<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

               [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2000

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For the transition period from ______to______

                          Commission File No. 33-66606

                               PURINA MILLS, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                   76-0407288
    State or other jurisdiction of                 I.R.S. Employer
    incorporation or organization                Identification Number

                               1401 S. HANLEY ROAD
                            ST. LOUIS, MISSOURI 63144
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (314) 768-4100

                 SECURITIES REGISTERED PURSUANT TO SECTION 12(b)
                                  OF THE ACT:
                                      NONE

                 SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
                                  OF THE ACT:
                          Common Stock, $0.01 par value
                                (Title of Class)

                              Share Purchase Rights
                                (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes...X....  No........

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ].

     The aggregate market value of the 5,098,126 distributed shares of voting
stock held by nonaffiliates of the registrant is $46,189,022 based upon the
closing market price on January 31, 2001. The voting stock held by the
Registrant's Directors and persons beneficially owning 10% or more of the
distributed shares, who are the only persons known to the Registrant who may be
considered to be its "affiliates" as defined under Rule 12b -2, is excluded from
this figure.

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
                                                    Yes...X....  No.......

     The registrant had 10,000,000 shares of common stock, $.01 par value,
outstanding as of the close of business on March 15, 2001 of which 8,498,396
have been distributed and the remaining 1,501,604 shares being held in escrow
by our distribution agent for future distribution in accordance with our plan of
reorganization.

                      DOCUMENTS INCORPORATED BY REFERENCE:
     Portions of the registrant's Notice of Annual Meeting and Proxy Statement
relating to its 2001 Annual Meeting (to be filed) are incorporated by reference
into Part III of this Form 10-K.



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<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                        PAGE
                                                                                        ----

                                  INTRODUCTION
<S>                                                                                     <C>
Forward Looking Statements.................................................................3

                                     PART I

Item   1.      Business....................................................................4

Item   2.      Properties.................................................................12

Item   3.      Legal Proceedings..........................................................12

Item   4.      Submission of Matters to a Vote of Security Holders........................14

                                     PART II

Item   5.      Market for Registrant's Common Equity and Related
                 Stockholder Matters......................................................14

Item   6.      Selected Financial Data....................................................15

Item   7.      Management's Discussion and Analysis of Financial
                 Condition and Results of Operations......................................18

Item   7a.     Quantitative and Qualitative Disclosure About
                 Market Risk..............................................................26

Item   8.      Financial Statements and Supplementary Data................................27

Item   9.      Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure......................................56

                                    PART III

Item  10.      Directors and Executive Officers of the Registrant.........................56

Item  11.      Executive Compensation.....................................................57

Item  12.      Security Ownership of Certain Beneficial Owners
                 and Management...........................................................57

Item  13.      Certain Relationships and Related Transactions.............................57

                                     PART IV

Item  14.      Exhibits, Financial Statement Schedules and Reports
                 on Form 8-K..............................................................58
</TABLE>



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                           FORWARD-LOOKING STATEMENTS

         Certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
report constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements are not statements of historical or
current facts, but rather are statements of our current expectations, estimates
and projections about our industry, business and our future operating and
financial performance. We use words such as "anticipate," "believe," "plan,"
"estimate," "expect," "future," "intend," "are expected to," "will continue" and
variations of these words and similar expressions to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those we anticipate in our forward-looking statements. These
risks and uncertainties include, in addition to those mentioned elsewhere in
this report, the following: (i) changing conditions or market trends in the
animal feeds and agricultural products industries; (ii) general economic or
business conditions, including its effect on our customers; (iii) fluctuation in
commodity prices and our ability to recover our raw material costs in the
pricing of our products; (iv) consolidation in the feed production and livestock
production industries; (v) our ability to implement our business strategy; (vi)
the level of demand for our products and the actions of our competitors; and
(vii) our ability to obtain financing for specific or general corporate
purposes. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this report. Except as required by law, we undertake no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.



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                                     PART 1

ITEM 1.  BUSINESS

OVERVIEW

         We are a market leader in the United States in developing,
manufacturing, and marketing differentiated animal nutrition products and
programs for dairy cattle, beef cattle, hogs, and horses. We also develop,
manufacture and sell poultry feeds as well as specialty feeds for rabbits, zoo
animals, laboratory animals, birds, fish and pets. In the United States our
products are generally marketed under the widely recognized brand names
Purina(R) and Chow(R), and the "Checkerboard" Nine Square Logo(R) and other
trademarks pursuant to an exclusive, perpetual, royalty-free license from
Ralston Purina Company, except with regard to dog and cat food, which is
marketed domestically under the PMI Nutrition brand name. Our products are sold
as complete feeds or concentrated nutritional additives that are mixed with our
customer's base ingredients.

         We compete in both the livestock systems and the lifestyle animal feed
businesses. We define the livestock systems business as including nutrition
products and programs for dairy cattle, beef cattle, hogs and poultry and
believe the business is characterized by continued industry consolidation and
vertical integration of animal producers, product price sensitivities and
increasing customer sophistication. In contrast, we believe that the lifestyle
animal feed business, which includes feed products for horses, rabbits, zoo
animals, laboratory animals, birds, fish and pets, requires aggressive
marketing, customer brand awareness and strong national distribution
capabilities.

         For our livestock systems feed business, we develop and sell our
products as part of a package that includes nutrition and management programs.
Our nutrition programs include information and services regarding the care of
the animals and their facilities, as well as nutritional, genetic and breeding
counseling. We have approximately 375 sales representatives and technical
services staff, including approximately 55 consultants with Ph.D. degrees, who
work closely with dealers and customers to help ensure that our feed products,
programs and services are matched with the animal producer's facilities and
overall management practices, as well as the genetic potential of the specific
animal species.

         Our fastest growing business consists of developing, manufacturing and
selling products for the lifestyle animal feed market, consisting of feed
products for horses, rabbits and other companion animals. We have developed a
differentiated line of products and programs and a strong distribution system,
aggressive marketing support and brand reputation to serve this lifestyle animal
market. Our products for lifestyle animal owners include Omolene(R),
Strategy(TM) and a series of pelleted and extruded products including Equine
Senior(TM), Equine Adult(TM) and Equine Junior(TM) feeds for horses, Goat Chow,
Rabbit Chow, Layena(TM) for family flocks and PMI Nutrition(TM) for dogs and
cats.



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INDUSTRY BACKGROUND

         According to the 2000 Feedstuffs Reference Issue, in 1999 the U.S.
animal feed industry produced approximately 119.1 million tons of primary feed.
The industry is highly fragmented and although it includes several large
producers, it is comprised primarily of regional competitors with several
manufacturing facilities as well as a large number of small, local
manufacturers, many of whom operate only one feed mill. Animal feed typically
represents 50-70% of the total cost of producing meat, milk and eggs at the farm
level. The magnitude of costs represented by animal feed makes the effective
management of feed cost one of the most important economic components of animal
raising. Although some customers buy feed on the basis of price alone, many
customers consider the performance characteristics of the feed they purchase and
appreciate the cost effectiveness and yields produced by our value-added
products.

         The feed industry generally prices its products on the basis of Income
Over Ingredient Cost (IOIC) or a dollar based margin that is added to aggregate
ingredient cost. We believe that total IOIC and gross profit dollars, rather
than sales dollars, are the key indicators of performance because of distortions
in sales dollars caused by changes in commodity prices. Total IOIC less
manufacturing costs equals gross profit. Although feed producers are subject to
fluctuations in ingredient commodity prices, they are generally able to pass on
price increases in raw materials to customers through weekly adjustments in
product prices.

         The demand for particular products is affected by a number of factors,
including the price of grains and the price of the end products of animal
producers. When the price of grains has been relatively high, more of our
customers have tended to purchase complete rations and our tonnage has been
correspondingly higher. During periods when commodity prices (particularly for
corn) have been relatively low, animal producers have tended to purchase our
products as concentrated nutritional additives with which the customers mix
their own commodity ingredients. This results in decreased sales tonnage for us,
because the commodity portion of the product is provided by the customer. Our
concentrates, however, generally provide higher per-unit IOIC than do complete
feeds. In addition, we are diversified across a broad range of different animal
species and regions. Consequently, our total IOIC and gross profit have
historically been stable. Because the cost of feed typically represents more
than half of the cost of producing animals at the farm level, higher ingredient
prices over time can result in a decline in animal production and a decline in
the demand for our products. In addition, when market prices for live animals
and animal products are low, animal producers will also cut back on production
and search for lower-cost feed alternatives. We have attempted to counter this
producer reaction by maintaining a line of economy products while emphasizing
the relative value of our high-performance, value-added products.

OUR GROWTH STRATEGY

         Our objective is to continue to be a market leader in the United States
for providing differentiated animal nutrition products and services. Our growth
strategy emphasizes the following key elements:

Strengthen Existing Dealer Relationships and Attract New Dealers. We intend to
grow our market share of dealer feed sales by leveraging our valuable brands to
become the premier



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supplier of feed and related products to lifestyle animal owners. We intend to
expand our existing incentive programs rewarding top performing dealers and to
assist dealers in developing new or additional marketing and retailing
expertise.

Build Our Brands. We intend to continue to build our brands particularly with
lifestyle animal owners by:

         -    developing a local market based "event marketing" strategy (across
              specie lines), expanding participation in industry shows and
              creating and executing large venue marketing events;

         -    developing additional marketing programs using sports figures and
              other celebrities, increasing involvement with equine and small
              animal veterinarians and expanding our America's Horse Country
              program by adding sponsors; and

         -    executing local pricing strategies (local market rate pricing and
              price point segregation), implementing selective dealer
              distribution for lifestyle animal owners and employing whole
              market planning to increase profitability.

Expand Our America's Country Store and Premier Services Initiatives. We will
continue to pursue our America's Country Store initiative designed to
significantly enhance our existing dealer network and to recruit new investors
in "ruralpolitan" specialty retail markets. The America's Country Store
initiative features a "turn-key" package that provides investors with a
standardized model that we believe offers lifestyle animal owners a unique
shopping experience. We presently plan for the construction of more than 200
America's Country Store facilities over the next four years, strengthening its
position in the profitable "ruralpolitan" specialty retail market. We anticipate
that all America's Country Store's facilities, with the exception of a few
company-owned model stores, will be privately owned and will require minimal
capital investment by us, other than normal trade credit terms on feed products.
In addition, we are also expanding our Premier Services Program which is focused
on assisting current Purina dealers who are interested in growing their retail
business. We currently anticipate working with over 150 dealers over the next
two years. During the year 2000, we had 62 dealers participate in the program.

Continue to Pursue Joint Ventures and Strategic Alliances. We intend to evaluate
and pursue strategic alliances in the livestock systems market, with an initial
focus on the swine business. We intend to leverage our significant market share,
nutritional and husbandry management expertise and strong brand name and
reputation to participate with selected partners in the swine, feedlot cattle,
dairy system and poultry markets.

Further Develop Our Manufacturing Capabilities. We intend to manufacture and
deliver products and plant services at optimal cost through:

         -    creating dedicated plants that match cost structure and scale to
              market opportunities, especially in livestock systems;

         -    consolidating regional capacity through strategic alliances;




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         -    increasing productivity through economies of scale and plant and
              product rationalization;

         -    creating local manufacturing capabilities that improve
              profitability by meeting local market needs;

         -    optimizing private label manufacturing opportunities; and

         -    pursuing selected toll manufacturing opportunities.

Continue to Streamline Our Operations. We plan to continue to shift reporting
and accountability relationships, previously based on a plant or geographic
focus, to a market-focused structure based on business markets. Through the
implementation of SAP enterprise resource planning software, we eliminated our
multiple geographic profit centers, each of which had its own general and
administrative infrastructure and centralized many accounting and credit
functions in St. Louis. We intend to implement additional reductions in
corporate administration and to further reduce overhead through: efficiencies in
SAP; manufacturing improvements; transitioning to a market-focused sales force;
and improving our distribution, logistics and transaction processing systems.

PRODUCTS AND SERVICES

         Our product lines range from economy feeds to high-performance,
value-added products, and are sold in complete rations or as concentrated
nutritional additives to be mixed with grains. We maintain a total of over
36,000 active feed formulas, which encompass a wide range of animal species.
Although products are the principal point of differentiation, we develop and
sell our products as part of nutrition and management programs that address all
critical areas in the production of meat, milk and eggs. Our nutrition programs
include information and services regarding the care of the animals and their
facilities, as well as nutritional, genetic and breeding counseling.

RESEARCH AND DEVELOPMENT

         Our research efforts are focused on the development of proprietary
product forms and process technologies designed to support new product
development and increase manufacturing efficiency while lowering processing
costs. At our research center in Gray Summit, Missouri, we conduct extensive
animal research to develop value-added products and programs designed to
optimize the genetic performance potential of animals. Basic research is
conducted by Ph.D. scientists and technical staff who are dedicated to each
species served by our products. Each species of animal is closely studied from
birth to maturity to enable scientists to understand the complex nutritional
needs and genetic capabilities at each stage in its life cycle. By understanding
the metabolic process of each species, our scientists have identified which
nutrients are required by an animal at various stages in its development to
maximize its genetic potential. Further, researchers have gained extensive
knowledge of the nutritional composition and values of the primary ingredients
used in feed and a wide range of acceptable substitute ingredients. In addition
to the development of high-performance feeds through our research efforts, we
are able to recommend specific feeding and management programs that enhance the
effectiveness of our feed products.



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SALES AND MARKETING

         We distribute our products through two primary distribution channels:
through dealers and directly to end users. During 2000, approximately 63% of our
sales were made through our dealer network and 37% of sales were made directly
to animal producers. To support increasingly sophisticated customers, our mix of
salespeople includes approximately 85 "specialists" who focus on individual
species or distribution channels. Although sales volume through our dealer
network has always been substantially higher than our direct sales volume,
direct sales to customers have accounted for an increasing proportion of our
sales volume over the past 10 years. This trend results from increasing
consolidation in the animal production and processing industries. We believe
that consolidation among our customers generally results in a more sophisticated
market for our products and that these purchasers better appreciate the
advantages of high-performance nutrition products and nutritional programs.

         As of December 31, 2000, our dealer network consisted of over 4,100
independent dealers located in 49 states, with approximately 600 dealers
representing 66% of total dealer volume and 42% of our total volume in 2000. The
number of direct customers in 2000 was in excess of 5,900.

         During 2000, our top 50 customers represented approximately 21% of our
total sales volume and our largest customer accounted for approximately 1% of
our total sales volume.

MANUFACTURING PROCESS

         The basic feed manufacturing process consists of grinding various
grains and protein sources into a meal form that is then mixed with certain
nutritional additives, such as vitamins, minerals, synthetic amino acids, and,
in some cases, medications. The resulting products are sold in a variety of
forms, including meal, pellets, blocks and liquids. The Company's feed formulas
are based upon the nutrient content as determined through proprietary scientific
research. When the price of certain raw ingredients increases, the Company can
generally adjust its feed formulas by substituting lower-cost, alternative
ingredients to produce feeds with comparable nutritional value. By using its
least-cost product formulation system, the Company can determine optimal
formulations that meet its nutritional standards and maintain product quality.

         We currently operate 48 feed manufacturing plants located in 25 states.
Our total feed manufacturing capacity is approximately 6.4 million tons per year
based on a three shift per day, five-day week, and individual plant capacity
ranges from 60,000 tons to 275,000 tons per year. Our capacity utilization
varies by plant and by season, with higher utilization during the first and
fourth fiscal quarters.

         Potential manufacturing economies of scale are generally not sufficient
in the feed industry to offset the cost of shipping products over significant
distances, as raw ingredients make up a large percentage of the cost of finished
products and are often available locally. As a result, we operate nationally
with a network of manufacturing facilities with sufficient capacity to meet the
demands of the local markets in which the facilities are located. We regularly
review our plant capacity and factors such as trends in animal production in
specific markets and changes in transportation costs. Based on these factors,
from time to time manufacturing capacity in particular markets may be expanded,
consolidated or eliminated. In this regard, based



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on our evaluation of areas where its operations could be consolidated or
rationalized, we closed 5 feed manufacturing plants in 1999 and the first half
of 2000.

         We have invested in highly sophisticated computerized systems for
mixing, pelleting, micro-ingredient blending and packing. In addition, we have
developed and implemented a sophisticated software program for feed formulation
that incorporates the nutritional value of substitute ingredients. We believe
this program provides us with a competitive advantage. We have also made
investments to maintain the operating capability of our manufacturing
facilities.

INTELLECTUAL PROPERTY

         We market our products under the highly recognized brand names
Purina(R) and Chow(R) and the "Checkerboard" Nine Square Logo(R) pursuant to an
exclusive, perpetual, royalty-free license from Ralston Purina Company. Under
the Ralston License, we may not use those trademarks outside the United States
or in connection with any dog, cat or human food within the United States, as
Ralston or its licensees uses those trademarks in those markets. The Ralston
License may not be assigned to a major competitor of Ralston or otherwise
without the consent of Ralston. We have developed trademarks for use in
international and domestic markets and were granted a trademark for the
America's Country Store(R) name in 1998. Our operations do not depend to any
significant extent upon any single or related group of patents.

SEASONALITY

         Our business is seasonal, with a higher percentage of the feed volume
sold and earnings being generated during the first and fourth quarters of the
year. This seasonality is driven largely by weather conditions affecting our
cattle product lines. If the weather is particularly cold and wet during the
winter, sales of cattle feed increase as compared with normal seasonal patterns
because the cattle are unable to graze under those conditions and have higher
nutritional requirements. If the weather is relatively warm during the winter,
sales of cattle feed may decrease as compared with normal seasonal patterns
because the cattle may be better able to graze under the warmer conditions.
Other product lines are affected marginally by seasonal conditions, but these
conditions do not materially affect our quarter-by-quarter results of
operations.

COMPETITION

         The feed industry, which has substantial excess capacity in certain
areas of the country, is highly competitive. Both the feed production and animal
production industries are consolidating, and this trend is expected to continue.
To date, we have been successful at generating direct business with some large
animal producers. However, as producers of animals get larger, they historically
have tended to integrate their business by acquiring or constructing feed
production facilities to meet some or all of their requirements and,
consequently, have relied less on outside suppliers of feed. As the
consolidation of animal producers continues, the available market for commercial
feeds may shrink if producers integrate into feed production and, if so,
competition may increase. We expect consolidation in the commercial feed
industry itself, and acquisitions and other business combinations in recent
years indicate that this consolidation is occurring.




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         The industry is highly fragmented, with the bulk of the industry
consisting of regional competitors, including cooperatives, with several
manufacturing facilities and a large number of small, local manufacturers, many
of which operate only one feed mill. Only two competitors' commercial business
approaches the scope of our national distribution network. We believe that we
distinguish ourselves from our competitors through a competitive strategy of
differentiation using our high-performance, value-added products, which we
develop and sell on a national basis. Although the strength of competitors
varies by geographic area and product line, we believe that none of our
competitors produces and markets the breadth of products we do.

