    
    Nonvoting Advisory Member
  Chris Policinski,
 Daniel Knutson,
 Fernando Palacios,
 Alan Pierson
 Steve Dunphy
 Barry Wolfish
 Jim Fife,
 57




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##### Table of Contents



Peter Janzen,
 Karen Grabow,
 Robert Bignami
 Lynn Boadwine
 Harley Buys
 Dennis Cihlar
 Ben Curti
 Jim Hager
 Gordon Hoover
 Pete Kappelman
 Cornell Kasbergen
 Paul Kent, Jr.
 Larry Kulp
 Charles Lindner
 Robert Marley
 Jim Miller
 Ronnie Mohr
 58




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##### Table of Contents



Ron Muzzall
 James Netto
 Art Perdue
 Douglas Reimer
 Richard Richey
 Floyd Trammell
 Myron Voth
 Thomas Wakefield
 John Zonneveld, Jr.
 Mary Shefland
 Howard Liszt
 Professor Robert Thompson
 59




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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
 60




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##### Table of Contents




    
    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
    
    Reinforce a culture of performance
    
    Be affordable in the context of Board-approved short and long-term financial goals
 Process
     Compensation Structure
  
    
    Annual base salary
    
    Annual and long-term variable compensation
    
    Long-term equity value incentive compensation
    
    Retirement benefits
    
    Perquisites and other personal benefits
   Annual Base Salary.
 61




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##### Table of Contents



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 can, in the Presidents sole discretion, exclude an executive officer from
either or both plans for business reasons. No exclusions were made under either plan for
payments earned in 2006.
    
    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 applied in 2006 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 2006
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.
  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.
  62




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##### Table of Contents



Measure as % of Total Target AwardOpportunityBusiness UnitCorporate Officer
    
    OfficerTotal Company ROE
    
    
    20
    %
    
    
    20
    %Total Company Pre-tax Earnings
    
    
    40
    %
    
    
    0
    %Business Unit Pre-tax Earnings
    
    
    0
    %
    
    
    40
    %Total Company ROIC
    
    
    25
    %
    
    
    0
    %Business Unit ROIC
    
    
    0
    %
    
    
    25
    %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 Pre-tax Earnings and ROIC measures, performance must reach 175% of Plan in order for the
maximum award for the measure to be earned.
     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.
 63




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##### Table of Contents




    
    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 while the financial goals for executive
officers assigned to a business unit are tied 100% to the business
unit.
   Long-Term Equity Value Incentive Compensation.
  64




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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).
  65




---



##### Table of Contents



Land OLakes Employee Savings and Supplemental Retirement Plan (401(k) Plan).
    Non-Qualified Executive Excess Benefit Savings Plan.
 66




---



##### Table of Contents



Land OLakes Non-Qualified Deferred Compensation Plan.
     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; or3.
    
    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.
 67




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##### Table of Contents



Severance Agreement.
   EXECUTIVE COMMITTEE REPORT
   /s/ Pete Kappelman
    
    
    
    /s/ Ronnie MohrPete Kappelman
    
    
    
    Ronnie Mohr/s/ John Zonneveld
    
    
    
    /s/ Doug ReimerJohn Zonneveld
    
    
    
    Doug Reimer/s/ Cornell Kasbergen
    
    
    
    /s/ Lynn BoadwineCornell Kasbergen
    
    
    
    Lynn Boadwine/s/ Robert Marley
    
    
    
    /s/ Art PerdueRobert Marley
    
    
    
    Art Perdue
 68




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##### Table of Contents



SUMMARY COMPENSATION TABLE
  (a)
    
    (b)
    
    (c)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)Change inPension ValueandValue
    
    Non-
    
    NonqualifiedAppreciation
    
    Equity
    
    Deferred
    
    All OtherRight Unit
    
    Incentive
    
    Compensation
    
    CompensationSalary
    
    Awards1
    
    Plan2
    
    Earnings3
    
    4, 5, 6
    
    TotalName & Principal Position
    
    Year
        
    ($)
    

($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Christopher J. Policinski
President &
Chief Executive Officer
    
    
    2006
    
    
    $
    750,000
    
    
    $
    311,774
    
    
    $
    682,800
    
    
    $
    121,671
    
    
    $
    131,283
    
    
    $
    1,997,528Daniel E. Knutson
Senior Vice President &
Chief Financial Officer
    
    
    2006
    
    
    $
    451,690
    
    
    $
    280,067
    
    
    $
    308,414
    
    
    $
    279,162
    
    
    $
    42,876
    
    
    $
    1,362,209David L. Seehusen
Executive Vice President
& Chief Operating Officer
- Seed
    
    
    2006
    
    
    $
    265,700
    
    
    $
    121,755
    
    
    $
    404,703
    
    
    $
    366,640
    
    
    $
    31,628
    
    
    $
    1,190,426Fernando J. Palacios
Executive Vice President
& Chief Operating Officer
- Feed
    
    
    2006
    
    
    $
    445,303
    
    
    $
    161,188
    
    
    $
    300,045
    
    
    $
    78,761
    
    
    $
    52,084
    
    
    $
    1,037,381Peter S. Janzen
Vice President,
General Counsel
    
    
    2006
    
    
    $
    352,008
    
    
    $
    72,267
    
    
    $
    198,532
    
    
    $
    153,199
    
    
    $
    29,624
    
    
    $
    805,630
 
 1)
    
    Reflects the fiscal year 2006 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 2006 and prior years.2)
    
    Reflects 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)
    
    Reflects 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 2006
annual report.4)
    
    Reflects 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 allowance5)
    
    The amount for Mr. Policinski also includes a one-time initiation fee of $79,875, and
associated monthly dues, for a membership in a country club.6)
    
    The amount for Mr. Palacios also includes company-paid expenses for travel to and from his
Florida home and Land OLakes headquarters in Minnesota.
 69




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##### Table of Contents



GRANTS OF PLAN-BASED AWARDS IN 2006
 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 ofTarget
    
    
    
    
    
    Underlying
    
    VAR Unit
    
    VAR unitName
    
    Grant Date2
    
    Threshold ($)3
    
    ($)
    
    Maximum ($)
    
    VAR Units
    
    Exercise Price
    
    Awards5Christopher J.
Policinski 
(CEO)
    
    
    1/1/2006
    
    
    $
    270,000
    
    
    $
    675,000
    
    
    $
    843,750
    
    
    
    12,000
    
    
    $
    41.11
    
    
    
    Daniel E. Knutson

(CFO)
    
    
    1/1/2006
    
    
    $
    141,440
    
    
    $
    353,600
    
    
    $
    442,000
    
    
    
    5,250
    
    
    $
    41.11
    
    
    
    1/1/2006
    
    
    $
    139,440
    
    
    $
    348,600
    
    
    $
    435,750
    
    
    
    5,250
    
    
    $
    41.11
    
    
    
    Fernando J. Palacios
    
    
    10/20/2006
    4
    
    $
    139,440
    
    
    $
    348,600
    
    
    $
    435,750
    
    
    
    
    
    
    
    
    
    
    
    David L. Seehusen
    
    
    1/1/2006
    
    
    $
    83,200
    
    
    $
    208,000
    
    
    $
    260,000
    
    
    
    2,250
    
    
    $
    41.11
    
    
    
    Peter S. Janzen
    
    
    1/1/2006
    
    
    $
    73,200
    
    
    $
    183,000
    
    
    $
    228,750
    
    
    
    2,250
    
    
    $
    41.11
    
    
    
    
 
 1)
    
    Information displayed reflects participation in the 2006-08 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
2006 grant shown for Mr. Policinski was approved by the Executive Committee of the board on
February 21, 2006 while the grants for the other named executive officers were approved by the Mr.
Policinski on January 13, 2006.3)
    
    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)
    
    Mr. Palacios was granted participation in a special LTIP for the 2005-07 performance period as
part of his promotion in December 2004 to the position of Chief Operating Officer for the Feed
business unit.5)
    
    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.
 70




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END
 Value Appreciation Rights (VAR) Unit Awards(a)
    
    (b)
    
    ( c)
    
    (d)
    
    (e)
    
    (f)Equity Incentive PlanNumber of Securities
    
    Number of Securities
    
    Awards: Number ofUnderlying
    
    Underlying
    
    Securities UnderlyingUnexercised VAR
    
    Unexercised VAR
    
    Unexercised Unearned
    
    VAR Units Exercise
    
    VAR UnitsName
    
    Units (#) Exercisable1
    
    Units (#) Unexercisable
    
    VAR Units (#)
    
    Price
    
    Expiration Date2Christopher J. Policinski
    
    
    3,000
    
    
    
    9,000
    
    
    
    
    
    
    $
    41.11
    
    
    
    (CEO)
    
    
    2,625
    
    
    
    2,625
    
    
    
    
    
    
    $
    34.47
    
    
    
    5,250
    
    
    
    1,750
    
    
    
    
    
    
    $
    27.11
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Daniel E. Knutson
    
    
    1,313
    
    
    
    3,937
    
    
    
    
    
    
    $
    41.11
    
    
    
    (CFO)
    
    
    2,625
    
    
    
    2,625
    
    
    
    
    
    
    $
    34.47
    
    
    
    5,250
    
    
    
    1,750
    
    
    
    
    
    
    $
    27.11
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Fernando J. Palacios
    
    
    1,313
    
    
    
    3,937
    
    
    
    
    
    
    $
    41.112,625
    
    
    
    2,625
    
    
    
    
    
    
    $
    34.47
    
    
    
    2,250
    
    
    
    750
    
    
    
    
    
    
    $
    27.11
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    David L. Seehusen
    
    
    563
    
    
    
    1,687
    
    
    
    
    
    
    $
    41.11
    
    
    
    1,125
    
    
    
    1,125
    
    
    
    
    
    
    $
    34.47
    
    
    
    2,250
    
    
    
    750
    
    
    
    
    
    
    $
    27.11
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    51.50
    
    
    
    Peter S. Janzen
    
    
    563
    
    
    
    1,687
    
    
    
    
    
    
    $
    41.11
    
    
    
    1,125
    
    
    
    1,125
    
    
    
    
    
    
    $
    34.47
    
    
    
    2,250
    
    
    
    750
    
    
    
    
    
    
    $
    27.11
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    $
    27.69
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    $
    35.69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    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.
 71




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##### Table of Contents



NON-QUALIFIED DEFERRED COMPENSATION IN 2006
 (a)
    
    (b)
    
    ( c)
    
    (d)
    
    (e)
    
    (f)Executive
    
    RegistrantContributions in
    
    Contributions in
    
    Aggregate
    
    Aggregate
    
    AggregateLast Fiscal
    
    Last Fiscal
    
    Earnings in Last
    
    Withdrawals/
    
    Balance at LastYear1
    
    Year2
    
    Fiscal Year
    
    Distributions
    
    Fiscal Year EndName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Christopher
J. Policinski
    
    $
    
    
    
    $
    17,331
    
    
    $
    14,375
    
    
    $
    
    
    
    $
    230,214(CEO)Daniel E. Knutson
    
    $
    78,000
    
    
    $
    15,853
    
    
    $
    41,507
    
    
    $
    
    
    
    $
    735,665(CFO)Fernando J. Palacios
    
    $
    50,000
    
    
    $
    12,872
    
    
    $
    17,701
    
    
    $
    
    
    
    $
    310,172David L. Seehusen
    
    $
    49,592
    
    
    $
    6,828
    
    
    $
    22,165
    
    
    $
    
    
    
    $
    367,782Peter S. Janzen
    
    $
    
    
    
    $
    5,763
    
    
    $
    595
    
    
    $
    
    
    
    $
    9,524
 
 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.
 72




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##### Table of Contents



PENSION BENEFITS TABLE
 Present Value
    
    PaymentsNumber of
    
    of Accumulated
    
    During LastYears Credited
    
    Benefit2
    
    Fiscal YearName
    
    Plan Name1
    
    Service
    
    $
    
    $Christopher
J. Policinski
    
    Land OLakes, Inc.
    
    
    9.500
    
    
    $
    323,346
    
    
    $
    0(CEO)
    
    Employee Retirement PlanLand OLakes, Inc.
    
    
    9.500
    
    
    
    154,755
    
    
    
    0SupplementalExecutive Retirement PlanDaniel E. Knutson
    
    Land OLakes, Inc.
    
    
    28.917
    
    
    
    850,971
    
    
    
    0(CFO)
    
    Employee Retirement PlanLand OLakes, Inc.
    
    
    28.917
    
    
    
    423,621
    
    
    
    0SupplementalExecutive Retirement PlanFernando J. Palacios
    
    Land OLakes, Inc.
    
    
    6.083
    
    
    
    116,492
    
    
    
    0Employee Retirement PlanLand OLakes, Inc.
    
    
    6.083
    
    
    
    80,401
    
    
    
    0SupplementalExecutive Retirement PlanDavid L. Seehusen
    
    Land OLakes, Inc.
    
    
    34.250
    
    
    
    1,584,846
    
    
    
    0Employee Retirement PlanLand OLakes, Inc.
    
    
    34.250
    
    
    
    671,038
    
    
    
    0SupplementalExecutive Retirement PlanPeter S. Janzen
    
    Land OLakes, Inc.
    
    
    23.000
    
    
    
    308,072
    
    
    
    0Employee Retirement PlanLand OLakes, Inc.
    
    
    23.000
    
    
    
    156,286
    
    
    
    0SupplementalExecutive 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 2006 annual
report. Post-retirement mortality rates are based on the RP-2000 Combined Healthy Participant
mortality table (gender specific). 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:
  73




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74




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##### Table of Contents



Potential Payments Upon Termination or Change in Control
     Unvested /Salary and
    
    
    
    
    
    Forfeited VARIncentive1
    
    Benefits2
    
    Units
    
    Outplacement
    
    TotalChris Policinski,President and Chief Executive Officer
    
    $
    4,535,772
    
    
    $
    71,971
    
    
    $
    150,165
    
    
    $
    20,000
    
    
    $
    4,777,908
  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
    
    TotalChris Policinski,President and Chief Executive Officer
    
    $
    1,500,000
    
    
    $
    47,981
    
    
    
    N/A
    
    
    $
    20,000
    
    
    $
    1,567,981
  1.
    
    Amount reflects two times base salary2.
    
    Includes continuation payment of medical and executive life / LTD benefits.
 75




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##### Table of Contents



(a)
    
    (b)
    
    (f)Fees Earned orPaid in Cash1
    
    TotalName
    
    ($)
    
    ($)Robert Bignami
    
    $
    41,700
    
    
    $
    41,700Lynn Boadwine
    
    
    41,250
    
    
    
    41,250Harley Buys
    
    
    41,250
    
    
    
    41,250Dennis Cihlar
    
    
    38,550
    
    
    
    38,550Ben Curti
    
    
    49,650
    
    
    
    49,650Richard Epard
    
    
    41,400
    
    
    
    41,400Jim Hager
    
    
    40,050
    
    
    
    40,050Gordon Hoover
    
    
    47,700
    
    
    
    47,700Pete Kappelman
    
    
    68,448
    
    
    
    68,448Cornell Kasbergen
    
    
    48,000
    
    
    
    48,000Paul Kent, JR.
    
    
    49,200
    
    
    
    49,200Larry Kulp
    
    
    45,900
    
    
    
    45,900Charles Lindner
    
    
    42,750
    
    
    
    42,750Howard Liszt
    
    
    25,500
    
    
    
    25,500Manuel Maciel, Jr.
    
    
    50,850
    
    
    
    50,850Robert Marley
    
    
    42,450
    
    
    
    42,450Jim Miller
    
    
    42,300
    
    
    
    42,300Ronnie Mohr
    
    
    42,450
    
    
    
    42,450Ron Muzzall
    
    
    43,500
    
    
    
    43,500Art Perdue
    
    
    43,050
    
    
    
    43,050Doug Reimer
    
    
    44,400
    
    
    
    44,400Rich Richey
    
    
    40,800
    
    
    
    40,800Mary Shefland
    
    
    38,550
    
    
    
    38,550Robert Thompson
    
    
    27,500
    
    
    
    27,500Floyd Trammell
    
    
    40,500
    
    
    
    40,500Tom Wakefield
    
    
    43,950
    
    
    
    43,950John Zonneveld, Jr.
    
    
    51,450
    
    
    
    51,450
 
 1)
    
    Reflects amounts earned in 2006 for retainer and representation/attendance fees (Per
Diem). 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.
  76




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##### Table of Contents



Item 14. Principal Accountant Fees and Services.
  2006
    
    
    2005($ in thousands)Audit fees
    
    $
    934
    
    
    $
    869Audit-related fees(1)
    
    
    106
    
    
    
    61Audit and audit-related fees
    
    
    1,040
    
    
    
    930Tax fees(2)
    
    
    15
    
    
    
    105Total fees
    
    $
    1,055
    
    
    $
    1,035
 (1)
    
    Audit-related fees consist principally of fees for audits of financial statements of
certain employee benefit plans in 2006.(2)
    
    Tax fees in 2006 and 2005 consist of benefit plan filings and international services.
  
