Land O'Lakes, Inc. ("Land O'Lakes" or the "Company") is a diversified food and agricultural cooperative serving family farmers throughout the United States. The Company processes 12 billion pounds of member milk annually, markets more than 600 dairy products and provides nearly 1,400 member cooperatives with agronomic production materials including feed, seed, crop nutrients and crop protection products.
Statement Presentation The consolidated financial statements include the accounts of Land O'Lakes, Inc. and wholly-owned and majority-owned subsidiaries and limited liability companies. Intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to the 1999 and 1998
consolidated financial statements to conform to the 2000 presentation.
Cash Equivalents Cash equivalents include short-term, highly liquid
investments with original maturities of three months or less.
Inventories Inventories are valued at the lower of cost or market. Cost is determined on a first-in, first-out or average cost basis. A policy of hedging commodity and ingredient prices is followed to minimize risk.
Investments Investments in other cooperatives are stated at cost plus unredeemed patronage refunds received, or estimated to be received, in the form of capital stock and other equities. Estimated patronage refunds are not recognized for tax purposes until notices of allocation are received.
The Company believes it is not practical to estimate the fair value of investments in other cooperatives due to the excessive cost involved as there is no established market for these investments and as it is not possible to estimate future cash flows which are largely dependent on future
earnings of the cooperatives.
Property, Plant and Equipment Property, plant and equipment are
stated at cost. Depreciation is calculated using the straight-line method over the estimated useful life of each asset. Accelerated methods of depreciation are used for income tax purposes.
Intangibles The excess purchase price paid over net assets of businesses acquired is generally amortized on a straight-line basis over periods ranging from 15 to 20 years.
Income Taxes Land O'Lakes is a non-exempt agricultural cooperative and is taxed on all non-member earnings and any member earnings not paid or allocated to members by qualified written notices of allocation as that term is used in section 1388(c) of the Internal Revenue Code.
The Company files a consolidated tax return with its fully taxable subsidiaries.
The Company establishes deferred income tax assets and liabilities based on the difference between the financial and income tax carrying values of assets and liabilities using existing tax rates.
Research and Development Expenditures for research and development are charged to administration expense in the year incurred. Total research and development expenses were $20.2 million, $18.8 million and $17.7 million in 2000, 1999 and 1998, respectively.
Fair Value of Financial Instruments All financial instruments are
carried at amounts that approximate estimated fair value, except for
investments in cooperatives, for which it is not practicable to provide fair value information.
Future Accounting Requirements Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities", effective for the year ending December 31, 2001, will require
derivatives to be recorded on the balance sheet as assets or liabilities,
measured at fair value. The Company has determined that the impact of the adoption will not have a material effect on its consolidated financial
statements.
Accounting Estimates The preparation of 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 assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