         Much of the competition in the industry centers around price due to the
commodity-like aspects of the basic product lines. However, we focus our efforts
on high-performance, value-added products that are designed to be cost effective
on the basis of weight gain, feed efficiency, animal health and price. We
believe that our extensive expertise in animal nutrition requirements and the
nutritional content of various ingredients, developed through research and
combined with our manufacturing expertise and ingredient purchasing
capabilities, allow us to use lower-cost ingredients, as well as alternative
ingredients, to a greater extent than many of our competitors. We also compete
on the basis of service by providing training programs for dealers, using
species specialists with advanced technical qualifications to consult with
customers, developing and manufacturing customized products for customers, and
offering various financing assistance programs to attract and retain dealers and
direct customers.

GOVERNMENT REGULATION

         We are subject to regulation by the FDA, USDA, EPA and state feed and
livestock remedy laws. The FDA and states regulate all ingredients that are part
of animal feed (feed additives) or that contact animal feed (feed contact
additives). It also regulates animal drugs that come in dosage form for
administration to animals, or that are added through water or feed. Our
production facilities are subject to inspection at least once every two years by
the FDA.

         The USDA is responsible for assuring that products derived from animals
are wholesome, which includes inspection for any drug residues that the animal
might contain. The USDA monitors residues and when violations occur, the USDA
works in conjunction with FDA to investigate and assign responsibility. Similar
to this federal regime, each state's Department of Agriculture also regulates
our feed production facilities and feed products manufactured in the state.

         We have an environmental policy designed to ensure that we operate in
material compliance with applicable environmental regulations. We have also
undertaken a compliance audit program that addresses environmental and other
regulatory compliance.

EMPLOYEES

         We had approximately 2,300 full-time employees as of December 31, 2000,
approximately 12% of whom were union members. We have a satisfactory
relationship with our employees, including our unionized employees.



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EXECUTIVE OFFICERS OF THE REGISTRANT

         The following is a list of all eight executive officers of Purina as of
December 31, 2000. All of these officers were elected by the Board and serve in
their positions until their successors are elected and qualified by the Board.
There are no family relationships between any of the executive officers.

<TABLE>
<CAPTION>

NAME                                       AGE                                      POSITION
----                                       ---                                      --------
<S>                                       <C>       <C>
Brad J. Kerbs..............................53        Chief Executive Officer and President since February 2000 and also a
                                                     Director since emergence from bankruptcy. Previously, he served as
                                                     our President and Chief Operating Officer since August, 1999 and as
                                                     an Executive Vice President since August, 1998. He joined us in 1969
                                                     and has served in various operational, administrative, marketing and
                                                     management positions.

Rick L. Bowen..............................48        Executive Vice President, Operations since February, 2000. He
                                                     previously served as one of our Vice Presidents since October, 1995.
                                                     He joined us in 1984 and has served in various positions, including
                                                     Manager Financial Services, District Manager, Division Sales Manager,
                                                     Regional Director of Pricing, Area General Manager and Vice
                                                     President, Dairy Operations.

Mark S. Chenoweth..........................42        Executive Vice President, Retail Dealer Development since February,
                                                     2000. He previously served as one of our Vice Presidents since July,
                                                     1999. He joined us in 1987 and has served in various positions
                                                     including Branded Meats Marketing Manager, Retail Specialty Marketing
                                                     Manager and Director, Retail Business Development of America's
                                                     Country Stores.

James R. Emanuelson........................42        Executive Vice President and Chief Information Officer since
                                                     February, 2000. He previously served as our Chief Information
                                                     Officer since August, 1999.  Prior to joining us, he was employed by
                                                     Compaq Computer Corporation for seven years where he held various
                                                     positions including Director of Corporate Manufacturing Systems.

David R. Hoogmoed..........................43        Executive Vice President, Livestock Systems Business Group since
                                                     February, 2000.  From August, 1999 through February, 2000, he served
                                                     as our Senior Vice President, Livestock Systems. He joined us in
                                                     1979 and previously served in various positions, including District
                                                     Manager, Division Sales Manager, Regional Director of Sales and
                                                     Marketing, Area General Manager, Central Region Vice President; and
                                                     most recently, Vice President, Swine Operations.

Bradley D. Schu............................42        Executive Vice President, Dealer Business Group since February,
                                                     2000.  He previously served as one of our Vice Presidents since
                                                     August, 1998. He joined us in 1980 and has served in various
                                                     positions, including field sales, sales management, Director, Retail
                                                     Specialty Group and Vice President, National Dealer Sales.

Glenn W. Shields...........................48        Vice President, Companion Animal/Specialty/Distribution since
                                                     September, 1999. He previously served as one of our Vice Presidents
                                                     since October, 1998. He joined us in 1974 and has served in various
                                                     positions including Production
</TABLE>



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<TABLE>
<CAPTION>
<S>                                     <C>        <C>
                                                     Manager, Division Sales Manager, General Manager, Director of Dairy
                                                     Business Group and Distribution, Director of Swine and Poultry Business
                                                     Group, and Vice President, Swine and Poultry Nutrition.

Darrell D. Swank...........................37        Executive Vice President and Chief Financial Officer since February,
                                                     2000. He was also elected Secretary of the Company in August,
                                                     2000. He previously served as our Chief Financial Officer since
                                                     April, 1998. Prior to his appointment as Chief Financial Officer, he
                                                     was Chief Financial Officer of Koch Agriculture Company, a position
                                                     he held since January, 1997. Before joining Koch Agriculture, he was
                                                     a consultant with Deloitte Consulting, L.L.C., a management
                                                     consulting firm.
</TABLE>

ITEM 2.  PROPERTIES

         We lease our corporate headquarters in St. Louis, Missouri and own a
1,188 acre research center in Gray Summit, Missouri.

         We currently operate 48 feed manufacturing plants located in 25 states,
one of which is leased. In addition to on-site storage at each of our
manufacturing plants, we also store products in owned or leased warehouses.
Substantially all of our assets are pledged to secure our indebtedness.

ITEM 3.  LEGAL PROCEEDINGS

         On October 28, 1999, we and certain of our affiliates filed voluntary
petitions for relief under chapter 11 of the United States Bankruptcy Code. We
filed a joint plan of reorganization with the bankruptcy court on January 18,
2000, which, as amended, was declared effective on June 29, 2000. As of that
date, we emerged from bankruptcy and began operating under a new capital
structure.

         The bankruptcy plan constituted the agreement among Koch Industries,
Koch Agriculture, their respective affiliates, the official committee of
unsecured creditors, the holders of approximately 55% of the principal amount of
our prepetition subordinated debt and us regarding the settlement of issues
among Koch Industries, Koch Agriculture, our creditors and us. The plan provided
for, among other things:

         -    the cancellation of Koch Agriculture's equity in us;

         -    repayment of all of our $278 million prepetition secured debt
              through a $103 million cash payment and $175 million in borrowings
              under a new, post-bankruptcy term loan;

         -    issuance of 10,000,000 shares of our common stock, par value $0.01
              per share, of which 9,910,000 shares have been or will be
              distributed to holders of general unsecured claims under the plan,
              which included holders of all of our $350 million in prepetition
              subordinated debt;

         -    a capital contribution to us of $60 million by Koch Agriculture;




                                       12
<PAGE>   13

         -    the discharge of prepetition intercompany claims;

         -    the selection of a new board of directors;

         -    the settlement of claims by and against Koch Industries, Koch
              Agriculture and other related parties;

         -    the merger of Purina Mills, Inc. into PM Holdings Corporation,
              with PM Holdings surviving the merger and changing its name to
              Purina Mills, Inc.;

         -    other corporate restructuring transactions designed to simplify
              our corporate structure; and

         -    the substantive consolidation of us and our subsidiaries.

         The plan also permitted us to grant options to purchase 1,000,000
shares of our common stock to selected key employees under our equity incentive
plan.

         In addition to our chapter 11 proceedings, we are from time to time
involved in litigation relating to claims arising out of our operations in the
normal course of business, including product liability claims, contract
disputes, patent and trademark matters and taxes.



                                       13
<PAGE>   14

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of security holders during
the quarter ended December 31, 2000.

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is traded on the Nasdaq National Market
System under the symbol "PMIL." There were 593 shareholders of record on
December 31, 2000. The Company has not paid cash dividends in 2000 and does not
intend to begin paying cash dividends in fiscal year 2001.

         The following table sets forth, for the four and one-half months ended
December 31, 2000, the range of high and low sale prices of Purina Mills, Inc.
common stock as reported on the NASDAQ Composite Tape.

                                  PURINA MILLS, INC. COMMON STOCK

                                             MARKET PRICES
                                 ----------------------------------
                                             HIGH           LOW       DIVIDENDS
                                             ----           ---       ---------
       2000
         Fourth Quarter                     $10.38         $7.50          --
         Third Quarter
           (August 15-September 30)         $15.00         $7.94          --



                                       14
<PAGE>   15

ITEM 6.  SELECTED FINANCIAL DATA

         The following selected historical information is qualified by reference
to and should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and notes thereto included elsewhere in this report. The Consolidated Statements
of Operation Data for each of the years in the three year period ended December
31, 2000 and the Consolidated Balance Sheet Data as of December 31, 1999 and
2000 presented below, have been derived from audited financial statements
included elsewhere in this report. The Consolidated Statement of Operations Data
for the years ended December 31, 1996 and 1997 and the Consolidated Balance
Sheet Data as of December 31, 1996, 1997 and 1998 were derived from audited
financial statements not included in this report.

         The consolidated financial data for the period prior to March 12, 1998
has been prepared on a predecessor basis. The consolidated balance sheet data at
December 31, 2000, December 31, 1999, December 31, 1998 are not comparable with
the December 31, 1997 and 1996 balance sheet data presented. Also, the December
31, 2000 consolidated balance sheet data is not comparable to the other balance
sheet data presented due to the adoption of "fresh-start" reporting upon
emergence from bankruptcy. Operating results subsequent to the 1998 merger
through June 30, 2000 are comparable to the operating results prior to the 1998
merger except for depreciation expense, amortization of intangible assets,
interest expense and post-retirement health care costs. Operating results for
the six months ended December 31, 2000 are comparable to the operating results
for the period March 13, 1998 through June 30, 2000 except for amortization of
intangible assets, interest expense, restructuring expenses, provisions for
income taxes and extraordinary items.

<TABLE>
<CAPTION>

                                                                                                         POST-
                                                                  PRE EMERGENCE                        EMERGENCE
                                                 -------------------------------------------------     -------------
(Dollars in millions)                                      PRE MERGER                       POST MERGER
                                                 ---------------------------     ----------------------------------
                                                                              DECEMBER 31,
                                                 -------------------------------------------------------------------
                                                        1996        1997          1998        1999             2000
                                                        ----        ----          ----        ----             ----
<S>                                                  <C>          <C>           <C>        <C>               <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................         $   19.3     $  26.2       $  15.8    $  (199.8)        $  56.1
Property, plant and equipment, net..........            250.6       243.7         262.8        235.4           209.5
Total assets................................            613.4       592.9         815.7        589.0           522.3
Total long-term debt(1).....................            364.3       340.2         558.5          --            156.1
Stockholders' equity........................              7.7       (16.2)         66.3       (215.8)          182.9
</TABLE>


(1)  As of December 31, 1999, all of our long-term debt was classified as
     "liabilities subject to compromise" or as a current liability due to our
     bankruptcy filing.



                                       15
<PAGE>   16

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>

                                                                     PRE EMERGENCE                                  POST-EMERGENCE
                                  --------------------------------------------------------------------------------- ---------------
                                                 PRE-MERGER                                      POST MERGER
                                  ----------------------------------------  -------------------------------------------------------
                                                              JANUARY 1        MARCH 13         YEAR     SIX MONTHS    SIX MONTHS
                                  YEAR ENDED   YEAR ENDED         TO              TO            ENDED       ENDED        ENDED
                                  DECEMBER 31  DECEMBER 31     MARCH 12       DECEMBER 31   DECEMBER 31    JUNE 30    DECEMBER 31
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
                                      1996       1997             1998             1998          1999         2000          2000

                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
<S>                                <C>         <C>               <C>               <C>           <C>          <C>           <C>
OPERATING DATA:
Net sales                          $1,212.2    $1,128.4          $214.3            $784.4        $881.9       $414.5        $425.3
Cost of products sold               1,035.9       913.0           171.2             640.3         706.9        329.2         336.0
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
     Gross profit                     176.3       215.4            43.1             144.1         175.0         85.3          89.3

Other costs and expenses:
Marketing and distribution             84.7        87.3            17.5              73.1          91.5         43.2          43.6
General and administrative             31.4        55.7            27.6              59.9          65.4         26.5          22.6
Research and development                7.0         7.2             1.4               5.4           6.0          2.7           3.0
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
                                      123.1       150.2            46.5             138.4         162.9         72.4          69.2

Provision for asset write-offs (1)     14.0         4.4              --                --          19.7           --            --
Restructuring expenses (2)               --          --              --                --          18.1         24.9           3.5
Provision for intangible asset
     impairment (3)                      --          --              --                --         161.6           --            --
Provision for loss guarantees            --          --              --              14.2            --           --            --
     (4)
Other expense (income) -net (5)       (10.5)       (3.5)            0.1               4.5           0.7        (28.5)         (1.7)
Amortization of intangibles            19.5        20.6             3.9              14.5          15.1         13.6           8.8
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
                                      146.1       171.7            50.5             171.6         378.1         82.4          79.8
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
Operating income (loss)                30.2        43.7            (7.4)            (27.5)       (203.1)         2.9           9.5
Interest expense                       43.6        41.5             8.1              39.5          48.7          9.7           7.0
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
Income (loss) before income taxes     (13.4)        2.2           (15.5)            (67.0)       (251.8)        (6.8)          2.5
Provision (benefit) for income taxes   (3.4)        1.7            (5.8)            (23.8)         29.0           --           3.0
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
Income (loss) before extraordinary
      item and  revaluation           (10.0)        0.5            (9.7)            (43.2)       (280.8)        (6.8)         (0.5)
Extraordinary item-gain on
     extinguishment of debt,
     net of tax                           -           -               -                 -             -        159.3             -
Revaluation of assets and
     liabilities pursuant to
     the adoption of                      -           -               -                 -             -          2.5             -
     "fresh-start" reporting
                                  ------------ ------------- -------------  -------------- ------------- ------------ -------------
Net income (loss)                   $ (10.0)   $    0.5      $     (9.7)    $       (43.2) $     (280.8) $     155.0  $       (0.5)
                                  ============ ============= =============  ============== ============= ============ =============
OTHER DATA:
Total depreciation and
      amortization (6)              $  50.4     $  50.0      $     10.1     $        40.1  $       48.0  $      30.4  $       22.5
Capital expenditures (7)               23.9        30.4             4.5              25.3          21.0          8.6          16.9
Cash provided (used)-operations        58.3        70.0           (40.1)             59.9         (32.0)        27.0          27.7
Cash provided (used)-investing        (22.1)      (29.3)           (4.3)            (24.3)        (23.3)        10.9         (15.6)
Cash provided (used)-financing        (32.2)      (38.5)          391.9            (369.2)         61.9        (42.8)        (17.6)
</TABLE>


(1)  Provision for asset write-offs represents the noncash write-down of the net
     book value of closed facilities and the write-down of other assets to net
     realizable value. During 1996, we closed seven feed plants and recorded a
     corresponding loss of $14.0 million. The 1997 charges related to the
     write-down of the value of a feed supply agreement. For the year ended
     December 31, 1999 the charge relates to the closure of five feed plants
     resulting in a loss of $19.7 million.

(2)  Restructuring expenses represent the costs incurred in connection with a
     business analysis and subsequent bankruptcy filing on October 28, 1999. The
     costs include advisory fees, severance and relocation costs and
     compensation expense in connection with the Key Employee Retention Plan.

(3)  Provision for intangible asset impairment represents the non-cash
     write-down of the net book value of the intangible assets to net realizable
     value.

(4)  Provision for loss guarantees represents a loss recorded for the potential
     funding of various loan guarantees made by banks to assist our customers in
     obtaining bank loans for working capital or fixed asset additions.



                                       16
<PAGE>   17

(5)  Other expense (income)-net includes profit or loss on marketing agreements
     and the production of eggs, hogs and turkeys, interest income on customer
     accounts, fee income for various agricultural services, equity income of
     less than 50% owned investees and other costs or revenues. The 1996 amount
     also includes the proceeds received in settlement of a claim of excess
     charges on raw material purchases in prior years and the profit on the
     sales of our bromethaline inventory and related trademark and other rights.
     The amount for the six month period ended June 30, 2000 also includes
     proceeds in excess of $20.0 million received in settlement for claims for
     excess charges of vitamin purchases in prior years and the gain of $3.3
     million from the sale of our headquarters building.

(6)  Total depreciation and amortization includes amortization related to
     deferred financing costs which is included in interest expense for periods
     noted.

(7)  Capital expenditures includes expenditures for capital asset replacement,
     cost reductions, regulatory compliance, and quality and service projects,
     and capital spending projects designed to increase manufacturing,
     warehousing, transportation or other capacity or otherwise increase sales
     volume.



                                       17
<PAGE>   18


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         You should read the following Management's Discussion and Analysis of
Financial Condition and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in this report. This
discussion contains forward-looking statements as outlined on page 3 of this
report. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including those
set forth under "Forward Looking Statements" and elsewhere in this report.

RESULTS OF OPERATIONS

Overview of Our Industry

         The economic environment in the agricultural industry during the last
three years has been a difficult one. Livestock commodity prices have been
depressed and reached historic lows in many markets. In addition to the overall
economic environment, there is significant continuing competition in all areas
of agriculture, including the feed industry. As a result of this competition, we
expect the U.S. feed industry to further consolidate in the years ahead.
Nevertheless, although the total volume of processed feed sold into the
livestock systems market may decline, larger producers are tending to purchase
products with lower inclusion rates, such as concentrates or premixes, with
higher margins. As they grow larger, these producers are typically better able
to measure performance differences and make sound economic decisions regarding
nutrition and management programs.

         The feed industry generally prices products on the basis of aggregate
ingredient cost plus a dollar amount margin, rather than a gross profit
percentage. As ingredient prices fluctuate, the changes are generally passed on
to customers through weekly or monthly changes in our price lists. Feed tonnage
and total income over ingredient cost (IOIC), which is net sales minus cost of
ingredients, and gross profit (IOIC less manufacturing costs), rather than sales
dollars, are the key indicators of performance because of the distortions in
sales dollars caused by changes in commodity prices and product mix between
complete feed and concentrate products, to which customers add their own base
ingredients, such as corn and other grains. Historically, when the price of
grains has been relatively high, more of our customers have tended to purchase
complete rations and our sales volume has been higher; alternatively, when the
price of grains has been relatively low, more of our customers have tended to
use their own grains and mix them with our higher-margin concentrates, resulting
in lower sales volume but relatively higher overall unit margins.

Overview of Our Business

         We develop, manufacture and market a comprehensive line of animal
nutrition products for dairy cattle, beef cattle, hogs, horses and poultry, as
well as specialty feeds for rabbits, zoo animals, birds, fish and pets. For the
year ended December 31, 2000, the product mix by volume was approximately 27%
for dairy, 33% for beef cattle, 12% for hogs, 13% for horses, 4% for poultry and
11% for all others.

