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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

(Mark One)

|X|   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 For the fiscal year ended December 31, 2001*

                                       or

| |   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 For the transition period from ________ to _________.

                        Commission file number 0-
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                               LAND O'LAKES, INC.
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             (Exact Name of Registrant as Specified in Its Charter)

                 Minnesota                               41-0365145
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     (State or Other Jurisdiction of                  (I.R.S. Employer
      Incorporation or Organization)                 Identification No.)

                4001 Lexington Avenue North

         Arden Hills, Minnesota                            55126
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(Address of Principal Executive Offices)                 (Zip Code)

                                 (651) 481-2222
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              (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  None

      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 | | No |X|

      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 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. Not applicable.

      Land O'Lakes, Inc. is a cooperative. Our voting and non-voting common
equity can only be held by our members. No public market for voting and
non-voting common equity of Land O'Lakes, Inc. is established and it is
unlikely, in the foreseeable future, that a public market for our voting and
non-voting common equity will develop.

      Documents incorporated by reference:      None.

*     Although Land O'Lakes is not currently required pursuant to Section 13 or
      15(d) of the Securities Exchange Act of 1934 to file this annual report,
      we are voluntarily filing this annual report on Form 10-K.
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                           FORWARD-LOOKING STATEMENTS

      The information in this Annual Report on Form 10-K under the headings
"Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements. The forward-looking statements are based on the beliefs of our
management as well as on assumptions made by and information currently available
to us at the time the statements were made. When used in this Form 10-K, the
words "anticipate", "believe", "estimate", "expect", "may", "will", "could",
"should", "seeks", "pro forma" and "intend" and similar expressions, as they
relate to us are intended to identify the forward-looking statements. All
forward-looking statements attributable to persons acting on our behalf or us
are expressly qualified in their entirety by the cautionary statements set forth
here and in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors" on pages 46 to 59. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or for any other reason. Although
we believe that these statements are reasonable, you should be aware that actual
results could differ materially from those projected by the forward-looking
statements. For a discussion of factors that could cause actual results to
differ materially from the anticipated results or other expectations expressed
in our forward-looking statements, see the discussion of risk factors set forth
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors" on pages 46 to 59. Because actual results
may differ, readers are cautioned not to place undue reliance on forward-looking
statements.

                                     PART I

ITEM  1. BUSINESS.

      Unless context requires otherwise, when we refer to "Land O'Lakes," the
"Company," "we," "us" or "our," we mean Land O'Lakes, Inc. together with its
consolidated subsidiaries.

OVERVIEW

      We were formed as a Minnesota dairy cooperative corporation in 1921 and
entered the animal feed business in 1928. Since our formation, we have expanded
our business through acquisitions and joint ventures. In 1997, we merged with
Atlantic Dairy Cooperative, a Pennsylvania-based cooperative, providing us with
increased butter production and access to raw milk near our largest butter
markets. In 1998, we merged with Dairyman's Cooperative Creamery Association of
Tulare, California, which increased our access to milk production in the western
United States. Also in 1998, we acquired many of the agricultural service assets
of Countrymark Cooperative, expanding our presence to the eastern Corn Belt in
feed, seed and agronomy. In 2000, we formed Agriliance, a joint venture for the
distribution of crop nutrient and crop protection products. We have also
rationalized our business lines in order to concentrate on our core businesses.
In 2000, for example, we sold our fluid dairy business to Dean Foods, and in
2001, we contributed our aseptic dairy products business to our Advanced Food
Products joint venture. In October, 2000, we formed Land O'Lakes Farmland Feed,
an animal feed joint venture with Farmland Industries. Land O'Lakes and Farmland
Industries each contributed substantially all of the assets of each of their
North American animal feed businesses to form the joint venture. On October 11,
2001, Land O'Lakes acquired Purina Mills and subsequently contributed Purina
Mills to Land O'Lakes Farmland Feed.

      We are a leading producer of dairy products, animal feed and crop seed in
the United States. We market our dairy products under the LAND O LAKES, Alpine
Lace, Lake to Lake and New Yorker brands and the Indian Maiden logo. We market
our animal feed, other than dog and cat food, under the Purina and Chow brands
and the "Checkerboard" Nine-Square Logo. We also market our animal feed products
under the Land O'Lakes Farmland Feed label. Our crop seed products are sold
under the CROPLAN GENETICS brand. In addition to these three segments, we also
have swine and agronomy segments and various unconsolidated joint ventures and
investments.


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BUSINESS SEGMENTS

DAIRY FOODS

      Overview. We produce, market and sell butter, spreads, cheese and other
related dairy products. We sell our products under our national brand names,
including LAND O LAKES, the Indian Maiden logo and Alpine Lace, as well as under
our regional brands such as New Yorker and Lake to Lake. Our network of 14 dairy
manufacturing facilities is geographically diverse and allows us to support our
customers on a national scale. Our customer base includes major national
supermarket and supercenter chains, industrial customers, including major food
processors, and foodservice customers, including restaurants, schools, hotels
and airlines.

      Products. We manufacture over 300 dairy-based food products. Our principal
dairy products and activities include:

            Butter. We produce and market branded butter under our proprietary
      LAND O LAKES brand name for retail and foodservice customers. In addition,
      we produce nonbranded butter for our private label and industrial
      customers. Our butter products include salted butter, unsalted butter,
      light butter, whipped butter, flavored butter and our newest product,
      ultra creamy butter.

            Spreads. We produce and market a variety of spreads, including
      margarine, nonbutter spreads and butter blends. These products are
      primarily marketed under the LAND O LAKES brand and are sold to our
      retail, foodservice and industrial customers.

            Cheese. We produce and sell cheese for retail sale in deli and dairy
      cases, to foodservice businesses and to industrial customers. Our deli
      cheese products are marketed under the LAND O LAKES, Alpine Lace and New
      Yorker brand names. Our dairy case cheese products are sold under the LAND
      O LAKES and Lake to Lake brand names. We also sell cheese products to
      private label customers. We offer a broad selection of cheese products
      including, cheddar, monterey jack, mozzarella, American and other
      processed cheeses.

            Other. We manufacture nonfat dry milk and whey for sale to our
      industrial customers. We produce nonfat dry milk by drying the nonfat milk
      byproduct of our butter manufacturing process. It is used in processed
      foods, such as instant chocolate milk. Whey is a valued protein-rich
      byproduct of the cheesemaking process which is used in processed foods,
      sports drinks and other nutritional supplements.

            Raw Milk Wholesaling. We purchase raw milk from our members and sell
      it directly to other dairy manufacturers, particularly fluid milk
      processors. We generate substantial revenues but negligible margins on
      these sales. See "Item 7. Management's Discussion and Analysis of
      Financial Condition and Results of Operations-- Wholesaling and Brokerage
      Activities."

      Sales, Marketing and Advertising. In order to meet the needs of our
retail, foodservice and industrial customers we have sales efforts designed to
service each of these customer bases. Our retail customers are serviced through
direct sales employees and independent national food brokers. Our retail sales
force consists of 55 employees that service our larger retail customers, such as
supermarket and supercenter chains, and manage our national food broker
relationships. We have long-standing relationships with the two leading national
food brokers in the United States.

      We market our products to our industrial customers through a combination
of six dedicated salespeople and the efforts of the managers at our 14
manufacturing facilities. Our industrial customers generally maintain a direct
relationship with our facility managers in order to coordinate delivery and
ensure that our products meet their specifications.

      Our foodservice products are primarily sold through independent regional
food brokers and food distributors. In addition, we employ 43 salespeople who
are responsible for maintaining these regional food broker relationships and
marketing to our large foodservice customers directly.

      Distribution. We contract with third-party trucking companies to
distribute our dairy products throughout the United States in refrigerated
trucks. Our dairy products are shipped to our customers either directly from the
manufacturing facilities or from one of our five regional distribution centers
located in New Jersey, Georgia, Illinois, California and Ohio. As most of our
dairy products are perishable, our distribution facilities are designed to
provide necessary temperature controls in order to ensure the quality and
freshness of our products. The combination of our


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strategically located manufacturing and distribution facilities and our
logistics capabilities enables us to provide our customers with an efficient
distribution system.

      Production. We produce our dairy products at 14 manufacturing facilities
strategically located throughout the United States. We also have contractual
arrangements whereby we engage other dairy processors to produce some of our
products. We believe the geographic distribution of our plants allows us to
service our customers in a timely and efficient manner. In 2001, we processed
approximately 10.4 billion pounds of milk, primarily into butter and cheese.
Butter is produced by separating the cream from milk, pasteurizing it and
churning the cream until it hardens into butter. Butter production levels
fluctuate due to the seasonal availability of milk and butterfat. The cheese
manufacturing process involves adding a culture and a coagulant to milk. Over a
period of hours, the milk mixture hardens to form cheese. At that point, whey is
removed and separately processed. Finally, the cheese is salted, shaped and
aged. Our cheese facilities generally run at high capacity utilization levels
throughout the year. Our dairy foods segment also has insignificant foreign
operations in Paslek, Poland.