 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, 2006, 2005 and 2004Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    83Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    84Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    85Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    86Consolidated Statements of Equities for the years ended December 31, 2006, 2005 and 2004
    
    
    87Notes to Consolidated Financial Statements
    
    
    88MoArk, LLCFinancial Statements for the years ended December 23, 2006, December 24, 2005 and December 25, 2004Report of Moore Stephens Frost, Independent Registered Public Accounting Firm
    
    125Consolidated Balance Sheets as of December 23, 2006 and December 24, 2005
    
    126Consolidated Statement of Operations for the year ended December 23, 2006, December 24, 2005 and
December 25, 2004
    
    128Consolidated Statement of Members Equity for the year ended December 23, 2006, December 24, 2005
and December 25, 2004
    
    129Consolidated Statement of Cash Flows for the year ended December 23, 2006, December 24, 2005 and
December 25, 2004
    
    130Notes to Consolidated Financial Statements
    
    132
 77




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##### Table of Contents



Agriliance LLCFinancial Statements (unaudited) for the three months ended November 30, 2006 and 2005Consolidated Balance Sheets as of November 30, 2006 and August 31, 2006
    
    
    149Consolidated Statements of Operations for the three months ended November 30, 2006 and 2005
    
    
    150Consolidated Statements of Cash Flows for the three months ended November 30, 2006 and 2005
    
    
    151Notes to Consolidated Financial Statements
    
    
    152Financial Statements for the years ended August 31, 2006, 2005 and 2004Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    153Consolidated Balance Sheets as of August 31, 2006 and 2005
    
    
    154Consolidated Statements of Operations for the years ended August 31, 2006, 2005 and 2004
    
    
    155Consolidated Statements of Cash Flows for the years ended August 31, 2006, 2005 and 2004
    
    
    156Consolidated Statements of Members Equity for the years ended August 31, 2006, 2005 and 2004
    
    
    157Notes to Consolidated Financial Statements
    
    
    158
 (b)
 
 Exhibit Index
 Exhibit
    
    Description3.1
    
    Restated Articles of Incorporation of Land OLakes, Inc., as amended, August 1998.(1)3.2
    
    By-Laws of Land OLakes Inc., as amended, February 2003 (3).4.1
    
    Credit Agreement among Land OLakes, Inc., the Lenders party thereto and The Chase Manhattan Bank, dated as of October11,
2001.(1)4.2
    
    First Amendment dated November 6, 2001 to the Credit Agreement dated October 11, 2001.(1)4.3
    
    Second Amendment dated February 15, 2002 to the Credit Agreement dated October 11, 2001.(1)4.4
    
    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)4.5
    
    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)4.6
    
    Registration Rights Agreement dated November 14, 2001 by and among Land OLakes, Inc. and certain of its subsidiaries, J.P.
Morgan Securities Inc., SPP Capital Partners, LLC, SunTrust Robinson Capital Markets, Inc., Tokyo-Mitsubishi International
plc and U.S. Bancorp Piper Jaffray, Inc.(1)4.7
    
    Purchase Agreement by and between Land OLakes, Inc., and certain of its subsidiaries, J.P. Morgan Securities Inc., SPP
Capital Partners, LLC, SunTrust Robinson Capital Markets, Inc., Tokyo-Mitsubishi International plc and U.S. Bancorp Piper
Jaffray, Inc., dated as of November 8, 2001.(1)4.8
    
    Form of Old Note under the Indenture dated as of November14, 2001 (included as part of Exhibit 4.5).(1)4.9
    
    Form of New Note under the Indenture dated as of November14, 2001 (included as part of Exhibit 4.5).(1)4.10
    
    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)4.11
    
    Registration Rights Agreement dated as of December 23, 2003, by and among Land OLakes, Inc., and certain of its
subsidiaries, and J.P. Morgan Securities Inc. (3)4.12
    
    Purchase Agreement dated as of December 23, 2003, by and between Land OLakes, Inc., and certain of its subsidiaries, and
J.P. Morgan Securities, Inc. (3)4.13
    
    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)4.14
    
    Third Amendment dated December 8, 2003 to the Credit Agreement dated October 11, 2001.(3)4.15
    
    Fourth Amendment dated January 13, 2004 to the Credit Agreement dated October 11, 2001. (3)4.16
    
    Form of Old Note (included as part of Exhibit 4.12). (3)4.17
    
    Form of New Note (included as part of Exhibit 4.12). (3)4.18
    
    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)4.19
    
    Amended and Restated Five Year Credit Agreement dated as of October 11, 2001 among Land OLakes, Inc., The Chase Manhattan
Bank, CoBank, ACB, and the Lenders party thereto.(1)4.20
    
    First Amendment dated
November 6, 2001 to the Amended and Restated Five-Year Credit Agreement dated October 11, 2001.(1)
 78




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##### Table of Contents



Exhibit
    
    Description4.21
    
    Second Amendment dated February 15, 2002 to the Amended and Restated Five-Year Credit Agreement dated October 
11, 2001.(1)4.22
    
    Purchase and Sale Agreement dated as of December 18, 2001, among Land OLakes, Inc., Land OLakes Farmland Feed LLC, Purina
Mills, LLC and LOL Farmland Feed SPV, LLC.(1)4.23
    
    Receivables Purchase Agreement dated as of December 18, 2001, among Land OLakes Farmland Feed LLC, LOL Farmland Feed SPV,
LLC, and CoBank, ACB.(1)4.24
    
    Indenture dated as of March 25, 1998 for the 7.45% Capital Securities due March 25, 2028.(3)4.25
    
    Third Amendment dated December 8, 2003 to the Five-Year Amended and Restated Credit Agreement dated October 11,2001.(3)4.26
    
    Fourth Amendment dated January 13, 2004 to the Amended and Restated Five-Year Credit Agreement dated October 11, 2001.(3)4.27
    
    Fifth Amendment, dated
April 1, 2005, to the Amended and Restated Five-Year Credit
Agreement, dated October 11, 2001.(4)4.28
    
    Sixth Amendment, dated June 15, 2005, to the Amended and Restated Five-Year Credit Agreement, dated October 11, 2001.(4)4.29
    
    Seventh Amendment, dated August 9, 2005, to the Amended and Restated Five-Year Credit Agreement, dated October 11, 2001.(4)4.30
    
    Eighth Amendment, dated January 10, 2006, to the Amended and Restated Five-Year Credit Agreement, dated October 11, 2001.(4)4.31
    
    First Amendment, dated February 20, 2007, to the Amended and Restated Five-Year Credit Agreement dated October 11, 2001 (as
amended and restated August 29, 2006).*10.1
    
    Joint Venture Agreement by and between Farmland Industries, Inc. and Land OLakes, Inc. dated as of July 18, 2000.(1)10.2
    
    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)10.3
    
    Joint Venture Agreement among Cenex Harvest States Cooperatives, Farmland Industries, Inc. and Land OLakes Inc. dated as of
January 1, 2000.(1)10.4
    
    Operating Lease between Arden Hills Associates and Land OLakes, Inc. dated as of May 31, 1980.(1)10.5
    
    Ground Lease between Land OLakes, Inc. and Arden Hills Associates dated as of May 31, 1980.(1)10.6
    
    License Agreement among Ralston Purina Company, Purina Mills, Inc. and BP Nutrition Limited dated as of October 1,1986.(1)10.7
    
    License Agreement between Land OLakes, Inc. and Land OLakes Farmland Feed LLC dated September 25, 2000.(1)10.8
    
    Trademark License Agreement by and between Land OLakes, Inc. and Dean Foods dated as of July 10, 2000.(1)10.9
    
    Asset Purchase Agreement between Land OLakes, Inc. and Dean Foods dated as of May 30, 2000.(1)10.10
    
    Agreement and Plan of Merger, dated as of June 17, 2001, by and among Purina Mills, Inc., Land OLakes, Inc., LOL Holdings
II, Inc. and LOL Holdings III, Inc.(1)10.11
    
    Management Services Agreement, dated September 1, 2000, by and between Land OLakes and Land OLakes Farmland Feed LLC.(1)10.12
    
    Asset Purchase and Sale Agreement, dated February 15, 2005, by and between Land OLakes, Inc. and Maschhoff West, LLC.(4)10.13
    
    Purchase Agreement, dated January 27, 2006, by and between Osborne Investments, LLC and Land OLakes, Inc.(4)10.14
    
    Executive Annual Variable Compensation Plan of Land OLakes.(1)#10.15
    
    Land OLakes Long Term Incentive Plan. (1)#10.16
    
    Land OLakes Non-Qualified Deferred Compensation Plan. (1)#10.17
    
    Land OLakes Non-Qualified Executive Excess Benefit Plan (IRS Limits). (1)#10.18
    
    Land OLakes Non-Qualified Executive Excess Benefit Plan (1989 Formula). (1)#10.19
    
    Land OLakes Non-Qualified Executive Excess Benefit Savings Plan. (1)#10.20
    
    California Cooperative Value Incentive Plan of Land OLakes.(2)#10.21
    
    Amended Land OLakes Long Term Incentive Plan.#10.22
    
    Amended California Cooperative Value Incentive Plan of Land OLakes.#10.23
    
    License Agreement, by and between Land OLakes, Inc., Dean Foods Company, Morningstar Foods, Inc. and Dairy Marketing
Alliance, LLC, dated July 24, 2002.(1)10.24
    
    Land OLakes Cooperative Value Incentive Plan.(4)10.25
    
    Land OLakes Cooperative Value Incentive Plan (2005).(4)12
    
    Statement regarding the computation of ratios of earnings to fixed charges*
 79




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Exhibit
    
    Description21
    
    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-K on
March 20, 2006.#
    
    Management contract, compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K*
    
    Filed electronically herewith.
 
 SIGNATURES
  LAND OLAKES, INC.By
    
    /s/ DANIEL KNUTSONDaniel KnutsonSenior Vice President and Chief Financial 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/ ROBERT BIGNAMI
    
    DirectorRobert Bignami/s/ LYNN BOADWINE
    
    DirectorLynn Boadwine/s/ HARLEY BUYS
    
    DirectorHarley Buys/s/ DENNIS CIHLAR
    
    DirectorDennis Cihlar/s/ BEN CURTI
    
    DirectorBen Curti/s/ JIM HAGER
    
    DirectorJim Hager
 80




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##### Table of Contents



/s/ GORDON HOOVER
    
    DirectorGordon Hoover/s/ PETE KAPPELMAN
    
    DirectorPete 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/s/ JIM MILLER
    
    DirectorJim Miller/s/ RONNIE MOHR
    
    DirectorRonnie Mohr/s/ RON MUZZALL
    
    DirectorRon Muzzall/s/ JAMES NETTO
    
    DirectorJames Netto/s/ ART PERDUE
    
    DirectorArt Perdue/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/ JOHN ZONNEVELD, JR.
    
    DirectorJohn Zonneveld, Jr.
 81




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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, 2006, 2005 and 2004Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    83Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    84Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    85Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    86Consolidated Statements of Equities for the years ended December 31, 2006, 2005 and 2004
    
    
    87Notes to Consolidated Financial Statements
    
    
    88MoArk, LLCFinancial Statements for the years ended December 23, 2006, December 24, 2005 and December 25, 2004Report of Moore Stephens Frost, Independent Registered Public Accounting Firm
    
    125Consolidated Balance Sheets as of December 23, 2006 and December 24, 2005
    
    126Consolidated Statement of Operations for the year ended December 23, 2006, December 24, 2005 and
December 25, 2004
    
    128Consolidated Statement of Members Equity for the year ended December 23, 2006, December 24, 2005
and December 25, 2004
    
    129Consolidated Statement of Cash Flows for the year ended December 23, 2006, December 24, 2005 and
December 25, 2004
    
    130Notes to Consolidated Financial Statements
    
    132Agriliance LLCFinancial Statements (unaudited) for the three months ended November 30, 2006 and 2005Consolidated Balance Sheets as of November 30, 2006 and August 31, 2006
    
    
    149Consolidated Statements of Operations for the three months ended November 30, 2006 and 2005
    
    
    150Consolidated Statements of Cash Flows for the three months ended November 30, 2006 and 2005
    
    
    151Notes to Consolidated Financial Statements
    
    
    152Financial Statements for the years ended August 31, 2006, 2005 and 2004Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    153Consolidated Balance Sheets as of August 31, 2006 and 2005
    
    
    154Consolidated Statements of Operations for the years ended August 31, 2006, 2005 and 2004
    
    
    155Consolidated Statements of Cash Flows for the years ended August 31, 2006, 2005 and 2004
    
    
    156Consolidated Statements of Members Equity for the years ended August 31, 2006, 2005 and 2004
    
    
    157Notes to Consolidated Financial Statements
    
    
    158
 82




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 83




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    December 31,2006
    
    2005($ in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    79,707
    
    
    $
    179,704Receivables, net
    
    
    604,580
    
    
    
    591,445Inventories
    
    
    471,934
    
    
    
    453,135Prepaid expenses
    
    
    378,278
    
    
    
    333,023Other current assets
    
    
    50,594
    
    
    
    81,075Total current assets
    
    
    1,585,093
    
    
    
    1,638,382Investments
    
    
    270,202
    
    
    
    263,786Property, plant and equipment, net
    
    
    665,069
    
    
    
    668,650Goodwill, net
    
    
    326,527
    
    
    
    327,059Other intangibles, net
    
    
    95,043
    
    
    
    96,767Other assets
    
    
    113,191
    
    
    
    100,414Total assets
    
    $
    3,055,125
    
    
    $
    3,095,058Liabilities and EquitiesCurrent liabilities:Notes and short-term obligations
    
    $
    58,300
    
    
    $
    76,465Current portion of long-term debt
    
    
    10,972
    
    
    
    23,921Accounts payable
    
    
    994,774
    
    
    
    976,959Accrued expenses
    
    
    206,582
    
    
    
    265,924Patronage refunds and other member
equities payable
    
    
    18,626
    
    
    
    29,622Total current liabilities
    
    
    1,289,254
    
    
    
    1,372,891Long-term debt
    
    
    639,059
    
    
    
    646,802Employee benefits and other liabilities
    
    
    173,446
    
    
    
    165,796Minority interests
    
    
    8,830
    
    
    
    6,012Commitments and contingenciesEquities:Capital stock
    
    
    1,828
    
    
    
    1,967Member equities
    
    
    904,183
    
    
    
    893,518Accumulated other comprehensive loss
    
    
    (66,276
    )
    
    
    (75,163
    )Retained earnings
    
    
    104,801
    
    
    
    83,235Total equities
    
    
    944,536
    
    
    
    903,557Total liabilities and equities
    
    $
    3,055,125
    
    
    $
    3,095,058
  84




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2006
    
    
    2005
    
    
    2004($ in thousands)Net sales
    
    $
    7,102,289
    
    
    $
    7,336,128
    
    
    $
    7,497,283Cost of sales
    
    
    6,441,368
    
    
    
    6,751,111
    
    
    
    6,903,575Gross profit
    
    
    660,921
    
    
    
    585,017
    
    
    
    593,708Selling, general and administrative
    
    
    515,557
    
    
    
    494,971
    
    
    
    500,935Restructuring and impairment charges
    
    
    21,169
    
    
    
    6,381
    
    
    
    7,815Earnings from operations
    
    
    124,195
    
    
    
    83,665
    
    
    
    84,958Interest expense, net
    
    
    58,360
    
    
    
    79,873
    
    
    
    83,114Other (income) expense, net
    
    
    (18,791
    )
    
    
    9,295
    
    
    
    (7,476
    )Gain on sale of investment in CF Industries, Inc.
    
    
    
    
    
    
    (102,446
    )
    
    
    Loss on impairment of investment in CF Industries, Inc.
    