         In connection with our merger with Koch Industries in 1998, we incurred
a significant amount of indebtedness. This indebtedness limited our flexibility
to adjust to the depressed conditions in the agricultural industry and made us
particularly vulnerable to the downturn in the swine market. As a result of our
financial condition during 1999 and our substantial degree of leverage, our
ability to finance working capital requirements was adversely affected by cash
requirements for debt service. On September 15, 1999, we failed to make a
scheduled interest payment of $15.8 million due to the holders of the senior
subordinated notes and on October 21, 1999, the indenture trustee accelerated
the notes. On



                                       18
<PAGE>   19

September 30, 1999, we failed to pay $2.1 million in principal payments under
our pre-petition credit facility. This principal payment was subsequently made
on October 27, 1999. Faced with these events and an inability to service future
interest payments on the subordinated notes, we commenced reorganization cases
under chapter 11 of the bankruptcy code on October 28, 1999. The plan, as
amended, was confirmed by the bankruptcy court on April 5, 2000 and became
effective on June 29, 2000.

         We are continuing to focus on managing and mitigating the impact of the
significant decline in hog prices on our performance. With the prices of hogs
having increased moderately from December 1998, which was the lowest price in
nearly forty years, and through the efforts of management, we mitigated some of
our swine exposure in an effort to reduce the negative implications on future
earnings, cash flow and liquidity. Commencing in April 1999, we locked in a
majority, but not all, margin on market hogs to be marketed during the remainder
of 1999 and the year 2000 by entering into futures contracts for market hogs and
the major feed ingredients to grow the hogs. This action resulted in limiting
the risk of any market decline on these hogs, but also limited the potential for
gain if market prices significantly increased. As a result thereof, our overall
net loss associated with swine operations decreased from $20.2 million in 1998
to $16.2 million in 1999 and $6.4 million in 2000. We have also locked in a
margin for a portion of the hogs to be marketed in 2001 and, as such, we are
subject to risk of fluctuations in the price of market hogs, which could have an
impact on results of operations and liquidity. However, at this time, based on
contracted commitments, estimated feed costs, counterparty risks and current
spot and futures prices, we estimate our loss in 2001 associated with our swine
exposure to be approximately $2.0 to $3.0 million.

         In connection with our reorganization, we finalized the consolidation
and centralization of our accounting and credit functions and also reduced our
overall administrative and sales work force. As a result thereof, we reduced our
overall workforce by 7.6% at December 31, 2000, as compared to December 31,
1999. We are continuing to focus on increasing efficiencies and further reducing
our overhead costs in 2001.

         We also continue to review the performance of our facilities in an
attempt to optimize overall capacity and maximize profits. During 1999, we
decided to discontinue manufacturing operations at five facilities. Products for
distribution to customers of the closed facilities are being manufactured at our
other facilities. In connection with these plant closures, we recorded a loss of
$13.1 million on manufacturing assets, which represented the amount by which the
book value exceeded the estimated net realizable value. Estimated demolition
costs of $1.2 million, severance costs of $0.4 million and a write-off of $5.0
million for related goodwill were also recorded.

Period Comparisons

         Our results of operations after June 30, 2000 and our consolidated
balance sheet at December 31, 2000 are not comparable to the results of
operations prior to June 30, 2000 and the historical balance sheet at December
31, 1999 due to our adoption of "fresh-start" reporting upon our emergence from
bankruptcy. However, such differences relate solely to amortization of
intangible assets, interest expense, restructuring expenses, provisions for
income taxes and extraordinary items. Accordingly, to provide a more meaningful
analysis, in the following discussion we have compared the full year amount for
2000 to the comparable amounts for 1999 for operating items other than
amortization of intangible assets, interest expense, restructuring expenses,
provisions for income taxes and extraordinary items.



                                       19
<PAGE>   20

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Overall lower commodity prices and a decrease in tons sold caused net
sales to decrease 4.8% in 2000 from the year 1999. However, gross profit
remained fairly constant totaling $174.7 million for the year 2000 compared to
$175.0 million for the year 1999, thus increasing our gross profit percentage to
20.8% for the year 2000. Average feed IOIC per ton was $67.18, an increase of
5.4% over the amount for 1999 due to the continued increase in sales of higher
margin products. Overall volume decreased 8.0% and totaled 4.0 million tons for
the year 2000.

         Beef-cattle volume remained fairly constant in 2000 with overall volume
totaling 1.3 million tons. Dairy-cattle tons decreased 6.4% from the prior year,
due to low milk prices and lower commodity prices. Hog volume decreased 21.2%
from the prior year as a result of the continuing effects of depressed market
conditions and the resulting loss of customers from market consolidation. Horse
volume increased 4.2% over the year 1999. We have had continued success in
growing our horse volume and increasing our market share of this business. This
is the eighth successive year of volume increase and reflects our customers'
confidence in our products. Laying-chicken and meatbird volume decreased 48.0%
from 1999 which can be attributed to the loss of a major customer in the third
quarter of 1999. Specialty and other volume decreased 2.8% from the year 1999.

         Cost of products sold decreased $41.8 million, or 5.9% from the year
1999, due primarily to the $34.9 million decrease in ingredient costs. Net
losses from the hog program also decreased $7.7 million from $13.0 million to
$5.3 million due to increases in hog market prices and reduced swine exposure
during the year. Manufacturing expenses remained consistent with the amount for
the year 1999.

         Marketing, distribution and advertising costs decreased $4.7 million
due primarily to a decrease in sales volume and reduction of sales personnel.
General and administrative expenses decreased $16.4 million from 1999 due to a
decrease in relocation costs, a decrease in administrative costs due to
consolidation of various functions such as accounting and credit and reduced bad
debt expense. Overall marketing, distribution, advertising and general and
administrative expenses were 16.2% of sales revenue in 2000, as compared to
17.8% in 1999.

         Intangible amortization expense increased during the first six months
of 2000 due to a change effective January 1, 2000, in the amortization period
for our goodwill to five years compared to an amortization life of 40 years
through December 31, 1999. Additionally, as a result of "fresh-start" reporting,
all intangible assets were revalued on June 30, 2000 and are being amortized
over their estimated useful lives. Our reorganization value in excess of our net
assets upon the emergence from bankruptcy is being amortized over 10 years.

         Research and development costs decreased slightly compared with the
year 1999. Other (income) expense, net, relates to service fees for swine and
dairy management, the (income) loss on our equity investments and losses on
marketing arrangements. Other (income) expense for the year ended December 31,
2000 also includes proceeds of $24.7 million received in settlement of claims
for excess charges of vitamin purchases in prior years and a gain of $3.3
million from the sale of our headquarters building.

         Restructuring expenses for the year ended December 31, 2000 include
$12.5 million in advisory and financing fees incurred in connection with the
bankruptcy cases. Additionally, $7.0 million was incurred for service fees,
severance and moving costs and $8.9 million for compensation expense in



                                       20
<PAGE>   21

connection with our Key Employee Retention Plan. This is an increase of $10.4
million over the total of such costs in 1999.

         Interest expense for the year 2000 decreased $31.9 million from the
year 1999 primarily as a result of the discontinuance of recording any interest
expense on the senior subordinated notes, which had been classified as
"liabilities subject to compromise" and have been extinguished in the final
bankruptcy plan. We also terminated our pre-petition debt and our swap contract
on $114.7 million of that debt, and realized a gain of $2.5 million, which is
shown as a reduction of interest expense. Finally, upon emergence from
bankruptcy, our debt has been substantially reduced.

         For the first six months of the year 2000, we determined that we were
not likely to receive a tax benefit or incur any tax cost under our tax sharing
agreement with Koch Industries and thus recorded no tax benefit or expense. For
the second six months of the year 2000 and for the year 1999, our effective
income tax rate differed from the statutory rate due primarily to amortization
of goodwill and reorganization value in excess of amounts allocable to
identifiable assets not being allowed as a tax deduction.

         The extraordinary gain on extinguishment of debt represents the amount
of unsecured liabilities, as reflected on our balance sheet as of the petition
date, which have been or will be satisfied by issuance of our common stock in
accordance with our bankruptcy plan. The total of such liabilities less the
reduction in tax basis of our assets as a result of the debt extinguishment, at
the applicable tax rate, less the value of our new common stock issued in
satisfaction thereof resulted in a net gain of $159.4 million.

         The income on the revaluation of our assets and liabilities pursuant to
the adoption of "fresh-start" reporting totaled $2.5 million. It represents our
best estimate of the reorganization value of Purina Mills immediately after the
effective date of our bankruptcy plan in excess of the net value our assets
after the consummation of the plan, including the extinguishment of debt.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Continued depressed commodity prices and low market prices for producer
products caused 1999 net sales to decrease 11.7% from the 1998 period. While
gross profit decreased $12.0 million or 6.4% from 1998 due primarily to
increased competition in the industry, our gross profit percentage increased to
19.8% from 18.7% due to production efficiencies. As a result, average feed IOIC
per ton was $63.73 for 1999, approximately equal to the amount for 1998. Overall
volume was 4.3 million tons for the year 1999, a decrease of 6.7% from 1998.

         Beef-cattle and dairy-cattle feed tons remained fairly constant in 1999
with overall volume totaling 1.3 million and 1.1 million tons, respectively. Hog
volume decreased 32.4% reflecting the depressed market conditions for producers
and the loss of customers resulting from the consolidation within the hog
industry.

         Sales of horse feed remained strong as we increased our market share
with a volume increase of 12.3% during 1999 as total volume was just under 0.5
million tons. This increase continued the trend for the past seven years as our
products continued to enjoy strong customer acceptance. Laying-chicken and
meatbird volume decreased 18.9% primarily as a result of a major customer
incurring severe financial difficulties and discontinuing purchases. Specialty
and other volume increased 2.8% over 1998 as a result of our continued emphasis
on promotion of these products.



                                       21
<PAGE>   22

         The decrease in overall volume caused a corresponding decrease in cost
of products sold. Ingredient costs decreased $101.8 million and total cost of
products sold decreased $104.7 million, or 12.9% from 1998. Manufacturing costs
also decreased $2.9 million due to the lower 1999 volume and the discontinuance
or curtailment of manufacturing operations at five locations. Marketing,
distribution and advertising costs remained fairly constant as the decrease in
expense attributable to the volume decline was offset by continuing costs
associated with the America's Country Store initiative, designed to
significantly enhance our existing dealer network and recruit new investors in
specialty retail markets. General and administrative expenses were 7.4% of sales
for 1999 as compared to 7.2% in 1998, excluding the $15.9 million expense in
1998 for compensation paid management and holders of options and stock rights.

         Amortization expense and research and development expenses, as a
percentage of sales, remained fairly constant as we continued our emphasis on
product development.

         During 1999 we made the decision to discontinue or curtail
manufacturing operations at five of our facilities. Products for distribution to
customers of the closed facilities are being manufactured at our other
facilities. In connection with these plant closures, we recorded a loss of $13.1
million on manufacturing assets, representing the amount by which the book value
exceeds estimated fair value. Estimated demolition costs of $1.2 million,
severance costs of $0.4 million and a write-off of $5.0 million for related
goodwill were also recorded. Also, in 1999, we recorded a provision for loss on
impairment of intangible assets of $161.6 million. The provision reduced the
carrying value of intangible assets to management's estimate of the fair value
of intangible assets at December 31, 1999.

         During the third quarter of 1999, we conducted a comprehensive
strategic business review, including the development of a business plan that
addressed both short-term and longer-term issues required to stabilize and turn
around the business. In connection with the business plan and the reorganization
cases, we incurred advisory fees and expenses of $10.7 million during 1999.
Additionally, we recorded severance costs of $3.9 million, bank fees of $1.4
million and compensation expense of $2.1 in connection with the Key Employee
Retention Program during 1999. These costs and fees are shown as restructuring
expenses.

         Other (income) expense, net for 1999 relates to service fees for swine
and dairy management, the (income) loss of equity investments and losses on
marketing arrangements. The amount approximates the amount for 1998, excluding
the 1998 loss of $4.6 million on the sale of discontinued products.

         Interest expense for 1999 increased $1.2 million as a result of the
increase in the outstanding debt under our prepetition credit facility. The 1999
provision for income taxes, in addition to not recording a tax benefit for 1999
losses, reflects the establishment of a valuation allowance on our deferred tax
assets. There was no assurance that the deferred tax assets or tax benefit of
1999 losses would be realized considering the bankruptcy filing and the expected
discontinuance of our tax sharing agreement with Koch Industries. The 1998
effective income tax rate approximates the statutory rate.

SEASONALITY

         Our results of operations are seasonal, with a higher percentage of our
volume and earnings being generated during the first and fourth quarters of the
year. This seasonality is driven largely by weather conditions affecting our
beef-cattle products. If the weather is particularly warm during the winter,
sales of feed for beef cattle may decrease as compared with normal seasonal
patterns because the cattle may be better able to graze under warmer conditions.
Other product lines are affected marginally by seasonal



                                       22
<PAGE>   23

conditions, but these conditions do not materially affect our overall
quarter-by-quarter results of operations. The seasonality of our businesses may
have a material adverse affect on our results of operations.

INFLATION

         Management recognizes that inflationary pressures may have an adverse
effect on the Company through higher asset replacement costs and related
depreciation and higher ingredient costs. The Company tries to minimize these
effects through cost reductions and productivity improvements as well as price
increases to maintain reasonable profit margins. It is management's view that
inflation has not had a significant impact on the consolidated operations in the
three years ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

         For the year ended December 31, 2000, net cash provided by operating
activities was $54.7 million compared to net cash used in operating activities
of $32.0 million in 1999 and net cash provided by operating activities of $19.8
million in 1998. The increase in net cash provided in 2000 from the prior year
results primarily from the net change in working capital and an increase in
profitability, before extraordinary gains and provisions for losses on plant
closings, intangible asset impairments and deferred taxes, of $67.4 million. As
a result of the reorganization cases, our current liabilities, including trade
payables and payables to affiliates for ingredients, at December 31, 1999, were
substantially lower than these amounts at December 31, 1998 and December 31,
2000. Accordingly, we had an increase in working capital during the year 2000
compared to the significant decrease that occurred during the comparable 1999
period. The increase in net cash used in 1999 compared to 1998 resulted
primarily from the reduction in payables of $31.8 million, a reduction in
advance payments of $6.4 million and an $11.6 million increase in the cash
operating loss.

         Net cash used in investing activities was $4.8 million in 2000,
compared to $23.3 million in 1999 and $28.7 million in 1998. The decrease in net
cash used in investing activities in 2000 was due to the proceeds received from
the sale of our headquarters building for approximately $14.9 million and a
decrease in notes receivable, offset by an increase in capital expenditures of
$4.6 million. The change in 1999 from 1998 was due to a decrease in capital
expenditures of $8.8 million in 1999 as construction of the Lubbock, Texas plant
was completed in the last quarter of 1998; partially offset by an increase in
notes receivable from the year 1998.

         Net cash used in financing activities in 2000 includes repayment on our
pre-petition revolving credit facility of $87.5 million, our repayment of
pre-petition term loans of $190.6 million and the voluntary repayment of $19.0
million in our post-petition term loan. These repayments were offset by the
receipt of $60.0 million from Koch Industries related to the negotiated
settlement as provided in the bankruptcy plan, our borrowing under the
post-petition term loan of $175.0 million, and the issuance of $1.4 million in
notes as payment for advisory fees. Net cash provided by financing activities in
1999 includes borrowings under our pre-petition revolving credit facility of
$67.5 million less the repayment of term loans of $5.5 million. Net cash
provided by financing activities in 1998 includes the proceeds from the
prepetition credit facility, including term loans, of $220.0 million, the
proceeds from the senior subordinated notes of $350.0 million less the repayment
of certain of certain prior indebtedness totaling $388.7 million and payments of
$253.3 million, including $8.0 million in acquisition costs, for the purchase of
PM Holdings shares in connection with the 1998 merger. In addition, net cash
used in financing activities in 1998 includes payments of $12.4 million for
financing costs.




                                       23
<PAGE>   24

         At December 31, 2000, we had $37.7 million in cash and cash equivalents
on hand with $42.1 million available for borrowing under our new revolving
credit facility. We operate with a relatively low working capital level because
a majority of our sales are made on terms whereby customers receive a 3%
discount if payment is received immediately upon shipment of feed products, and
raw ingredients are normally purchased just prior to manufacturing and shipment.

         Liquidity needs have been and will continue to be met through
internally generated funds and, to the extent necessary, borrowings under our
revolving credit facility. Our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions and general
corporate purposes, should we need to do so, may be affected by cash
requirements for debt service. Our credit agreement contains restrictive
covenants that, among other things and under various conditions, limit our
ability to incur additional indebtedness, to acquire (including a limitation on
capital expenditures) or dispose of assets or operations and to pay dividends.
Additionally, we are required to provide our lenders monthly financial reports
as to the results of our operations. The credit agreement also requires us to
make mandatory repayments of the term loan in amounts equal to 50%- 80% of
Excess Cash Flow (as defined in the Credit Agreement). No payment is due in 2001
due to the voluntary prepayment of $19.0 of term loans in 2000.

         We expect that capital expenditures during fiscal year 2001 will be
approximately $25.0 million to $30.0 million which includes approximately $3.0
million related to new or improved manufacturing systems at facilities where
horse products are manufactured to maintain these systems as ionophore free. Our
actual capital expenditures for the year 2000 were $25.6 million. We may from
time to time be required to make additional capital expenditures in connection
with the execution of our business strategies. Our capital expenditures during
fiscal year 1999 were approximately $21.0 million, which included $3.3 million
related to our new accounting and information reporting system.

         We will incur substantially lower interest expense in the future as a
result of the lower level of debt. We believe that cash flow from operations and
availability under our revolving credit facility will provide adequate funds for
our foreseeable working capital needs, planned capital expenditures and debt
service obligations. Our ability to fund our operations and make planned capital
expenditures, to make scheduled debt payments, to refinance indebtedness and to
remain in compliance with all of the financial covenants under debt agreements
depends on our future operating performance and cash flow, which, in turn, are
subject to prevailing economic conditions and to financial, business and other
factors, some of which are beyond our control.

SUBSEQUENT DEVELOPMENTS

         On January 17, 2001, we voluntarily initiated a limited product recall
at our Gonzales, Texas plant. The recall involved one animal feed product that
was manufactured at this plant and shipped to one customer. Our quality
assurance program detected the product formulation variance in the handling of
the animal feed ingredient, ruminant meat and bone meal, which is not permitted
in feed intended for ruminant animals. We purchased the 1,222 cattle that were
fed the product and will use these cattle for non-human food purposes in order
to attempt to ensure that the meat will not enter the human food supply. We
estimate that total cost including the costs to remove and dispose of all
ruminant meat and bone meal at all our plants, before insurance recoveries, will
approximate $1.5 to $3.5 million.



                                       24
<PAGE>   25


KEY MEASURES AND CONCEPTS FOR UNDERSTANDING THE BUSINESS

         Because one of the principal focuses of the Company is cash flow,
management uses earnings before interest expense, interest income, income taxes,
depreciation, amortization, gains or losses on fixed asset dispositions and
write-downs, restructuring costs, and other non-recurring gains, losses or
expenses ("EBITDAR") as a key measure for evaluating performance and
compensating management under its annual incentive plan. EBITDAR is also a
principal component of several covenants under the Credit Agreement. The
following table provides a reconciliation of income (loss) before taxes and
extraordinary items to EBITDAR.