      Supply and Raw Materials. Our principal raw material for production of
dairy products is milk. During 2001, we sourced approximately 89.5% of our raw
milk from our members. We enter into milk supply agreements with all of our
dairy members to ensure our milk supply. These contracts typically provide that
we will pay the producer for milk in the month following its delivery, at a
price determined by us, which typically includes a premium over Federal market
order prices. These contracts provide that we will purchase all of the milk
produced by our members for a fixed period of time, generally one year. As a
result, we often purchase more milk from our members than we require for our
production operations. There are three principal reasons for doing this: first,
we need to sell a certain percentage (which is not less than 10% of the amount
procured and depends on which Federal market order the milk is subject to) of
our raw milk to fluid dairy processors in order to participate in the Federal
market order system, which enables us to have lower input cost of milk; second,
it decreases our need to purchase additional supply during periods of low milk
production in the United States (typically August, September and October); and
third, it ensures that our members have a market for the milk they produce
during periods of high milk production. We enter into fixed-price forward sales
contracts with some of our large industrial cheese customers representing 10-15%
of our processed milk volume. We simultaneously enter into milk supply
agreements with a fixed price in order to ensure our margins on these contracts.
We also purchase cream, bulk cheese and bulk butter as raw materials for
production of our dairy products. We typically purchase cream pursuant to annual
agreements with fluid processors to purchase all of their cream production. We
typically purchase bulk cheese and butter pursuant to annual contracts. These
cheese and butter contracts provide for annual targets and delivery schedules
and are based on market prices. We also engage in isolated spot market purchases
of these commodities to meet our needs.

      Customers. We sell our dairy products directly and indirectly to over 500
customers. Our products are sold in over 5,000 retail locations, including
supermarkets and supercenters, convenience stores, warehouse club stores and
military commissaries. Our retail customers include supermarket and supercenter
chains. In addition, we sell our products through food brokers and distributors
to foodservice providers such as restaurant chains, schools, hotels and
airlines.

      Research and Development. We seek to offer our customers product
innovations designed to meet their needs. In addition, we work on product and
packaging innovations to increase overall demand for our products and improve
product convenience. In 2001, we spent $10.1 million on dairy research and
development, and we employed approximately 71 individuals in research capacities
at our dedicated dairy foods research facility.

      Competition. The bulk of the dairy industry consists of national and
regional competitors. Our branded cheese products compete with products from
national competitors such as Kraft, Borden and Sargento as well as several
regional competitors. For butter, our competition comes primarily from regional
brands, such as Challenge, Borden and Breakstone. Because our retail customers
are consolidating we face increased competitive pressures. We rely on our brands
to differentiate our products from our competition. We believe our branded
products compete on the basis of brand name recognition, product quality and
reputation and customer support. Products in the private label and industrial
markets compete primarily based on price. We believe our product quality and
consistency of supply distinguishes our products in these markets.


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ANIMAL FEED

      Overview. Through Land O'Lakes Farmland Feed, we are the leading producer
of animal feed for both the commercial and lifestyle sectors of the animal feed
market in the United States. Our commercial feed products are used by farmers
and specialized livestock producers who derive income from the sale of milk,
eggs, poultry and livestock. Our lifestyle feed products are used by customers
who own animals principally for non-commercial purposes. Margins on our
lifestyle feed products are significantly higher than those on our commercial
feed products. We market our animal feed, other than dog and cat food, under the
leading brands in the industry, Purina, Chow and the "Checkerboard" Nine Square
Logo. We also market our animal feed products under the Land O'Lakes Farmland
Feed label. As of December 31, 2001, we operated a geographically diverse
network of 103 feed mills, which permits us to distribute our animal feed
nationally through approximately 1,400 of our local member cooperatives,
approximately 4,000 independent dealers operating under the Purina brand name
and directly to customers. We believe we are a leader among feed companies in
animal feed research and development with a focus on enhancing animal
performance and longevity. For example, we developed and introduced milk
replacer for young animals, and our patented product formulations make us the
only supplier of certain unique milk replacer products. These products allow
dairy cows to return to production sooner after birthing and increase the annual
production capacity of sows. We expect the addition of Purina Mills to our feed
operations to generate significant cost savings as we eliminate redundant
facilities, reduce overhead costs, increase capacity utilization, increase our
purchasing economies and improve our logistics and transportation system. Other
than certain insignificant foreign investments and sales, we operate our feed
business entirely through our Land O'Lakes Farmland Feed joint venture.

      Products. We sell proprietary formulas of commercial and lifestyle animal
feed. We also produce commercial animal feed to meet our customers'
specifications. We sell feed for a wide variety of animals, such as dairy
cattle, beef cattle, swine, poultry, horses and other specialty animals such as
laboratory and zoo animals. Our principal feed products and activities include:

            Complete Feed. These products provide a balanced mixture of grains,
      proteins, nutrients and vitamins which meet the entire nutritional
      requirement of an animal. They are sold as ground meal, in pellets or in
      extruded pieces. Sales of complete feeds typically represent the majority
      of net sales. We generally sell our lifestyle animal feed as complete
      feed. We market our lifestyle animal feed through the use of our strong
      trademarks, namely, Purina, Chow and the "Checkerboard" Nine Square Logo.

            Supplements. These products provide a substantial part of a complete
      ration for an animal, and typically are distinguished from complete feed
      products by their lack of the bulk grain portion of the feed. Commercial
      livestock producers typically mix our supplements with their own grain to
      provide complete animal nutrition.

            Premixes. These products are concentrated additives for use in
      combination with bulk grain and a protein source, such as soybean meal.
      Premixes consist of a combination of vitamins and minerals that are sold
      to commercial animal producers and to other feed mill operators for mixing
      with bulk grains and proteins.

            Milk Replacers. Milk replacers, a product we invented, are sold to
      commercial livestock producers to meet the nutritional requirements of
      their young animals, while increasing their overall production capability
      by returning the parent animal to production faster. We market these
      products primarily under our Maxi Care and Amplifier Max brand names.

            Ingredient Merchandising. In addition to selling our own products,
      we buy and sell or broker for a fee soybean meal and other feed
      ingredients. We market these ingredients to our local member cooperatives
      and to other feed manufacturers which use them to produce their own feed.
      Although this activity generates substantial revenues, it is a very
      low-margin business. Through our ingredient merchandising, we benefit from
      increased purchasing power, resulting in lower prices for our own feed
      inputs.

      Sales, Marketing and Advertising. We employ approximately 450 direct
salespeople in regional territories. In our commercial feed business, we also
provide our customers with information and technical assistance through trained
animal nutritionists. We also provide information resources and technical
assistance to these nutritionists. Our advertising and promotional expenditures
are focused on higher margin products, specifically our lifestyle animal feed
and milk replacers. We advertise in recreational magazines to promote our
lifestyle


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animal feed products. To promote our horse feed products, we have
dedicated promoters who travel to rodeos and other horse related events. We
promote our milk replacers with print advertising in trade magazines. On a pro
forma basis, we spent $14.9 million on advertising and promotion for the year
ended December 31, 2001.

      Distribution. We distribute our animal feed nationally primarily through
our network of approximately 1,400 local member cooperatives and approximately
4,000 Purina-branded dealers or directly to customers. We deliver our products
primarily by truck using our own fleet, as well as independent carriers.
Deliveries are made directly from our feed mills to delivery locations within
each feed mill's geographic area.

      Production. The basic feed manufacturing process consists of grinding
various grains and protein sources into meal and then mixing these materials
with certain nutritional additives, such as vitamins and minerals. The resulting
products are sold in a variety of forms, including meal, pellets, blocks and
liquids. Our products are formulated based upon proprietary research pertaining
to nutrient content. As of December 31, 2001, we operated 103 feed mills across
the United States. We plan to reduce the number of feed mills we operate by
taking advantage of the overlap between our existing facilities and those of
Purina Mills in certain local markets. Consistent with current industry capacity
utilization, our facilities operate below their capacity. With the reduction of
redundant facilities and conversion of certain facilities to a single product,
we expect to increase our capacity utilization. Our animal feed segment operates
or has investments in insignificant foreign operations in Canada, Mexico,
Poland, Taiwan, the Philippines and the United Kingdom.