    
    
    
    
    
    
    
    
    
    36,500Equity in earnings of affiliated companies
    
    
    (13,295
    )
    
    
    (36,692
    )
    
    
    (58,412
    )Minority interest in earnings of subsidiaries
    
    
    1,449
    
    
    
    1,354
    
    
    
    1,648Earnings before income taxes and discontinued operations
    
    
    96,472
    
    
    
    132,281
    
    
    
    29,584Income tax expense
    
    
    7,806
    
    
    
    5,505
    
    
    
    1,404Net earnings from continuing operations
    
    
    88,666
    
    
    
    126,776
    
    
    
    28,180Earnings (loss) from discontinued operations, net of income taxes
    
    
    
    
    
    
    2,167
    
    
    
    (6,747
    )Net earnings
    
    $
    $88,666
    
    
    $
    128,943
    
    
    $
    21,433Applied to:Member equitiesAllocated patronage
    
    $
    72,002
    
    
    $
    118,273
    
    
    $
    23,636Deferred equities
    
    
    3,015
    
    
    
    1,847
    
    
    
    1,92075,017
    
    
    
    120,120
    
    
    
    25,556Retained earnings
    
    
    13,649
    
    
    
    8,823
    
    
    
    (4,123
    )$
    88,666
    
    
    $
    128,943
    
    
    $
    21,433
  85




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##### Table of Contents



LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2006
    
    
    2005
    
    
    2004($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    88,666
    
    
    $
    128,943
    
    
    $
    21,433(Earnings) loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (2,167
    )
    
    
    6,747Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    95,239
    
    
    
    99,312
    
    
    
    107,214Amortization of deferred financing costs
    
    
    2,226
    
    
    
    8,733
    
    
    
    5,625Loss on extinguishment of debt
    
    
    
    
    
    
    11,014
    
    
    
    Bad debt expense
    
    
    1,421
    
    
    
    1,967
    
    
    
    2,351Proceeds from patronage revolvement received
    
    
    9,163
    
    
    
    8,123
    
    
    
    6,043Non-cash patronage income
    
    
    (1,827
    )
    
    
    (1,852
    )
    
    
    (1,355
    )Deferred income tax expense (benefit)
    
    
    13,355
    
    
    
    5,177
    
    
    
    (4,977
    )(Increase) decrease in other assets
    
    
    (183
    )
    
    
    13,246
    
    
    
    5,740Increase (decrease) in other liabilities
    
    
    2,895
    
    
    
    3,570
    
    
    
    (3,499
    )Restructuring and impairment charges
    
    
    21,169
    
    
    
    6,381
    
    
    
    44,315Gain from divestiture of businesses
    
    
    (8,987
    )
    
    
    
    
    
    
    (1,438
    )Gain on sale of investments
    
    
    (7,980
    )
    
    
    (103,581
    )
    
    
    (623
    )Equity in earnings of affiliated companies
    
    
    (13,295
    )
    
    
    (36,692
    )
    
    
    (58,412
    )Dividends from investments in affiliated companies
    
    
    4,736
    
    
    
    35,250
    
    
    
    47,846Minority interests
    
    
    1,449
    
    
    
    1,354
    
    
    
    1,648Other
    
    
    (3,610
    )
    
    
    (6,254
    )
    
    
    (616
    )Changes in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    57,014
    
    
    
    (38,964
    )
    
    
    37,586Inventories
    
    
    (20,125
    )
    
    
    (6,058
    )
    
    
    15,105Prepaid and other current assets
    
    
    (68,751
    )
    
    
    (50,468
    )
    
    
    (36,152
    )Accounts payable
    
    
    17,427
    
    
    
    164,155
    
    
    
    72,378Accrued expenses
    
    
    22,309
    
    
    
    17,143
    
    
    
    (17,089
    )Net cash provided by operating activities
    
    
    212,311
    
    
    
    258,332
    
    
    
    249,870Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (83,763
    )
    
    
    (70,424
    )
    
    
    (96,099
    )Acquisitions
    
    
    (88,060
    )
    
    
    (46,101
    )
    
    
    (12,150
    )Payments for investments
    
    
    (4,950
    )
    
    
    (5,566
    )
    
    
    (703
    )Net proceeds from divestiture of businesses
    
    
    42,466
    
    
    
    2,635
    
    
    
    13,068Proceeds from sale of investments
    
    
    9,274
    
    
    
    316,900
    
    
    
    2,342Proceeds from sale of property, plant and equipment
    
    
    1,754
    
    
    
    22,197
    
    
    
    11,990Other
    
    
    7,183
    
    
    
    20,881
    
    
    
    640Net cash (used) provided by investing activities
    
    
    (116,096
    )
    
    
    240,522
    
    
    
    (80,912
    )Cash flows from financing activities:(Decrease) increase in short-term debt
    
    
    (98,541
    )
    
    
    21,256
    
    
    
    (28,616
    )Proceeds from issuance of long-term debt
    
    
    16,451
    
    
    
    2,022
    
    
    
    17,416Principal payments on long-term debt and capital lease obligations
    
    
    (36,549
    )
    
    
    (379,900
    )
    
    
    (156,378
    )Payments for debt extinguishment costs
    
    
    
    
    
    
    (11,014
    )
    
    
    Payments for debt issuance costs
    
    
    (1,543
    )
    
    
    
    
    
    
    (4,323
    )Payments for redemption of member equities
    
    
    (80,614
    )
    
    
    (68,714
    )
    
    
    (34,615
    )Other
    
    
    4,933
    
    
    
    (1,993
    )
    
    
    (304
    )Net cash used by financing activities
    
    
    (195,863
    )
    
    
    (438,343
    )
    
    
    (206,820
    )Net cash (used) provided by operating activities of discontinued operations
    
    
    (349
    )
    
    
    3,922
    
    
    
    (1,449
    )Net cash provided by investing activities of discontinued operations
    
    
    
    
    
    
    42,135
    
    
    
    2,173Net (decrease) increase in cash and cash equivalents
    
    
    (99,997
    )
    
    
    106,568
    
    
    
    (37,138
    )Cash and cash equivalents at beginning of year
    
    
    179,704
    
    
    
    73,136
    
    
    
    110,274Cash and cash equivalents at end of year
    
    $
    79,707
    
    
    $
    179,704
    
    
    $
    73,136
  86




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LAND OLAKES, INC.
 
 CONSOLIDATED STATEMENTS OF EQUITIES
 AccumulatedOtherCapital
    
    
    Member Equities
    
    
    Comprehensive
    
    
    Retained
    
    
    TotalStock
    
    
    Allocated
    
    
    Deferred
    
    
    Net
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equities($ in thousands)Balance, December 31, 2003
    
    $
    2,125
    
    
    $
    892,599
    
    
    $
    (26,013
    )
    
    $
    866,586
    
    
    $
    (65,685
    )
    
    $
    76,338
    
    
    $
    879,364Capital stock issued
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Capital stock redeemed
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )2004 earnings, as applied
    
    
    
    
    
    
    23,636
    
    
    
    1,920
    
    
    
    25,556
    
    
    
    
    
    
    
    (4,123
    )
    
    
    21,433Less portion stated as current liability
    
    
    
    
    
    
    (15,757
    )
    
    
    
    
    
    
    (15,757
    )
    
    
    
    
    
    
    
    
    
    
    (15,757
    )Portion of member equities stated as
current liability
    
    
    
    
    
    
    (6,560
    )
    
    
    
    
    
    
    (6,560
    )
    
    
    
    
    
    
    
    
    
    
    (6,560
    )Cash patronage and redemption of member
equities
    
    
    
    
    
    
    (34,615
    )
    
    
    
    
    
    
    (34,615
    )
    
    
    
    
    
    
    
    
    
    
    (34,615
    )Redemption included in prior years
liabilities
    
    
    
    
    
    
    19,449
    
    
    
    
    
    
    
    19,449
    
    
    
    
    
    
    
    
    
    
    
    19,449Minimum pension liability adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,402
    )
    
    
    
    
    
    
    (7,402
    )Unrealized loss on available-for-sale
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (521
    )
    
    
    
    
    
    
    (521
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (184
    )
    
    
    
    
    
    
    (184
    )Other, net
    
    
    
    
    
    
    (1,615
    )
    
    
    (285
    )
    
    
    (1,900
    )
    
    
    
    
    
    
    1,663
    
    
    
    (237
    )Balance, December 31, 2004
    
    
    2,059
    
    
    
    877,137
    
    
    
    (24,378
    )
    
    
    852,759
    
    
    
    (73,792
    )
    
    
    73,878
    
    
    
    854,904Capital stock issued
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Capital stock redeemed
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101
    )2005 earnings, as applied
    
    
    
    
    
    
    118,273
    
    
    
    1,847
    
    
    
    120,120
    
    
    
    
    
    
    
    8,823
    
    
    
    128,943Less portion stated as current liability
    
    
    
    
    
    
    (23,655
    )
    
    
    
    
    
    
    (23,655
    )
    
    
    
    
    
    
    
    
    
    
    (23,655
    )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
    
    
    
    
    
    
    
    
    
    
    
    22,317Minimum pension liability adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,603
    )
    
    
    
    
    
    
    (2,603
    )Unrealized loss on available-for-sale
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    
    
    
    
    (155
    )Foreign currency translation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,387
    
    
    
    
    
    
    
    1,387Other, net
    
    
    
    
    
    
    (3,181
    )
    
    
    (161
    )
    
    
    (3,342
    )
    
    
    
    
    
    
    534
    
    
    
    (2,808
    )Balance, December 31, 2005
    
    
    1,967
    
    
    
    916,210
    
    
    
    (22,692
    )
    
    
    893,518
    
    
    
    (75,163
    )
    
    
    83,235
    
    
    
    903,557Capital stock issued
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Capital stock redeemed
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )2006 earnings, as applied
    
    
    
    
    
    
    72,002
    
    
    
    3,015
    
    
    
    75,017
    
    
    
    
    
    
    
    13,649
    
    
    
    88,666Less portion stated as current liability
    
    
    
    
    
    
    (18,626
    )
    
    
    
    
    
    
    (18,626
    )
    
    
    
    
    
    
    
    
    
    
    (18,626
    )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
    
    
    
    
    
    
    
    
    
    
    
    13,896Minimum pension liability adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,108
    
    
    
    
    
    
    
    9,108Unrealized loss on available-for-sale
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404
    )
    
    
    
    
    
    
    (404
    )Foreign currency translation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183Other, net
    
    
    
    
    
    
    (8,614
    )
    
    
    (16
    )
    
    
    (8,630
    )
    
    
    
    
    
    
    7,917
    
    
    
    (713
    )Balance, December 31, 2006
    
    $
    1,828
    
    
    $
    923,876
    
    
    $
    (19,693
    )
    
    $
    904,183
    
    
    $
    (66,276
    )
    
    $
    104,801
    
    
    $
    944,536
  87




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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
  Revenue Recognition
  Statement Presentation
  Cash and Cash Equivalents
  Inventories
  Derivative Commodity Instruments
   88




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Investments
  Property, Plant and Equipment
  Goodwill and Other Intangible Assets
   Recoverability of Long-Lived Assets
  Income Taxes
   Advertising and Promotion Costs
  89




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Research and Development
  Share-Based Compensation
  Recent Accounting Pronouncements
       90




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Accounting Estimates
  2. Receivables
  2006
    
    
    2005Trade accounts
    
    $
    469,230
    
    
    $
    95,040Notes and contracts
    
    
    73,469
    
    
    
    90,119Notes from sale of trade receivables
    
    
    
    
    
    
    369,429Other
    
    
    72,435
    
    
    
    51,167615,134
    
    
    
    605,755Less allowance for doubtful accounts
    
    
    10,554
    
    
    
    14,310Total receivables, net
    
    $
    604,580
    
    
    $
    591,445
    91




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Inventories
  2006
    
    
    2005Raw materials
    
    $
    152,548
    
    
    $
    148,560Work in process
    
    
    3,914
    
    
    
    2,297Finished goods
    
    
    315,472
    
    
    
    302,278Total inventories
    
    $
    471,934
    
    
    $
    453,135
 4. Investments
  2006
    
    
    2005Agriliance LLC
    
    $
    124,719
    
    
    $
    112,932Ag Processing Inc
    
    
    33,975
    
    
    
    35,831Advanced Food Products, LLC
    
    
    32,933
    
    
    
    31,904Agronomy Company of Canada Ltd.
    
    
    16,834
    
    
    
    14,464Universal Cooperatives, Inc.
    
    
    7,986
    
    
    
    7,716CoBank, ACB
    
    
    7,198
    
    
    
    10,688Melrose Dairy Proteins, LLC
    
    
    5,741
    
    
    
    7,495Golden Oval Eggs, LLC
    
    
    4,265
    
    
    
    Delta Egg Farm, LLC
    
    
    3,890
    
    
    
    3,858Prairie Farms Dairy, Inc.
    
    
    3,696
    
    
    
    4,315Other  principally cooperatives and joint ventures
    
    
    28,965
    
    
    
    34,583Total investments
    
    $
    270,202
    
    
    $
    263,786
    92




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2006
    
    
    2005Net sales
    
    $
    3,694,121
    
    
    $
    3,819,523Gross profit
    
    
    337,955
    
    
    
    377,682Net earnings
    
    
    23,213
    
    
    
    71,011Current assets
    
    
    1,518,133
    
    
    
    1,712,290Non-current assets
    
    
    164,917
    
    
    
    154,270Current liabilities
    
    
    1,302,148
    
    
    
    1,520,780Non-current liabilities
    
    
    131,465
    
    
    
    119,917Total equity
    
    
    249,437
    
    
    
    225,863
  2006
    
    
    2005Net sales
    
    $
    338,698
    
    
    $
    295,976Gross profit
    
    
    22,922
    
    
    
    18,683Net earnings
    
    
    9,686
    
    
    
    5,843Current assets
    
    
    115,214
    
    
    
    103,954Non-current assets
    
    
    57,125
    
    
    
    55,156Current liabilities
    
    
    38,713
    
    
    
    35,660Non-current liabilities
    
    
    4,143
    
    
    
    1,629Total equity
    
    
    129,483
    
    
    
    121,821
 93




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Property, Plant and Equipment
  2006
    
    
    2005Machinery and equipment
    
    $
    731,576
    
    
    $
    706,350Buildings and building equipment
    
    
    383,124
    
    
    
    358,877Land and land improvements
    
    
    66,418
    
    
    
    64,260Software
    
    
    62,885
    
    
    
    61,603Construction in progress
    
    
    38,242
    
    
    
    27,7781,282,245
    
    
    
    1,218,868Less accumulated depreciation
    
    
    617,176
    
    
    
    550,218Total property, plant and equipment, net
    
    $
    665,069
    
    
    $
    668,650
 6. Goodwill and Other Intangible Assets
 Goodwill
  2006
    
    
    2005Feed
    
    $
    127,893
    
    
    $
    115,593Dairy Foods
    
    
    83,799
    
    
    
    69,904Layers
    
    
    58,982
    
    
    
    79,567Agronomy
    
    
    45,461
    
    
    
    51,566Seed
    
    
    10,392
    
    
    
    10,429Total goodwill
    
    $
    326,527
    
    
    $
    327,059
     94




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Other Intangible Assets
  2006
    
    
    2005Amortized other intangible assets:Patents, less accumulated amortization of $6,063 and $4,909, respectively
    
    $
    10,648
    
    
    $
    11,802Trademarks,
less accumulated amortization of $2,498 and $2,078, respectively
    
    
    1,472
    
    
    
    1,892Other intangible assets, less accumulated amortization of $10,578 and
$8,543, respectively
    
    
    6,298
    
    
    
    6,448Total amortized other intangible assets
    
    
    18,418
    
    
    
    20,142Total
non-amortized other intangible assets  trademarks and dealer networks
    
    
    76,625
    
    
    
    76,625Total other intangible assets
    
    $
    95,043
    
    
    $
    96,767
  7. Debt Obligations
 Notes and Short-term Obligations
    95




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Long-term Debt
  2006
    
    
    2005Senior unsecured notes  due 2011 (8.75%)
    
    $
    196,452
    
    
    $
    196,452Senior secured notes  due 2010 (9.00%)
    
    
    175,000
    
    
    
    175,000Capital Securities of Trust Subsidiary  due 2028 (7.45%)
    
    
    190,700
    
    
    
    190,700MoArk, LLC debt  due 2007 through 2023 (7.64% weighted average)
    
    
    44,004
    
    
    
    59,136Industrial development revenue bonds and other secured notes payable 
due 2007 through 2016 (3.00% to 6.00%)
    
    
    14,868
    
    
    
    14,893Capital lease obligations (6.00% to 8.95%)
    
    
    7,776
    
    
    
    9,310Other debt
    
    
    21,231
    
    
    
    25,232650,031
    
    
    
    670,723Less current portion
    
    
    10,972
    
    
    
    23,921Total long-term debt
    
    $
    639,059
    
    
    $
    646,802
      96




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Year
    
    Amount2007
    
    $
    10,9722008
    
    
    5,6962009
    
    
    4,9682010
    
    
    179,9712011
    
    
    199,4792012 and thereafter
    
    
    248,945
 8. Other Comprehensive Income
 2006
    
    
    2005
    
    
    2004Net earnings
    
    $
    88,666
    
    
    $
    128,943
    
    
    $
    21,433Minimum pension liability adjustment (net of income
taxes of $(5,734) in 2006, $1,592 in 2005 and $4,698 in 2004)
    
    
    9,108
    
    
    
    (2,603
    )
    
    
    (7,402
    )Unrealized loss on available-for-sale investment securities
    
    
    (404
    )
    
    
    (155
    )
    
    
    (521
    )Foreign currency translation adjustment, net of income taxes
    
    
    183
    
    
    
    1,387
    
    
    
    (184
    )Total comprehensive income
    
    $
    97,553
    
    
    $
    127,572
    
    
    $
    13,326
   2006
    
    
    2005Minimum pension liability, net of income taxes
    
    $
    (67,529
    )
    
    $
    (76,638
    )Unrealized gain on available-for-sale investment securities
    
    
    
    
    
    
    404Foreign currency translation adjustment, net of income taxes
    
    
    1,253
    
    
    
    1,071Accumulated other comprehensive loss
    
    $
    (66,276
    )
    
    $
    (75,163
    )
 97




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 9. Fair Value of Financial Instruments
   2006
    
    2005Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueLoans receivable, net
    
    $
    102,564
    
    
    $
    101,933
    
    
    $
    101,446
    
    
    $
    101,454Senior unsecured notes due 2011
    
    
    196,452
    
    
    
    206,673
    
    
    
    196,452
    
    
    
    205,601Senior secured notes due 2010
    
    
    175,000
    
    
    
    187,632
    
    
    
    175,000
    
    
    
    192,021MoArk fixed rate debt
    
    
    31,004
    
    
    
    29,968
    
    
    
    37,843
    
    
    
    36,744Capital Securities of
Trust Subsidiary due 2028
    
    
    190,700
    
    
    
    158,508
    
    
    
    190,700
    
    
    
    153,031
  98




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2006
    
    2005Notional
    
    Fair
    
    Notional
    
    FairAmount
    
    Value
    
    Amount
    
    ValueCommodity futures and options contracts:Commitments to purchase
    
    $
    168,336
    
    
    $
    10,508
    
    
    $
    177,507
    
    
    $
    (433
    )Commitments to sell
    
    
    (91,642
    )
    
    
    (4,932
    )
    