(Dollars in millions)

<TABLE>
<CAPTION>

                                           POST-EMERGENCE                                PRE-EMERGENCE
                                       -------------------     -------------------------------------------------------------------
                                                                     POST-MERGER                                     PRE-MERGER
                                       ------------------------------------------------------------------------     --------------
                                             SIX MONTHS         SIX MONTHS         YEAR
                                                ENDED              ENDED           ENDED         MARCH 13 TO        JANUARY 1 TO
                                            DECEMBER 31,         JUNE 30,       DECEMBER 31,    DECEMBER 31,          MARCH 12,
                                                2000               2000             1999            1998                1998
                                                ----               ----             ----            ----                ----
<S>                                     <C>                    <C>            <C>               <C>                  <C>
OPERATING INCOME (LOSS)                 $       9.5            $      2.9     $   (203.1)       $   (27.5)           $   ( 7.4)
ADDBACK:
  Depreciation & amortization                  22.6                  30.4           48.0             40.1                 10.1
  Amortization of deferred
    financing costs                               -                  (0.6)          (1.3)            (0.8)                (0.6)
  (Gains) losses related to asset
    disposition and vitamin
    purchases claim settlement                 (0.5)                (27.0)           1.3              1.4                  0.2
NONRECURRING CHARGES:
  Provision for asset write-off                   -                     -          181.3                -                    -
  Restructuring expenses                        3.5                  24.9           18.1                -                    -
  Other                                           -                     -            6.4             34.6                 15.9
                                       ----------------------- -------------- ---------------- ----------------     --------------
EBITDAR                                 $      35.1            $     30.6     $     50.7       $     47.8           $     18.2
                                       ======================= ============== ================ ================     ==============
</TABLE>

         The nonrecurring charges-other represents the cost and expenses in
connection with a provision for losses on discontinued businesses, reserves for
losses on guarantees, litigation expenses, merger integration expenses and other
non-recurring charges for the year ended December 31, 1999 and the period March
13 to December 31, 1998. For the period January 1 to March 12, 1998,
nonrecurring charges-other represents compensation expense paid management and
holders of stock options and stock rights units in connection with the Merger.

         EBITDAR as presented may not be comparable to similarly titled measures
used by other companies, depending upon the treatment of non-cash and other
specific charges. When evaluating EBITDAR, investors should consider that
EBITDAR: (i) should not be considered in isolation but together with other
factors that may influence operating and investing activities, such as changes
in operating assets and liabilities and purchases of property and equipment;
(ii) is not a measure of performance calculated in accordance with accounting
principles generally accepted in the United States of America; (iii) should not
be construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows; and (iv) should not be
used as an indicator of the Company's operating performance or as a measure of
its liquidity.



                                       25
<PAGE>   26

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

         The Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities and SFAS No. 138,
Accounting for Certain Instruments and Certain Hedging Activity to amend SFAS
133. Collectively, these statements establish accounting and reporting standards
requiring that an entity recognize certain derivative instruments as assets and
liabilities in the statement of financial position and measure them at fair
value. These statements require that changes in the fair value of derivatives
are be recognized currently in earnings unless specific accounting provisions
for qualifying hedges allow a derivative's gains and losses to offset related
results of the hedged item in the income statement, and require that the Company
must formally document, designate and assess the effectiveness of transactions
that qualify for hedge accounting. SFAS 133 and SFAS 138 become effective for
fiscal years beginning after June 15, 2000. The Company will adopt these
statements effective January, 2001. The Company does not expect to meet the
documentation and designation requirements of SFAS 133 and SFAS 138.
Accordingly, the Company believes that when adopted, its derivative instruments
will not qualify as hedges and therefore volatility in reported earnings will
increase.

OUTLOOK OF OPERATING RESULTS

         Based on current economic conditions in the agricultural markets,
especially those of most of our customers, we anticipate that earnings for the
year 2001 will remain relatively stable. We believe that the expected continued
cash flow from operations plus the availability of $42.1 million under our
revolving credit facility should position the Company to meet its future cash
needs, including estimated capital expenditures of $25.0 million to $30.0
million for the year 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Under our credit agreement, the term loan bears interest at floating rates that
are, at our option, based either upon bank prime or Eurodollar rates. We
primarily pay interest based on the Eurodollar rate. As a result, we are subject
to interest rate risk. To mitigate the impact of fluctuations in interest rates,
we utilize interest rate swaps to fix the rate on a portion of our floating rate
debt. The following table provides information about our term loan that is
subject to interest rate risk. For the term loan, the table presents principal
cash flows and applicable interest rates by expected maturity dates. (Dollars in
millions)

<TABLE>
<CAPTION>

                                                                   FAIR MARKET VALUE AT
                           2001      2002        2003       TOTAL  DECEMBER 31, 2000
                           ----      ----        ----       -----  -----------------
<S>                    <C>       <C>        <C>        <C>        <C>
Variable rate term
debt including
current portion:
   Tranche A (1)          $    -    $   6.0    $  150.0   $  156.0   $  150.5
   Interest rate (2)
</TABLE>

(1)  During the first 41 days of 2001, the Company repaid an additional $21.0
     million of the term loan. Accordingly, as of February 10, 2001, the total
     Tranche A term debt outstanding was $135.0 million, with the first
     remaining principal payment being due on September 30, 2003.

(2)  Eurodollar plus 2.75% (9.54% on December 31, 2000).

         On September 22, 2000, the Company entered into a swap contract on
$100.0 million of amortizing debt under the Credit Agreement. The swap contract
provides that the Company will pay interest on the notional amount based on a
fixed rate of 6.74% and will receive the three month Eurodollar rate. Based on
interest rates at December 31, 2000, an increase in interest rate of 1.0% would
result in an increase in interest expense of $0.6 million after considering the
swap contract.



                                       26
<PAGE>   27

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                         PAGE
                                                                                         ----
<S>                                                                                     <C>
     Independent Auditors' Report-- KPMG LLP                                              28

     Independent Auditors' Report-- Deloitte & Touche LLP                                 29

     Consolidated Balance Sheets--December 31, 2000 and 1999                              30

     Consolidated Statements of Operations--Six months ended December 31, 2000,           32
     six months ended June 30, 2000, year ended December 31, 1999 and periods
     March 13, 1998 through December 31, 1998 and January 1, 1998 through March
     12, 1998

     Consolidated Statements of Stockholder's Equity-- Six months ended                   33
     December 31, 2000, six months ended June 30, 2000, year ended December 31,
     1999 and periods March 13, 1998 through December 31, 1998 and January 1,
     1998 through March 12, 1998

     Consolidated Statements of Cash Flows-- Six months ended December 31,                34
     2000, six months ended June 30, 2000, year ended December 31, 1999 and
     periods March 13, 1998 through December 31, 1998 and January 1, 1998
     through March 12, 1998

     Notes to Consolidated Financial Statements                                           36
</TABLE>



                                       27
<PAGE>   28

INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS AND STOCKHOLDERS
PURINA MILLS, INC.

We have audited the accompanying consolidated balance sheets of Purina Mills,
Inc. and Subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the six month period ended December 31, 2000, the six month period
ended June 30, 2000, the year ended December 31, 1999 and the period March 13,
1998 through December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Purina Mills, Inc.
and Subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for the six month period ended December 31,
2000, the six month period ended June 30, 2000, the year ended December 31,
1999, and the period from March 13, 1998 through December 31, 1998, in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 1 to the consolidated financial statements, the Company's
plan of reorganization under Chapter 11 of the United States Bankruptcy Code
became effective on June 30, 2000. As a result of the adoption of "fresh-start"
reporting, the consolidated financial information for the period after the
emergence from bankruptcy is presented on a different cost basis than for the
periods before the emergence from bankruptcy and, therefore, is not comparable.

As discussed in Note 1 to the consolidated financial statements, effective March
12, 1998, Koch Agriculture Company acquired all of the outstanding stock of PM
Holdings Corporation in a business combination accounted for as a purchase. As a
result of the acquisition, the consolidated financial information for the period
after the acquisition is presented on a different cost basis than for the period
before the acquisition and, therefore, is not comparable.

KPMG LLP
St. Louis, Missouri
February 13, 2001



                                       28
<PAGE>   29

INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS AND STOCKHOLDER
PM HOLDINGS CORPORATION

We have audited the accompanying consolidated statements of operations,
stockholder's equity (deficit), and cash flows of PM Holdings Corporation and
Subsidiaries for the period January 1, 1998 through March 12, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of PM Holdings
Corporation and Subsidiaries for the period January 1, 1998 through March 12,
1998, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Saint Louis, Missouri
August 7, 1998



                                       29
<PAGE>   30



<TABLE>
<CAPTION>

                    PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
---------------------------------------------------------------------------------------------------------------
                                         CONSOLIDATED BALANCE SHEETS

See Note 1

(Dollars in Thousands, Except Share Amounts)

                                                                     POST-EMERGENCE         PRE-EMERGENCE
                                                                     --------------         -------------
                                                                                  DECEMBER 31,
                                                                  ---------------------------------------------
ASSETS                                                                    2000                   1999
----------------------------------------------------------------- --------------------- -----------------------
<S>                                                                    <C>                   <C>
CURRENT ASSETS:
Cash and cash equivalents                                              $   37,664            $   48,094
Accounts receivable - trade, net of allowance
     for doubtful accounts of $7,390 and $15,733
     at December 31, 2000 and 1999, respectively                           33,009                38,817
Inventories                                                                50,874                58,869
Prepaid expenses, deferred and other assets                                 7,555                 7,758
Deferred income taxes                                                      13,787                     -
                                                                  --------------------- -----------------------
     TOTAL CURRENT ASSETS                                                 142,889               153,538

Property, plant and equipment, net                                        209,498               235,378
Intangible assets, net                                                     40,097               155,000
Reorganization value in excess of amounts allocable to
     identifiable assets, net                                              97,061                     -
Notes receivable                                                            3,485                 8,147
Deferred financing costs, net                                                   -                10,107
Other assets                                                               29,227                26,845
                                                                  --------------------- -----------------------

TOTAL ASSETS                                                           $  522,257            $  589,015
----------------------------------------------------------------- --------------------- -----------------------
See accompanying notes.
</TABLE>



                                       30
<PAGE>   31

<TABLE>
<CAPTION>


                     PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------
                                        CONSOLIDATED BALANCE SHEETS

See Note 1

(Dollars in Thousands, Except Share Amounts)

                                                                     POST-EMERGENCE        PRE-EMERGENCE
                                                                     --------------        -------------
                                                                                 DECEMBER 31,
                                                                  -------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                      2000                  1999
----------------------------------------------------------------- --------------------- ---------------------
<S>                                                                    <C>                   <C>
CURRENT LIABILITIES:
Accounts payable                                                       $   51,509             $  32,759
Customer advance payments                                                   7,600                10,809
Accrued expenses                                                           25,539                31,769
Interest payable                                                              677                     -
Current portion of long-term debt and bank borrowings under
     Revolving Credit Facility                                              1,439               278,031
                                                                  --------------------- ---------------------
     TOTAL CURRENT LIABILITIES                                             86,764               353,368

Deferred income taxes                                                      69,656                     -
Retirement obligations                                                     25,829                25,880
Other liabilities                                                             995                 6,069
Long-term debt                                                            156,125                     -
Commitments and contingencies (Notes 13 and 14)

Liabilities subject to compromise (Note 1)                                     --               419,500

STOCKHOLDERS' EQUITY (DEFICIT):

Preferred stock, $0.01 par value: 5,000,000 shares authorized,
  none issued or outstanding                                                     --                    --
Common stock, $0.01 par value; 20,000,000 shares authorized,
  10,000,000 shares issued at December 31, 2000 and $1.00
  par value; 1,000 shares authorized, issued and outstanding at
  December 31, 1999                                                           100                     1

Additional paid-in capital                                                184,900               109,499
Retained deficit                                                           (1,281)             (323,956)
Accumulated other comprehensive loss                                         (831)               (1,346)
                                                                  --------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                      182,888              (215,802)
                                                                  --------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  522,257             $ 589,015
----------------------------------------------------------------- --------------------- ---------------------
     See accompanying notes.
</TABLE>



                                       31
<PAGE>   32

<TABLE>
<CAPTION>

                     PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------
                                       CONSOLIDATED STATEMENTS OF OPERATIONS

See Note 1

(Dollars in Thousands, Except Per Share Amount)

                                            POST-EMERGENCE                              PRE-EMERGENCE
                                           ---------------   ---------------------------------------------------------------------
                                                                      POST-MERGER                                   PRE-MERGER
                                           -------------------------------------------------------------------    ----------------
                                              SIX MONTHS      SIX MONTHS
                                                ENDED            ENDED         YEAR ENDED      MARCH 13, TO        JANUARY 1 TO
                                             DECEMBER 31,      JUNE 30,       DECEMBER 31,     DECEMBER 31,          MARCH 12,
                                                 2000            2000             1999             1998                1998
                                                 ----            ----             ----             ----                ----

<S>                                          <C>               <C>            <C>               <C>                 <C>
NET SALES                                    $  425,259        $  414,546     $  881,936        $  784,408          $  214,272

COSTS AND EXPENSES:
Cost of products sold                           335,951           329,164        706,888           640,359             171,233
Marketing, distribution and
  advertising                                    43,567            43,196         91,477            73,064              17,543
General and administrative                       22,604            26,494         65,455            59,900              27,587
Amortization of intangibles                       8,828            13,575         15,126            14,491               3,838
Research and development                          2,985             2,723          5,978             5,429               1,376
Provision for plant closings                         --                --         19,665                --                  --
Provision for intangible asset
  impairment                                         --                --        161,593                --                  --
Provision for loss on guarantees                     --                --             --            14,175                  --
Restructuring and reorganization
  expenses                                        3,534            24,924         18,102                --                  --
Other (income) expense, net                      (1,727)          (28,449)           743             4,470                 109
                                           ----------------- -------------- ----------------- ---------------- -- ----------------
                                                415,742           411,627      1,085,027           811,888             221,686

OPERATING INCOME (LOSS)                           9,517             2,919       (203,091)          (27,480)             (7,414)
Interest expense - net                            7,027             9,759         48,698            39,467               8,047
                                           ----------------- -------------- ----------------- ---------------- -- ----------------
Income (loss) before income taxes,
     extraordinary item and revaluation
     gain                                         2,490            (6,840)      (251,789)          (66,947)            (15,461)
Provision (benefit) for income taxes              2,971                 --        29,004           (23,784)             (5,713)
                                           ----------------- -------------- ----------------- ---------------- -- ----------------
Loss before extraordinary item and
     revaluation gain                              (481)           (6,840)      (280,793)          (43,163)             (9,748)
Extraordinary item-gain on
     extinguishment of debt, net of tax
     of $59,582                                      --           159,359             --                --                  --
Revaluation of assets and liabilities
     pursuant to the adoption of
     "fresh-start" reporting                         --             2,483             --                --                  --

                                           ----------------- -------------- ----------------- ---------------- -- ----------------
NET INCOME (LOSS)                          $       (481)       $  155,002     $ (280,793)       $  (43,163)         $   (9,748)
                                           ----------------- -------------- ----------------- ---------------- -- ----------------

BASIC AND DILUTED NET LOSS PER COMMON
     SHARE                                 $     (0.05)
Weighted average common shares
     outstanding                              10,000,000

     See accompanying notes.
</TABLE>




                                       32
<PAGE>   33

<TABLE>
<CAPTION>

                          PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------------------------
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

See Note 1

(Dollars in Thousands)

                                                     ADDITIONAL   ACCUMULATED OTHER
                                         COMMON       PAID-IN       COMPREHENSIVE       RETAINED      COMPREHENSIVE
PRE-EMERGENCE                             STOCK       CAPITAL            LOSS           DEFICIT            LOSS             TOTAL
-------------                          ----------- ------------ ------------------- ------------- ------------------- -------------
<S>                                         <C>       <C>             <C>             <C>             <C>             <C>
PRE-MERGER
----------
BALANCE JANUARY 1, 1998                        5         36,290          (2,099)         (50,378)                          (16,182)

Comprehensive loss:
   Net loss                                   --             --              --           (9,748)        (9,748)            (9,748)
                                       ----------- ------------ ------------------- ------------- ------------------- -------------
BALANCE MARCH 12, 1998                         5         36,290          (2,099)         (60,126)                          (25,930)

Adjustments due to merger                     (4)        73,209           2,099           60,126                           135,430

POST-MERGER
-----------
Comprehensive loss:
   Net loss                                   --             --              --          (43,163)       (43,163)           (43,163)
                                       ----------- ------------ ------------------- ------------- ------------------- -------------
BALANCE DECEMBER 31, 1998                      1        109,499              --          (43,163)                           66,337

Comprehensive loss:
   Net loss                                   --             --              --         (280,793)      (280,793)          (280,793)
   Other comprehensive loss,
     net of tax - adjustment for
     minimum supplemental
     retirement liabilities                   --             --          (1,346)              --         (1,346)            (1,346)
                                       ----------- ------------ ------------------- ------------- ------------------- -------------
Comprehensive loss                                                                                  $  (282,139)
                                                                                                    =================
BALANCE DECEMBER 31, 1999                      1        109,499          (1,346)        (323,956)                         (215,802)

Capital contribution                                     60,000                                                             60,000
Comprehensive income:
   Net income - six months ended
     June 30, 2000                                                                       155,002        155,002            155,002
                                                                                                    =================
"Fresh-start" adjustments:
   Cancellation of former equity and          (1)      (169,499)          1,346          168,154                               --
     elimination of deficit
   Issuance of new equity                    100        184,900              --               --                           185,000
                                       ----------- ------------ ------------------- ------------- ------------------- -------------
BALANCE JUNE 30, 2000                        100        184,900              --             (800)                          184,200

POST-EMERGENCE
Comprehensive loss:

   Net loss - six months ended
     December 31, 2000                        --             --              --             (481)          (481)              (481)
   Other comprehensive loss,
     net of tax - adjustment
     for minimum supplemental
     retirement liabilities                                                (831)                           (831)              (831)
                                       ----------- ------------ ------------------- ------------- ------------------- -------------
   Comprehensive loss                                                                               $    (1,312)
                                                                                                    =================
BALANCE DECEMBER 31, 2000                $   100     $  184,900   $        (831)      $   (1,281)                       $  182,888
                                       ----------- ------------ ------------------- ------------- ------------------- -------------

   See accompanying notes.
</TABLE>



                                       33
<PAGE>   34

<TABLE>
<CAPTION>

                            PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
        ---------------------------------------------------------------------------------------------------------------
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS

See Note 1

(Dollars in Thousands)