      Supply and Raw Materials. We purchase the bulk components of our products
from various suppliers and in the open ingredient markets. These bulk components
include corn, soybean meal and grain byproducts. In order to reduce
transportation costs, we arrange for delivery of these products to occur at our
feed mill operations throughout the United States. We purchase vitamins and
minerals from multiple vendors, including vitamin, pharmaceutical and chemical
companies.

      Customers. Our customers range from large commercial corporations to
individuals. We also sell our animal feed products to local cooperatives. These
local cooperatives either use these products in their own feed manufacturing
operations or resell them to their customers. Our customers purchase our animal
feed products for a variety of reasons, including our ability to provide
products that fulfill some or all of their animals' nutritional needs, our
knowledge of animal nutrition, our ability to maintain quality control and our
available capacity.

      Research and Development. Our animal feed research and development focuses
on enhancing animal performance and longevity. We also dedicated significant
resources to developing proprietary formulas that allow us to offer our
commercial customers alternative feed formulations using lower cost ingredients.
We employ 97 people in various animal feed research and development functions at
our three research and development facilities. In 2001, on a pro forma basis, we
spent $12.1 million on research and development.

      Competition. The animal feed industry is highly fragmented. Our
competitors consist of many small local manufacturers, several regional
manufacturers and a limited number of national manufacturers. The available
market for commercial feed may become smaller and competition may increase as
meat processors become larger and integrate their business by acquiring their
own feed production facilities. In addition, purchasers of commercial feed tend
to select products based on price rather than manufacturer and some of our feed
products are purchased from third parties with minimal further processing by us.
As a result of these factors, the barriers to entry in the feed industry are
low. The market for lifestyle feed is also consolidating. We believe we
distinguish ourselves from our competitors through our high-performance,
value-added products, which we research, develop and distribute on a national
basis. We believe our brands, Purina, Chow and the "Checkerboard" Nine Square
Logo, provide us with a competitive advantage, as they are well-recognized,
national brands for lifestyle animal feed. We also compete on the basis of
service by providing training programs, using animal nutritionists with advanced
technical qualifications to consult with local member cooperatives, independent
dealers and livestock producers and by developing and manufacturing customized
products to meet their needs.

      Governance. We operate our domestic feed business through our Land O'Lakes
Farmland Feed joint venture. Prior to the Purina Mills acquisition, we owned
73.7% of the joint venture. After the Purina Mills acquisition, we contributed
all of the equity interest in Purina Mills to Land O'Lakes Farmland Feed. As a
result, our ownership of


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Land O'Lakes Farmland Feed increased to 92.0%. We manage Land O'Lakes Farmland
Feed's day-to-day operations, and it is governed by a five member board of
managers. We have the right to appoint three members to the board and Farmland
Industries has the right to appoint two members to the board. According to the
terms of the Land O'Lakes Farmland Feed operating agreement, actions of the
board of managers require a majority vote. Certain items require unanimous
approval of the board of managers, including (1) materially changing the scope
of the business of the joint venture; (2) electing to dissolve the joint
venture; (3) selling all or substantially all of its assets or significant
assets; (4) requiring additional capital contributions; (5) authorizing cash
distributions of earnings; (6) changing income tax elections or changing
accounting practices to the extent they have a material impact on Farmland
Industries; (7) reducing the number of meetings of the members committee to less
than four per calendar year; (8) amending the management services agreement with
Land O'Lakes; and (9) adopting annual budgets and business plans or any material
amendments thereto.

      Pursuant to the Land O'Lakes Farmland Feed operating agreement, we have a
one-time option to purchase Farmland Industries' interest in the joint venture
at a price to be determined by negotiation or appraisal. The option period runs
from September 1, 2003, to September 1, 2005. Farmland Industries may reject our
request to exercise our option; however, if Farmland Industries rejects our
request, the voting rights on the board will be allocated based upon Land
O'Lakes' and Farmland Industries' financial interests in Land O'Lakes Farmland
Feed, and the number of actions requiring unanimous consent of the board will be
limited to items (2), (4), (5), (6) and (8) above as well as any action that
affects one member or the other or any distribution which is not proportionate
to a member's ownership interest.

CROP SEED

      Overview. We sell seed for a variety of crops, including alfalfa,
soybeans, corn and forage and turf grasses, under our CROPLAN GENETICS brand. We
also distribute certain crop seed products under third-party brands and under
private labels. Alfalfa is commonly grown for use in dairy and beef cattle
nutrition. We distribute our seed products through our network of local member
cooperatives, to other seed companies, to retail distribution outlets and under
private labels. We have strategic relationships with Syngenta and Monsanto, two
leading crop seed producers in the United States, to which we provide
distribution and research and development services.

      Products. We develop, produce and distribute seed products including seed
for alfalfa, soybeans, corn and forage and turf grasses. We also market and
distribute seed products produced by other crop seed companies, including seed
for corn, soybeans, sunflowers, canola, sorghum and sugarbeets. Seed products
are often genetically engineered through selective breeding or gene splicing to
produce crops with specific traits. These traits include resistance to
herbicides and pesticides and enhanced tolerance to adverse environmental
conditions. As a result of our relationships with certain life science
companies, we believe we have access to one of the most diverse genetic
databases of any seed company in the industry. We also license some of our
proprietary alfalfa seed traits to other seed companies for use in their seed
products.

      Sales, Marketing and Advertising. We have a sales force of approximately
130 employees who promote the sale of our seed products throughout the country,
particularly in the Midwest. Our sales and marketing strategy is built upon the
relationships we have established with our local member cooperatives and our
ability to purchase and distribute quality seed products at a low cost due to
our size and scale. We market our crop seed products under our brand name
CROPLAN GENETICS. We also distribute certain crop seed products under
third-party brands and under private label. We engage in a limited amount of
advertising, primarily utilizing marketing brochures and field signs. We are a
leader in online customer communications and order processing. We also
participate in the Total Farm Solutions program with our affiliate Agriliance.
Through this program, trained agronomists are placed at local cooperatives to
provide advisory services regarding crop seed and agronomy products.

      Distribution. We distribute our seed products through our network of local
member cooperatives, to other seed companies and to retail distribution outlets.
We have relationships with Syngenta and Monsanto, two leading crop seed
producers in the United States, to which we provide distribution and research
and development services. We also sell our proprietary products under private
labels to other seed companies for sale through their distribution channels.
Additionally, several of our product lines (particularly turf grasses) are sold
to farm supply retailers and home and garden centers. We use third-party
trucking companies for the nationwide distribution of our seed products.


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      Supply and Production. Our alfalfa, soybeans, corn and forage and turf
grass seed are produced to our specifications and under our supervision on farms
owned by us and geographically diverse third-party producers. We maintain a
significant inventory of corn and alfalfa seed products in order to mitigate
negative effects caused by weather or pests. Our alfalfa and corn seed products
can be stored for up to four years after harvesting. Our crop seed segment has
foreign operations in Argentina, Brazil, Canada and Hungary.

      Customers. We sell our seed products to over 7,000 customers, none of
which represented more than 3% of our crop seed net sales in 2001. Our customers
consist primarily of our local member cooperatives and other seed companies
across the United States and internationally. Our customer base also includes
retail distribution outlets.

      Research and Development. We focus our research efforts on crop seed
products for which we have a significant market position, particularly alfalfa
seed. We also work with other seed companies to jointly develop beneficial crop
seed traits. In 2001, we spent $4.0 million on crop seed research and
development. As of December 31, 2001, we employed 18 individuals in research and
development capacities and had four research and development facilities.

      Competition. Our competitors include Pioneer Hi-Bred International,
Monsanto, Syngenta and The Dow Chemical Company as well as many small niche seed
companies. We differentiate our seed business by supplying a branded,
technologically advanced, high quality product, and by providing farmers with
access to agronomists through our joint Total Farm Solutions program with
Agriliance. These services are increasingly important as the seed industry
becomes more dependent upon biotechnology and crop production becomes more
sophisticated. Due to the added cost involved, our competitors, with the
exception of Pioneer, generally do not provide such services. We can provide
these services at a relatively low cost because we often share the costs of an
agronomist with Agriliance or with a local cooperative.

SWINE

      We market both young weanling and feeder pigs (approximately 11 and 45
pounds respectively) and mature market hogs (approximately 260 pounds) under
five primary programs: swine aligned, farrow-to-finish, pass-through, cost-plus
and market risk sharing. Under the swine aligned program, we own sows and raise
feeder pigs for sale to our local member cooperatives. We raise market hogs for
sale to pork processors under our farrow-to-finish program. Under the
pass-through program, we enter into commitments to purchase weanling and feeder
pigs from producers and generally have commitments to immediately resell the
animals to swine producers. Both the cost-plus and the market risk sharing
programs provide minimum price floors to producers for market hogs. The price
floor in our cost-plus program is fixed while the price floor in our market risk
sharing program floats with the market price of hogs and the cost of swine feed.

