Land O'Lakes reports nearly $84 million in earnings

Rural Cooperatives, March-April, 2004

Land O'Lakes Inc. had net earnings of $83.5 million for 2003, compared to $98.9 million for 2002. Co-op officials indicated that 2002 earnings were bolstered by vitamin litigation settlements. When those and other one-time gains and losses were factored out, earnings from operations were substantially improved over 2002. LO'L officials credit generally improved markets, effective cost-reduction efforts and strong sales volumes--particularly in branded and proprietary value-added product lines--for bolstering the co-op's performance in 2003.

The co-op reported $6.3 billion in total 2003 sales, an 8-percent increase over $5.8 billion in 2002. The sales increase was due in part to the consolidation of MoArk (Land O'Lakes' egg industry joint venture)into the company balance sheet. Without that accounting change, sales were up 3 percent for the year.

The company recently completed a debt-restructuring initiative that included the sale of $175 million in bonds to pay down senior bank debt and a three-year extension of its revolving line of credit. LO'L paid down long-term debt by $131 million (excluding the debt restructuring initiative) in 2003. It reported finishing the year with strong liquidity, with $383 million in cash-on-hand and unused borrowing authority, and remained in compliance with all its financing covenants.

Co-op leaders say the new bond sale did not increase debt levels, but rather enabled the company to improve its capital structure by taking advantage of declining long-term interest rates, securing its sources of traditional seasonal and short-term borrowing, spreading term debt payments over a longer period and maintaining strong liquidity. Major assets sold in 2003 included the co-op's powdered cocoa business and its ownership position in QC, Inc. (a testing company).

New products in 2003 included two new Land O' Lakes brand dairy products: a spreadable butter with canola oil and a soft baking butter with canola oil. Sales are running ahead of forecasts. Strong sales were also realized in such areas as LO'L branded dell and foodservice products; CROPLAN GENETICS Seed; and AgriSolutions crop protection products. Land 0' Lakes- and Purina Mills-branded products also continued to provide the foundation for the co-op feed division.

* LO'L divisions reported the following 2003 fiscal results:

* Dairy Foods--$5.6 million in earnings, as compared to a loss of $32.1 million for 2002. Sales totaled $3 billion, compared to $2.9 billion in 2002.

* Feed--$46.4 million in earnings, compared to $156.5 million in 2002. Factoring out litigation settlements and other one-time gains and losses from 2002, feed earnings were down modestly from 2002. Feed sales of $2.5 billion, compared to $2.4 billion for 2002.

* Seed--Seed sales generated pretax earnings of $11.6 million vs. $8.3 million for 2002. Sales reached $479.3 million, up from $406.9 million in 2002.

* Layers/Eggs--Significant market improvement, volume growth and the success of branded eggs contributed to the company's performance in the layers/eggs industry (conducted through its MoArk joint venture), where year-end earnings totaled $33.4 million, compared to a loss of $9.5 million in 2002. Consolidated sales for the year were $317.8 million. Because consolidation began in July, only half-a-year of MoArk's sales are included. Full-year sales for MoArk were $552 million; 100 percent of MoArk's earnings are included in Land 0'Lakes income.

* Swine--While the company reported a pretax loss of $9.8 million for the year, swine performance was improved over 2002, when losses totaled $23.2 million. Contributing to this improvement were better average hog prices, production efficiencies and progress in reducing capital use and exposure to market risk. Swine sales were $91.2 million, compared to $83.2 million in 2002.

* Agronomy--Land O'Lakes conducts its agronomy business through the Agriliance joint venture, in which it holds 50-percent interest. The company reported $13.2 million in pretax earnings, compared to a loss of $1.8 million in 2002.