    
    (61,162
    )
    
    
    (4,477
    )
 10. Income Taxes
  2006
    
    
    2005
    
    
    2004Current expense (benefit)Federal
    
    $
    (6,712
    )
    
    $
    (584
    )
    
    $
    5,071State
    
    
    1,163
    
    
    
    912
    
    
    
    1,310(5,549
    )
    
    
    328
    
    
    
    6,381Deferred expense (benefit)Federal
    
    
    12,029
    
    
    
    4,377
    
    
    
    (4,368
    )State
    
    
    1,326
    
    
    
    800
    
    
    
    (609
    )13,355
    
    
    
    5,177
    
    
    
    (4,977
    )Income tax expense
    
    $
    7,806
    
    
    $
    5,505
    
    
    $
    1,404
  2006
    
    
    2005
    
    
    2004Statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Patronage refunds
    
    
    (22.4
    )
    
    
    (31.3
    )
    
    
    (28.0
    )State income tax, net of federal benefit
    
    
    1.7
    
    
    
    0.8
    
    
    
    1.5Amortization of goodwill
    
    
    9.8
    
    
    
    
    
    
    
    1.6Effect of foreign operations
    
    
    (1.0
    )
    
    
    (0.7
    )
    
    
    (4.0
    )Disposal of investment
    
    
    (1.0
    )
    
    
    
    
    
    
    (4.2
    )Additional tax (benefit)
    
    
    (13.1
    )
    
    
    1.4
    
    
    
    0.9Meals and entertainment
    
    
    1.2
    
    
    
    0.6
    
    
    
    3.3Tax credits
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (2.9
    )Other, net
    
    
    (1.3
    )
    
    
    (1.0
    )
    
    
    1.5Effective tax rate
    
    
    8.1
    %
    
    
    4.2
    %
    
    
    4.7
    %
 99




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2006
    
    
    2005Deferred tax assets related to:Deferred patronage
    
    $
    43,262
    
    
    $
    45,864Accrued expenses
    
    
    71,024
    
    
    
    71,438Allowance for doubtful accounts
    
    
    3,823
    
    
    
    4,973Asset impairments
    
    
    7,440
    
    
    
    4,233Joint ventures
    
    
    5,576
    
    
    
    Net operating loss carryforwards
    
    
    11,510
    
    
    
    36,447Deferred tax credits
    
    
    4,140
    
    
    
    7,502Total deferred tax assets
    
    
    146,775
    
    
    
    170,457Deferred tax liabilities related to:Property, plant and equipment
    
    
    96,319
    
    
    
    105,162Inventories
    
    
    6,724
    
    
    
    3,779Joint ventures
    
    
    
    
    
    
    989Intangibles
    
    
    15,859
    
    
    
    10,778Deferred revenue
    
    
    10,389
    
    
    
    13,827Other, net
    
    
    244
    
    
    
    787Total deferred tax liabilities
    
    
    129,535
    
    
    
    135,322Net deferred tax assets
    
    $
    17,240
    
    
    $
    35,135
  2006
    
    
    2005Other current assets
    
    $
    21,225
    
    
    $
    26,402Other assets
    
    
    
    
    
    
    8,733Employee benefits and other liabilites
    
    
    (3,985
    )
    
    
    Total net deferred tax assets
    
    $
    17,240
    
    
    $
    35,135
   100




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    11. Pension and Other Postretirement Plans
   101




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Obligation and Funded Status at December 31
 Pension BenefitsQualified Plan
    
    
    Non-qualified Plans2006
    
    
    2005
    
    
    2006
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    508,860
    
    
    $
    440,637
    
    
    $
    53,749
    
    
    $
    46,666Service cost
    
    
    18,665
    
    
    
    17,143
    
    
    
    416
    
    
    
    297Interest cost
    
    
    29,126
    
    
    
    27,084
    
    
    
    3,027
    
    
    
    2,939Plan amendments
    
    
    (11,321
    )
    
    
    
    
    
    
    (645
    )
    
    
    Actuarial loss
    
    
    15,171
    
    
    
    44,747
    
    
    
    1,712
    
    
    
    6,476Benefits paid
    
    
    (20,870
    )
    
    
    (20,751
    )
    
    
    (2,834
    )
    
    
    (2,629
    )Benefit obligation at end of year
    
    $
    539,631
    
    
    $
    508,860
    
    
    $
    55,425
    
    
    $
    53,749Change in plan assets:Fair value of plan assets
at beginning of year
    
    $
    425,740
    
    
    $
    390,390
    
    
    $
    
    
    
    $
    Actual gain on plan assets
    
    
    53,447
    
    
    
    31,101
    
    
    
    
    
    
    
    Company contributions
    
    
    20,000
    
    
    
    25,000
    
    
    
    2,834
    
    
    
    2,629Benefits paid
    
    
    (20,870
    )
    
    
    (20,751
    )
    
    
    (2,834
    )
    
    
    (2,629
    )Fair value of plan assets at end of year
    
    $
    478,317
    
    
    $
    425,740
    
    
    $
    
    
    
    $
    Funded status
    
    $
    (61,314
    )
    
    $
    (83,120
    )
    
    $
    (55,425
    )
    
    $
    (53,749
    )Unrecognized net actuarial loss
    
    
    139,147
    
    
    
    167,403
    
    
    
    14,856
    
    
    
    14,288Unrecognized prior service cost
    
    
    507
    
    
    
    149
    
    
    
    (2,075
    )
    
    
    (2,076
    )Net amount recognized
    
    $
    78,340
    
    
    $
    84,432
    
    
    $
    (42,644
    )
    
    $
    (41,537
    )Amounts recognized in the consolidated
balance sheets consist of:Accrued benefit liability
    
    $
    (23,441
    )
    
    $
    (30,681
    )
    
    $
    (50,200
    )
    
    $
    (50,064
    )Intangible asset
    
    
    507
    
    
    
    149
    
    
    
    
    
    
    
    Accumulated other comprehensiveloss before income taxes
    
    
    101,274
    
    
    
    114,964
    
    
    
    7,556
    
    
    
    8,527Net amount recognized
    
    $
    78,340
    
    
    $
    84,432
    
    
    $
    (42,644
    )
    
    $
    (41,537
    )
  102




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Pension BenefitsQualified Plan
    
    Non-qualified Plans2006
    
    2005
    
    2006
    
    2005Projected benefit obligation
    
    $539,631
    
    $508,860
    
    $55,425
    
    $
    53,749Accumulated benefit obligation
    
    501,758
    
    456,421
    
    50,200
    
    
    50,064Fair value of plan assets
    
    478,316
    
    425,740
    
    
    
    
    
 Other Postretirement Benefits2006
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    69,999
    
    
    $
    71,194Service cost
    
    
    666
    
    
    
    650Interest cost
    
    
    3,990
    
    
    
    3,913Plan amendments
    
    
    (3,153
    )
    
    
    Plan participants contributions
    
    
    2,594
    
    
    
    2,185Actuarial loss (gain)
    
    
    5,691
    
    
    
    (454
    )Benefits paid
    
    
    (7,815
    )
    
    
    (7,489
    )Benefit obligation at end of year
    
    $
    71,972
    
    
    $
    69,999Change in plan assets:Company contributions
    
    $
    5,822
    
    
    $
    5,304Plan participants contributions
    
    
    2,594
    
    
    
    2,185Medicare Part D Reimbursements
    
    
    (601
    )
    
    
    Benefits paid
    
    
    (7,815
    )
    
    
    (7,489
    )Fair value of plan assets at end of year
    
    $
    
    
    
    $
    Funded status
    
    $
    (71,972
    )
    
    $
    (69,999
    )Unrecognized net actuarial loss
    
    
    37,219
    
    
    
    34,142Unrecognized prior service cost
    
    
    
    
    
    
    2,128Unrecognized transition obligation
    
    
    2,566
    
    
    
    4,500Accrued benfit liability recognized
in the consolidated balance sheets
    
    $
    (32,187
    )
    
    $
    (29,229
    )
 103




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Pension Benefits
    
    Other Postretirement Benefits2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Service cost
    
    $
    19,081
    
    
    $
    17,440
    
    
    $
    17,111
    
    
    $
    666
    
    
    $
    650
    
    
    $
    804Interest cost
    
    
    32,153
    
    
    
    30,023
    
    
    
    27,372
    
    
    
    3,990
    
    
    
    3,913
    
    
    
    4,079Expected return on assets
    
    
    (35,040
    )
    
    
    (33,577
    )
    
    
    (32,736
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    14,134
    
    
    
    10,946
    
    
    
    5,923
    
    
    
    2,615
    
    
    
    2,465
    
    
    
    2,346Amortization of prior service cost
    
    
    (469
    )
    
    
    (430
    )
    
    
    723
    
    
    
    266
    
    
    
    266
    
    
    
    266Curtailment
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    643
    
    
    
    643
    
    
    
    643Net periodic benefit cost
    
    $
    30,034
    
    
    $
    24,402
    
    
    $
    18,393
    
    
    $
    8,180
    
    
    $
    7,937
    
    
    $
    8,138
 Additional Information
 Pension BenefitsQualified Plan
    
    
    Non-qualified Plans2006
    
    
    2005
    
    
    2006
    
    
    2005Change in intangible asset
    
    $
    358
    
    
    $
    (33
    )
    
    $
    
    
    
    $
    Change in additional minimum liability
    
    
    (13,332
    )
    
    
    6,180
    
    
    
    (971
    )
    
    
    3,060Change in other comprehensive loss
before income taxes
    
    $
    (13,690
    )
    
    $
    6,213
    
    
    $
    (971
    )
    
    $
    3,060
 104




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Other PostretirementPension Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Discount rate
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    5.70
    %
    
    
    5.75
    %Rate of long-term return on plan assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    N/A
    
    
    
    N/A
  Pension Benefits
    
    
    Other Postretirement Benefits2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.25
    %Rate of long-term return
on plan assets
    
    
    8.25
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   2006
    
    
    2005Health 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
    %
    
    
    5.50
    %Year that rate reaches ultimate trend rate
    
    
    2014
    
    
    
    2011
  1 percentage point increase
    
    
    1 percentage point decreaseEffect on total of service and interest cost
    
    
    $247
    
    
    
    $(219
    )Effect on postretirement benefit obligation
    
    
    $4,302
    
    
    
    $(3,810
    )
 105




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Plan Assets
  Asset category
    
    2006
    
    
    2005
    
    
    TargetU.S. equity securities
    
    
    56
    %
    
    
    55
    %
    
    
    55
    %International equity securities
    
    
    12
    %
    
    
    10
    %
    
    
    10
    %Fixed income securities and bonds
    
    
    32
    %
    
    
    35
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Cash Flow
   Other
    
    
    HealthQualified
    
    
    Non-qualified
    
    
    Postretirement
    
    
    Care SubsidyPension Plan
    
    
    Pension Plans
    
    
    Benefits
    
    
    Receipts2007
    
    
    $23,000
    
    
    
    $3,200
    
    
    
    $6,300
    
    
    
    $(900
    )2008
    
    
    24,000
    
    
    
    3,500
    
    
    
    6,700
    
    
    
    (1,000
    )2009
    
    
    26,000
    
    
    
    3,900
    
    
    
    7,000
    
    
    
    (1,100
    )2010
    
    
    27,000
    
    
    
    4,400
    
    
    
    7,300
    
    
    
    (1,200
    )2011
    
    
    29,000
    
    
    
    4,200
    
    
    
    7,500
    
    
    
    (1,300
    )2012-2016
    
    
    178,000
    
    
    
    22,400
    
    
    
    38,900
    
    
    
    (8,300
    )
 106




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Other Benefit Plans
   12. Share-Based Compensation
     13. Equities
  107




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Common
    
    
    
    
    
    
    
    
    
    
    PreferredA
    
    
    B
    
    
    C
    
    
    DDecember 31, 2003
    
    
    1,094
    
    
    
    4,914
    
    
    
    190
    
    
    
    1,142
    
    
    
    83,518New Members
    
    
    1
    
    
    
    188
    
    
    
    1
    
    
    
    141
    
    
    
    Redemptions
    
    
    (38
    )
    
    
    (758
    )
    
    
    (8
    )
    
    
    (165
    )
    
    
    (2,130
    )December 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
    
    
    
    69,684
    14. Acquisitions
   108




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  15. Restructuring and Impairment Charges
 2006
    
    
    2005
    
    
    2004Restructuring charges
    
    $
    1,482
    
    
    $
    328
    
    
    $
    2,441Impairment charges
    
    
    19,687
    
    
    
    6,053
    
    
    
    5,374Total restructuring and impairment charges
    
    $
    21,169
    
    
    $
    6,381
    
    
    $
    7,815
 Restructuring charges
    Impairment charges
   109




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  16. Other (Income) Expense, Net
 2006
    
    2005
    
    2004Gain on divestiture of businesses
    
    $
    (8,987
    )
    
    $
    
    
    
    $
    (1,438
    )Gain on sale of investments, excluding CF Industries
    
    
    (7,980
    )
    
    
    (1,135
    )
    
    
    (623
    )Gain on sale of intangibles
    
    
    (1,824
    )
    
    
    
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    11,014
    
    
    
    Gain on legal settlements
    
    
    
    
    
    
    (584
    )
    
    
    (5,415
    )Total
    
    $
    (18,791
    )
    
    $
    9,295
    
    
    $
    (7,476
    )
       110




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 17. Discontinued Operations
  18. Commitments and Contingencies
        111




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    19. Segment Information
        112




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 TotalOther/Dairy Foods
    
    
    Feed
    
    
    Seed
    
    
    Agronomy
    
    
    Layers
    
    
    Eliminated
    
    
    ConsolidatedFor 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, net
    
    
    (9,662
    )
    
    
    (1,097
    )
    
    
    
    
    
    
    
    
    
    
    (8,033
    )
    
    
    1
    
    
    
    (18,791
    )Equity in (earnings) loss of affiliated companies
    
    
    (1,456
    )
    
    
    (1,727
    )
    
    
    (203
    )
    
    
    (13,997
    )
    
    
    4,083
    
    
    
    5
    
    
    
    (13,295
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,444
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,449Earnings (loss) before income taxes and discontinued
operations
    
    $
    47,170
    
    
    $
    36,712
    
    
    $
    40,097
    
    
    $
    11,778
    
    
    $
    (40,153
    )
    
    $
    868
    
    
    $
    96,472For 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 expense (income), 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
    )
    
    
    
    
    
    
    (37,870
    )
    
    
    6,477
    
    
    
    11
    
    
    
    (36,692
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,349
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,354Earnings (loss) before income taxes and discontinued
operations
    
    $
    393
    
    
    $
    36,662
    
    
    $
    29,390
    
    
    $
    95,480
    
    
    $
    (31,830
    )
    
    $
    2,186
    
    
    $
    132,281For the year ended December 31, 2004Net sales
    
    $
    3,797,340
    
    
    $
    2,626,577
    
    
    $
    518,754
    
    
    $
    
    
    
    $
    541,318
    
    
    $
    13,294
    
    
    $
    7,497,283Cost of sales(1)
    
    
    3,599,591
    
    
    
    2,370,029
    
    
    
    448,383
    
    
    
    
    
    
    
    476,039
    
    
    
    9,533
    
    
    
    6,903,575Selling, general and administrative
    
    
    160,705
    
    
    
    237,687
    
    
    
    48,953
    
    
    
    12,846
    
    
    
    38,499
    
    
    
    2,245
    
    
    
    500,935Restructuring and impairment charges
    
    
    54
    
    
    
    6,040
    
    
    
    1,480
    
    
    
    
    
    
    
    
    
    
    
    241
    
    
    
    7,815Interest expense, net
    
    
    28,142
    
    
    
    26,676
    
    
    
    3,938
    
    
    
    9,273
    
    
    
    14,127
    
    
    
    958
    
    
    
    83,114Other (income) expense, net
    
    
    (1,006
    )
    
    
    (6,169
    )
    
    
    146
    
    
    
    
    
    
    
    (448
    )
    
    
    1
    
    
    
    (7,476
    )Loss on impairment of investment in CF Industries, Inc
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,500
    
    
    
    
    
    
    
    
    
    
    
    36,500Equity in (earnings) loss of affiliated companies
    
    
    (6,614
    )
    
    
    (2,007
    )
    
    
    
    
    
    
    (41,923
    )
    
    
    (7,918
    )
    
    
    50
    
    
    
    (58,412
    )Minority interest in earnings of subsidiaries
    
    
    
    
    
    
    1,641
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1,648Earnings (loss) before income taxes and discontinued
operations
    
    $
    16,468
    
    
    $
    (7,320
    )
    
    $
    15,846
    
    
    $
    (16,696
    )
    
    $
    21,019
    
    
    $
    267
    
    
    $
    29,5842006Total assets
    
    $
    873,786
    
    
    $
    956,105
    
    
    $
    570,394
    
    
    $
    191,983
    
    
    $
    262,159
    
    
    $
    200,698
    
    
    $
    3,055,125Intersegment sales
    
    
    5,753
    
    
    
    18,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,900
    )
    
    
    Depreciation and amortization
    
    
    40,030
    
    
    
    31,238
    
    
    
    2,528
    
    
    
    6,114
    
    
    
    8,739
    
    
    
    8,816
    
    
    
    97,465Capital expenditures
    
    
    19,418
    
    
    
    33,594
    
    
    
    2,705
    
    
    
    
    