                                                 POST-EMERGENCE                             PRE-EMERGENCE
                                                 --------------   ----------------------------------------------------------------
                                                                            POST-MERGER                              PRE-MERGER
                                                 ------------------------------------------------------------------ --------------
                                                   SIX MONTHS       SIX MONTHS         YEAR
                                                      ENDED           ENDED            ENDED        MARCH 13 TO      JANUARY 1 TO
                                                  DECEMBER 31,       JUNE 30,        DECEMBER 31,   DECEMBER 31,       MARCH 12,
                                                      2000             2000             1999           1998              1998
                                                      ----             ----             ----           ----              ----
<S>                                               <C>               <C>            <C>              <C>                <C>
OPERATING ACTIVITIES:
Net income (loss)                                 $      (481)      $  155,002     $  (280,793)     $  (43,163)        $   (9,748)
Adjustment to reconcile net income (loss) to
  net cash provided by (used in) operating
  activities:
     Gain on extinguishment of debt                        --         (159,359)             --              --                 --
     Gain on revaluation pursuant to
         "fresh-start" reporting                           --           (2,483)             --              --                 --
     Depreciation and amortization                     21,458           28,612          45,800          39,275              9,965
     Accretion of discount on discount
         debentures                                        --               --              --              --              1,845
     (Gain) loss on disposal of property,
         plant and equipment                              (63)          (2,657)          1,326           1,266                169
     Provision for loss on plant closings
         and  asset impairment                             --               --          19,665              --                 --
     Provision for loss on intangible asset
         impairment                                        --               --         161,593              --                 --
     Provision for loss on guarantees and
         notes receivable                                  --               --              --          19,812                 --
     Provision for deferred income taxes                2,945               --          27,761         (29,580)            (2,926)
Net changes in operating assets and liabilities:
     Accounts receivable                               (6,818)          12,626           5,288          (1,628)             8,731
     Inventories                                         (344)           8,339           2,993           3,358              1,580
     Prepaid expenses and other assets                  2,170           (4,946)         (5,369)         10,516             (4,846)
     Accounts payable and other liabilities             8,860           (8,161)        (10,252)         60,067            (44,901)
                                                 ---------------- --------------- --------------- ----------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING

ACTIVITIES                                         $   27,727       $   26,973      $  (31,988)     $   59,923         $  (40,131)

INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
  equipment                                               364           15,757           1,571             154                 58
Purchase of property, plant and equipment             (16,915)          (8,642)        (20,980)        (25,280)            (4,486)
Net change in notes receivable                            923            3,739          (3,889)            782                 98
                                                 ---------------- --------------- --------------- ----------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING

ACTIVITIES                                         $  (15,628)      $   10,854      $  (23,298)     $  (24,344)        $   (4,330)
</TABLE>




                                       34
<PAGE>   35

<TABLE>
<CAPTION>

                            PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
        ---------------------------------------------------------------------------------------------------------------
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS

See Note 1

(Dollars in Thousands)

                                                  POST-EMERGENCE                              PRE-EMERGENCE
                                                  --------------   ----------------------------------------------------------------
                                                                            POST-MERGER                                  PRE-MERGER
                                                  -----------------------------------------------------------------    ------------
                                                   SIX MONTHS       SIX MONTHS         YEAR
                                                      ENDED           ENDED            ENDED        MARCH 13 TO       JANUARY 1 TO
                                                  DECEMBER 31,       JUNE 30,        DECEMBER 31,   DECEMBER 31,        MARCH 12,
                                                      2000             2000             1999           1998                1998
                                                      ----             ----             ----           ----                ----
<S>                                              <C>               <C>            <C>              <C>                <C>
FINANCING ACTIVITIES:
Proceeds from pre-petition subordinated
  notes                                            $        --      $       --      $        --     $        --        $   350,000
Proceeds (repayment) of pre-emergence
  term loan                                                 --        (190,550)          (5,475)         (3,975)           200,000
Repayment of pre-merger term loans,
  subordinated notes, discount debentures and
  other debt                                                --              --               --        (384,612)                --
Capital contribution                                        --          60,000               --              --            109,500
Purchase of equity and acquisition costs                    --                               --              --           (253,255)
Proceeds (repayment) of revolving credit
  facility                                                  --         (87,471)          67,471          20,000                 --
Proceeds (repayment) of post-emergence                 (19,000)        175,000               --              --                 --
  term loans
Issuance of promissory notes                             1,439              --               --              --                 --
Payment of financing costs                                  --              --               --            (371)           (11,996)
Other                                                      (25)            251              (62)           (183)            (2,300)
                                                  --------------   ---------------  -------------   -------------    --------------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES                                       $   (17,586)     $  (42,770)      $   61,934     $  (369,241)       $   391,949
Increase (decrease) in cash and cash
  equivalents                                           (5,487)         (4,943)           6,648        (333,662)           347,488
Cash and cash equivalents at beginning of
  period                                                43,151          48,094           41,446         375,108             27,620
                                                  --------------   ---------------  -------------   -------------    --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $    37,664      $   43,151       $   48,094     $    41,446        $   375,108
                                                  ==============   ===============  =============   =============    ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid (refunded) during the period for:
       Interest                                    $     7,655      $   13,598       $   39,152     $    31,070        $    11,267
       Income taxes                                        765             173              484            (800)                43
  Non-cash effects of reorganization activities:
       Deferral of Subordinated Notes
          due to reorganization activities         $        --      $       --       $  350,000     $        --        $        --
       Deferral of accounts payable and
           other liabilities due to
           reorganization activities                        --              --           69,500              --                 --
                                                  --------------   ---------------  -------------   -------------    --------------
INCREASE IN LIABILITIES SUBJECT TO  COMPROMISE     $        --      $       --       $  419,500     $        --        $        --
                                                  ==============   ===============  =============   =============    ==============

   See accompanying notes.
</TABLE>



                                       35
<PAGE>   36

     PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

Overview

         Purina Mills, Inc. ("Purina Mills", "Purina", or the "Company") is a
market leader in the United States in developing, manufacturing, and marketing
differentiated animal nutrition products and programs for dairy cattle, beef
cattle, hogs, and horses. The Company also develops, manufactures and sells
poultry feeds as well as specialty feeds for rabbits, zoo animals, laboratory
animals, birds, fish and pets. In the United States products are generally
marketed under the widely recognized brand names Purina(R) and Chow(R), and the
"Checkerboard" Nine Square Logo(R) and other trademarks pursuant to an
exclusive, perpetual, royalty-free license from Ralston Purina Company, except
with regard to dog and cat food, which is marketed domestically under the PMI
Nutrition brand name. Products are sold as complete feeds or concentrated
nutritional additives which are mixed with our customer's base ingredients.

The Merger

         Pursuant to the Agreement and Plan of Merger among PM Holdings
Corporation ("Holdings"), Koch Agriculture Company ("Koch Agriculture") and Arch
Acquisition Corporation, dated as of January 9, 1998 (the "Merger Agreement"),
Arch Acquisition Corporation was merged with and into Holdings (the "Merger"),
with Holdings being the surviving corporation.

         As a result of the Merger, which closed on March 12, 1998, Koch
Agriculture owned 100% of Holdings, which owned 100% of Purina Mills. The
sources and use of funds required to consummate the Merger and related
financings are summarized below:

                   Sources of funds (in millions):

          Credit facilities:
              Term loans                                $     200.0
              Revolving credit facility                         9.9
          Senior Subordinated Notes ("Notes")                 350.0
          Equity contribution to Holdings                     109.7
                                                     -----------------
                 Total                                  $     669.6
                                                     =================

                   Use of funds (in millions):

          Purchase price for equity of Holdings         $     258.7
          Repayment of existing indebtedness                  385.5
          Fees and expenses                                    25.4
                                                     -----------------
                 Total                                  $     669.6
                                                     =================

         The proceeds from the credit facilities and the Notes, the equity
contribution to Holdings and the purchase of the equity of Holdings are included
in the pre-merger period. The Merger was accounted for as a purchase transaction
in accordance with Accounting Principles Board Opinion No. 16 and, accordingly,
the consolidated financial statements for periods subsequent to March 12, 1998
reflect the purchase price, including transaction costs, allocated to tangible
and intangible assets acquired and liabilities assumed, based on their estimated
fair values as of March 12, 1998. The consolidated financial statements for the
period prior to




                                       36
<PAGE>   37

March 12, 1998 have been prepared on the predecessor cost basis of the Company.
Operating results subsequent to the Merger are comparable to the operating
results prior to the Merger except for depreciation expense, amortization of
intangible assets, interest expense and post retirement health care costs.

         The allocation of the $109.5 million purchase price for the Company is
summarized as follows (in millions):

         Current assets                                            $     130.8
         Property, plant and equipment                                   268.0
         Intangible assets                                               343.1
         Other noncurrent assets                                          47.6
         Liabilities assumed                                            (680.0)
                                                              -----------------
                 Total                                              $     109.5
                                                              =================


         In connection with the Merger, the Company incurred $15.9 million in
non-recurring expenses during the period January 1, 1998 to March 12, 1998. The
costs are included in general and administrative expense and relate to
compensation paid to management of the Company and the $13.5 million in Merger
consideration paid to holders of options and stock right units.

Post-Merger Events

         The economic environment in the agricultural industry during 1998 and
1999 was a difficult one for many individual producers and companies that
participate in the sector. Livestock commodity prices were depressed and reached
historic lows in many markets. In addition to the overall economic environment,
there was significant competition in all areas of agriculture, including the
feed industry.

         In connection with the Merger, the Company incurred a significant
amount of indebtedness. Of the total $669.6 million required to consummate the
Merger, $559.9 million was supplied by indebtedness. Therefore, subsequent to
the Merger, a significant portion of the Company's cash flow from operations was
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for its operations. The Company's
substantial degree of leverage limited its flexibility to adjust to the
depressed conditions in the agricultural industry and made it particularly
vulnerable to the downturn in the swine market.

         As a result of its financial condition during 1999 and its substantial
degree of leverage, the Company's ability to finance its working capital
requirements and implement its business plan were adversely affected by its cash
requirements for debt service. On September 15, 1999, the Company failed to make
a scheduled interest payment of $15.8 million due to holders of the Notes. On
October 21, 1999, the trustee under the indenture (the "Notes Indenture") for
the Notes accelerated such Notes as a result of the failure to make such
interest payment. On September 30, 1999, the Company failed to pay $2.1 million
in principal payments due on the term loans.

Plan of Reorganization

         Faced with these events and an inability to service future interest
payments on the Notes, on October 28, 1999 (the "Petition Date"), Holdings and
certain of its subsidiaries (the "Debtor") filed voluntary petitions for
reorganization (the "Reorganization Cases") under Chapter 11 of the United
States Bankruptcy Code, as amended, with the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court").

         Under Chapter 11, certain claims against the Debtor in existence prior
to the filing of the petitions for relief under the federal bankruptcy laws were
stayed while the Debtor continued business operations as Debtor-



                                       37
<PAGE>   38

in-Possession. These claims are reflected in the December 31, 1999 consolidated
balance sheet as "liabilities subject to compromise" and consisted of the
following:

          Accounts payable - other                       $     13,764
          Accounts payable - affiliate                         30,215
          Accrued expenses                                      2,379
          Interest payable on Senior Subordinated
             Notes due 2010                                    19,600
          Retirement obligations                                3,212
          Other liabilities                                       330
          Senior Subordinated Notes due 2010                  350,000
                                                      ------------------
                                                         $    419,500
                                                      ==================

         As of the Petition Date, the Company discontinued accruing interest on
its unsecured pre-petition debt obligations. Additional claims have arisen
subsequent to the filing date resulting from rejection of executory contracts
and unexpired leases, and from the determination by the court or as agreed to by
parties in interest of allowed claims for contingencies and other disputed
amounts.

         On January 18, 2000, Purina Mills filed a Form 8-K with the Securities
and Exchange Commission, which included a Plan of Reorganization (the "Plan")
and a disclosure statement. The Plan provided for, among other things, the
merger of Purina Mills with and into Holdings prior to the effective date of the
Plan. By operation of the merger, Holdings would succeed to the business
previously conducted by Purina Mills and would change its name to Purina Mills,
Inc. As described in the disclosure statement, a settlement was also negotiated
between Koch Industries, Inc. ("Koch Industries") and a committee representing
holders of Notes ("Noteholders") whereby Koch Industries agreed to make a
capital contribution of $60 million to the Company. The Plan, as amended, was
approved by the creditors and confirmed on April 5, 2000 by the Bankruptcy
Court.

         On May 19, 2000, Purina Mills merged with and into Holdings with
Holdings being the surviving corporation, renamed Purina Mills, Inc. (the
"Company"). The Company's request to list its stock on the NASDAQ National
Market was granted on June 26, 2000, and the Plan became effective on June 29,
2000 (the "Effective Date"). The Company emerged from Chapter 11 as of the
beginning of business on June 30, 2000.

         As of the Effective Date, in accordance with AICPA Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("SOP 90-7"), the Company was required to adopt "fresh-start"
reporting and reflect the effects of such adoption in the financial statements
for the period through the Effective Date. In adopting "fresh-start" reporting,
the Company, with the assistance of its financial advisors, was required to
determine its reorganization value, which represents the fair value of the
entity before considering liabilities and approximates the amount a willing
buyer would pay for the net assets of the Company immediately after its
emergence from Chapter 11 status. The reorganization value of the Company was
determined by consideration of several factors, including the Company's
historical financial performance, its business plan and financial projections,
its fiscal 2000 budget, publicly available data of companies whose operations
are generally comparable to the operations of the Company and economic and
industry data trends. As a result of adopting "fresh-start" reporting, the
December 31, 1999 consolidated balance sheet is not comparable to the December
31, 2000 consolidated balance sheet. Operating results subsequent to the
Effective Date are comparable to the operating results prior to the Effective
Date except for amortization of intangibles, interest expense, restructuring
expenses, benefit for income taxes and extraordinary items.

         The adjustments to reflect the consummation of the Plan, including the
gain on extinguishment of debt related to pre-petition liabilities and the
adjustment to record assets and liabilities at their fair values (including the
establishment of reorganization value in excess of amounts allocable to
identifiable assets), have been



                                       38
<PAGE>   39

reflected in the consolidated financial statements as of the Effective Date. As
a result of such adjustments, $330.0 million of retained deficit was eliminated.

         As of the Effective Date, the Company was authorized to issue
20,000,000 shares of its $0.01 par value common stock. On or about August 15,
2000 and October 30, 2000, the Company made distributions of cash and partial
distributions of new common stock of the Company to holders of claims that had
been allowed to that date. The Company issued 9,910,000 shares to holders of
allowed unsecured claims and 90,000 shares to certain employees under the
Company's Key Employee Retention Program, of which 8,410,017 shares have been
distributed and the remaining 1,589,983 shares being held in escrow by the
transfer agent. Further distributions will be made quarterly until all allowed
claims have been satisfied.

         From June 1999 through December 31, 2000, the Company incurred $46.6
million in restructuring costs. These expenses included advisory and financing
fees and expenses incurred in connection with the Reorganization Cases,
including costs to re-establish the Company's payroll and benefits programs,
moving costs to centralize certain administrative functions and relocate
commodity purchasing personnel from Koch Agriculture including payments made to
Koch Industries for transitional services, severance costs in connection with
restructuring to reduce future administrative costs, and compensation expense
under the Key Employee Retention Plan. A summary of such expenses is as follows
(in thousands):

<TABLE>
<CAPTION>

                                                               POST-EMERGENCE                        PRE-EMERGENCE
                                                            ----------------------    -------------------------------------------
                                                                 SIX MONTHS               SIX MONTHS                YEAR
                                                                    ENDED                    ENDED                 ENDED
                                                              DECEMBER 31, 2000          JUNE 30, 2000       DECEMBER 31, 1999
                                                              -----------------          -------------       -----------------
<S>                                                          <C>                        <C>                 <C>
           Advisory fees and expenses                        $         1,108            $       11,438      $      12,105
           Moving, severance and service costs                            32                     7,006              3,870
           Compensation expense                                        2,394                     6,480              2,127
                                                            ----------------------  --------------------  ----------------------
                                                             $         3,534            $       24,924      $      18,102
                                                            ======================  ====================  ======================
</TABLE>




                                       39
<PAGE>   40

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in
affiliated companies, 20% through 50% owned, are accounted for using the equity
method.

Minority interests in earnings of subsidiaries and the Company's share of the
net earnings of unconsolidated companies accounted for using the equity method
are included in other (income) expense, net.

Use of 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, disclosures 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.

Cash Equivalents: For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with a maturity of three months
or less to be cash equivalents. Cash includes currency on hand and demand
deposits with financial institutions

Inventories: Carrying amounts of merchandise, materials and animal inventories
are generally determined on a moving average cost basis and are stated at the
lower of cost or market.

Property, Plant and Equipment: In accordance with the adoption of "fresh-start"
reporting under SOP 90-7, property, plant and equipment are stated at their
estimated fair value as of the Effective Date, with subsequent acquisitions at
cost. Expenditures for new facilities and those which substantially increase the
useful lives of property are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts and gains or losses on the dispositions are included in the
consolidated statements of operations. Depreciation is generally provided on the
straight-line basis by charges to costs or expenses at rates based upon the
following estimated useful lives:

  Buildings and improvements                              15 to 30 years
  Machinery and equipment                                  5 to 15 years
  Office furniture and equipment                           3 to 15 years

Intangible Assets (including Goodwill): Intangible assets at December 31, 2000
represent the Company's estimate of the value of such assets at the Effective
Date, in accordance with the principles of SOP 90-7, less amortization since the
Effective Date. The intangible assets are amortized over their estimated period
of related benefit of one to ten years. Intangible assets, at December 31, 1999,
represent the excess of cost over the net tangible assets of the business at the
time of acquisition and were amortized over the estimated period of related
benefit.

Recoverability of Long-lived Assets: The Company reviews the value of its
long-lived assets, including intangible assets, to determine if an impairment
has occurred whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. In making such
determination, management evaluates the performance, on an undiscounted basis,
of the underlying operations or assets which give rise to such amount.



                                       40
<PAGE>   41


Reorganization Value in Excess of Amounts Allocable to Identifiable Assets: As a
result of adopting "fresh-start" reporting, the Company recorded reorganization
value in excess of amounts allocable to identifiable assets of approximately
$102.2 million as of the Effective Date. This intangible asset is being
amortized on a straight-line basis over a ten-year period.

Deferred Financing Costs: Deferred financing costs are stated at cost and
amortized over the life of the related debt using the effective interest method.
Amortization of deferred financing costs is included in interest expense.

Income Taxes: Deferred income taxes are recognized for the effect of temporary
differences between the financial reporting basis and the tax basis of the
assets and liabilities plus operating loss carryforwards at enacted tax rates
expected to be in effect when such amounts are realized or settled. In
connection with "fresh-start" reporting the Company recorded a net $53.5 million
deferred tax liability for the effect of temporary differences between the
financial reporting and tax basis of its assets and liabilities.

The Company was part of a tax sharing agreement with Koch Industries effective
as of the date of the Merger. The agreement provided that the tax liability of
the group shall be allocated to the members of this group on the basis of the
percentage of the member's total tax, if computed on a separate return, would
bear to the total amount of the taxes of all members of the group so computed.
If the Company's tax attributes were utilized by another member of the group,
such member would reimburse the Company when the Company would have been able to
utilize such attributes in computing the Company's separate taxable income. The
Company's tax provisions for all periods after March 12, 1998 through June 29,
2000 were computed on this basis. The results of operations of the Company after
March 12, 1998 through June 29, 2000 have been or will be included in the
consolidated U.S. corporation income tax return and certain consolidated state
income tax returns of Koch Industries. The results of operations of the Company
prior to March 12, 1998 were included in the consolidated U.S. corporation
income tax return of Holdings, and the results of operations commencing June 30,
2000 will be included in the consolidated return of the Company and its
subsidiaries.