      We experienced pro forma losses in our swine business of $42.0 million in
1999, primarily as a result of our cost-plus and market sharing risk contracts
which were highly sensitive to the drastic declines in market hog prices.
Following 1999, our cost-plus contracts were renegotiated to provide for lower
floor prices. The majority of our pass-through and market risk sharing contracts
have either been renegotiated or were canceled in Purina Mills' bankruptcy. Our
remaining cost-plus and market risk sharing contracts all expire no later than
2005. We are not entering into new cost-plus or market risk sharing contracts.

      We own approximately 61,000 sows producing approximately 720,000 feeder
pigs and 370,000 market hogs annually at seven facilities we own or lease and at
facilities owned by approximately 143 contract producers. The dramatic
volatility in the live hog markets in 1998 and 1999, where live hog prices
reached lows of $8 per hundredweight compared to their 40 year average of $38
per hundredweight, resulted in our swine operations generating losses primarily
in connection with our cost-plus, market risk sharing and pass-through programs.

AGRONOMY

      Our agronomy segment consists primarily of joint ventures and investments
that are not consolidated in our financial results. The two most significant of
these are Agriliance and CF Industries. As a result, our agronomy segment has no
net sales, but we allocate overhead to selling and administration and may
recognize patronage as a


                                       8
<PAGE>
reduction in cost of sales. For a discussion of our agronomy accounting and
results see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."

OTHER

      We also operate various other wholly-owned businesses such as LOL Finance
Co., which provides financing to farmers and livestock producers.

JOINT VENTURES AND INVESTMENTS

      Other than Cheese & Protein International, which is a consolidated
unrestricted subsidiary, the joint ventures and investments described below are
unconsolidated.

      Agriliance LLC. Agriliance, a 50/50 joint venture with United Country
Brands was formed for the purpose of distributing and manufacturing agronomy
products. Prior to the contribution of our agronomy assets to Agriliance, the
financial results of these assets were consolidated for financial reporting
purposes.

      Products. Agriliance markets and sells two primary product lines: crop
nutrients (including fertilizers and micronutrients) and crop protection
products (including herbicides, pesticides, fungicides and adjuvants). For
Agriliance's fiscal year ended August 31, 2001, approximately 87% of these
products were manufactured by third-party suppliers and marketed under the
suppliers' brand names. The remaining 13% was either manufactured by Agriliance
or by a third-party supplier and marketed under the brand names Agrisolutions
(for herbicides, pesticides and related products) and Origin (for
micronutrients).

      Sales and Marketing. Agriliance has an internal sales force of
approximately 100 employees. Agriliance's sales and marketing efforts serve the
entire United States and focus on the area from the Midwest to the eastern Corn
Belt. Agriliance's strategy is built upon strong relationships with local
cooperatives and Agriliance's ability to purchase and distribute quality
agronomy products at a low cost due to its size and scale. Agriliance engages in
a limited amount of advertising in trade journals and produces marketing
brochures and advertisements utilized by local cooperatives. In addition,
Agriliance assists local member cooperatives and independent farmers by
identifying, recruiting and training agronomists who provide advice relating to
agronomy products. In the Midwest, Agriliance has started implementing the Total
Farm Solutions program, an effort to utilize the expertise of the agronomists to
bundle Agriliance products with our seed products.

      Production, Source of Supply and Raw Materials. Agriliance operates
primarily as a wholesale distributor of products purchased from other
manufacturers. Agriliance's primary suppliers of crop protection products are
Syngenta, Monsanto, BASF, Dow Chemical, DuPont and Aventis. Agriliance enters
into annual distribution agreements with these manufacturers. However,
Agriliance manufactures approximately 10% of its proprietary crop protection
products. Agriliance's production facilities are located in Iowa, Arkansas,
Missouri and Minnesota. Agriliance procures approximately 80% of its fertilizer
needs from CF Industries, of which we are a member, and Farmland Industries.
Agriliance sources their remaining fertilizer supply needs from a variety of
suppliers including PCS, IMC, Terra Nitrogen, Mississippi Chemical and Agrium.
Agriliance also produces micronutrient products. In 2001, approximately 58% of
Agriliance's agronomy products were sourced from three suppliers.

      Customers and Distribution. Agriliance's customer base consists primarily
of farmers, many of whom are members of our cooperative. Agriliance distributes
its products through our local member cooperatives and also through retail
agronomy centers owned by Agriliance. Agriliance stores inventory at a number of
strategically positioned locations, including leased warehouses and storage
space at local cooperatives. Agriliance serves most of the key agricultural
areas of the United States, with its customers and distribution concentrated in
the Midwest.

      Competition. Agriliance's primary competitors are national crop nutrient
distributors, such as Cargill, IMC, PCS, Agrium and Royster Clark, national crop
protection product distributors, such as UAP, Helena and Wilbur-Ellis, as well
as smaller regional brokers and distributors. This wholesale agronomy industry
is consolidating as distributors attempt to expand their distribution
capabilities and efficiencies. Wholesale agronomy customers tend to purchase
products based upon a distributor's ability to provide ready access to product
at critical times prior to and during the growing season. In addition, certain
customers purchase on the basis of price. We believe Agriliance


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<PAGE>
distinguishes itself from its competitors as a result of its distribution
network, which enables it to efficiently distribute product to customers. In
addition, Agriliance provides access to trained agronomists who give advice to
farmers on both agronomy and crop seed products to optimize their crop
production.

      Governance. Agriliance is managed by a four member board of managers. We
and United Country Brands each have the right to appoint two of the managers.
Certain actions require the unanimous approval of the board, including (1)
adopting or amending the annual business plan; (2) distributing products
produced by Agriliance to anyone other than the members or patrons of
Agriliance's members; (3) approving capital expenditures related to the
expansion of Agriliance's production capabilities, purchasing additional
inventory or changing the types of products produced by Agriliance; (4)
incurring indebtedness other than in the ordinary course of business; (5)
appointing, replacing, or discharging an executive officer; (6) making
distributions to members; and (7) changing income tax or special accounting
elections. Pursuant to the terms of Agriliance's operating agreement, Land
O'Lakes, CHS Cooperatives and Farmland Industries have all agreed to refrain
from directly or indirectly engaging in the wholesale marketing of fertilizer
and agricultural chemicals in North America, except through Agriliance, for so
long as they, or an entity in which they are a material owner, remain a member
of Agriliance, and for a period of four years following termination of their
membership.

      MoArk LLC. In January 2000, we formed MoArk LLC, a joint venture of which
we own 50%, with Osborne Investments, LLC, to produce and market eggs and egg
products. We have the right to purchase from Osborne (and Osborne has the right
to cause us to buy from them) their interest in MoArk for a minimum purchase
price of $55.0 million (adjusted for tax benefits received by Osborne and
purchase price already paid) or a greater amount based upon MoArk's performance
over time. These rights are exercisable in January 2007. In addition, Osborne
has the right to cause us to buy 15% of their interest in MoArk (7.5% of MoArk)
in January 2003 for $9.0 million (adjusted for tax benefits received by Osborne)
if MoArk has achieved revenues in excess of $300.0 million annually. Although
Osborne has a 50% interest in MoArk, we are allocated 100% of the income or loss
of MoArk (other than on capital transactions involving realized gain or loss on
intangible assets, which are allocated 50/50).

      Products. MoArk produces and markets shell eggs and egg products that are
sold at retail and wholesale for consumer and industrial use throughout the
United States. As of December 31, 2001, MoArk marketed and processed eggs from
approximately 26 million layers (hens) which produced approximately 520 million
dozen eggs annually. Approximately 50% of the eggs and egg products marketed are
produced by layers owned by MoArk. The remaining 50% are purchased on the spot
market or from third-party producers. Shell eggs represent approximately 70% of
eggs MoArk sells annually, and the balance are broken for use in egg products
such as refrigerated liquid, frozen, dried and extended shelf life liquid. MoArk
recently launched a high quality, all natural shell egg product marketed under
the LAND O LAKES brand name in a Northeast market. Through MoArk's acquisition
of Cutler Egg Products in April 2001, MoArk acquired a patented process that
extends the shelf life of a refrigerated liquid egg product utilizing an
ultra-pasteurization process. In 2001, shell eggs represented 80% of MoArk's
total net sales, while egg products represented 20% of net sales.

      Customers and Distribution. MoArk has approximately 950 retail grocery,
industrial, foodservice and institutional customers. While supply contracts
exist with a number of the larger retail organizations, the terms are typically
market based, annual contracts and allow early cancellation by either party.
MoArk primarily delivers directly to its customer (store to door delivery).
Alternatively, some customers pick up product at one of MoArk's facilities.