    
    
    11,019
    
    
    
    17,027
    
    
    
    83,7632005Total assets
    
    $
    899,019
    
    
    $
    920,956
    
    
    $
    471,121
    
    
    $
    187,565
    
    
    $
    311,558
    
    
    $
    304,839
    
    
    $
    3,095,058Intersegment sales
    
    
    3,187
    
    
    
    13,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,605
    )
    
    
    Depreciation and amortization
    
    
    42,697
    
    
    
    35,196
    
    
    
    2,257
    
    
    
    6,088
    
    
    
    10,251
    
    
    
    11,556
    
    
    
    108,045Capital expenditures
    
    
    20,462
    
    
    
    25,912
    
    
    
    2,374
    
    
    
    
    
    
    
    17,714
    
    
    
    3,962
    
    
    
    70,4242004Total assets
    
    $
    976,788
    
    
    $
    890,304
    
    
    $
    398,924
    
    
    $
    391,532
    
    
    $
    276,859
    
    
    $
    265,375
    
    
    $
    3,199,782Intersegment sales
    
    
    3,509
    
    
    
    13,647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,156
    )
    
    
    Depreciation and amortization
    
    
    39,551
    
    
    
    38,544
    
    
    
    2,546
    
    
    
    6,101
    
    
    
    10,825
    
    
    
    15,272
    
    
    
    112,839Capital expenditures
    
    
    53,130
    
    
    
    26,342
    
    
    
    1,571
    
    
    
    
    
    
    
    8,878
    
    
    
    6,178
    
    
    
    96,099
 
 (1)
    
    Cost of sales includes unrealized hedging
(gains) losses of: 2006
    
    $
    (6,486
    )
    
    $
    (2,257
    )
    
    $
    (2,729
    )
    
    $
    
    
    
    $
    (118
    )
    
    $
    1,234
    
    
    $
    (10,356
    )2005
    
    
    4,201
    
    
    
    (5,815
    )
    
    
    (518
    )
    
    
    
    
    
    
    (844
    )
    
    
    
    
    
    
    (2,976
    )2004
    
    
    2,601
    
    
    
    13,551
    
    
    
    2,992
    
    
    
    
    
    
    
    1,106
    
    
    
    
    
    
    
    20,250
  113




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 20. Quarterly Financial Information (Unaudited)
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Full Year2006Net sales
    
    $
    1,996,718
    
    
    $
    1,687,305
    
    
    $
    1,524,580
    
    
    $
    1,893,686
    
    
    $
    7,102,289Gross profit
    
    
    179,518
    
    
    
    143,838
    
    
    
    125,411
    
    
    
    212,154
    
    
    
    660,921Net earnings (loss)
    
    
    26,112
    
    
    
    34,752
    
    
    
    (16,697
    )
    
    
    44,499
    
    
    
    88,666
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Full Year2005Net sales
    
    $
    1,978,654
    
    
    $
    1,747,599
    
    
    $
    1,662,557
    
    
    $
    1,947,318
    
    
    $
    7,336,128Gross profit
    
    
    181,969
    
    
    
    126,962
    
    
    
    127,229
    
    
    
    148,857
    
    
    
    585,017Net earnings (loss)
    
    
    24,296
    
    
    
    25,847
    
    
    
    80,438
    
    
    
    (1,638
    )
    
    
    128,943
  21. Related Party Transactions
  2006
    
    2005
    
    2004Sales
    
    $
    171,031
    
    
    $
    162,594
    
    
    $
    163,449Purchases
    
    
    90,108
    
    
    
    79,747
    
    
    
    86,948Services provided
    
    
    17,650
    
    
    
    20,321
    
    
    
    14,432
 2006
    
    
    2005Notes receivable
    
    $
    28,338
    
    
    $
    25,600Accounts receivable
    
    
    13,036
    
    
    
    7,788Accounts payable
    
    
    8,908
    
    
    
    10,809
 114




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 22. Allowance for Doubtful Accounts
  Balance atBeginning
    
    
    Charges to
    
    
    
    
    
    
    Balance atDescription
    
    of Year
    
    
    Expense
    
    
    Other(a)
    
    
    End of YearYear ended December 31, 2006
    
    
    14,310
    
    
    
    1,421
    
    
    
    (5,177
    )
    
    
    10,554Year ended December 31, 2005
    
    
    15,538
    
    
    
    1,967
    
    
    
    (3,241
    )
    
    
    14,310Year ended December 31, 2004
    
    
    19,544
    
    
    
    2,351
    
    
    
    (6,357
    )
    
    
    15,538
 
 (a)
    
    Includes accounts written-off, recoveries, acquisitions, and the impact of consolidations. 23.
Subsequent Events (Unaudited)
   ®
  24. Consolidating Financial Information
    115




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##### Table of Contents



116




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##### Table of Contents



LAND OLAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 2006
 Land OLakes, Inc.
    
    
    Consolidated
    
    
    Non-GuarantorParent Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,976
    
    
    $
    15,613
    
    
    $
    55,118
    
    
    $
    
    
    
    $
    79,707Receivables, net
    
    
    300,803
    
    
    
    266,680
    
    
    
    449,742
    
    
    
    (412,645
    )
    
    
    604,580Intercompany receivables, net
    
    
    77,042
    
    
    
    
    
    
    
    
    
    
    
    (77,042
    )
    
    
    Inventories
    
    
    227,258
    
    
    
    205,021
    
    
    
    39,655
    
    
    
    
    
    
    
    471,934Prepaid expenses
    
    
    367,900
    
    
    
    7,528
    
    
    
    2,850
    
    
    
    
    
    
    
    378,278Other current assets
    
    
    28,192
    
    
    
    19,199
    
    
    
    3,203
    
    
    
    
    
    
    
    50,594Total current assets
    
    
    1,010,171
    
    
    
    514,041
    
    
    
    550,568
    
    
    
    (489,687
    )
    
    
    1,585,093Investments
    
    
    1,134,363
    
    
    
    42,809
    
    
    
    8,323
    
    
    
    (915,293
    )
    
    
    270,202Property, plant and equipment, net
    
    
    183,580
    
    
    
    388,410
    
    
    
    93,079
    
    
    
    
    
    
    
    665,069Goodwill, net
    
    
    184,414
    
    
    
    83,019
    
    
    
    59,094
    
    
    
    
    
    
    
    326,527Other intangibles, net
    
    
    4,789
    
    
    
    88,255
    
    
    
    1,999
    
    
    
    
    
    
    
    95,043Other assets
    
    
    28,392
    
    
    
    36,557
    
    
    
    51,729
    
    
    
    (3,487
    )
    
    
    113,191Total assets
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125LIABILITIES AND EQUITIESCurrent liabilities:Notes and short-term obligations
    
    $
    2,005
    
    
    $
    3,306
    
    
    $
    469,335
    
    
    $
    (416,346
    )
    
    $
    58,300Current portion of long-term debt
    
    
    449
    
    
    
    403
    
    
    
    10,120
    
    
    
    
    
    
    
    10,972Accounts payable
    
    
    765,044
    
    
    
    198,329
    
    
    
    28,553
    
    
    
    2,848
    
    
    
    994,774Intercompany payable, net
    
    
    
    
    
    
    74,513
    
    
    
    2,529
    
    
    
    (77,042
    )
    
    
    Accrued expenses
    
    
    91,267
    
    
    
    93,629
    
    
    
    24,320
    
    
    
    (2,634
    )
    
    
    206,582Patronage refunds and other member equities payable
    
    
    18,506
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    18,626Total current liabilities
    
    
    877,271
    
    
    
    370,180
    
    
    
    534,977
    
    
    
    (493,174
    )
    
    
    1,289,254Long-term debt
    
    
    586,030
    
    
    
    10,911
    
    
    
    42,118
    
    
    
    
    
    
    
    639,059Employee benefits and other liabilities
    
    
    137,872
    
    
    
    27,542
    
    
    
    8,032
    
    
    
    
    
    
    
    173,446Minority interests
    
    
    
    
    
    
    4,808
    
    
    
    4,022
    
    
    
    
    
    
    
    8,830Commitments and contingenciesEquities:Capital stock
    
    
    1,828
    
    
    
    100
    
    
    
    37
    
    
    
    (137
    )
    
    
    1,828Additional paid-in capital
    
    
    
    
    
    
    504,118
    
    
    
    139,820
    
    
    
    (643,938
    )
    
    
    Member equities
    
    
    904,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904,183Accumulated other comprehensive loss
    
    
    (66,276
    )
    
    
    (16
    )
    
    
    
    
    
    
    16
    
    
    
    (66,276
    )Retained earnings
    
    
    104,801
    
    
    
    235,448
    
    
    
    35,786
    
    
    
    (271,234
    )
    
    
    104,801Total equities
    
    
    944,536
    
    
    
    739,650
    
    
    
    175,643
    
    
    
    (915,293
    )
    
    
    944,536Total liabilities and equities
    
    $
    2,545,709
    
    
    $
    1,153,091
    
    
    $
    764,792
    
    
    $
    (1,408,467
    )
    
    $
    3,055,125
 117




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##### Table of Contents



LAND OLAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
DECEMBER 31, 2006
 Land OLakes, Inc.
    
    
    Consolidated
    
    
    Non-GuarantorParent Company
    
    
    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, 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
    
    
    (49,801
    )
    
    
    (1,477
    )
    
    
    3,348
    
    
    
    34,635
    
    
    
    (13,295
    )Minority interest in earnings of subsidiaries
    
    
    (62
    )
    
    
    
    
    
    
    1,511
    
    
    
    
    
    
    
    1,449Earnings (loss) before income taxes
    
    
    93,063
    
    
    
    55,532
    
    
    
    (17,488
    )
    
    
    (34,635
    )
    
    
    96,472Income tax expense
    
    
    4,397
    
    
    
    1,562
    
    
    
    1,847
    
    
    
    

    
    
    
    7,806Net earnings (loss)
    
    $
    88,666
    
    
    $
    53,970
    
    
    $
    (19,335
    )
    
    $
    (34,635
    )
    
    $
    88,666
 118




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##### Table of Contents



LAND OLAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2006
 Land OLakes, Inc.
    
    Consolidated
    
    Non-GuarantorParent Company
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssetsCash flows from operating activities:Net earnings
    
    $
    88,666
    
    
    $
    53,970
    
    
    $
    (19,335
    )
    
    $
    (34,635
    )
    
    $
    88,666Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:Depreciation & Amortization
    
    
    40,196
    
    
    
    44,897
    
    
    
    10,146
    
    
    
    
    
    
    
    95,239Amortization of deferred financing charges
    
    
    2,109
    
    
    
    79
    
    
    
    38
    
    
    
    
    
    
    
    2,226Bad debt 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
    
    
    13,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,355Decrease (increase) in other assets
    
    
    6,196
    
    
    
    (1,575
    )
    
    
    (47
    )
    
    
    (4,757
    )
    
    
    (183
    )Increase 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 investment
    
    
    (8,078
    )
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    (7,980
    )Equity in (earnings) loss of affiliated companies
    
    
    (49,801
    )
    
    
    (1,477
    )
    
    
    3,348
    
    
    
    34,635
    
    
    
    (13,295
    )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
    
    
    16,607
    
    
    
    (78,242
    )
    
    
    (344,497
    )
    
    
    463,146
    
    
    
    57,014Inventories
    
    
    11,804
    
    
    
    (31,172
    )
    
    
    (757
    )
    
    
    
    
    
    
    (20,125
    )Other current assets
    
    
    (62,781
    )
    
    
    (6,486
    )
    
    
    516
    
    
    
    
    
    
    
    (68,751
    )Accounts payable
    
    
    (18,624
    )
    
    
    45,523
    
    
    
    (15,789
    )
    
    
    6,317
    
    
    
    17,427Accrued expenses
    
    
    5,360
    
    
    
    13,690
    
    
    
    7,207
    
    
    
    (3,948
    )
    
    
    22,309Net cash provided (used) by operating activities
    
    
    58,762
    
    
    
    41,790
    
    
    
    (348,999
    )
    
    
    460,758
    
    
    
    212,311Cash 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
    )Payments for investments
    
    
    (22,925
    )
    
    
    
    
    
    
    (4,025
    )
    
    
    22,000
    
    
    
    (4,950
    )Proceeds from divestiture 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
    
    
    
    
    
    
    
    1,754Other
    
    
    1,184
    
    
    
    3,901
    
    
    
    2,098
    
    
    
    
    
    
    
    7,183Net cash (used) provided by investing activities
    
    
    (133,321
    )
    
    
    (27,117
    )
    
    
    22,342
    
    
    
    22,000
    
    
    
    (116,096
    )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
    
    
    
    
    
    
    
    16,451Payments on principal of long-term debt
    
    
    (959
    )
    
    
    (807
    )
    
    
    (34,783
    )
    
    
    
    
    
    
    (36,549
    )Payments for redemption of member equities
    
    
    (80,614
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,614
    )Payments for debt issuance costs
    
    
    (1,536
    )
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (1,543
    )Distribution to members
    
    
    6,500
    
    
    
    
    
    
    
    (6,500
    )
    
    
    
    
    
    
    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 and cash equivalents
    
    
    (148,469
    )
    
    
    15,613
    
    
    
    32,859
    
    
    
    
    
    
    
    (99,997
    )Cash and cash equivalents at beginning of period
    
    
    157,445
    
    
    
    
    
    
    
    22,259
    
    
    
    
    
    
    
    179,704Cash and cash equivalents at end of period
    
    $
    8,976
    
    
    $
    15,613
    
    
    $
    55,118
    
    
    $
    
    
    
    $
    79,707
 119




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##### Table of Contents



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




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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
    
    
    (92,019
    )
    
    
    (1,369
    )
    
    
    6,477
    
    
    
    50,219
    
    
    
    (36,692
    )Minority interest in earnings of subsidiaries
    
    
    240
    
    
    
    142
    
    
    
    972
    
    
    
    
    
    
    
    1,354Earnings (loss) before income taxes and
discontinued operations
    
    
    131,896
    
    
    
    70,511
    
    
    
    (19,907
    )
    
    
    (50,219
    )
    
    
    132,281Income tax expense (benefit)
    
    
    5,120
    
    
    
    2,844
    
    
    
    (2,459
    )
    
    
    
    
    
    
    5,505Net earnings (loss) from continuing operations
    
    
    126,776
    
    
    
    67,667
    
    
    
    (17,448
    )
    
    
    (50,219
    )
    
    
    126,776Earnings from discontinued operations, net of
income taxes
    
    
    2,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,167Net earnings(loss)
    
    $
    128,943
    
    
    $
    67,667
    
    
    $
    (17,448
    )
    
    $
    (50,219
    )
    
    $
    128,943
 121




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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)
    
    $
    128,943
    
    
    $
    67,667
    
    
    $
    (17,448
    )
    
    $
    (50,219
    )
    
    $
    128,943Earnings from discontinued operations, net of income
tax benefit
    
    
    (2,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,167
    )Adjustments to reconcile net earnings to net cash
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
    
    
    5,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,177Decrease (increase) in other assets
    
    
    11,021
    
    
    
    2,150
    
    
    
    (256
    )
    
    
    331
    
    
    
    13,246Increase (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
    
    
    (92,019
    )
    
    
    (1,369
    )
    
    
    6,477
    
    
    
    50,219
    
    
    
    (36,692
    )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
    
    
    (279,140
    )
    
    
    70,286
    
    
    
    9,857
    
    
    
    160,033
    
    
    
    (38,964
    )Inventories
    
    
    283
    
    
    
    (19,278
    )
    
    
    12,937
    
    
    
    
    
    
    
    (6,058
    )Other current assets
    
    
    (17,449
    )
    
    
    (2,180
    )
    
    
    (30,839
    )
    
    
    
    
    
    
    (50,468
    )Accounts payable
    
    
    95,909
    
    
    
    74,987
    
    
    
    6,524
    
    
    
    (13,265
    )
    
    
    164,155Accrued expenses
    
    
    (7,063
    )
    
    
    26,037
    
    
    
    (1,357
    )
    
    
    (474
    )
    
    
    17,143Net cash provided by operating activities
    
    
    (150,853
    )
    
    
    260,685
    
    
    
    1,875
    
    
    
    146,625
    
    
    
    258,332Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (17,882
    )
    
    
    (26,669
    )
    
    
    (25,873
    )
    
    
    
    
    
    
    (70,424
    )Acquisitions, net of cash acquiredt
    
    
    (38,304
    )
    
    
    (7,797
    )
    
    
    
    
    
    
    
    
    
    
    (46,101
    )Payments for investments
    
    
    (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
    
    
    
    
    
    
    
    22,197Other
    
    
    21,061
    
    
    
    (1
    )
    
    
    (179
    )
    
    
    
    
    
    
    20,881Net cash provided (used) by investing activities
    
    
    187,556
    
    
    
    (24,249
    )
    
    
    (16,285
    )
    
    
    93,500
    
    
    
    240,522Cash 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 debt 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 (used) provided 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
 122




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    3,738,130
    
    
    $
    2,872,181
    
    
    $
    886,972
    
    
    $
    
    
    
    $
    7,497,283Cost of sales
    
    
    3,477,823
    
    
    
    2,608,479
    
    
    
    817,273
    
    
    
    
    
    
    
    6,903,575Gross profit
    
    
    260,307
    
    
    
    263,702
    
    
    
    69,699
    
    
    
    
    
    
    
    593,708Selling, general and administrative
    
    
    208,829
    
    
    
    246,751
    
    
    
    45,355
    
    
    
    
    
    
    
    500,935Restructuring and impairment charges
    
    
    105
    
    
    
    7,710
    
    
    
    
    
    
    
    
    
    
    
    7,815Earnings from operations
    
    
    51,373
    
    
    
    9,241
    
    
    
    24,344
    
    
    
    
    
    
    
    84,958Interest expense (income), net
    
    
    77,150
    
    
    
    (1,658
    )
    
    
    7,622
    
    
    
    
    
    
    
    83,114Other income, net
    
    
    (4,338
    )
    
    
    (2,690
    )
    
    
    (448
    )
    
    
    
    
    
    
    (7,476
    )Equity in (earnings) loss of affiliated
companies
    
    
    (84,960
    )
    
    
    (1,876
    )
    
    
    (7,918
    )
    
    
    36,342
    
    
    
    (58,412
    )Loss on impairment of investment in CF
Industries, Inc.
    