Fair Value of Financial Instruments: The carrying amounts of cash and cash
equivalents and short-term borrowings approximate fair value because of the
short-term maturity of these instruments. Notes receivable carry current market
interest rates, so that discounted future cash flows approximate their carrying
values. As of December 31, 2000 and 1999, the fair value of debt, including
current maturities, was $152.1 million and $365.5 million, respectively,
compared to its carrying value of $157.6 million and $628.0 million,
respectively. The fair values of debt instruments as of December 31, 2000 and
1999 are based on quoted market prices and management's estimates for
instruments without quoted market prices. As of December 31, 2000, the fair
value of the interest rate swap agreement was $(1.9) million.

Stock-Based Compensation: As allowed by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company
has elected to account for its stock option plan under the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Under APB 25, compensation
expense is recorded over the vesting period if the market price of the
underlying stock on the date of grant exceeds the exercise price of the option.
The Company accounts for its stock appreciation rights using variable plan
accounting, and recognizes compensation expense based on the amount that the
market value of the Company's common stock exceeds the exercise price.

Net Loss Per Share: Basic net income (loss) per common share is computed using
the weighted-average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed using the
weighted-average number of common and diluted common equivalent shares
outstanding



                                       41
<PAGE>   42

during the period, so long as the inclusion of the common equivalent shares
would not be antidilutive. Dilutive common equivalent shares consist of stock
options. The Company has omitted net earnings or loss per share information for
all periods prior to the Effective Date as the Company's capital structure as an
independent, publicly owned company did not exist prior to such date.

Revenue Recognition: Net sales and allowances for customer discounts are
generally recognized when products are shipped.

Derivative Financial Instruments: All derivative financial instruments held by
the Company are designated as hedges of existing assets, liabilities, firm
commitments or identifiable transactions. The Company utilizes interest rate
swaps to hedge its exposure to fluctuations in variable interest rates. The
interest differential to be paid or received on interest rate swaps is
recognized as an adjustment to interest expense as the differential occurs. The
Company also hedges certain of its grain and commodity purchases and enters into
the futures contracts for market hogs as considered necessary to reduce risk
associated with market price fluctuations. Gains and losses on futures contracts
used to hedge these purchases and sales are recognized in the same period as
such inventory is sold. These derivative financial instruments have a high
degree of correlation with the underlying exposure and are highly effective in
offsetting underlying price movements.

Future Application of Accounting Standards: The Financial Accounting Standards
Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 138, Accounting for Certain Instruments and Certain
Hedging Activity to amend SFAS 133. Collectively, these statements establish
accounting and reporting standards requiring that an entity recognize certain
derivative instruments as assets and liabilities in the statement of financial
position and measure them at fair value. These statements require that changes
in the fair value of derivatives are be recognized currently in earnings unless
specific accounting provisions for qualifying hedges allow a derivative's gains
and losses to offset related results of the hedged item in the income statement,
and require that the Company must formally document, designate and assess the
effectiveness of transactions that qualify for hedge accounting. SFAS 133 and
SFAS 138 become effective for fiscal years beginning after June 15, 2000. The
Company will adopt these statements effective January, 2001. The Company does
not expect to meet the documentation and designation requirements of SFAS 133
and SFAS 138. Accordingly, the Company believes that when adopted, its
derivative instruments will not qualify as hedges and therefore volatility in
reported earnings will increase.

Reclassifications: Certain reclassifications have been made to the prior period
consolidated financial statements to conform to the consolidated financial
statement presentation at December 31, 2000 and the year then ended.

3.  INVENTORIES

         Inventories consist of the following (in thousands):

                                                      DECEMBER 31,
                                             ----------------------------
                                               2000                  1999
                                             --------              ------
     Raw materials                         $    32,852           $    37,577
     Finished goods                             10,392                11,411
     Animals                                     7,630                 9,881
                                       --------------------- ------------------
            Total                          $    50,874           $    58,869
                                       ===================== ==================


                                       42
<PAGE>   43

4.   PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of the following (in thousands):

                                                      DECEMBER 31,
                                             ----------------------------
                                               2000                  1999
                                             --------              ------
     Land                                 $     10,690          $     13,362
     Buildings                                  63,065                86,332
     Machinery and equipment                   135,283               180,769
     Construction in progress                   13,096                 7,359
                                       --------------------- ------------------
                                               222,134               287,822
     Accumulated depreciation                  (12,636)              (52,444)
                                       --------------------- ------------------
            Total                         $    209,498          $    235,378
                                       ===================== ==================

         Total depreciation expense was $12.6 million, $14.4 million, $29.3
million, $24.0 million and $5.3 million for the six month periods ended December
31, 2000 and June 30, 2000, the year ended December 31, 1999 and the periods
March 13, 1998 to December 31, 1998 and January 1, 1998 to March 12, 1998,
respectively.

         In connection with the adoption of "fresh-start" reporting, the Company
was required to adjust property, plant and equipment to its fair value. Based on
the Company's estimate of the fair value of such assets at the Effective Date,
an adjustment was made to decrease the net value of property, plant and
equipment by approximately $13.1 million with no material change in the
remaining useful lives.

         During the quarter ended June 30, 1999, the Company made the decision
to discontinue or curtail manufacturing operations at five of its facilities.
Products for distribution to customers of the closed facilities are being
manufactured at the Company's other facilities. In connection with these plant
closures, the Company recorded a loss of $13.1 million on manufacturing assets,
representing the amount by which the book value exceeds estimated fair value.
Estimated demolition costs of $1.2 million, severance costs of $0.4 million and
the write-off of $5.0 million for related goodwill were also recorded.

         The Company will continue to review the performance of its facilities
to attempt to optimize overall capacity and maximize profits. This review may
result in the decision to discontinue operations at additional facilities which
could result in additional losses being recorded.

5.   INTANGIBLE ASSETS

         Intangible assets consist of the following (in thousands):

                                                        DECEMBER 31,
                                         ---------------------------------------
                                                 2000                  1999
                                               --------              ------
     Distribution network                    $    24,000           $    40,000
     Patents                                       6,298                15,000
     Goodwill                                          -               262,728
     Other intangibles                            13,518                33,622
                                         --------------------- -----------------
                                                  43,816               351,350
     Accumulated amortization                     (3,719)             (196,350)
                                         --------------------- -----------------
           Total                             $    40,097           $   155,000
                                         --------------------- -----------------

         Intangible assets at December 31, 2000 represent the Company's estimate
of the value of such assets at



                                       43
<PAGE>   44

the Effective Date, in accordance with the principles of SOP 90-7, less
amortization since the Effective Date, and are being amortized over their
estimated period of related benefit of one to ten years.

         During the fourth quarter of 1999, in connection with the Company's
Reorganization Cases, the Company recorded a provision for loss on impairment of
intangible assets of $161.6 million. The provision reduced the net value of
intangible assets to management's estimate of the fair value of intangible
assets at December 31, 1999. Management's estimate was based upon the expected
net realizable value of the Company on a going concern basis which contemplated
continuity of operations, realization of assets and liquidation of liabilities
in the ordinary course of business.

6.  DEBT

Debt consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                                      DECEMBER 31,
                                                       -------------------------------------------
                                                               2000                  1999
                                                             --------              ------

<S>                                                        <C>                   <C>
Term Loan                                                  $    156,000          $    190,550
Senior Subordinated Notes due 2010                                    -               350,000
Revolving Credit Facility                                             -                87,471
Promissory Notes                                                  1,439                     -
Other                                                               125                    10
                                                       --------------------- ---------------------
       Total                                               $    157,564          $    628,031
                                                       --------------------- ---------------------
</TABLE>

         The foregoing debt at December 31, 2000 and 1999 is classified as
follows in the consolidated balance sheets (in thousands):

<TABLE>
<CAPTION>

                                                                      DECEMBER 31,
                                                       -------------------------------------------
                                                               2000                  1999
                                                             --------              ------
<S>                                                        <C>                   <C>
Current portion of long-term debt and
     bank borrowings under revolving
     credit facility                                       $      1,439          $    278,031
Long term debt                                                  156,125                     -
Liabilities subject to compromise                                     -               350,000
                                                       --------------------- ---------------------
       Total                                               $    157,564          $    628,031
                                                       --------------------- ---------------------
</TABLE>

New Credit Facility: In connection with the consummation of the Plan, the
Company entered into a new credit agreement ("the Credit Agreement") which
provides for secured borrowings from a syndicate of lenders consisting of (i) a
term loan facility providing for an aggregate of $175.0 million Tranche A Term
Loan with a maturity date of December 31, 2003 ("the Term Loan") and (ii) a
$50.0 million Revolving Credit Facility with a maturity date of December 31,
2002, with a $30.0 million sub-limit for letters of credit, which is available
to finance the Company's ongoing working capital requirements. The proceeds of
the Term Loan were borrowed in full on June 29, 2000, to repay the prepetition
debt, and $7.9 million of the Revolving Credit Facility has been used for the
issuance of letters of credit for ordinary course business purposes of the
Company and it subsidiaries at December 31, 2000. No borrowings have been made
under the Revolving Credit Facility. The Company is charged an annual fee of
0.5% for amounts available but unused under the Revolving Credit Facility. In
addition, the Company is charged a fee of 2.75% per annum on the daily average
amount available for drawing under any letter of credit. Loans under the Credit
Agreement bear interest at floating rates, which are, at the Company's option,
based either upon bank prime or Eurodollar rates. Rates on outstanding



                                       44
<PAGE>   45

borrowings average 9.45% at December 31, 2000.

On September 22, 2000, the Company entered into a swap contract on $100.0
million of the Term Loan, pursuant to requirements in the Credit Agreement. The
swap contract provides that the Company will pay interest on the notional amount
based on a fixed rate of 6.74% and will receive the three month Eurodollar rate.

During the six month period ended December 31, 2000, the Company voluntarily
repaid $19.0 million of its Term Loan. As a result of such repayment, the annual
amortization schedule of the Term Loan outstanding on December 31, 2000 is $6.0
million in 2002, and $150.0 million in 2003. The Company is also required to
make annual mandatory repayments of the Term Loan in amounts equal to 50% or 80%
of Excess Cash Flow, as defined in the Credit Agreement. The first such payment
was scheduled to be paid March 2001, however, no additional payment will be due
as a result of the voluntary prepayment of $19.0 million in the third quarter of
2000. Additionally, the Company is generally required to make mandatory
repayments of amounts received on the sale of assets unless reinvested within
specific time periods. No such mandatory repayments were required in the six
month period ended December 31, 2000. Any repayments under the Term Loan are not
available for future re-borrowings.

The promissory notes relate to amounts due two restructuring investment advisors
in connection with the Reorganization Cases. These notes bear interest at 8% per
annum and are due December 31, 2001, unless converted to equity earlier at the
sole discretion of the investment advisors.

Covenants: The Credit Agreement contains restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to incur
additional indebtedness, to acquire (including a limitation on capital
expenditures) or dispose of assets or operations and to pay dividends. The Term
Loan and Revolving Credit Facility also require the Company to satisfy certain
financial covenants and tests. The Company was in compliance with its debt
covenants at December 31, 2000.

Substantially all wholly-owned subsidiaries of the Company guarantee the
Company's obligations under the Credit Agreement. Borrowings under the Credit
Agreement are also secured by a first priority lien on substantially all assets
of the Company and its subsidiaries.

Pre-Petition Credit Facility: In connection with the Merger, the Company entered
into a credit agreement which provided for secured borrowings from a syndicate
of lenders consisting of (i) a $200.0 million Term Loan and (ii) a $100.0
million revolving credit facility, with a $40.0 million sublimit for letters of
credit. At December 31, 1999, a balance of $190.6 million was outstanding on the
pre-petition term loan and $87.5 million was outstanding and the Company had
$12.5 million in outstanding letters of credit under the revolving credit
facility. Accordingly, at December 31, 1999, no amount was available for future
borrowing under the pre-petition revolving credit facility.

As a result of the failure to make the scheduled interest payment of $15.8
million due to the Noteholders on September 15, 1999, the indenture trustee
accelerated the pre-petition Notes and accordingly, the Company was in default
under both the Notes Indenture and the credit agreement. Amounts owed pursuant
to the pre-petition credit agreement are included in current portion of
long-term debt at December 31, 1999. Also, as a result of the Reorganization
Cases, the Notes were classified as "liabilities subject to compromise." The
corresponding accrued interest on the Notes of $19.6 million has also been
classified as "liabilities subject to compromise." As adequate protection for
the holders of secured claims existing under the pre-petition credit agreement,
the Company continued to pay all interest on the pre-petition credit facility.

Pre-Petition Notes: In connection with the Merger, the Company sold $350.0
million aggregate principal



                                       45
<PAGE>   46

amount of Notes generating gross proceeds of $350.0 million. The Notes were 9%
senior subordinated, unsecured obligations of the Company.

7.  COMMON STOCK

         Pursuant to the Plan, the Company issued 9,910,000 shares of common
stock to holders of allowed unsecured claims and 90,000 shares to certain
employees under the Company's Key Employee Retention Program. As of December 31,
2000, the Company had distributed 8,410,017 shares with the remaining 1,589,983
shares held in escrow by Wells Fargo Minnesota Bank, N.A., the transfer agent.
The remaining shares will be distributed to holders of unsecured claims as all
such claims are finalized in accordance with the Plan. All shares of the
Company's common stock outstanding prior to the Plan's effective date were
cancelled.

8.  STOCK OPTION PLANS

         On May 17, 2000, the Board of Directors adopted the Purina Mills, Inc.
Equity Incentive Plan (the "Option Plan"). Under the terms of the Option Plan,
key employees may be granted non-qualified stock options to purchase a maximum
of 1.0 million shares of the Company's common stock. The Company granted options
on 1.0 million shares of common stock in 2000. The exercise price per share for
each grant to an optionee is $18.50 per share on 50% of the option shares,
$23.12 per share on 25% of the option shares and $27.75 per share on the
remaining 25% of the option shares. The options granted vest ratably over a
three-year period and all options under the plan must be granted on or before
December 31, 2006, the date the plan terminates. No compensation expense has
been recognized under this plan since the exercise price of the option exceeded
the fair value of the Company's common stock on the date of grant.

         In November, 2000, the Company established the 2000 Stock Appreciation
Rights Plan under which it is authorized to grant 300,000 stock appreciation
rights ("SARs") to key employees of the Company. Upon exercise of a SAR the
holder is entitled to receive cash equal to the amount by which the market value
of the Company's common stock on the exercise date exceeds the exercise price of
the SAR. The SARs vest ratably over a period of four years and 278,500 SARs were
issued in December, 2000 and are outstanding at December 31, 2000. The exercise
price of all outstanding SARs is $12.50 per share, and none of the SARs were
vested at December 31, 2000. No compensation expense was recognized for the SARs
because the exercise price of the SARs was greater than the market price of the
common shares.

         The Company applies APB 25 and related interpretations in accounting
for its stock options. Had compensation expense for the Company's stock options
been recognized based on the fair value on the grant date under the methodology
prescribed by FAS 123, the Company's net loss and net loss per share for the six
month period ended December 31, 2000 would have been $752,000 and $0.08 per
share, respectively, compared to the reported net loss and net loss per share of
$481,000 and $0.05 per share, respectively.

         The fair value of the options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the six month period ended December 31, 2000; risk free interest
rate of 5.0%, no dividend yield, expected volatility of 35.0% and a
weighted-average expected life of six years. The weighted average fair value of
each option granted during the year ended December 31, 2000 was $1.63 per share.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period.



                                       46
<PAGE>   47

         The following summarizes stock option plan activity during the year
ended December 31, 2000:

<TABLE>
<CAPTION>

                                                                                         WEIGHTED AVERAGE EXERCISE
                                                                    OPTIONS                        PRICE
                                                           --------------------------    ---------------------------
<S>                                                             <C>                     <C>
         Outstanding at beginning of year                                    --          $              --
               Granted                                                1,000,000                      21.97
               Exercised                                                     --                         --
               Cancelled                                                     --                         --
                                                           --------------------------    ---------------------------
         Outstanding at end of year                                   1,000,000          $           21.97
                                                           ==========================    ===========================
         Options exercisable at year end                                     --                         --
                                                           ==========================    ===========================
</TABLE>


         Prior to the Merger, the Company had three stock option plans for
employees and directors of the Company. Stock options and stock right units were
granted under the plans from 1993 through 1997. Pursuant to the Merger, each
outstanding option to purchase Holdings common stock and each stock rights unit
entitling the holder thereof to acquire Holdings common stock became 100%
vested. Option holders and stock rights unit holders received the Merger
consideration for each share of Holdings common stock into which such options or
stock rights units were exercisable immediately prior to the Merger. Cash
proceeds paid to holders of options and stock rights units was $13.5 million.
During 1998 and 1999 no additional stock options or stock rights units were
granted and there were no stock options or stock rights units outstanding as of
December 31, 1998 or 1999.

9.     NET LOSS PER COMMON SHARE

         The contingent issuance of securities such as shares under option are
excluded from the computation of diluted earnings per share if their inclusion
would have been anti-dilutive. Because the Company incurred a loss in the six
month period ended December 31, 2000, the amounts for basic and diluted loss per
share are the same. Earnings or loss per share of Common Stock for all periods
through June 30, 2000 are not shown as the Company's stock was not traded in a
public market before such date.