      Sales and Marketing. MoArk's internal sales force maintains direct
relationships with customers. MoArk also uses food brokers to maintain select
accounts and for niche and "spot" activity in situations where MoArk cannot
effectively support the customer or needs to locate a customer or customers for
excess products. With the exception of the advertising activity associated with
the launch of the LAND O LAKES brand eggs, amounts spent for advertising are
insignificant.

      Competition. MoArk competes with other egg processors, including Cal-Maine
Foods, Rose Acre Farms, Inc. and Michael Foods. MoArk competes with these
companies based upon its low cost production system, its high margin regional
markets and its diversified product line.


                                       10
<PAGE>
      Governance. We are entitled to appoint three managers to the board of
managers of MoArk, and Osborne has the right to appoint the remaining three
managers until its governance interest has been transferred to us. According to
the terms of MoArk's operating agreement, two managers elected by us and two
managers elected by Osborne constitute a quorum. Actions of the board of
managers require a unanimous vote of a quorum of the board of managers. MoArk is
required to maintain at all times a net worth in excess of $40.0 million. If
MoArk's net worth were to decline below $40.0 million, we would be required to
contribute the necessary funds in order to maintain the $40.0 million net worth.
As of December 31, 2001, MoArk's net worth was approximately $102 million. In
the event we decide to sell or transfer any or part of our economic and
governance interest in MoArk, including our right to cause the transfer of the
governance interest owned by Osborne, we must first offer to sell or transfer to
Osborne all of the rights and interests to be sold or transferred at a similar
price and under similar material terms and conditions.

      Cheese & Protein International LLC. Cheese & Protein International, a 70%
owned consolidated joint venture with a subsidiary of Mitsui & Co. (USA), is
constructing a plant in Tulare, California to produce mozzarella cheese and
whey. In connection with the formation of the venture, we entered into a
marketing agreement with Mitsui and Cheese & Protein International which gives
us the right to distribute the products produced by the venture in the United
States and gives Mitsui the right to distribute the same products outside the
United States. The purchase price for all products is based upon the market
prices for such product. We have also contracted with Cheese & Protein
International to provide no less than 70% of their milk requirements at prices
based upon market prices for milk. In addition, we have agreed to purchase no
less than 70% of Cheese & Protein International's estimated production of
mozzarella cheese, based upon market prices. This venture is governed by a 10
member committee. We have the right to appoint seven members to the committee.
The remaining three members are appointed by our joint venture partner.

      Advanced Food Products, LLC. We own a 35% interest in Advanced Food
Products, a joint venture which manufactures and markets a variety of custom and
noncustom aseptic products. Aseptic products are manufactured to have extended
shelf life through specialized production and packaging processes, enabling food
to be stored without refrigeration until opened. We formed Advanced Food
Products in 2001, with a subsidiary of Bongrain, S.A., a French food company,
for the purpose of manufacturing and marketing aseptically packaged cheese
sauces, snack dips, snack puddings, and ready to drink dietary beverages. We own
a 35% interest in Advanced Food Products. The venture is governed by a six
member board of managers, and we have the right to appoint two members. Bongrain
manages the day-to-day operations of the venture.

      Dairy Marketing Alliance, LLC. Our joint venture Dairy Marketing Alliance
is owned 50% by us and 50% by Dean Foods. Dairy Marketing Alliance markets a
variety of sour cream products, cream products and single-serve dairy-based
beverages such as GRIP `N GO brand beverages under the LAND O LAKES brand name.
Dairy Marketing Alliance is a joint venture formed in July 2000 in connection
with the sale of our fluid dairy business to Dean Foods Company.

      CF Industries, Inc. CF Industries is one of North America's largest
interregional cooperatives, and is owned by nine cooperatives. CF Industries
manufactures fertilizer products, which are distributed by its members or their
affiliates. CF Industries has manufacturing facilities in Louisiana, Alberta,
Canada and Florida. As of December 31, 2001, our equity interest in CF
Industries, which represents allocated but unpaid patronage, had a book value of
approximately $248.5 million. For the year ended December 31, 2001, our
percentage of ownership of allocated equity of CF Industries was 33.8%. Each of
the members has the right to elect one director to the board of directors.

      CoBank. CoBank is a cooperative lender of which we are a member. Our
equity interest in CoBank and the amount of patronage we receive is dependent
upon our outstanding borrowings from CoBank. As of December 31, 2001, our
investment in CoBank had a book value of $21.5 million.

      Ag Processing. Ag Processing is a cooperative that produces soybean meal
and soybean oil. As a member of Ag Processing, we are entitled to patronage
based upon our purchases of these products. We use soybean meal as an ingredient
in our feed products. Soybean oil is an ingredient used to produce our spread
products.

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<PAGE>
DESCRIPTION OF THE COOPERATIVE

      Land O'Lakes is incorporated in Minnesota as a cooperative corporation.
Cooperatives resemble traditional corporations in most respects, but with two
primary distinctions. First, a cooperative's common shareholders, its "members",
either supply the cooperative with raw materials or purchase its goods and
services. Second, to the extent a cooperative allocates its earnings from member
business to its members and meets certain other requirements, it is allowed to
deduct this "patronage income" from its taxable income. Patronage income is
allocated in accordance with the amount of business each member conducts with
the cooperative.

      Cooperatives typically derive a majority of their business from members,
although they are allowed by the Internal Revenue Code to conduct non-member
business. Earnings are designated as "pool" earnings or "non-pool" earnings
according to the Internal Revenue Code and decisions made by each cooperative.
Pool earnings are then segregated into earnings generated from member and
non-member business. Pool earnings may be treated as patronage income if they
are generated from business conducted with or for a member of the cooperative.
Non-pool earnings and earnings from non-member business are taxed as corporate
income in the same manner as a typical corporation. The after-tax amount is
retained as permanent equity by the cooperative. Pool earnings from member
business are either allocated to patronage income or retained as permanent
equity (in which case it is taxed as corporate income) or some combination
thereof.

      In order to obtain favorable tax treatment on allocated patronage income,
the Internal Revenue Code requires that at least 20% of each member's annual
allocated patronage income be distributed in cash. The portion of patronage
income that is not distributed in cash is retained by the cooperative, allocated
to member equities and distributed to the member at a later time as a
"revolvement" of equity. The cooperative's members must recognize the amount of
allocated patronage income (whether distributed to members or retained by the
cooperative) in the computation of their individual taxable income.

      Cooperatives are also allowed to designate patronage income as
"nonqualified" patronage income and allocate it to member equities. The
cooperative pays taxes on this nonqualified patronage income as if it was
derived from non-member business. The cooperative's members do not include
undistributed nonqualified patronage income in their current taxable income.
However, the cooperative may revolve the equity representing the nonqualified
patronage income to members at some later date, and is allowed to deduct those
amounts from its taxable income at that time. When nonqualified patronage income
is revolved to the cooperative's members, the revolvement must be included in
the members' taxable income.

OUR STRUCTURE AND MEMBERSHIP

      We have both voting and nonvoting members, with differing membership
requirements for cooperative and individual members. We also separate our
members into two categories: "dairy members" supply our dairy foods segment with
dairy products, primarily milk, cream, cheese and butter, and "ag members"
purchase agricultural products, primarily agronomy products, feed and seed from
our other operations or joint ventures. We further divide our dairy and ag
members by region. There are eight dairy regions and five ag regions.

      All of our members must purchase stock and comply with uniform conditions
prescribed by our board of directors and by-laws. The board of directors may
terminate a membership if it determines that the member has failed to adequately
patronize us or has become our competitor.

      A cooperative voting member (a "Class A" member) must be an association of
producers of agricultural products operating on a cooperative basis engaged in
either the processing, handling, or marketing of its members' products or the
purchasing, producing, or distributing of farm supplies or services. Class A
members are entitled to a number of votes based on the amount of business done
with the Company. Class A members tend to be ag members, although a Class A
member may be both an ag and dairy member if they both supply us with dairy
products and purchase agricultural products from us or our joint ventures.

      An individual voting member (a "Class B" member) is an individual,
partnership, corporation or other entity other than a cooperative engaged in the
production of agricultural commodities. Class B members are entitled to one


                                       12
<PAGE>
vote. Class B members tend to be dairy members. Class B members may be both an
ag and dairy member if they both provide us with dairy products and purchase
agricultural products from us or our joint ventures.

      Our nonvoting cooperative members ("Class C" members) are associations
operating on a cooperative basis but whose members are not necessarily engaged
in the production or marketing of agricultural products. Such members are not
given the right to vote, because doing so may jeopardize our antitrust exemption
under the Capper-Volstead Act (the exemption requires all our voting members be
engaged in the production or marketing of agricultural products). Class C
members also include cooperatives which are in direct competition with us.
Nonvoting individual members ("Class D" members) generally do a low volume of
business with us and are not interested in our governance.