    
    36,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,500Minority interest in earnings of subsidiaries
    
    
    459
    
    
    
    678
    
    
    
    511
    
    
    
    
    
    
    
    1,648Earnings (loss) before income taxes and
discontinued operations
    
    
    26,562
    
    
    
    14,787
    
    
    
    24,577
    
    
    
    (36,342
    )
    
    
    29,584Income tax (benefit) expense
    
    
    (1,618
    )
    
    
    59
    
    
    
    2,963
    
    
    
    
    
    
    
    1,404Net earnings (loss) from continuing operations
    
    
    28,180
    
    
    
    14,728
    
    
    
    21,614
    
    
    
    (36,342
    )
    
    
    28,180Loss from discontinued operations, net of
income tax benefit
    
    
    (6,747
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,747
    )Net earnings(loss)
    
    $
    21,433
    
    
    $
    14,728
    
    
    $
    21,614
    
    
    $
    (36,342
    )
    
    $
    21,433
 123




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##### Table of Contents



LAND OLAKES, INC.
 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
 For the Year Ended December 31, 2004
 LandOLakes,Inc. Parent
    
    
    Consolidated
    
    
    Non-GuarantorCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings (loss)
    
    $
    21,433
    
    
    $
    14,728
    
    
    $
    21,614
    
    
    $
    (36,342
    )
    
    $
    21,433Loss from discontinued operations, net of income tax
benefit
    
    
    6,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,747Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    47,133
    
    
    
    36,192
    
    
    
    23,889
    
    
    
    
    
    
    
    107,214Amortization of deferred financing costs
    
    
    5,004
    
    
    
    
    
    
    
    621
    
    
    
    
    
    
    
    5,625Bad debt expense
    
    
    696
    
    
    
    1,191
    
    
    
    464
    
    
    
    
    
    
    
    2,351Proceeds from patronage revolvement received
    
    
    6,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,043Non-cash patronage income
    
    
    (1,355
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,355
    )Deferred income tax expense
    
    
    (4,977
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,977
    )(Increase) decrease in other assets
    
    
    22,543
    
    
    
    (6,096
    )
    
    
    (3
    )
    
    
    (10,704
    )
    
    
    5,740(Decrease) increase in other liabilities
    
    
    1,977
    
    
    
    
    
    
    
    (6,108
    )
    
    
    632
    
    
    
    (3,499
    )Restructuring and impairment charges
    
    
    36,605
    
    
    
    7,710
    
    
    
    
    
    
    
    
    
    
    
    44,315(Gain) loss from divestitures of businesses
    
    
    (1,584
    )
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    (1,438
    )Gain on sale of investments
    
    
    
    
    
    
    (623
    )
    
    
    
    
    
    
    
    
    
    
    (623
    )Equity in (earnings) loss of affiliated companies
    
    
    (84,960
    )
    
    
    (1,876
    )
    
    
    (7,918
    )
    
    
    36,342
    
    
    
    (58,412
    )Dividends from investments in affiliated companies
    
    
    47,100
    
    
    
    1,784
    
    
    
    9,562
    
    
    
    (10,600
    )
    
    
    47,846Minority interests
    
    
    459
    
    
    
    678
    
    
    
    511
    
    
    
    
    
    
    
    1,648Other
    
    
    (2,131
    )
    
    
    
    
    
    
    1,515
    
    
    
    
    
    
    
    (616
    )Changes in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (5,460
    )
    
    
    2,312
    
    
    
    9,616
    
    
    
    31,118
    
    
    
    37,586Inventories
    
    
    (4,352
    )
    
    
    18,398
    
    
    
    1,059
    
    
    
    
    
    
    
    15,105Other current assets
    
    
    (29,328
    )
    
    
    (6,025
    )
    
    
    (799
    )
    
    
    
    
    
    
    (36,152
    )Accounts payable
    
    
    109,203
    
    
    
    (38,061
    )
    
    
    4,898
    
    
    
    (3,662
    )
    
    
    72,378Accrued expenses
    
    
    (5,741
    )
    
    
    (11,611
    )
    
    
    263
    
    
    
    
    
    
    
    (17,089
    )Net cash provided by operating activities
    
    
    165,055
    
    
    
    18,847
    
    
    
    59,184
    
    
    
    6,784
    
    
    
    249,870Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (27,909
    )
    
    
    (28,673
    )
    
    
    (39,517
    )
    
    
    
    
    
    
    (96,099
    )Acquisition of minority interest
    
    
    (12,150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,150
    )Payments for investments
    
    
    (39,203
    )
    
    
    
    
    
    
    
    
    
    
    38,500
    
    
    
    (703
    )Net proceeds from divestitures of businesses
    
    
    7,500
    
    
    
    5,568
    
    
    
    
    
    
    
    
    
    
    
    13,068Proceeds from sale of investments
    
    
    
    
    
    
    2,342
    
    
    
    
    
    
    
    
    
    
    
    2,342Proceeds from sale of property, plant and equipment
    
    
    8,483
    
    
    
    1,716
    
    
    
    1,791
    
    
    
    
    
    
    
    11,990Other
    
    
    779
    
    
    
    (71
    )
    
    
    (68
    )
    
    
    
    
    
    
    640Net cash (used) provided by investing activities
    
    
    (62,500
    )
    
    
    (19,118
    )
    
    
    (37,794
    )
    
    
    38,500
    
    
    
    (80,912
    )Cash flows from financing activities:Increase (decrease) in short-term debt
    
    
    28,418
    
    
    
    (20,269
    )
    
    
    (19,381
    )
    
    
    (17,384
    )
    
    
    (28,616
    )Proceeds from issuance of long-term debt
    
    
    404
    
    
    
    80
    
    
    
    16,932
    
    
    
    
    
    
    
    17,416Principal payments on long-term debt and capital
lease obligations
    
    
    (127,735
    )
    
    
    (138
    )
    
    
    (28,505
    )
    
    
    
    
    
    
    (156,378
    )Payments for debt issuance costs
    
    
    (4,323
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,323
    )Payments for redemption of member equities
    
    
    (34,615
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,615
    )Other
    
    
    (52
    )
    
    
    (252
    )
    
    
    27,900
    
    
    
    (27,900
    )
    
    
    (304
    )Net cash used by financing activities
    
    
    (137,903
    )
    
    
    (20,579
    )
    
    
    (3,054
    )
    
    
    (45,284
    )
    
    
    (206,820
    )Net cash provided by operating activities of
discontinued operations
    
    
    (1,449
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,449
    )Net cash provided by investing activities of
discontinued operations
    
    
    2,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,173Net (decrease) increase in cash and cash equivalents
    
    
    (34,624
    )
    
    
    (20,850
    )
    
    
    18,336
    
    
    
    
    
    
    
    (37,138
    )Cash and cash equivalents at beginning of year
    
    
    99,753
    
    
    
    4,207
    
    
    
    6,314
    
    
    
    
    
    
    
    110,274Cash and cash equivalents at end of year
    
    $
    65,129
    
    
    $
    (16,643
    )
    
    $
    24,650
    
    
    $
    
    
    
    $
    73,136
 124




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Report of Independent Registered Public Accounting Firm
 
    /s/ Moore Stephens Frost
Certified Public AccountantsLittle Rock, ArkansasFebruary 12, 2007
 125




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Balance Sheet
 December 23, 2006 and December 24, 2005
 2006
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    2,638,607
    
    
    $
    6,032,290Accounts receivable  trade, less allowance for doubtful
accounts of $712,601 and $1,699,494, respectively
    
    
    37,270,440
    
    
    
    39,629,709Inventories
    
    
    32,607,392
    
    
    
    30,434,202Refundable income taxes
    
    
    317,195
    
    
    
    Current portion of notes receivable
    
    
    205,641
    
    
    
    140,942Prepaid expenses and other current assets
    
    
    2,025,910
    
    
    
    2,462,016Assets held for sale
    
    
    250,922
    
    
    
    35,890,108Total current assets
    
    
    75,316,107
    
    
    
    114,589,267Property, plant and equipmentLand
    
    
    6,747,524
    
    
    
    6,776,034Land improvements
    
    
    1,349,692
    
    
    
    650,169Buildings and leasehold improvements
    
    
    40,305,799
    
    
    
    35,937,487Machinery and equipment
    
    
    65,422,523
    
    
    
    59,350,936Vehicles
    
    
    7,752,837
    
    
    
    7,124,165Furniture and fixtures
    
    
    1,331,634
    
    
    
    1,356,590Construction in progress
    
    
    1,164,426
    
    
    
    4,610,695124,074,435
    
    
    
    115,806,076Less accumulated depreciation
    
    
    (41,360,758
    )
    
    
    (34,090,370
    )Net property, plant and equipment
    
    
    82,713,677
    
    
    
    81,715,706Investments, intangible and other assetsNotes receivable, less current portion
    
    
    3,106,792
    
    
    
    3,255,061Investment in affiliates
    
    
    4,578,520
    
    
    
    5,652,780Other assets
    
    
    296,623
    
    
    
    69,940Intangible assets  finite-lived, net
    
    
    1,868,671
    
    
    
    2,130,608Goodwill
    
    
    58,981,819
    
    
    
    43,223,768Total investments, intangibles and other assets
    
    
    68,832,425
    
    
    
    54,332,157Total assets
    
    $
    226,862,209
    
    
    $
    250,637,130
 126




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##### Table of Contents



2006
    
    
    2005Liabilities and Members EquityCurrent liabilitiesNotes payable
    
    $
    
    
    
    $
    19,000,000Accounts payable
    
    
    17,683,467
    
    
    
    21,034,575Accrued wages, salaries and bonuses
    
    
    4,271,102
    
    
    
    2,170,019Accrued expenses and other current
liabilities
    
    
    12,983,722
    
    
    
    11,535,537Income taxes payable
    
    
    51,870
    
    
    
    742,200Liabilities held for sale
    
    
    
    
    
    
    351,210Current maturities of long-term debt and
capital lease obligations
    
    
    3,193,910
    
    
    
    16,629,382Current deferred income taxes
    
    
    1,428,039
    
    
    
    123,354Total current liabilities
    
    
    39,612,110
    
    
    
    71,586,277Long-term debt and capital lease
obligations,
less current maturities
    
    
    48,585,924
    
    
    
    51,804,841Deferred income taxes
    
    
    7,809,040
    
    
    
    10,321,162Members equity
    
    
    130,855,135
    
    
    
    116,924,850Total liabilities and members equity
    
    $
    226,862,209
    
    
    $
    250,637,130
  127




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statement of Operations
 For
the Years Ended December 23, 2006, December 24, 2005 and December 25, 2004
 2006
    
    
    2005
    
    
    2004Net sales
    
    $
    398,394,377
    
    
    $
    406,965,095
    
    
    $
    549,648,703Cost of sales
    
    
    377,414,014
    
    
    
    385,673,833
    
    
    
    484,864,691Gross profit
    
    
    20,980,363
    
    
    
    21,291,262
    
    
    
    64,784,012ExpensesGeneral and administrative
    
    
    15,836,729
    
    
    
    23,159,719
    
    
    
    24,545,410Selling
    
    
    14,755,012
    
    
    
    14,982,068
    
    
    
    11,067,885Total expenses
    
    
    30,591,741
    
    
    
    38,141,787
    
    
    
    35,613,295Operating income (loss)
    
    
    (9,611,378
    )
    
    
    (16,850,525
    )
    
    
    29,170,717Other income (expense)Interest expense
    
    
    (4,774,509
    )
    
    
    (5,737,363
    )
    
    
    (6,190,652
    )Interest and other income
    
    
    2,051,715
    
    
    
    2,004,171
    
    
    
    1,455,163Goodwill impairment
    
    
    (16,814,281
    )
    
    
    
    
    
    
    Equity in earnings (losses)
of affiliates
    
    
    (3,348,339
    )
    
    
    (6,477,425
    )
    
    
    7,918,034Gain (loss) on sale of assets
    
    
    7,889,656
    
    
    
    5,718,015
    
    
    
    (1,354,141
    )Total other income (expense)
    
    
    (14,995,758
    )
    
    
    (4,492,602
    )
    
    
    1,828,404Income (loss) before income taxes
    
    
    (24,607,136
    )
    
    
    (21,343,127
    )
    
    
    30,999,121Income tax expense (benefit)
    
    
    406,409
    
    
    
    (3,581,937
    )
    
    
    2,342,666Net income (loss)
    
    $
    (25,013,545
    )
    
    $
    (17,761,190
    )
    
    $
    28,656,455
  128




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statement of Members Equity
 For the Years Ended December 23, 2006,
December 24, 2005 and December 25, 2004
 Balance  December 28, 2003
    
    $
    116,629,585Net income
    
    
    28,656,455Distributions to members, net
    
    
    (10,600,000
    )Balance  December 25, 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
    
    $
    130,855,135
  129




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MOARK, LLC
AND SUBSIDIARIES
 Consolidated Statement of Cash Flows
 For the Years Ended December 23, 2006,
December 24, 2005 and December 25, 2004
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income (loss)
    
    $
    (25,013,545
    )
    
    $
    (17,761,190
    )
    
    $
    28,656,455Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activitiesDepreciation
    
    
    8,475,516
    
    
    
    7,406,448
    
    
    
    8,470,773Amortization
    
    
    261,937
    
    
    
    374,162
    
    
    
    276,954(Gain) loss on sale of assets
    
    
    143,747
    
    
    
    (6,043,797
    )
    
    
    (111,421
    )Loss (gain) on sale of assets held for sale
    
    
    (8,033,403
    )
    
    
    
    
    
    
    1,454,728Equity in loss (income) of affiliates
    
    
    3,348,339
    
    
    
    6,477,425
    
    
    
    (7,918,034
    )Net change in operating assets held for sale
    
    
    (2,394,632
    )
    
    
    (10,479
    )
    
    
    6,102,669Change in deferred income taxes
    
    
    (1,207,437
    )
    
    
    (7,199,484
    )
    
    
    (2,281,000
    )Goodwill impairment
    
    
    16,814,281
    
    
    
    
    
    
    
    Changes in operating assets and liabilitiesAccounts receivable  trade
    
    
    2,359,269
    
    
    
    716,381
    
    
    
    19,652,751Inventories
    
    
    (2,173,190
    )
    
    
    465,433
    
    
    
    2,701,468Refundable income taxes
    
    
    (317,195
    )
    
    
    863,258
    
    
    
    (863,258
    )Prepaid expenses and other current assets
    
    
    436,106
    
    
    
    (62,057
    )
    
    
    30,972Accounts payable
    
    
    (3,351,108
    )
    
    
    (3,185,887
    )
    
    
    (6,911,921
    )Accrued expenses and other current
liabilities
    
    
    3,549,268
    
    
    
    4,537,041
    
    
    
    (1,422,691
    )Income taxes payable
    
    
    (690,330
    )
    
    
    742,200
    
    
    
    (580,224
    )Net cash provided (used) by operating activities
    
    
    (7,792,377
    )
    
    
    (12,680,546
    )
    
    
    47,258,221Cash flows from investing activitiesProceeds from sale of property, plant and equipment
    
    
    240,333
    
    
    
    12,539,058
    
    
    
    1,350,105Purchases of property, plant and equipment
    
    
    (11,019,137
    )
    
    
    (15,310,448
    )
    
    
    (6,262,813
    )Purchase of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (250,000
    )
    
    
    Distributions from affiliates
    
    
    
    
    
    
    
    
    
    
    9,561,677Investments of affiliates
    
    
    (2,525,000
    )
    
    
    (4,772,154
    )
    
    
    Proceeds from sale of assets and liabilities held
for sale
    
    
    60,000,000
    
    
    
    
    
    
    
    530,000Other assets
    
    
    (226,683
    )
    
    
    127,149
    
    
    
    589,396Collections on notes receivable
    
    
    83,570
    
    
    
    131,249
    
    
    
    256,591Net cash provided (used) by investing activities
    
    
    46,553,083
    
    
    
    (7,535,146
    )
    
    
    6,024,956
 130




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Cash flows from financing activitiesNet borrowings (repayments) on notes payable
    
    $
    (19,000,000
    )
    
    $
    19,000,000
    
    
    $
    (19,977,518
    )Proceeds from long-term debt
    
    
    13,000,000
    
    
    
    
    
    
    
    16,065,771Repayments of long-term debt
    
    
    (28,132,588
    )
    
    
    (13,653,172
    )
    
    
    (18,728,213
    )Repayments of capital lease obligations
    
    
    (1,521,801
    )
    
    
    (1,419,589
    )
    
    
    (1,329,868
    )Distributions to members, net
    
    
    (6,500,000
    )
    
    
    
    
    
    
    (10,600,000
    )Net cash provided (used) by financing activities
    
    
    (42,154,389
    )
    
    
    3,927,239
    
    
    
    (34,569,828
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,393,683
    )
    
    
    (16,288,453
    )
    
    
    18,713,349Cash and cash equivalents  beginning of year
    
    
    6,032,290
    
    
    
    22,320,743
    
    
    
    3,607,394Cash and cash equivalents  end of year
    
    $
    2,638,607
    
    
    $
    6,032,290
    
    
    $
    22,320,743Supplementary disclosures of cash flow informationCash paid during the year for
Interest, including capital interest of $315,000
during 2006
    
    $
    5,384,015
    
    
    $
    5,666,853
    
    
    $
    6,055,538Income taxes (net of refunds received)
    
    
    3,567,198
    
    
    
    1,046,453
    
    
    
    6,067,148Supplementary disclosures of non-cash transactionsPurchase of property, plant and equipment through
capital lease obligations
    
    $
    
    
    
    $
    50,792
    
    
    $
    1,758,108Goodwill contributed by member
    
    
    45,443,830
    
    
    
    
    
    
    
    
  131




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Summary of Significant Accounting Policies
 a.
    