                                       47
<PAGE>   48


10.   INCOME TAXES

<TABLE>
<CAPTION>

         The components of the provision for income taxes are as follows (in
thousands):

                           POST-EMERGENCE                                       PRE-EMERGENCE
                        ------------------    -----------------------------------------------------------------------------------
                                                           POST-MERGER                                            PRE-MERGER
                        ----------------------------------------------------------------------------------    -------------------
                          SIX MONTHS ENDED     SIX MONTHS ENDED       YEAR ENDED          MARCH 13 TO            JANUARY 1 TO
                            DECEMBER 31,           JUNE 30,          DECEMBER 31,         DECEMBER 31,            MARCH 12,
                                2000                 2000                1999                 1998                   1998
                        --------------------- ------------------- -------------------- -------------------    -------------------
<S>                     <C>                   <C>                 <C>                   <C>                   <C>
CURRENT:
   Federal                $             -       $         -         $        35          $     6,040              $   (1,911)

   State                               26                 -               1,208                 (244)                   (876)

DEFERRED:
   Federal                          1,970                 -              31,535              (26,000)                 (3,000)

   State                              975                 -              (3,774)              (3,580)                     74
                        --------------------- ------------------- -------------------- -------------------    -------------------

                          $         2,971       $         -         $    29,004          $   (23,784)             $   (5,713)
                        --------------------- ------------------- -------------------- -------------------    -------------------
</TABLE>

         The provision (benefit) for income taxes is different from the amounts
computed by applying the U.S. federal statutory income tax rate to income (loss)
before income taxes, extraordinary items and revaluation gain. The reasons for
these differences are as follows (in thousands):

<TABLE>
<CAPTION>

                                              POST-EMERGENCE                                PRE-EMERGENCE
                                              --------------   ---------------------------------------------------------------------
                                                                      POST-MERGER                                      PRE-MERGER
                                              ---------------------------------------------------------------------  ---------------
                                                SIX MONTHS
                                              ENDED DECEMBER   SIX MONTHS ENDED      YEAR ENDED        MARCH 13 TO    JANUARY 1 TO
                                                    31,            JUNE 30,         DECEMBER 31,      DECEMBER 31,     MARCH 12,
                                                  2000              2000               1999               1998            1998
                                              ------------------ ----------------    --------------- -------------------------------
<S>                                            <C>              <C>                <C>                <C>              <C>
Income taxes (benefit) at statutory rate       $       872      $   (2,394)        $  (88,126)        $  (23,431)      $  (5,411)
State income taxes, net of federal benefit             651              --             (1,668)            (2,486)           (521)
Change in valuation allowance                           --          (1,058)             58,530                --              --
Reorganization expenses (net)                          295             778
Amortization and write-off of intangible
assets                                               1,788           2,956             60,656              1,756             107
Meals and entertainment disallowance                   105             105                137                 75             245
Research tax credit                                     --              --                (26)              (190)             --
Life insurance expense, net                           (342)           (387)              (567)              (104)            (35)
Other, net                                            (398)              -                 68                596             (98)
                                              ---------------- ------------------ ------------------ --------------  ---------------
                                                $    2,971      $        -         $   29,004         $  (23,784)      $  (5,713)
                                              ---------------- ------------------ ------------------ --------------  ---------------
</TABLE>

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Temporary
differences which gave rise to deferred tax assets and liabilities at December
31, 2000 and 1999 are



                                       48
<PAGE>   49

as follows (in thousands):

<TABLE>
<CAPTION>

                                                                              DECEMBER 31,
                                                                ------------------------------------------
                                                                        2000                 1999
                                                                --------------------- --------------------
<S>                                                                <C>                   <C>
DEFERRED TAX ASSETS:
   Net operating loss carryforwards                                $      2,929          $     46,849
   Alternative minimum tax credit carryforwards                               -                 9,449
   Bad debt and loan loss reserves                                        4,477                12,495
   Accrued retirement benefits                                            9,728                11,408
   Other accruals not currently deductible for tax                        6,400                 8,265
   Tax over book basis of inventory                                         518                   202
                                                                --------------------- --------------------
                                                                         24,052                88,668
   Less valuation allowance                                                   -                58,530
                                                                --------------------- --------------------
     Total deferred tax assets                                          $24,052                30,138

DEFERRED TAX LIABILITIES:
   Book over tax basis of property, plant
     and equipment                                                       58,948                21,428
   Book over tax basis of intangible assets                               9,255                 7,805
   Book over tax basis of other assets                                   11,718                   905
                                                                --------------------- --------------------
     Total deferred tax liabilities                                      79,921                30,138
                                                                --------------------- --------------------
     Net deferred tax liability                                    $    (55,869)         $         --
                                                                --------------------- --------------------
</TABLE>

         For the six month period ended December 31, 2000, the Company has a tax
net operating loss carryforward of approximately $7.2 million for federal income
tax purposes. This tax net operating loss can be utilized within the next 20
years and will not expire until 2020. The Company believes that it is more
likely than not that the $7.2 million net operating loss carryforward will be
utilized prior to its expiration.

         As a result of the Company's filing for reorganization under Chapter 11
of the United States Bankruptcy Code, all net operating loss carryforwards and
alternative minimum tax credit carryforwards at the Effective Date have been
eliminated. Also, in connection with "fresh-start" reporting, the Company
recorded a net $53.5 million deferred tax liability as of the Effective Date.

         Generally accepted accounting principles require that a valuation
allowance be recorded against tax assets which are not likely to be realized.
The Company determined that it was not likely to receive a benefit for the net
operating loss carryforwards generated in any period through June 30, 2000.
Under the Company's tax sharing agreement with Koch Industries, a benefit would
only be realized to the extent the Company could utilize such future net tax
benefits on a stand-alone basis. Based on management's assessment, such net tax
assets cannot be utilized prior to the tax deconsolidation with Koch Industries
on June 30, 2000. The Company established a full valuation allowance against
these carryforward benefits and its remaining net deferred tax assets at
December 31, 1999. The valuation allowance was eliminated in connection with the
adoption of "fresh-start reporting on the Effective Date.

11.  EMPLOYEE BENEFIT PLANS

         The Company sponsors a defined contribution 401(k) plan that is
available to substantially all employees, exclusive of those covered by a
collective bargaining agreement. The current 401(k) plan was established on
January 1, 2000 and all participants are eligible to make both before-tax and
after-tax contributions. The Company made matching contributions in an amount
equal to 100% of the employees' contributions, up to a maximum of 6% of an
individual employee's compensation. Matching contributions are made after a
participating employee completes one year of service and vest over a period of
five years. The plan accepts transfers from Koch Industries' Savings plan. For
the year ended December 31, 2000, the Company's matching contributions were $4.5
million.




                                       49
<PAGE>   50

         For the year 1998, the Company made matching contributions to the
Company's prior 401(k) plan in an amount equal to 50% of the employee
contributions to the plan, up to a maximum of 3% of an individual employee's
compensation. Participants in the Company's prior 401(k) plan vested in matching
contributions at the time they are made. Subsequent to the Merger, the Company
also made matching contributions for new employees participating in the plan
sponsored by Koch Industries in an amount equal to 50% of employee contributions
to the plan, up to a maximum of 3% of an individual employee's compensation.
Matching contributions made for participants in the plan sponsored by Koch
Industries vested over a period of five years. Effective January 1, 1999, those
employees participating in the Company's prior 401(k) plan began making their
employee contributions to the plan sponsored by Koch Industries. The Company
continued to make matching contributions in an amount equal to 50% of employee
contributions to the plan, up to maximum of 3% of an individual employee's
compensation. Total matching contributions to the 401(k) plans for the years
ended December 31, 1999 and 1998 were $2.3 million and $2.2 million,
respectively.

         The Company maintains a defined benefit plan that covers those
employees whose employment is governed by the terms of a collective bargaining
agreement. Benefits for all other employees previously covered under the plan
have been frozen. The Company makes annual contributions to the plan which at
least equal the amounts required by law. Contribution amounts are determined by
independent actuaries using an actuarial cost method that has an objective of
providing an adequate fund to meet pension obligations as they mature over the
long-term future. At December 31, 2000 and 1999, the assets were held in equity
and fixed-income securities.

         The following table sets forth the funded status of the plan at
December 31, 2000 and 1999, and the amounts recognized in the Company's
consolidated balance sheets at that date and the components of net periodic
pension costs related to the above plans for the years ended December 31, 2000,
1999 and 1998 (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,
                                                                     --------------------------------------
                                                                            2000               1999
                                                                     ------------------- ------------------
<S>                                                                      <C>                 <C>
     CHANGE IN BENEFIT OBLIGATION:
        Benefit obligation at beginning of year                          $   25,568          $   25,824
        Service cost                                                           308                  364
        Interest cost                                                         1,761               1,638
        Actuarial loss (gain)                                                  (663)             (1,053)
        Benefits paid                                                        (1,282)             (1,205)
                                                                     ------------------- ------------------
        Benefit obligation at end of year                                    25,692              25,568
                                                                     ------------------- ------------------
     CHANGES IN PLAN ASSETS:
        Fair value of plan assets at beginning of year                       24,500              23,007
        Actual return on plan assets                                            825               2,698
        Employer contribution                                                   390                  --
        Benefits and expenses paid                                           (1,260)             (1,205)
                                                                     ------------------- ------------------
        Fair value of plan assets at end of year                             24,455              24,500
                                                                     ------------------- ------------------

     Funded status                                                           (1,237)             (1,068)
     Unrecognized net actuarial loss (gain)                                     (64)               (625)
                                                                     ------------------- ------------------
        Net amount recognized                                            $   (1,301)         $   (1,693)
                                                                     ------------------- ------------------
     AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST
         OF:
           Accrued benefit liability                                     $   (1,301)         $   (1,693)
                                                                     ------------------- ------------------
</TABLE>



                                       50
<PAGE>   51

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                                     --------------------------------------
                                                                        2000         1999         1998
                                                                     ------------ ------------ ------------
     COMPONENTS OF NET PERIODIC BENEFIT COST:
<S>                                                                   <C>          <C>          <C>
        Service cost                                                  $    308     $     364    $     349
        Interest cost                                                    1,761         1,638        1,646
        Recognized actuarial (gain) loss                                   (56)            -            -
        Expected return on plan assets                                  (2,104)       (1,863)      (1,682)
                                                                     ------------ ------------ ------------
          Net periodic benefit cost                                   $    (91)    $     139    $     313
                                                                     ------------ ------------ ------------
     WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
          Discount rate                                                  7.25%         7.00%        6.50%
          Expected return on plan assets                                 8.50%         8.50%        8.50%
          Rate of compensation increase                                  4.50%         4.50%        4.50%
</TABLE>

         The Company also has a nonqualified, unfunded capital accumulation plan
for which it has purchased life insurance on the lives of the participants. A
grantor trust is the sole owner and beneficiary of such policies. The amount of
coverage is designed to provide sufficient revenues to recover all costs of the
plan if assumptions made as to mortality experience, policy earnings and other
factors are realized.

         The following table sets forth the status of the non-qualified plans at
December 31, 2000 and 1999, and the amounts recognized in the Company's
consolidated balance sheets at that date and the net periodic pension costs
related to the above plans for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands):

<TABLE>
<CAPTION>

                                                                                     DECEMBER 31,
                                                                       ---------------------------------------
                                                                              2000                1999
                                                                       -------------------- ------------------
<S>                                                                      <C>                  <C>
     CHANGE IN BENEFIT OBLIGATION:
        Benefit obligation at beginning of year                          $     27,249         $     24,506
        Interest cost                                                           1,701                1,626
        Actuarial (gain) loss                                                     (65)               2,436
        Benefits paid or extinguished in bankruptcy                            (4,357)              (1,319)
                                                                       -------------------- ------------------
        Benefits obligation at end of year                                     24,528               27,249
                                                                       -------------------- ------------------
     CHANGES IN PLAN ASSETS:
        Fair value of plan assets at beginning of year                             --                   --
        Employer contribution                                                   1,145                1,319
        Benefits paid                                                          (1,145)              (1,319)
                                                                       -------------------- ------------------
        Fair value of plan assets at end of year                                   --                   --
                                                                       -------------------- ------------------
     Funded status                                                            (24,528)             (27,249)
     Unrecognized net actuarial loss                                            1,367                2,215
                                                                       -------------------- ------------------
        Net amount recognized                                            $    (23,161)        $    (25,034)
                                                                       -------------------- ------------------
     AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST
        OF:
          Accrued benefit liability                                      $    (24,528)        $    (27,249)
          Minimum liability adjustment                                          1,367                2,215
                                                                       -------------------- ------------------
             Net amount recognized                                       $    (23,161)        $    (25,034)
                                                                       -------------------- ------------------
                                                                              YEAR ENDED DECEMBER 31,
                                                                     ------------------------------------------
                                                                         2000          1999           1998
                                                                     ------------- -------------- -------------
     COMPONENTS OF NET PERIODIC BENEFIT COST:
        Interest cost                                                 $  1,701      $   1,626      $   1,618
        Amortization of unrecognized net loss                                 -           248            150
                                                                     ------------- -------------- -------------
        Net periodic benefit cost                                     $  1,701      $   1,874      $   1,768
                                                                     ------------- -------------- -------------
     WEIGHTED AVERAGE ASSUMPTIONS AS OF  DECEMBER 31:
          Discount rate                                                    7.25%        7.00%          6.50%
</TABLE>



                                       51
<PAGE>   52

At December 31, 1999, $3.2 million of the benefit obligation was reflected in
the balance sheet as "liabilities subject to compromise." During the year ended
December 31, 2000, this liability was satisfied by the payment of cash or stock
in connection with the Reorganization Cases.

Subsequent to the Merger through December 31, 1999, employees of the Company not
covered by a collective bargaining agreement also participated in a defined
benefit pension plan sponsored by Koch Industries. The Company was charged a
percentage of eligible employees' compensation. The percentage was 4.9% in 1999
and 1998 and the total cost to the Company approximated $4.0 million and $2.3
million for the year ended December 31, 1999 and for the period June 1 to
December 31, 1998, respectively. The percentage was based primarily on years of
service and compensation rates near retirement.

Prior to the Effective Date, the Company had a nonqualified, unfunded
supplemental executive retirement plan for executives whose benefits under a
prior salaried retirement plan sponsored by a former owner were reduced because
of compensation under deferral elections or limitations under federal tax laws.
All benefit accruals under the supplemental employee retirement plan ceased
subsequent to August 31, 1993. The Company had retained sponsorship of this
plan, as well as the responsibility for all benefit payments thereunder. The
liability associated with the plan at December 31, 1999 has been designated as a
"liability subject to compromise" and the plan was terminated in connection with
the confirmation of the Plan.

12.  TRANSACTIONS WITH AFFILIATES

         In connection with the Merger, the Company entered into an exclusive
commodity purchasing agreement with Koch Agriculture, whereby its Nutrient
Services Division supplied the Company with all of its requirements for feed
ingredients commencing May 1, 1998. The cost of the ingredients to the Company
for the period May 1, 1998 through October 28, 1999 was equal to the spot market
price less a discount of $3.50 per ton. As part of a Transition Services
Agreement, effective October 29, 1999, for a period of 120 days, Koch
Agriculture agreed to continue purchasing ingredients for the Company at a cost
equal to the spot market price without discount. Furthermore, the parties agreed
to continue in good faith with the orderly transition of the commodity
purchasing function to the Company. As of January 1, 2000, substantially all
commodity purchasing was again being done by the Company.

         For the six month period ended June 30, 2000 and the years ended
December 31, 1999 and 1998, the Company purchased $15.4 million, $449.5 million
and $395.7 million, respectively, in commodities from Koch Agriculture's
Nutrient Services Division. In the ordinary course of business, the Company also
contracted with Koch Industries for various administrative and support services.
For the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 the total fees paid in connection with such services amounted to $0.4
million, $3.5 million and $2.5 million, respectively. In the opinion of
management, such fees were reasonable.

         Under the Transition Services Agreement, Koch Industries and Koch
Agriculture continued to provide, on terms substantially similar to the terms
existing prior to the execution of the agreement, payroll processing and
administration of employee benefit programs, access to certain information
technology systems, availability of certain insurance programs and certain
additional administrative support services. Also, in December 1999, Koch
Industries and Koch Agriculture entered into a Supplemental Transition
Agreement. Under this agreement the Koch entities agreed to assist in the
transition of certain employee benefit and commodity purchasing functions,
agreed to continue providing certain retiree benefits and agreed to transfer
various files, contracts and licenses to the Company. Pursuant to the plan, as
consideration therefore, the Company paid Koch Industries $1.6 million on June
29, 2000.



                                       52
<PAGE>   53

         At December 31, 1999, accounts payable - affiliate, net consists of
noninterest-bearing current accounts payable to Koch Industries for
administrative and support services and accounts payable to Koch Agriculture for
commodity purchases. The total amount due for administrative and support
services including payroll and related costs amounted to $0.1 million and the
total amount due for purchases of commodities amounted to $30.8 million at
December 31, 1999. Of the total amount due for purchases of commodities, $30.2
million of pre-petition liabilities have been designated as "liabilities subject
to compromise" in the financial statements.

13.   CONCENTRATION OF CREDIT RISK AND LOAN GUARANTEES

Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. Substantially all of the Company's sales are to companies or
individuals in agriculture-related businesses. The Company has outstanding trade
receivables, loans and loan guarantees relating to customers in
agriculture-related businesses.

Loan Guarantees: Loan guarantees are made to banks to assist the Company's
customers in obtaining bank loans and lines of credit for working capital and
additions to property, plant and equipment. The guarantee arrangements
essentially have the same credit risk as that involved in extending loans to
customers and are subject to the Company's normal credit policies. Collateral
(e.g., farm animals, property, personal guarantees) is usually obtained based on
management's assessment of the specific customer's credit risk. The Company had
guarantees of approximately $3.1 million and $6.3 million at December 31, 2000
and 1999, respectively, under these types of arrangements. A loss reserve of
$1.0 million, recorded in 1998, has been established for the above guarantees
outstanding at December 31, 2000. The maturity dates of these guarantees extend
through 2007 with the majority of the guarantees maturing prior to 2004.

The Company had provided a guarantee of up to $11.5 million to an entity formed
in 1995 to provide funding for the growth, consolidation and expansion of the
Company's network of independently-owned dealers and producers. The Company
recorded a loss reserve for the entire amount of the guarantee in 1998. At
December 31, 1999, the Company had funded $6.7 million on the guarantee and
issued a letter of credit for $3.3 million to secure a portion of the unfunded
guarantee. On July 21, 2000 the Company reached a global settlement agreement
which provided that the Company fund another $1.6 million of the guarantee, the
$3.3 million letter of credit was cancelled and the Company has been relieved of
any other further obligations to this entity.

Swine Purchase Commitments and Swine Operations: To capitalize on the
consolidation of the hog industry, the Company implemented a strategy in 1997
that was expected to result in control over the feeding of approximately six
million market hogs over four years. The program provides a source of high
quality weanlings and feeder pigs ("feeders") to independent hog producers and
gains the related feed business for the Company. Under this program, at December
31, 2000, the Company has future net purchase commitments, subject to the
counterparties' ability to perform, to acquire 0.1 million feeders over the next
eight years. Approximately 8% of these commitments are at fixed prices whereas
the other 92% vary based on current or published futures prices. The net
purchase commitment of 0.1 million feeders represents gross commitments during
the period for the Company to purchase approximately 3.4 million feeders less
3.3 million feeders which are under contract to be sold to third parties.

Based on published market prices at December 31, 2000, the Company's net
commitment to purchase the 0.1 million feeders totals approximately $3.9
million. This is a decrease of $13.1 million from such amount at December 31,
1999. Upon receipt of the feeders the Company can either sell them at current
market prices, feed the pigs at Company leased facilities, or contract with
independent producers to feed the pigs.



                                       53
<PAGE>   54

Additionally, the Company has direct ownership of several hog operations which
are expected to produce an additional 1.0 million feeders over the next eight
years. As hog producers experience volatile market prices for their end
products, the Company has significant exposure relating to its feeder pig
program, direct hog ownership and joint venture interests in hog operations. At
December 31, 2000 and 1999, the Company had $6.2 million and $8.6 million,
respectively, in hog inventory.

For the years ended December 31, 2000 and 1999, the Company recorded a loss of
$6.4 million and $16.2 million, respectively, on all swine operations. Depending
on the future market price for both feeders and market hogs, any or all of the
options available to the Company could have significant adverse impacts on net
income (loss), cash flows and liquidity.