GOVERNANCE

      Our board is made up of 24 directors. Our dairy members nominate 12
directors from among the dairy members and our ag members nominate 12 directors
from among the ag members. The nomination of directors is conducted within each
group by region. The number of directors nominated from each region is based on
the total amount of business conducted with the cooperative by that region's
members. Directors are elected to four year terms at our annual meeting by
voting members in a manner similar to a typical corporation. Our by-laws require
that, at least every five years, we evaluate both the boundaries of our regions
and the number of directors from each region, so that the number of directors
reflects the proportion of patronage income from each region.

      The board may also choose to elect up to three non-voting advisory
members. Currently, we have one such member. The board governs our affairs in
virtually the same manner as the boards of typical corporations.

EARNINGS

      As described above, we divide our earnings between pool and non-pool and
member and non-member business. We then allocate member earnings to dairy foods
operations or agricultural operations (which is comprised of our feed, crop
seed, agronomy and swine segments). Pool earnings from each of our segments are
currently maintained in separate pools. We are discussing the possibility of
establishing a second pool for our dairy foods segment for farmers who sell milk
to us for resale as commodity fluid milk. For our dairy foods operations, the
amount of member business is based on the amount of dairy products supplied to
us by our dairy members. In calendar year 2001, 70.6% of our dairy input
requirements came from our dairy members. For our agricultural operations, the
amount of member business is based on the dollar-amount of products sold to our
agricultural members. In calendar year 2001, 83% of our pro forma agricultural
products net sales, and 49% of our pro forma operating income, was derived from
sales to agricultural members.

PATRONAGE INCOME AND EQUITY

      To acquire and maintain adequate capital to finance our business, our
by-laws allow us to retain up to 15% of our earnings from member business as
additions to permanent equity. We currently retain 10% and allocate the
remainder of our earnings from member business to patronage income.

      We have two plans through which we revolve patronage income to our
members; the Equity Target Program for our dairy foods operations and the
Revolvement Program for our agriculture businesses.

      The Equity Target Program provides a mechanism for determining the capital
requirements of our dairy foods operations and each dairy member's share of
those requirements. The board of directors has established an equity target
investment of $2.75 per hundred pounds of milk (or milk equivalent) delivered
per year by that member to us. We distribute 20% of allocated patronage income
to a dairy member annually until the investment target is reached by that
member. The remaining 80% of allocated patronage income is retained and
allocated to member equities and revolved in the twelve years after the member
becomes inactive. When the member's equity investment reaches the target, and
for as long as the member's equity target investment is maintained, we
distribute 100% of the member's future allocated patronage income. The equity
target as well as the revolvement period may be changed at the discretion of the
board.


                                       13
<PAGE>
      For calendar year 2000, we allocated $54.4 million of our member earnings
as patronage income to our dairy members. Of that amount, 92% or $50.1 million
was allocated to dairy members who have yet to reach their equity target
investment, and we distributed $10.0 million (20%) to those members and retained
and allocated $40.1 million (80%) to member equities. 8% or $4.3 million was
distributed to dairy members who have met their equity investment requirement.
We also allocated $32.9 million of our member earnings as nonqualified patronage
refunds, which were retained as member equities. We plan to revolve $13.2
million of dairy members' equity for 2001.

      In the Revolvement Program for our agricultural businesses, we currently
distribute 30% of allocated patronage income in cash and retain and allocate the
remaining 70% to member equity. This equity is revolved 9 1/2 years later. Both
the amount distributed in cash and the revolvement period are subject to change
by the board. For calendar year 2000, we allocated $54.6 million of our member
earnings to our agricultural members. Of that amount, we paid patronage income
of $16.4 million to our members in cash and retained and allocated $38.2 million
to member equities. Our board suspended revolvement of ag member equities for
the 2001 fiscal year.

      In connection with the sale of our branded fluid milk business to Dean
Foods in 2000, we recognized earnings of $57.9 million. $32.9 million of these
earnings were designated as nonqualified patronage and allocated to member
equities. We paid income tax on this nonqualified patronage, however, we will be
able to deduct these earnings from our taxable income if we choose to revolve
the earnings to our members in the future. The board has no present intention of
revolving the equity representing this nonqualified patronage income.

      Our Estate Redemption Plan provides that we will redeem equity holdings of
deceased natural persons upon the demise of the owner. The Company's Age
Retirement Program provides that we will redeem in full equity holdings of dairy
members who are natural persons when the member reaches age 75 or older and
becomes inactive. Subject to various requirements, we may redeem the equity
holdings of members in bankruptcy or liquidation. All equity redemptions must be
presented to, and receive the approval of, our board of directors before
payment. We revolved $2.8 million of member equities in connection with these
programs in 2001 and expect to revolve approximately $3.2 million in 2002.

EMPLOYEES

      At March 1, 2002, we had approximately 8,600 employees, approximately 27%
of whom were represented by unions having national affiliations. Our contracts
with these unions expire at various times throughout the next several years,
with the last contract expiring on January 1, 2005. We consider our relationship
with employees to be generally satisfactory. We have had no labor strikes or
work stoppages within the last five years.

      Of the 8,600 employees above, approximately 2,100 were employed by Land
O'Lakes Farmland Feed, 14% of whom were represented by unions having national
affiliations.

PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY

      We rely on patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our intellectual
property. We believe that in addition to certain patented processes, the
formulas and production methods of our dairy foods products are trade secrets.
We also have patented processes for our milk replacement products and deem our
feed product formulations to be proprietary.

      We own a number of registered and unregistered trademarks used in
connection with the marketing and sale of our food products as well as our feed
and seed products including LAND O LAKES, and the Indian Maiden logo, Alpine
Lace, New Yorker, Lake to Lake, Extra Melt, GRIP `N GO, CROPLAN GENETICS, Maxi
Care, Amplifier Max and Omolene. Land O'Lakes Farmland Feed licenses certain
trademarks from Land O'Lakes, including LAND O LAKES, the Indian Maiden logo,
Maxi Care, and Amplifier Max, for use in connection with its animal feed and
milk replacer products. Purina Mills, a wholly-owned subsidiary of Land O'Lakes
Farmland Feed, licenses the trademarks Purina, Chow and the "Checkerboard" Nine
Square Logo from Nestle Purina PetCare Company under a perpetual, royalty-free
license. This license only gives Purina Mills the right to use these trademarks
to market the particular products that Purina Mills currently markets with these
trademarks. Purina Mills does not have the right to use these trademarks outside
of the United States, or in conjunction with any products designed primarily for
use with cats, dogs or humans. We do not have the right to assign any of these
trademarks without the written consent of


                                       14
<PAGE>
Nestle Purina PetCare Company. These trademarks are important to Land O'Lakes
Farmland Feed because brand name recognition is a key factor to its success in
marketing and selling its products. The registrations of these trademarks in the
United Stated and foreign countries are effective for varying periods of time,
and may be renewed periodically, provided that we, as the registered owner, or
our licensees, where applicable, comply with all applicable renewal requirements
including, where necessary, the continued use of the trademarks in connection
with similar goods.

      We entered into a license agreement with Dean Foods in connection with the
sale of our fluid dairy assets in July 2000. This license grants Dean Foods a
perpetual, exclusive, royalty-free license to utilize certain trademarks,
including LAND O LAKES and the Indian Maiden logo in connection with the
manufacturing, marketing, promotion distribution and sale of milk (except small
bottle milk), buttermilk, yogurt, eggnog, cottage cheese, ice cream and juices.
In addition, we entered into a license agreement with our joint venture Dairy
Marketing Alliance, which grants Dairy Marketing Alliance a perpetual,
exclusive, royalty-free license to utilize certain trademarks, including LAND O
LAKES and the Indian Maiden logo, and certain intellectual property, in
connection with the manufacture, marketing, promotion, distribution and sale of
milk, buttermilk, yogurt, eggnog, cottage cheese, ice cream and juices which are
marketed utilizing new nutrient claims, as well as small bottle milk, cream
products and sour cream. The license relating to milk (other than small bottle
milk), buttermilk, yogurt, eggnog, cottage cheese, ice cream and juices will
terminate, and would then be granted to Dean Foods, in the event Dean Foods
elects to market such products utilizing new nutrient claims as a part of its
basic business.

      We have also entered into other license agreements with other affiliated
and unaffiliated companies, such as MoArk, which permit them to utilize our
trademarks in connection with the marketing and sale of certain products.