    Basis of presentation On February 2, 2000,
Land OLakes, Inc. and the Moark group of affiliated companies established a new joint venture
(Moark, LLC) to facilitate the strategy of becoming a top tier marketer and producer of
shell eggs and processed egg products in the United States. In connection with the formation
of this venture, Land OLakes, Inc. contributed cash and a commitment to provide additional
funding and the Moark group contributed their existing egg and egg product operations.
  b.
    
    Principles of consolidation The
consolidated financial statements include the accounts of Moark, LLC and all subsidiaries in
which Moark, LLC 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 Philadelphia, LLC
(disposed of in 2004  see Note 7), Cutler at Abbeville, LLC, Sunbest Farms of Iowa, LLC,
and Sunbest Foods of Iowa, Inc. See Note 8 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 and egg
products covering the majority of the United States. 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, LLC is a limited liability company, no interest holder of the Company
shall be personally liable for the debts, obligations or liabilities of Moark, LLC, unless the
individual has signed a specific personal guarantee. Moark, LLC shall dissolve upon the sale of
all or substantially all of the property of Moark, LLC; the vote by the managers to dissolve,
wind up and liquidate the Company; entry of a decree of judicial dissolution pursuant to a
legal authority; on December 31, 2050.e.
    
    Fiscal year The Company uses a 52-53 week fiscal year ending during December. The years
ended December 23, 2006, December 24, 2005 and December 25, 2004 consisted of 52 week periods.
 132




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 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
statement 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.
  133




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Summary of Significant Accounting Policies (cont.)
 l.
    
    Long-lived assets The Company reviews
the carrying value of property and equipment for impairment whenever certain triggering events
and 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. During 2005, the Company adopted a plan to dispose of a certain piece of
equipment and its egg products subsidiaries. Based upon managements assessment of the
existing assets, management recorded an impairment loss of approximately $423,000, which
represents the excess of the carrying value of the asset over its fair value. The impairment
change is included in the Companys general and administrative expense in the statement of
operations for 2005. The carrying value of the assets that are held for sale is presented in
the balance sheet in the caption assets held for sale, and these assets are no longer
depreciated. Based upon managements assessment of impairment, no impairment loss was
necessary during 2006.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.
  m.
    
    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 twenty 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.
 134




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Summary of Significant Accounting Policies (cont.)
    p.
    
    Advertising The Company expenses the costs
of advertising as incurred. Advertising costs for the years ended December 23, 2006, December
24, 2005 and December 25, 2004 were approximately $4,660,000, $7,020,000 and $3,144,000,
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 statement of
operations.r.
    
    Fair value As of December 23, 2006, December 24, 2005 and December 25, 2004,
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.
  2006
    
    2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount of
    
    Value of
    
    Amount of
    
    Value ofLiability
    
    Liability
    
    Liability
    
    LiabilityLong-term debt and
capital
lease obligations
    
    $
    51,779,834
    
    
    $
    50,688,754
    
    
    $
    68,434,223
    
    
    $
    67,593,022
 135




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Summary of Significant Accounting Policies (cont.)
 s.
    
    Derivative commodity instruments  The
Company uses 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.t.
    
    Reclassifications Certain reclassifications have
been made to the December 24, 2005 amounts to conform to the December 23, 2006 presentation.
The reclassifications had no impact on the net income (loss).
 Inventories
  2006
    
    
    2005Layer flocks and pullets
    
    $
    20,329,724
    
    
    $
    21,426,338Feed and feed ingredients
    
    
    6,142,089
    
    
    
    3,733,473Eggs and egg products
    
    
    2,640,310
    
    
    
    2,080,432Supplies and other
    
    
    3,495,269
    
    
    
    3,193,959$
    32,607,392
    
    
    $
    30,434,202
 Notes Receivable
  2006
    
    
    2005Note receivable from an individual; interest
at 8%; due in monthly installments of
$34,942,
including interest, through January 2019.
    
    $
    3,242,840
    
    
    $
    3,396,003Various other notes receivables
    
    
    69,593
    
    
    
    3,312,433
    
    
    
    3,396,003Less current portion
    
    
    205,641
    
    
    
    140,942Notes receivable, less current portion
    
    $
    3,106,792
    
    
    $
    3,255,061
 136




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Notes Receivable (cont.)
  2007
    
    $
    205,6412008
    
    
    209,4702009
    
    
    194,5532010
    
    
    210,7012011
    
    
    228,189Thereafter
    
    
    2,263,879$
    3,312,433
  Capital Leases
   2006
    
    
    2005Land
    
    $
    200,000
    
    
    $
    200,000Buildings
    
    
    7,199,618
    
    
    
    7,199,618Machinery and equipment
    
    
    7,585,221
    
    
    
    7,574,914Accumulated amortization
    
    
    (5,790,780
    )
    
    
    (4,535,629
    )Net assets under capital leases
    
    $
    9,194,059
    
    
    $
    10,438,903
 137




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Capital Leases (cont.)
  2007
    
    $
    2,217,3242008
    
    
    1,720,7752009
    
    
    1,545,9202010
    
    
    1,424,0002011
    
    
    1,424,000Thereafter
    
    
    237,334Total minimum lease payments
    
    
    8,569,353Less amounts representing interest
    
    
    601,763Present value of future minimum lease payments
    
    $
    7,967,590
 Intangible Assets  Finite-Lived
  FranchiseFees
    
    
    Other
    
    
    TotalOriginal cost
    
    $
    2,549,389
    
    
    $
    1,364,125
    
    
    $
    3,913,514Accumulated amortization,
December 25, 2004
    
    
    331,606
    
    
    
    1,077,138
    
    
    
    1,408,744Amortization
    
    
    174,556
    
    
    
    199,606
    
    
    
    374,162Accumulated 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
    
    
    
    2,044,843Net intangible assets -
finite-lived
    
    $
    1,868,671
    
    
    $
    
    
    
    $
    1,868,671
 138




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Intangible Assets  Finite-Lived (cont.)
  2007
    
    $
    174,5562008
    
    
    174,5562009
    
    
    174,5562010
    
    
    174,5562011
    
    
    174,556Thereafter
    
    
    995,891$
    1,868,671
 Goodwill
  2006
    
    
    2005Balance  beginning of the period
    
    $
    43,223,768
    
    
    $
    42,973,768Goodwill acquired during the period
    
    
    
    
    
    
    250,000Goodwill contributed by member
    
    
    45,443,830
    
    
    
    Allocation to assets sold
    
    
    (12,871,498
    )
    
    
    Impairment of goodwill
    
    
    (16,814,281
    )
    
    
    Balance  end of the period
    
    $
    58,981,819
    
    
    $
    43,223,768
 Disposal of a Subsidiary
  139




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Sale of Liquid Egg Operations
  Investment in Affiliates
  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
    
    
    
    
    
    
    
    
    
    
    
    415,001Net income (loss)
    
    
    (881,228
    )
    
    
    100,290
    
    
    
    (5,879,681
    )
    
    
    (6,660,619
    )
 140




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Investment in Affiliates (cont.)
 Year Ended December 24, 2005Moark/FortRecoveryGrand 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
    )
 Year Ended December 25, 2004Moark/FortRecoveryGrand Mesa
    
    Delta Egg
    
    Egg Marketing,Eggs, Inc.
    
    Farm, LLC
    
    LLC
    
    TotalCurrent assets
    
    $
    2,901,099
    
    
    $
    8,150,674
    
    
    $
    6,034,158
    
    
    $
    17,085,931Property, plant and equipment,
net
    
    
    1,898,365
    
    
    
    17,924,481
    
    
    
    
    
    
    
    19,822,846Other assets
    
    
    149,974
    
    
    
    296,141
    
    
    
    
    
    
    
    446,115Current liabilities
    
    
    2,136,075
    
    
    
    1,842,560
    
    
    
    4,951,874
    
    
    
    8,930,509Other liabilities
    
    
    439,000
    
    
    
    11,278,000
    
    
    
    
    
    
    
    11,717,000Stockholders or members equity
    
    
    2,374,363
    
    
    
    13,250,736
    
    
    
    1,082,284
    
    
    
    16,707,383Net sales
    
    
    14,222,450
    
    
    
    20,729,977
    
    
    
    81,152,078
    
    
    
    116,104,505Cost of goods sold
    
    
    12,667,613
    
    
    
    16,265,604
    
    
    
    68,234,451
    
    
    
    97,167,668Selling, general and
administrative
expenses
    
    
    704,839
    
    
    
    814,047
    
    
    
    356,313
    
    
    
    1,875,199Net finance expense (benefit)
    
    
    (89,173
    )
    
    
    938,943
    
    
    
    
    
    
    
    849,770Income tax expense
    
    
    375,800
    
    
    
    
    
    
    
    
    
    
    
    375,800Net income
    
    
    563,371
    
    
    
    2,711,383
    
    
    
    12,561,314
    
    
    
    15,836,068
 141




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Notes Payable
   Long-Term Debt and Capital Lease Obligations
  2006
    
    2005Notes 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.
    
    $
    30,621,238
    
    
    $
    31,743,041Credit 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
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.
    
    
    13,000,000
    
    
    
    
 142




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Long-Term Debt and Capital Lease Obligations (cont.)
 2006
    
    2005Credit agreements, consisting of: (1) a revolving
commitment not to exceed $60,000,000, subject
to a borrowing base computation, payable to a
lender group made up of certain banks and
agricultural credit associations; and (2) a term
loan commitment not to exceed $15,000,000,
to a bank; interest is to be charged as defined
(8.03% as of December 24, 2005) with quarterly
principal payments of $535,715; secured by
substantially all assets of the Company and matures
March 26, 2006. Paid in full during 2006.
    
    $
    
    
    
    $
    11,138,207Note payable to an agricultural credit association;
interest at 6.50%; secured by certain real estate;
payable in monthly installments of $258,550,
including interest, through September 2011.
Paid in full during 2006.
    
    
    
    
    
    
    9,084,580Notes payable to an agricultural credit association;
interest ranging from 5.75% to 7.15%; secured
by certain accounts receivable, inventories, and
property and equipment; monthly installments
ranging from $1,449 to $75,593, including
interest, through dates ranging from June 2008 to
June 2011. Paid in full during 2006.
    
    
    
    
    
    
    6,532,357Capital lease obligation payable to a company;
interest imputed at 7.00%; payable in monthly
installments of $118,667, including interest, through
February 2012.
    
    
    6,751,525
    
    
    
    7,667,806Various capital lease obligations with a financing
company; interest ranging from 5.92% to 8.95%;
secured by certain equipment; payable in monthly
installments ranging from $313 to $17,457,
including interest, through dates ranging from
April 2007 through January 2009.
    
    
    1,216,065
    
    
    
    2,002,170
 143




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Long-Term Debt and Capital Lease Obligations (cont.)
 2006
    
    
    2005Various notes payables to financing companies;
secured by certain equipment; payable in
various
monthly installments, including interest,
through
dates ranging from December 2006 to
August 2009.
    
    $
    191,006
    
    
    $
    266,06251,779,834
    
    
    
    68,434,223Less current maturities
    
    
    3,193,910
    
    
    
    16,629,382Long-term debt and capital lease obligations,
less current maturities
    
    $
    48,585,924
    
    
    $
    51,804,841
  Long-Term
    
    
    Capital LeaseDebt
    
    
    Obligations
    
    
    Total2007
    
    $
    1,233,865
    
    
    $
    1,960,045
    
    
    $
    3,193,9102008
    
    
    1,334,824
    
    
    
    1,419,551
    
    
    
    2,754,3752009
    
    
    14,417,982
    
    
    
    1,389,743
    
    
    
    15,807,7252010
    
    
    1,480,824
    
    
    
    1,359,649
    
    
    
    2,840,4732011
    
    
    1,469,896
    
    
    
    1,457,939
    
    
    
    2,927,835Thereafter
    
    
    23,874,852
    
    
    
    380,663
    
    
    
    24,255,515$
    43,812,243
    
    
    $
    7,967,590
    
    
    $
    51,779,833
  144




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Outstanding Checks
  Income Taxes
  2006
    
    
    2005Current provision (benefit)
    
    $
    (801,028
    )
    
    $
    3,617,546Deferred provision (benefit)
    
    
    1,207,437
    
    
    
    (7,199,483
    )$
    406,409
    
    
    $
    (3,581,937
    )
   2006
    
    
    2005Gross deferred tax liabilities
    
    $
    10,686,437
    
    
    $
    12,841,112Gross deferred tax assets
    
    
    1,449,358
    
    
    
    2,396,596Net deferred tax liability
    
    $
    9,237,079
    
    
    $
    10,444,516
  145




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Related Parties
  2006
    
    2005
    
    2004Sales to related parties
    
    $
    9,063,496
    
    
    $
    3,964,000
    
    
    $
    3,017,000Purchases from and payments of
fees to
related parties
    
    
    48,743,660
    
    
    
    47,172,000
    
    
    
    70,321,000Interest to related party
    
    
    104,176
    
    
    
    
    
    
    
    Accounts receivable from related
parties
    
    
    1,369,284
    
    
    
    367,000
    
    
    
    516,000Accounts payable to related parties
    
    
    3,212,003
    
    
    
    5,769,000
    
    
    
    5,823,000
     146




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##### Table of Contents



MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 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 23, 2006 are as follows:
 Fiscal Year2007
    
    $
    3,454,3832008
    
    
    3,066,2212009
    
    
    2,671,1482010
    
    
    1,668,0142011
    
    
    1,592,777Thereafter
    
    
    1,974,311$
    14,426,854
 Rent expense for all operating leases approximated $5,070,000, $5,900,000 and $6,751,000
for the years ended December 23, 2006, December 24, 2005 and December 25, 2004, 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 and $479,000, during the years ended December 24, 2005 and December 25, 2004,
respectively.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, LLC and its affiliated
companies. Those who have attained the age of eighteen 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.There were no discretionary contributions made for the years ended December 23, 2006,
December 24, 2005 and December 25, 2004. Matching contributions to the above plans during 2006,
2005 and 2004 were approximately $735,000, $774,000 and $712,000, respectively.c.
    
    The Company had a non-qualified retirement plan for certain key employees. The benefits under
this plan require the participants to remain in the employment of the Company for a specified
number of years, or until retirement age, in order to obtain any benefits and to observe certain
covenants dealing with competition. This plan was terminated effective January 2004.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.
 147




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MOARK, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 23, 2006, December 24, 2005 and December 25, 2004
 Commitments and Contingencies (cont.)
 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 23, 2006. These commitments are not in excess of the current operating requirements
of the Company.
 Concentrations of Credit Risk
     148




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##### Table of Contents



AGRILIANCE, LLC
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)November 30,
    
    
    August 31,2006
    
    
    2006($ in thousands)ASSETSCurrent assets:Cash
    
    $
    14,211
    
    
    $
    9,552Trade receivables, net of allowance for doubtful accounts of $12,933 and $14,664, respectively
    
    
    540,211
    
    
    
    294,213Rebates receivable
    
    
    97,287
    
    
    
    176,968Other receivables
    
    
    7,563
    
    
    
    8,782Receivable from CHS, Inc.
    
    
    2
    
    
    
    Inventories
    
    
    651,916
    
    
    
    659,335Vendor prepayments
    
    
    165,509
    
    
    
    103,664Prepaid expenses
    
    
    8,544
    
    
    
    9,360Total current assets
    
    
    1,485,243
    
    
    
    1,261,874Property, plant and equipment:Land and land improvements
    
    
    18,940
    
    
    
    18,971Buildings
    
    
    82,832
    
    
    
    71,692Machinery and equipment
    
    
    164,728
    
    
    
    162,624Construction in progress
    
    
    18,886
    
    
    
    22,622Total property, plant and equipment
    
    
    285,386
    
    
    
    275,909Less accumulated depreciation
    
    
    (142,361
    )
    
    
    (137,244
    )Net property, plant and equipment
    
    
    143,025
    
    
    
    138,665Other assets
    
    
    22,679
    
    
    
    27,700Total assets
    
    $
    1,650,947
    
    
    $
    1,428,239LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Cash overdraft
    
    $
    
    
    
    $
    14,110Accounts payable
    
    
    705,341
    
    
    
    591,149Customer prepayments
    
    
    327,275
    
    
    
    135,226Accrued expenses
    
    
    115,696
    
    
    
    121,944Payable to Land OLakes, Inc.
    