14.   COMMITMENTS AND CONTINGENCIES

Operating Leases: the Company rents certain transportation vehicles, warehouses
and operating facilities under various operating leases, many of which contain
renewal or purchase options. Rent expense was $4.2 million, $3.3 million, $6.0
million, $3.1 million and $1.0 million for the six month periods ended December
31, 2000 and June 30, 2000, the year ended December 31, 1999 and the periods
March 13, 1998 to December 31, 1998 and January 1, 1998 to March 12, 1998,
respectively.

Future minimum lease payments for all non-cancelable operating leases having a
remaining term in excess of one year consist of the following at December 31,
2000 (in thousands):

                                                              OPERATING
                                                               LEASES
                                                          ------------------
     2001                                                    $     6,332
     2002                                                          4,090
     2003                                                          2,351
     2004                                                          1,797
     2005                                                          1,741
     Thereafter                                                    3,078
                                                          ------------------
         Total minimum lease payments                        $    19,389
                                                          ------------------

Litigation: The Company, in the ordinary course of business, is engaged in
various litigation and other proceedings principally relating to product claims.
The ultimate liability with respect to such litigation and proceedings cannot be
determined at this time. The Company is of the opinion that the aggregate amount
of any such liabilities will not have a material impact on its financial
position or results of operations. Included in "liabilities subject to
compromise" is the estimated exposure for pre-petition claims.




                                       54
<PAGE>   55


15.       ALLOWANCE FOR DOUBTFUL ACCOUNTS

         The activity in the allowance for doubtful accounts is as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                                PROVISION
                                                                                 CHARGED
                                                             BEGINNING         (CREDITED)        WRITE-OFFS
                                                              BALANCE          TO EXPENSE      LESS RECOVERIES   ENDING BALANCE
                                                              -------          ----------      ---------------   --------------

<S>                                                           <C>               <C>                <C>              <C>
           PERIOD JANUARY 1 TO MARCH 12, 1998                 $   6,539         $     155          $    117         $   6,577
           PERIOD MARCH 13 TO DECEMBER 31, 1998                   6,577             3,382               915             9,044
           YEAR ENDED DECEMBER 31, 1999                           9,044             5,742              (947)           15,733
           SIX MONTHS ENDED JUNE 30, 2000                        15,733             (231)             2,125            13,377
           SIX MONTHS ENDED DECEMBER 31,  2000                   13,377           (2,233)             3,754             7,390
</TABLE>

16.      SUBSEQUENT EVENTS

         On January 17, 2001, Purina voluntarily initiated a limited product
recall at the Company's Gonzales, Texas plant. The recall involved one animal
feed product that was manufactured at the Company's plant and shipped to one
customer. Purina's quality assurance program detected the product formulation
variance in the handling of the animal feed ingredient, ruminant meat and bone
meal, which is not permitted in feed intended for ruminant animals. The 1,222
cattle which were fed the product have been purchased by Purina and will be used
for non-human food purposes in order to attempt to ensure that the meat will not
enter the human food supply. The Company estimates that its total costs
including the costs to remove and dispose of all ruminant meat and bone meal at
all its plants, before insurance recoveries, will approximate $1.5 to $3.5
million.



                                       55
<PAGE>   56

                         QUARTERLY FINANCIAL INFORMATION

                       (IN MILLIONS EXCEPT PER SHARE DATA)

                                   (UNAUDITED)

         The results of any single quarter are not necessarily indicative of
Purina's results for the year. Earnings (loss) per share have been presented
only for the third and fourth quarters of 2000 as the Company was not an
independent, publicly owned company prior to such date.

<TABLE>
<CAPTION>

                                            FIRST                   SECOND          THIRD            FOURTH            FULL
                                           QUARTER                 QUARTER         QUARTER          QUARTER            YEAR
                                           -------                 -------         -------          -------            ----
2000
----
<S>                                        <C>                    <C>             <C>              <C>              <C>
Net sales                                  $  219.2               $  195.3        $  194.5         $  230.8         $  839.8
Gross profit                                   46.4                   39.0            41.1             48.2            174.7
Net earnings (loss)                           (12.8)                 167.8            (1.9)             1.4            154.5
Diluted earnings (loss) per share               N/A                    N/A           (0.19)            0.14              N/A
</TABLE>

         Each quarter 2000 earnings were reduced by restructuring and
reorganization expenses totaling $8.5 million, $16.4 million, $1.5 million, and
$2.0 million, respectfully, for the first through the fourth quarter.

         Second quarter 2000 earnings included an after-tax extraordinary gain
on extinguishment of debt and revaluation of assets and liabilities under
"fresh-start" reporting of $161.8 million and proceeds of $24.4 million received
in settlement of claims for excess charges on vitamin purchases in prior years.

<TABLE>
<CAPTION>
                                         FIRST        SECOND       THIRD        FOURTH          FULL
                                        QUARTER      QUARTER      QUARTER       QUARTER         YEAR
                                        -------      -------      -------       -------         ----
1999
----
<S>                                    <C>          <C>           <C>           <C>           <C>
Net sales                              $  229.3     $   208.1     $  203.8      $  240.7      $  881.9
Gross profit                               42.0          42.6         42.3          48.1         175.0
Net loss                                   (9.4)        (25.4)       (15.1)       (230.9)       (280.8)
</TABLE>

         The second quarter 1999 loss included a $19.7 million provision for
plant closings. The fourth quarter 1999 loss included a $161.6 million provision
for intangible asset impairment.

         Third and fourth quarter 1999 losses included restructuring and
reorganization expenses of $4.6 million and $13.5 million, respectfully.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Not applicable.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The information regarding directors and the information appearing under
"Compliance with Section 16(a) of the Exchange Act" will be contained in the
Notice of the 2001 Annual Meeting and Proxy Statement, to be filed pursuant to
Regulation 14A, which is incorporated herein by reference.

The executive officers of the Company are listed under Item 1 of this document.



                                       56
<PAGE>   57


ITEM 11.  EXECUTIVE COMPENSATION

         Information appearing under "Executive Compensation", "Compensation
Committee Interlocks and Insider Participation", Nominating and Compensation
Committee Report on Executive Compensation", "Performance Graph", "Stock
Ownership", and the remuneration information under "Directors Meetings,
Committees and Fees" will be contained in the Notice of the 2001 Annual Meeting
and Proxy Statement, to be filed pursuant to Regulation 14A, which is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The discussion of the security ownership of certain beneficial owners
and management appearing under "Stock Ownership" will be contained in the Notice
of the 2001 Annual Meeting and Proxy Statement, to be filed pursuant to
Regulation 14A, which is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information appearing under "Compensation Committee Interlocks and
Insider Participation" will be contained in the Notice of the 2001 Annual
Meeting and Proxy Statement, to be filed pursuant to Regulation 14A, which is
incorporated herein by reference.



                                       57
<PAGE>   58

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1.) FINANCIAL STATEMENTS

         The financial statements are filed as part of this document under item
8. Financial Statements and Supplementary Data.

(a)(2.) FINANCIAL STATEMENT SCHEDULES

         All financial statement schedules have been included in the
consolidated financial statements or are either not applicable or not
significant

(a)(3.) EXHIBITS

EXHIBIT             DESCRIPTION OF EXHIBIT
-------             ----------------------

2(a)              Second Amended Joint Plan of Reorganization of Purina Mills,
                  Inc., PM Holdings Corporation and its Subsidiaries, dated
                  February 22, 2000, incorporated by reference to Exhibit 2(a)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

2(b)              Form of Agreement and Plan of Merger 2000, among Koch
                  Agriculture Company, PM Holdings Corporation and Purina Mills,
                  Inc., incorporated by reference to Exhibit 2(b) of Purina
                  Mills' Registration Statement on Form 10 (Registration No.
                  033-66606) filed on March 23, 2000, as amended by Amendment
                  No. 1 thereto filed on May 18, 2000.

3(a)              Amended and Restated Certificate of Incorporation of Purina
                  Mills, Inc., incorporated by reference to Exhibit 3(a) of
                  Purina Mills' Registration Statement on Form 10 (Registration
                  No. 033-66606) filed on March 23, 2000, as amended by
                  Amendment No. 1 thereto filed on May 18, 2000.

3(b)              Amended and Restated By-Laws of Purina Mills, Inc.,
                  incorporated by reference to Exhibit 3(b) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

4(a)              Form of Stock Certificate for Common Stock, incorporated by
                  reference to Exhibit 4(a) of Purina Mills' Registration
                  Statement on Form 10 (Registration No. 033-66606) filed on
                  March 23, 2000, as amended by Amendment No. 1 thereto file on
                  May 18, 2000.

4(b)              Form of Registration Rights Agreement among Purina Mills, Inc.
                  and certain holders of Common Stock, incorporated by reference
                  to Exhibit 4(b) of Purina Mills' Registration Statement on
                  Form 10 (Registration No. 033-66606) filed on March 23, 2000,
                  as amended by Amendment No. 1 thereto filed on May 18, 2000.

4(c)              Form of Rights Agreement between Purina Mills, Inc. and the
                  Rights Agent thereunder, incorporated by reference to Exhibit
                  4(c) of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

4(d)              Form of Convertible Promissory Note between Purina Mills, Inc.
                  and Houlihan Lokey Howard & Zukin Capital, incorporated by
                  reference to Exhibit 4(d) of Purina Mills' Quarterly Report on
                  Form 10-Q (Registration No. 033-66606) filed on August 14,
                  2000.

4(e)              Form of Convertible Promissory Note between Purina Mills, Inc.
                  and Chanin Capital Partners, incorporated by reference to
                  Exhibit 4(e) of Purina Mills' Quarterly Report on Form 10-Q
                  (Registration No. 033-66606) filed on August 14, 2000.

4(f)              Credit Agreement, dated as of June 28, 2000, among Purina
                  Mills, Inc. and certain of its lenders, incorporated by
                  reference to Exhibit 4(f) of Purina Mills' Quarterly Report on
                  Form 10-Q (Registration No. 033-66606) filed on August 14,
                  2000.




                                       58
<PAGE>   59

4(g)              Form of Term Note, dated as of June 28, 2000, made by Purina
                  Mills, Inc, incorporated by reference to Exhibit 4(g) of
                  Purina Mills' Quarterly Report on Form 10-Q (Registration No.
                  033-66606) filed on August 14, 2000.

4(h)              Form of Lockup Agreement in respect of Common Stock issued
                  under the Purina Mills, Inc. Key Employee Retention Program,
                  incorporated by reference to Exhibit 4(i) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

10(a)             Form of Tax Sharing Agreement among Koch Industries, Inc. and
                  PM Holdings Corporation et al., incorporated by reference to
                  Exhibit 10(a) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(b)             Form of Koch Indemnity Agreement among Purina Mills, Inc.,
                  Koch Industries, Inc. and Koch Agriculture, et al.,
                  incorporated by reference to Exhibit 10(b) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

10(c)             Form of Director and Officer Indemnification Agreement for
                  Purina Mills, Inc., incorporated by reference to Exhibit 10(c)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(d)             Form of Senior Executive Officer Employment Agreement for
                  Purina Mills, Inc., incorporated by reference to Exhibit 10(d)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(e)             Form of Equity Incentive Plan, incorporated by reference to
                  Exhibit 10(e) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(f)             License Agreement, dated as of October 1, 1986, between
                  Ralston Purina Company and Purina Mills, Inc., incorporated by
                  reference to Exhibit 10(f) of Purina Mills' Registration
                  Statement on Form 10 (Registration No. 033-66606) filed on
                  March 23, 2000, as amended by Amendment No. 1 thereto filed on
                  May 18, 2000.

10(g)             Form of Merger Escrow Agreement among Koch Agriculture, Purina
                  Mills, Inc. and Escrow Agent incorporated by reference to
                  Exhibit 10(g) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

21                Subsidiaries of Purina Mills, Inc., incorporated by reference
                  to Exhibit 21 of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

23(a)*            Consent of KPMG LLP.

23(b)*            Consent of Deloitte & Touche LLP.

24                Power of Attorney.

27*               Financial Data Schedule.

* Filed herewith

(b)  Reports on Form 8-K:

         During the three months ended December 31, 2000, the Company filed a
Report on Form 8-K dated December 6, 2000 in response to Item 5-Other Events.
The Form 8-K included a press release reporting the adoption of Amendment No. 1
to the Rights Agreement dated June 29, 2000.



                                       59
<PAGE>   60


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Purina Mills, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized on this
26th day of March 2001.

                                       PURINA MILLS, INC.

Date:  March 26, 2001                  /s/DARRELL D. SWANK
                                       -------------------
                                       Darrell D. Swank
                                       Executive Vice President,
                                       Chief Financial Officer and Secretary

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.

<TABLE>
<CAPTION>

           SIGNATURE                                  CAPACITY
           ---------                                  --------
<S>                                   <C>
/s/ BRAD J. KERBS                      Director and Chief Executive Officer
--------------------------------       (Principal Executive Officer)
Brad J. Kerbs

/s/ DARRELL D. SWANK                   Executive Vice President, Chief Financial Officer and
--------------------------------       Secretary
Darrell D. Swank                       (Principal Financial and Accounting Officer)


               *                       Director
--------------------------------
Craig Scott Bartlett, Jr.

               *                       Director
--------------------------------
Robert Cummings

               *                       Director
--------------------------------
James Gaffney

               *                       Director
--------------------------------
Robert A. Hamwee
</TABLE>

*    The undersigned, by signing his name hereto, does sign and execute this
     registration statement pursuant to the powers of attorney executed by the
     above-named officers and directors of the registrant, which are being filed
     herewith with the Securities and Exchange Commission on behalf of such
     officers and directors.

By:      /s/ DARRELL D. SWANK
         -------------------------------------
         Darrell D. Swank
         Executive Vice President,
         Chief Financial Officer and Secretary

March 26, 2001



                                       60
<PAGE>   61


INDEX TO EXHIBIT

EXHIBIT                          DESCRIPTION OF EXHIBIT
-------                          ----------------------

2(a)              Second Amended Joint Plan of Reorganization of Purina Mills,
                  Inc., PM Holdings Corporation and its Subsidiaries, dated
                  February 22, 2000, incorporated by reference to Exhibit 2(a)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

2(b)              Form of Agreement and Plan of Merger 2000, among Koch
                  Agriculture Company, PM Holdings Corporation and Purina Mills,
                  Inc., incorporated by reference to Exhibit 2(b) of Purina
                  Mills' Registration Statement on Form 10 (Registration No.
                  033-66606) filed on March 23, 2000, as amended by Amendment
                  No. 1 thereto filed on May 18, 2000.

3(a)              Amended and Restated Certificate of Incorporation of Purina
                  Mills, Inc., incorporated by reference to Exhibit 3(a) of
                  Purina Mills' Registration Statement on Form 10 (Registration
                  No. 033-66606) filed on March 23, 2000, as amended by
                  Amendment No. 1 thereto filed on May 18, 2000.

3(b)              Amended and Restated By-Laws of Purina Mills, Inc.,
                  incorporated by reference to Exhibit 3(b) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

4(a)              Form of Stock Certificate for Common Stock, incorporated by
                  reference to Exhibit 4(a) of Purina Mills' Registration
                  Statement on Form 10 (Registration No. 033-66606) filed on
                  March 23, 2000, as amended by Amendment No. 1 thereto file on
                  May 18, 2000.

4(b)              Form of Registration Rights Agreement among Purina Mills, Inc.
                  and certain holders of Common Stock, incorporated by reference
                  to Exhibit 4(b) of Purina Mills' Registration Statement on
                  Form 10 (Registration No. 033-66606) filed on March 23, 2000,
                  as amended by Amendment No. 1 thereto filed on May 18, 2000.

4(c)              Form of Rights Agreement between Purina Mills, Inc. and the
                  Rights Agent thereunder, incorporated by reference to Exhibit
                  4(c) of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

4(d)              Form of Convertible Promissory Note between Purina Mills, Inc.
                  and Houlihan Lokey Howard & Zukin Capital, incorporated by
                  reference to Exhibit 4(d) of Purina Mills' Quarterly Report on
                  Form 10-Q (Registration No. 033-66606) filed on August 14,
                  2000.

4(e)              Form of Convertible Promissory Note between Purina Mills, Inc.
                  and Chanin Capital Partners, incorporated by reference to
                  Exhibit 4(e) of Purina Mills' Quarterly Report on Form 10-Q
                  (Registration No. 033-66606) filed on August 14, 2000.

4(f)              Credit Agreement, dated as of June 28, 2000, among Purina
                  Mills, Inc. and certain of its lenders, incorporated by
                  reference to Exhibit 4(f) of Purina Mills' Quarterly Report on
                  Form 10-Q (Registration No. 033-66606) filed on August 14,
                  2000.

4(g)              Form of Term Note, dated as of June 28, 2000, made by Purina
                  Mills, Inc, incorporated by reference to Exhibit 4(g) of
                  Purina Mills' Quarterly Report on Form 10-Q (Registration No.
                  033-66606) filed on August 14, 2000.


4(h)              Form of Lockup Agreement in respect of Common Stock issued
                  under the Purina Mills, Inc. Key Employee Retention Program,
                  incorporated by reference to Exhibit 4(i) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

10(a)             Form of Tax Sharing Agreement among Koch Industries, Inc. and
                  PM Holdings Corporation et al., incorporated by reference to
                  Exhibit 10(a) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.




                                       61
<PAGE>   62

10(b)             Form of Koch Indemnity Agreement among Purina Mills, Inc.,
                  Koch Industries, Inc. and Koch Agriculture, et al.,
                  incorporated by reference to Exhibit 10(b) of Purina Mills'
                  Registration Statement on Form 10 (Registration No. 033-66606)
                  filed on March 23, 2000, as amended by Amendment No. 1 thereto
                  filed on May 18, 2000.

10(c)             Form of Director and Officer Indemnification Agreement for
                  Purina Mills, Inc., incorporated by reference to Exhibit 10(c)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(d)             Form of Senior Executive Officer Employment Agreement for
                  Purina Mills, Inc., incorporated by reference to Exhibit 10(d)
                  of Purina Mills' Registration Statement on Form 10
                  (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(e)             Form of Equity Incentive Plan, incorporated by reference to
                  Exhibit 10(e) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

10(f)             License Agreement, dated as of October 1, 1986, between
                  Ralston Purina Company and Purina Mills, Inc., incorporated by
                  reference to Exhibit 10(f) of Purina Mills' Registration
                  Statement on Form 10 (Registration No. 033-66606) filed on
                  March 23, 2000, as amended by Amendment No. 1 thereto filed on
                  May 18, 2000.

10(g)             Form of Merger Escrow Agreement among Koch Agriculture, Purina
                  Mills, Inc. and Escrow Agent incorporated by reference to
                  Exhibit 10(g) of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

21                Subsidiaries of Purina Mills, Inc., incorporated by reference
                  to Exhibit 21 of Purina Mills' Registration Statement on Form
                  10 (Registration No. 033-66606) filed on March 23, 2000, as
                  amended by Amendment No. 1 thereto filed on May 18, 2000.

23(a)*            Consent of KPMG LLP.

23(b)*            Consent of Deloitte & Touche LLP.

24                Power of Attorney.

27*               Financial Data Schedule.

*        Filed herewith.



                                       62