ENVIRONMENTAL MATTERS

      We are subject to various Federal, state, local, and foreign environmental
laws and regulations, including those governing the use, storage, discharge and
disposal of hazardous materials. Violations of these laws and regulations may
lead to civil and criminal fines and penalties or other sanctions. These laws
and regulations may also impose liability for the cleanup of environmental
contamination. We generate large volumes of waste water. Changes in
environmental regulations governing disposal of these materials could have a
material adverse effect on our business, financial condition or results of
operations.

      We use regulated substances in operating our manufacturing equipment and
we use and store other chemicals on site (including acids, caustics and
refrigeration chemicals). Agriliance stores petroleum products and other
chemicals on-site (including fertilizers, pesticides and herbicides). Discovery
of significant contamination or changes in environmental regulations governing
the handling of these materials could have a material adverse effect on our
business, financial condition, or results of operations.

      Many of our current and former facilities have been in operation for many
years and, over that time, we and other operators of those facilities have
generated, used, stored, or disposed of substances or wastes that are or might
be considered hazardous under applicable environmental laws, including chemicals
and fuel stored in underground and above-ground tanks, animal wastes and large
volumes of wastewater discharges. As a result, the soil and groundwater at or
under certain of our current and former facilities (and/or in the vicinity of
such facilities) may have been contaminated, and we may be required to make
material expenditures to investigate, control and remediate such contamination.

      We are also potentially responsible for environmental conditions at a
number of former facilities and at waste disposal facilities operated by third
parties. We have been identified as a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund") at various National Priorities List sites and have
unresolved liability with respect to the past disposal of hazardous substances
at several such sites. CERCLA may impose joint and several liability on certain
statutory classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property, and companies that generated, disposed of, or arranged
for the disposal of hazardous substances found at the property. We have
contested our liability at one Superfund site, as to which we have declined to
pay past


                                       15
<PAGE>
response costs associated with ongoing site study, and we have received a notice
of potential liability regarding three other waste disposal sites under
investigation by the EPA, as to which we are disputing our responsibility.

      We have, on average, paid less than $250,000 in each of the last five
years for investigation and remediation of environmental matters, including
Superfund and related matters, but there can be no assurance that expenditures
for such activities will not rise materially if substantial contamination is
discovered at one of our current or former facilities or if other potentially
responsible parties fail or refuse to participate in cost sharing at any
Superfund site, or similar disposal site, at which we are implicated.

      In addition, Federal and state environmental authorities have proposed new
regulations and have attempted to apply certain existing regulations for the
first time to agricultural operations. These regulations could result in
significant restraints on some of our operations, particularly our swine
operations, and could require us to spend significant amounts to bring these
operations into compliance. In addition, any failure to comply could result in
the imposition of fines and penalties. We cannot predict whether future changes
in environmental laws or regulations will materially increase the cost of
operating our facilities and conducting our business. Any such changes could
adversely affect our business, financial condition and results of operations.

REGULATORY MATTERS

      We are subject to Federal, state and local laws and regulations relating
to the manufacturing, labeling, packaging, health and safety, sanitation,
quality control, fair trade practices, and other aspects of our business. In
addition, zoning, construction and operating permits are required from
governmental agencies which focus on issues such as land use, environmental
protection, waste management, and the movement of animals across state lines.
These laws and regulations may, in certain instances, affect our ability to
develop and market new products and to utilize technological innovations in our
business. In addition, changes in these rules might increase the cost of
operating our facilities or conducting our business which would adversely affect
our finances.

      Our dairy business is affected by Federal price support programs and
Federal and state pooling and pricing programs. Since 1949, the Federal
government has maintained price supports for cheese, butter and nonfat dry milk.
The government stands as a ready purchaser of these products at their price
support levels. Historically, when the product price reached 110% of its price
support level, the government would sell its inventory into the market,
effectively limiting the price of these products. Because prices for these
products have generally been higher than their support level for a number of
years, the government currently has minimal inventories of cheese and butter. As
a result, these commodity prices have been able to be greater than 110% of their
price support levels for several years. According to data from the USDA, over
the past five years, butter has sold at an average of 176% of the support price
without reaching support levels, and cheese has sold at an average of 121% of
the support price. However, cheese sold at or near support levels at points
between October 2000 and January 2001. The 1996 Federal Agricultural Improvement
and Reform Act ("FAIR") provided for the termination of dairy price supports.
The termination of price supports was initially set to occur on December 31,
1999. This date was subsequently extended, and is currently set for May 31,
2002. On October 5, 2001, the United States House of Representatives passed a
bill which, if enacted, would extend the dairy price supports until December 31,
2011. On February 12, 2002, the United States Senate passed a bill which, if
enacted, would extend the dairy supports until December 31, 2006. The extension
of dairy price supports is a part of a much larger farm bill which is currently
in conference committee. If FAIR is not renewed we will no longer benefit from
the existence of price supports, which means that we will no longer have a ready
purchaser of our products at a certain minimum price. This could have an adverse
effect on our financial results.

      Federal and certain similar state regulations attempt to ensure that the
supply of raw milk flows in priority to fluid milk and soft cream producers
before producers of hard products such as cheese and butter. This is
accomplished in two ways. First, the Federal market order system sets minimum
prices for raw milk. The minimum price of raw milk for use in fluid milk and
soft cream production is set as a premium to the minimum price of raw milk used
to produce hard products. The minimum price of raw milk used to produce hard
products is, in turn, set based on the market prices of cheese and butter.
Second, the Federal market order system establishes a pooling program under
which participants are required to send at least some of their raw milk to fluid
milk producers. The specific amount varies based on region, but is at least 10%
of the raw milk a participant handles. Certain areas in the country, such as
California, have adopted systems which supersede the Federal market order system
but are similar


                                       16
<PAGE>
to it. In addition, because the Federal market order system is not intended as
an exclusive regulation of the price of raw milk, certain states have, and
others could, adopt regulations which could increase the price we pay for raw
milk, which could have an adverse effect on our financial results. We also pay a
premium above the market order price based on competitive conditions in
different regions.

      Producers of dairy products which are participants in the Federal market
order system pay into regional "pools" for the milk they use based on the amount
of each class of dairy product produced and the price of those products. As
described above, only producers of dairy products who send the required minimum
amount of raw milk to fluid milk producers may participate in the pool. The
amounts paid into the pool for raw milk used to make fluid milk and soft creams
are set at a premium to the amounts paid into the pool for raw milk used to make
cheese or butter. The pool then returns to each dairy product producer for raw
milk it handled the weighted average price for all raw milk (including that used
for fluid milk and soft creams, whose producers must pay into the pool) sold in
that region. The dairy product producer pays at least this pool price to the
dairy farmer for milk received. This pooling system provides an incentive for
hard product producers to participate in the pool (and therefore supply the
required minimum for fluid milk production), because the average price for raw
milk received by these producers from the pool is more than the average price
they pay into the pool.

      As a cooperative, we are exempt from the requirement that we pay pool
prices to our members for raw milk supplied to us. However, as a practical
matter, we must pay a competitive price to our members in order to ensure
adequate supply of raw milk for our production needs and therefore our
operations are affected by these regulations.

      If we did not participate in the pool, we would not receive the advantage
of the average pool payment and we would not be able to pay our milk producers
as much as participating processors without incurring higher costs for our raw
milk. To maintain our participation in the federal market order program and
avoid this competitive disadvantage, we must procure at least 110% of our raw
milk requirements to meet our production needs. If we are unable to procure at
least 110% of our requirements, we would have lower production which could have
a material adverse affect on our results of operations. In addition, if the pool
was eliminated we would be subject to additional market forces when procuring
raw milk, which could result in increased milk costs and decreased supply, which
could materially affect our business.

      As a manufacturer and distributor of food and animal feed products, we are
subject to the Federal Food, Drug and Cosmetic Act and regulations issued
thereunder by the Food and Drug Administration ("FDA"). This regulatory scheme
governs the manufacture (including composition and ingredients), labeling,
packaging, and safety of food. The FDA regulates manufacturing practices for
foods through its good manufacturing practices regulations, specifies the
standards of identity for certain foods and animal feed, and prescribes the
format and content of certain information required to appear on food and animal
feed product labels. In addition, the FDA enforces the Public Health Service Act
and regulations issued thereunder, which authorize regulatory activity necessary
to prevent the introduction, transmission, or spread of communicable diseases.
We and our products are also subject to state and local regulation through
mechanisms such as the licensing of dairy manufacturing facilities, enforcement
by state and local health agencies of state standards for food products,
inspection of facilities, and regulation of trade practices. Modification of
these Federal, state and local laws and regulations could increase our costs of
sales or prevent us from marketing foods in the way we currently do and could
have a material adverse effect on our business prospects, results of operations
and financial condition.