    
    15,029
    
    
    
    18,363Payable to CHS, Inc.
    
    
    
    
    
    
    4,169Short-term debt
    
    
    80,965
    
    
    
    107,875Other current liabilities
    
    
    8,772
    
    
    
    6,202Total current liabilities
    
    
    1,253,078
    
    
    
    999,038Long-term debt
    
    
    104,621
    
    
    
    104,621Other noncurrent liabilities
    
    
    19,334
    
    
    
    19,304Minority
interest in subsidiaries
    
    
    8,173
    
    
    
    8,146Members equity:Contributed capital
    
    
    159,089
    
    
    
    159,089Retained earnings
    
    
    107,714
    
    
    
    139,103Accumulated other comprehensive loss
    
    
    (1,062
    )
    
    
    (1,062
    )Total members equity
    
    
    265,741
    
    
    
    297,130Total liabilities and members equity
    
    $
    1,650,947
    
    
    $
    1,428,239
  149




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AGRILIANCE, LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedNovember 30,2006
    
    
    2005($ in thousands)(Unaudited)Net sales
    
    $
    669,993
    
    
    $
    692,461Cost of sales
    
    
    624,370
    
    
    
    634,896Gross profit
    
    
    45,623
    
    
    
    57,565Selling, general, and administrative expense
    
    
    70,331
    
    
    
    71,862Gain on sale of assets
    
    
    (366
    )
    
    
    (2,980
    )Loss from operations
    
    
    (24,342
    )
    
    
    (11,317
    )Interest expense, net
    
    
    7,372
    
    
    
    4,991Minority Interests
    
    
    (325
    )
    
    
    (600
    )Net loss
    
    $
    (31,389
    )
    
    $
    (15,708
    )
  150




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AGRILIANCE, LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedNovember 30,2006
    
    
    2005($ in thousands)(Unaudited)Cash flows from operating activities:Net loss
    
    $
    (31,389
    )
    
    $
    (15,708
    )Adjustments to reconcile net loss to net cash provided (used) by operating activities:Depreciation and amortization
    
    
    5,732
    
    
    
    4,434Bad debt expense
    
    
    494
    
    
    
    53Gain on sale of assets
    
    
    (366
    )
    
    
    (2,980
    )Minority interests
    
    
    (325
    )
    
    
    (600
    )Change in other non-current assets
    
    
    5,008
    
    
    
    (759
    )Change in other non-current liabilities
    
    
    30
    
    
    
    (229
    )Changes in current assets and liabilities:Trade receivables
    
    
    (246,492
    )
    
    
    (103,574
    )Receivables/payables from related parties
    
    
    (4,606
    )
    
    
    19,806Rebates receivable
    
    
    79,681
    
    
    
    19,150Other receivables
    
    
    1,219
    
    
    
    (1,818
    )Inventories
    
    
    7,419
    
    
    
    (20,043
    )Vendor prepayments
    
    
    (61,845
    )
    
    
    (150,319
    )Accounts payable and customer prepayments
    
    
    306,241
    
    
    
    154,642Accrued expenses
    
    
    (6,248
    )
    
    
    (44,446
    )Other current assets and liabilities
    
    
    833
    
    
    
    4,467Net cash provided (used) by operating activities
    
    
    55,386
    
    
    
    (137,924
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (10,120
    )
    
    
    (8,599
    )Proceeds from sale of property, plant and equipment
    
    
    413
    
    
    
    3,915Net cash used by investing activities
    
    
    (9,707
    )
    
    
    (4,684
    )Cash flows from financing activities:Change in short-term debt
    
    
    (26,910
    )
    
    
    76,097(Decrease) increase in cash overdrafts
    
    
    (14,110
    )
    
    
    32,365Net cash (used) provided by financing activities
    
    
    (41,020
    )
    
    
    108,462Net change in cash
    
    
    4,659
    
    
    
    (34,146
    )Cash at beginning of period
    
    
    9,552
    
    
    
    34,146Cash at end of period
    
    $
    14,211
    
    
    $
    
  151




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##### Table of Contents



AGRILIANCE, LLC
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
  2. Borrowing Arrangements
     152




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      153




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##### Table of Contents



AGRILIANCE, LLC
 
 CONSOLIDATED BALANCE SHEETS
 August 31,2006
    
    
    2005($ in thousands)ASSETSCurrent assets:Cash
    
    $
    9,552
    
    
    $
    34,146Trade receivables, net of allowance
for doubtful accounts of $14,664 and
$17,440 in 2006 and 2005, respectively
    
    
    294,213
    
    
    
    318,238Rebates receivable
    
    
    176,968
    
    
    
    133,885Other receivables
    
    
    8,782
    
    
    
    8,396Receivable from Land O Lakes, Inc.
    
    
    
    
    
    
    4,243Inventories
    
    
    659,335
    
    
    
    659,213Vendor prepayments
    
    
    103,664
    
    
    
    171,119Prepaid expenses
    
    
    9,360
    
    
    
    10,960Total current assets
    
    
    1,261,874
    
    
    
    1,340,200Property, plant and equipment:Land and land improvements
    
    
    18,971
    
    
    
    19,117Buildings
    
    
    71,692
    
    
    
    70,773Machinery and equipment
    
    
    162,624
    
    
    
    136,899Construction in progress
    
    
    22,622
    
    
    
    20,451Total property, plant and equipment
    
    
    275,909
    
    
    
    247,240Less accumulated depreciation
    
    
    (137,244
    )
    
    
    (122,264
    )Net property, plant and equipment
    
    
    138,665
    
    
    
    124,976Other assets
    
    
    27,700
    
    
    
    23,635Total assets
    
    $
    1,428,239
    
    
    $
    1,488,811LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Cash overdraft
    
    $
    14,110
    
    
    $
    2,292Short-term debt
    
    
    107,875
    
    
    
    23,650Accounts payable
    
    
    591,149
    
    
    
    718,774Customer prepayments
    
    
    135,226
    
    
    
    171,518Accrued expenses
    
    
    121,944
    
    
    
    140,363Payable to Land OLakes, Inc.
    
    
    18,363
    
    
    
    Payable to CHS, Inc.
    
    
    4,169
    
    
    
    3,253Other current liabilities
    
    
    6,202
    
    
    
    6,865Total current liabilities
    
    
    999,038
    
    
    
    1,066,715Long-term debt
    
    
    104,621
    
    
    
    100,000Other non-current liabilities
    
    
    19,304
    
    
    
    14,850Minority interest in subsidiaries
    
    
    8,146
    
    
    
    4,944Members equity:Contributed capital
    
    
    159,089
    
    
    
    159,089Retained earnings
    
    
    139,103
    
    
    
    144,636Accumulated other comprehensive loss
    
    
    (1,062
    )
    
    
    (1,423
    )Total members equity
    
    
    297,130
    
    
    
    302,302Total liabilities and members equity
    
    $
    1,428,239
    
    
    $
    1,488,811
  154




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AGRILIANCE, LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended August 31,2006
    
    
    2005
    
    
    2004($ in thousands)Net sales
    
    $
    3,739,632
    
    
    $
    3,735,125
    
    
    $
    3,471,514Cost of sales
    
    
    3,379,076
    
    
    
    3,361,682
    
    
    
    3,121,558Gross margin
    
    
    360,556
    
    
    
    373,443
    
    
    
    349,956Selling, general and administrative expense
    
    
    284,504
    
    
    
    282,631
    
    
    
    267,735Gain on sale of assets
    
    
    (5,606
    )
    
    
    (1,538
    )
    
    
    (901
    )Earnings from operations
    
    
    81,658
    
    
    
    92,350
    
    
    
    83,122Minority interests
    
    
    3,202
    
    
    
    2,177
    
    
    
    2,762Interest expense, net
    
    
    26,188
    
    
    
    13,060
    
    
    
    9,082Net earnings
    
    $
    52,268
    
    
    $
    77,113
    
    
    $
    71,278
  155




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AGRILIANCE, LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended August 31,2006
    
    
    2005
    
    
    2004($ in thousands)Cash flows from operating activities:Net earnings
    
    $
    52,268
    
    
    $
    77,113
    
    
    $
    71,278Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    19,479
    
    
    
    18,922
    
    
    
    17,767Bad debt expense (recoveries)
    
    
    (3,218
    )
    
    
    5,599
    
    
    
    2,780Minority interests
    
    
    3,202
    
    
    
    2,177
    
    
    
    2,762Gain on disposal of property, plant and equipment
    
    
    (5,606
    )
    
    
    (1,538
    )
    
    
    (901
    )Change in other non-current assets and liabilities
    
    
    673
    
    
    
    (13,833
    )
    
    
    9,794Changes in current assets and liabilities:Trade receivables
    
    
    27,243
    
    
    
    (19,809
    )
    
    
    143,930Receivables/payables from related parties
    
    
    23,522
    
    
    
    (17,865
    )
    
    
    2,057Rebates receivable
    
    
    (43,083
    )
    
    
    12,778
    
    
    
    (4,533
    )Other receivables
    
    
    (386
    )
    
    
    1,815
    
    
    
    3,392Inventories
    
    
    (122
    )
    
    
    (138,717
    )
    
    
    39,147Vendor prepayments
    
    
    67,455
    
    
    
    (40,329
    )
    
    
    (65,622
    )Accounts payable and customer prepayments
    
    
    (163,917
    )
    
    
    238,761
    
    
    
    (202,439
    )Accrued expenses
    
    
    (18,419
    )
    
    
    15,384
    
    
    
    23,674Other current assets and liabilities
    
    
    937
    
    
    
    (7,521
    )
    
    
    521Net cash provided by (used in) operating activities
    
    
    (39,972
    )
    
    
    132,937
    
    
    
    43,607Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (34,738
    )
    
    
    (35,119
    )
    
    
    (29,887
    )Proceeds from sale of property, plant and equipment
    
    
    7,253
    
    
    
    5,087
    
    
    
    2,446Net cash used in investing activities
    
    
    (27,485
    )
    
    
    (30,032
    )
    
    
    (27,441
    )Cash flows from financing activities:Proceeds from issuance of short-term debt
    
    
    84,225
    
    
    
    23,650
    
    
    
    (15,000
    )Proceeds from issuance of long-term debt
    
    
    4,621
    
    
    
    
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    11,818
    
    
    
    (28,259
    )
    
    
    30,551Distribution of earnings to members
    
    
    (57,801
    )
    
    
    (64,150
    )
    
    
    (54,599
    )Net cash provided by (used in) financing activities
    
    
    42,863
    
    
    
    (68,759
    )
    
    
    (39,048
    )Net change in cash
    
    
    (24,594
    )
    
    
    34,146
    
    
    
    (22,882
    )Cash at beginning of period
    
    
    34,146
    
    
    
    
    
    
    
    (22,882
    )Cash at end of period
    
    $
    9,552
    
    
    $
    34,146
    
    
    $
    
  156




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AGRILIANCE, LLC
 
 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
 Accumulatedother
    
    
    TotalContributed
    
    
    Retained
    
    
    comprehensive
    
    
    members
    
    
    Comprehensivecapital
    
    
    earnings
    
    
    (loss)
    
    
    equity
    
    
    income($ in thousands)Balance at August 31, 2003
    
    $
    159,089
    
    
    $
    114,994
    
    
    $
    (15,331
    )
    
    $
    258,752Net earnings
    
    
    
    
    
    
    71,278
    
    
    
    
    
    
    
    71,278
    
    
    $
    71,278Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    3,752
    
    
    
    3,752
    
    
    
    3,752Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    75,030Distributions payable to members
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Distributions paid to members
    
    
    
    
    
    
    (54,599
    )
    
    
    
    
    
    
    (54,599
    )Balance at August 31, 2004
    
    
    159,089
    
    
    
    91,673
    
    
    
    (11,579
    )
    
    
    239,183Net earnings
    
    
    
    
    
    
    77,113
    
    
    
    
    
    
    
    77,113
    
    
    $
    77,113Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    10,156
    
    
    
    10,156
    
    
    
    10,156Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    87,269Distributions payable to members
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    40,000Distributions paid to members
    
    
    
    
    
    
    (64,150
    )
    
    
    
    
    
    
    (64,150
    )Balance at August 31, 2005
    
    
    159,089
    
    
    
    144,636
    
    
    
    (1,423
    )
    
    
    302,302Net earnings
    
    
    
    
    
    
    52,268
    
    
    
    
    
    
    
    52,268
    
    
    $
    52,268Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    361
    
    
    
    361Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    52,629Distributions paid to members
    
    
    
    
    
    
    (57,801
    )
    
    
    
    
    
    
    (57,801
    )Balance at August 31, 2006
    
    $
    159,089
    
    
    $
    139,103
    
    
    $
    (1,062
    )
    
    $
    297,130
  157




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##### Table of Contents



AGRILIANCE, LLC
 
 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
 Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.
 158




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (g) Property, Plant, and Equipment
  (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
  (k) Reclassifications
  (2) Short-term Debt
    159




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (3) Long-term Debt
    Year ending August 31:
    
    (In thousands)2007
    
    $
    2008
    
    
    48,0002009
    
    
    2010
    
    
    52,0002011
    
    
    2012 and thereafter
    
    
    4,621Total
    
    $
    104,621
   (4) Receivables Purchase Facility
  (5) Pension and Other Postretirement Plans
   160




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (In Thousands)Pension Benefits
    
    
    Postretirement Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Benefit obligation
    
    $
    (107,418
    )
    
    $
    (108,164
    )
    
    $
    (4,974
    )
    
    $
    (4,984
    )Fair value of plan assets
    
    
    104,467
    
    
    
    99,100
    
    
    
    
    
    
    
    Funded status
    
    $
    (2,951
    )
    
    $
    (9,064
    )
    
    $
    (4,974
    )
    
    $
    (4,984
    )Prepaid (accrued)
benefit cost recognized in
the consolidated balance
sheets
    
    $
    14,273
    
    
    $
    21,148
    
    
    $
    (5,725
    )
    
    $
    (5,655
    )
   PostretirementPension Benefits
    

Benefits2006
    
    2005
    
    2006
    
    2005Discount rate
    
    
    6.25
    %
    
    
    5.50
    %
    
    
    6.25
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    2.50
    %
    
    
    2.50
    %
    
    
    N/A
    
    
    
    N/A
  PostretirementPension Benefits
    
    Benefits2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Discount rate
    
    
    5.50
    %
    
    
    6.50
    %
    
    
    6.00
    %
    
    
    5.50
    %
    
    
    6.50
    %
    
    
    6.00
    %Expected long-term rate of return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    NA
    
    NA
    
    
    N/ARate of compensation increase
    
    
    2.50
    %
    
    
    3.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   161




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Year ended August 31,(In Thousands)Pension Benefits
    
    Postretirement Benefits2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Benefit cost
    
    $
    6,875
    
    
    $
    7,887
    
    
    $
    6,309
    
    
    $
    476
    
    
    $
    288
    
    
    $
    1,214Employer contribution
    
    
    
    
    
    
    35,910
    
    
    
    2,461
    
    
    
    406
    
    
    
    402
    
    
    
    300Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    2,820
    
    
    
    3,010
    
    
    
    2,111
    
    
    
    406
    
    
    
    402
    
    
    
    300
 Plan Assets
  Plan Assets at August 31Asset category
    
    2006
    
    2005Equity securities
    
    
    30.7
    %
    
    
    41.4
    %Debt securities
    
    
    57.9
    %
    
    
    51.1
    %Real Estate
    
    
    10.7
    %
    
    
    6.5
    %Other
    
    
    0.7
    %
    
    
    1.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Cash Flows
    162




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Expected Benefit
    
    
    Expected MedicarePayments
    
    
    SubsidyReceipts($ in thousands)
    
    
    ($ in thousands)2007
    
    $
    459
    
    
    $
    (47
    )2008
    
    
    460
    
    
    
    (54
    )2009
    
    
    469
    
    
    
    (60
    )2010
    
    
    475
    
    
    
    (64
    )2011
    
    
    472
    
    
    
    (70
    )2012-2016
    
    
    2,482
    
    
    
    (453
    )Total
    
    $
    4,817
    
    
    $
    (748
    )
 Other Plans
    (6) Related Party Transactions
  Year Ended August 31,2006
    
    2005
    
    2004($ in thousands)Land OLakes, Inc
    
    $
    12,459
    
    
    $
    12,887
    
    
    $
    9,693CHS, Inc.
    
    
    5,640
    
    
    
    5,070
    
    
    
    4,579
  Year Ended August 31,2006
    
    2005
    
    2004($ in thousands)Land OLakes, Inc
    
    $
    10,666
    
    
    $
    9,254
    
    
    $
    5,219CHS, Inc.
    
    
    219,634
    
    
    
    199,852
    
    
    
    196,175
 163




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##### Table of Contents



AGRILIANCE, LLC
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (7) Lease Commitments
   Year ending August 31,
    
    ($ in thousands)2007
    
    $
    14,5942008
    
    
    9,6552009
    
    
    6,2162010
    
    
    4,0472011
    
    
    1,7612012 and thereafter
    
    
    3,379
  (8) Contingencies
 Environmental
  Guarantees
  General
  164