RESULTS OF OPERATIONS
Cost of sales as a percent of net sales decreased two percent in 2000, largely due to lower raw material costs. All of the Company's business segments realized declines in variable product costs.
The Company's cost of sales is reduced by the amount of
patronage income received from other cooperatives that is directly attributable to product purchases. The following chart reflects the amounts received during the past three years.
| Patronage Income |
| ($ in millions) |
| 2000 |
|
1999 |
|
1998 |
|
| Ag Processing Inc |
|
|
$ |
1.4 |
$ |
3.6 |
$ |
5.8 |
| CF Industries, Inc. |
|
.0 |
.0 |
1.9 |
| Prairie Farms Dairy, Inc. |
|
1.5 |
1.5 |
1.9 |
| Other |
|
1.0 |
2.3 |
2.3 |
|
| Total patronage income |
|
$ |
3.9 |
$ |
7.4 |
$ |
11.9 |
|
Selling and administration expense was $478.6 million in 2000 compared with $501.2 million in 1999. The $22.7 million decrease primarily resulted from the effect of divestitures and the formation of Agriliance.
Advertising and promotion expense of $155.3 million in 2000
represents a nine percent increase versus 1999 and a slight increase as a percent of net sales. The increase was primarily associated with
market specific promotions for consumer dairy products.
Research and development expenditures were $20.2 million in 2000 compared with $18.8 million last year. Excluding the effect of
divestitures, research and development expenditures increased $3.5 million or 21 percent.
Restructuring and impairment charges in 2000 were $54.2
million compared with $3.9 million in the prior year. Impairment charges of $44.5 million in 2000 and $3.9 million in 1999 related to the underutilization of certain Dairy Foods assets. A restructuring charge of $9.7 million in 2000 was attributed to consolidation efforts within the new Land O'Lakes Farmland Feed LLC joint venture.
Interest expense in 2000 was $59.2 million compared with $50.4 million a year ago. The $8.8 million increase primarily resulted from the effect of cash outlays for acquisitions and higher interest rates. Average debt increased by $86.6 million over 1999. Combined
interest rates for seasonal and long-term borrowings averaged 7.1 percent in 2000, compared with 6.2 percent in 1999.
Equity in loss of affiliated companies was $35.6 million in 2000 compared with equity in earnings of affiliated companies of $7.3
million in 1999. The decline in 2000 primarily was due to the impact of losses in the agronomy segment.
Income taxes decreased $13 million to a tax benefit of $12.9
million in 2000 compared with a tax expense of $.1 million in 1999. The tax benefit was attributed to non-member losses, which included impairment charges and losses associated with the repositioning of agronomy retail distribution assets acquired in 1999. The tax benefit from the non-member losses was partially offset by the non-member portion of the gain from the divestiture of the fluid dairy assets.
|