      Pasteurization of milk and milk products is also subject to inspection by
the United States Department of Agriculture. We and our products are also
subject to state and local regulation through mechanisms such as the licensing
of dairy manufacturing facilities, enforcement by state and local health
agencies of state standards for food products, inspection of facilities, and
regulation of trade practices in connection with the sale of food products.
Modification of these Federal, state and local laws and regulations could
increase our costs of sales or prevent us from marketing foods in the way we
currently do and could have a material adverse effect on our business prospects,
results of operations and financial condition.

      Land O'Lakes Farmland Feed distributes animal feed products through a
network of approximately 4,000 independent dealers. Various states in which
these dealers are located have enacted dealer protection laws which could have
the effect of limiting our rights to terminate dealers. In addition, failure to
comply with such laws could


                                       17
<PAGE>
result in awards of damages or statutory sanctions. As a result, it may be
difficult to modify the way we distribute our feed products which may put us at
a competitive disadvantage.

      Several states have enacted "corporate farming laws" that restrict the
ability of corporations to engage in farming activities. Minnesota, North
Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Missouri, Iowa and Wisconsin,
states in which we conduct business, have corporate farming laws. We believe
that our operations currently comply with the corporate farming laws in these
states and their exemptions, but these laws could change in the future and
additional states could enact corporate farming laws that regulate our
businesses. Even with the exemptions, these corporate farming laws restrict our
ability to expand or alter our operations in these states.

ITEM  2. PROPERTIES.

      We own the land underlying our corporate headquarters in Arden Hills,
Minnesota and lease the buildings. Our corporate headquarters, consisting of a
main office building and a research and development facility, has an aggregate
of approximately 275,000 gross square feet. In addition, we own offices,
manufacturing plants, storage warehouses and facilities for use in our various
business segments. Thirty-five of our owned properties are mortgaged to secure
our indebtedness. The following table provides summary information about our
principal facilities:

<TABLE>
<CAPTION>
                      TOTAL NUMBER      TOTAL NUMBER
                      OF FACILITIES     OF FACILITIES     REGIONAL LOCATION
 BUSINESS SEGMENT         OWNED            LEASED           OF FACILITIES
------------------    ------------     -------------     ----------------
<S>                   <C>              <C>               <C>
Dairy Foods......          17(1)             40          Midwest(2) - 39
                                                         West(3) - 11
                                                         East(4) - 6
                                                         South(5) - 1
Animal Feed......          97(6)             11          Midwest - 65
                                                         West - 23
                                                         East - 5
                                                         South - 15
Crop Seed........          23                 1          Midwest - 14
                                                         West - 10
Swine............          17(7)              3          Midwest - 19
                                                         East - 1
Agronomy.........           2                 0          Midwest - 2
</TABLE>

----------

      (1)   Includes a closed facility and a facility utilized for feed
            manufacturing which is accounted for in the dairy foods segment.

      (2)   The Midwest region includes the states of Ohio, Michigan, Indiana,
            Illinois, Wisconsin, Minnesota, Iowa, Missouri, Oklahoma, Kansas,
            Nebraska, South Dakota and North Dakota and Ontario, Canada.

      (3)   The West region includes the states of Montana, Wyoming, Colorado,
            Texas, New Mexico, Arizona, Utah, Idaho, Washington, Oregon, Nevada,
            California, Alaska and Hawaii.

      (4)   The East region includes the states of Maine, New Hampshire,
            Vermont, New York, Massachusetts, Rhode Island, Connecticut,
            Pennsylvania, New Jersey, Delaware and Maryland.

      (5)   The South region includes the states of West Virginia, Virginia,
            North Carolina, Kentucky, Tennessee, South Carolina, Georgia,
            Florida, Alabama, Mississippi, Louisiana and Arkansas.

      (6)   Includes two closed facilities and a research and development
            facility.

      (7)   Includes 11 facilities which will be sold upon completion of
            construction and permitting and two facilities which we will operate
            upon completion of construction and permitting.

      We do not believe that we will have difficulty in renewing the leases we
currently have or in finding alternative space in the event those leases are not
renewed. We consider our properties suitable and adequate for the conduct of our
business.


                                       18
<PAGE>
ITEM  3. LEGAL PROCEEDINGS.

      We are currently and from time to time involved in litigation incidental
to the conduct of our business. The damages claimed against us in some of these
cases are substantial. Although the amount of liability that may result from
these matters cannot be ascertained, we do not currently believe that, in the
aggregate, they will result in liabilities material to our consolidated
financial condition, future results of operations or cash flow.

      In a letter dated January 18, 2001, we were identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party for the hazardous waste located at the Hudson Refinery Superfund Site in
Cushing, Oklahoma. The letter invited us to enter into negotiations with the EPA
for the performance of a remedial investigation and feasibility study in
connection with the site, and also demanded that we reimburse the EPA
approximately $8.9 million for remediation expenses already incurred at the
site. We have responded to the EPA denying any responsibility. No further
communication has been received from the EPA.

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

      None.

                                     PART II

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

      There is no established public market for the common equity of Land
O'Lakes. In view of the following, it is unlikely in the foreseeable future that
a public market for these securities will develop:

      (1) the common stock interests are nondividend bearing;

      (2) the right of any holder of common stock to receive patronage income
depends on the quantity and value of the business the member conducts with us
(See "Item 1. Business - Description of the Cooperative - Patronage Income and
Equity");

      (3) the class of common stock issued to a member depends on (i) whether
the member is a cooperative or individual member, (ii) whether the member is a
"dairy member" or "ag member", (iii) the volume of business the member conducts
with us, and (iv) the type of business conducted by the member (See "Item 1.
Business - Description of the Cooperative - Our Structure and Membership");

      (4) we may redeem holdings of members under certain circumstances upon the
approval of our board of directors (See "Item 1. Business - Description of the
Cooperative - Patronage Income and Equity"); and

      (5) our board of directors may terminate a membership if it determines
that the member has failed to adequately patronize us or has become our
competitor (See "Item 1. Business - Description of the Cooperative - Our
Structure and Membership").

      As of December 31, 2001, there were approximately 1,172 holders of Class A
common stock, 5,867 holders of Class B common stock, 200 holders of Class C
common stock and 1,438 holders of Class D common stock.

ITEM  6. SELECTED FINANCIAL DATA.

      The historical consolidated financial information presented below as of
December 31, 2001 and 2000 and for each of the years ended December 31, 1999,
2000 and 2001 has been derived from, and should be read together with, our
audited consolidated financial statements and the related notes included
elsewhere in this Annual Report on Form 10-K. The historical consolidated
financial information as of December 31, 1997, 1998, and 1999 and for each of
the years ended December 31, 1997 and 1998 has been derived from our audited
consolidated financial


                                       19
<PAGE>
statements and the related notes, which have not been included in this Annual
Report on Form 10-K. You should read this selected consolidated historical
financial information along with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                           ----------------------------------------------------------------
                                              1997         1998         1999           2000        2001
                                           ----------   ----------   ----------     ----------   ----------
                                                              (DOLLARS IN MILLIONS)
<S>                                        <C>          <C>          <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net sales ..............................   $  4,195.3   $  5,174.2   $  5,615.8     $  5,768.8   $  5,973.4
Cost of sales ..........................      3,737.6      4,680.0      5,100.4        5,146.1      5,378.6
Selling and administration .............        336.9        396.0        506.9          485.3        487.2
Restructuring and impairment
  charges(1) ...........................         --           --            3.9           54.2          3.7
                                           ----------   ----------   ----------     ----------   ----------
    Earnings from operations ...........        120.8         98.2          4.6           83.2        103.9
Interest expense, net ..................         14.6         27.2         44.7           52.4         56.1
(Gain) from divestiture of
  businesses(2) ........................         --           --          (54.2)         (89.0)        --
Equity in (earnings) loss of
  affiliated companies .................         (0.9)         0.8         (7.3)          35.6        (48.6)
Minority interest in earnings (loss)
  of subsidiaries ......................          0.5          0.1         (0.1)          (1.4)         6.9
                                           ----------   ----------   ----------     ----------   ----------
    Earnings before income taxes and
      extraordinary item ...............        106.6         70.1         21.5           85.6         89.5
Income tax expense (benefit) ...........         12.0          1.5          0.1          (13.7)         3.6
                                           ----------   ----------   ----------     ----------   ----------
     Earnings before extraordinary
       item ............................   $     94.6   $     68.6   $     21.4     $     99.3   $     85.9
                                           ==========   ==========   ==========     ==========   ==========
OTHER FINANCIAL DATA:
EBITDA(3) ..............................   $    162.6   $    157.9   $     87.9(4)  $    214.1   $    213.7
Depreciation and amortization ..........         43.2         61.4         81.7           83.6         97.3
Capital expenditures ...................         86.9        103.1        109.3          104.3         83.9
Cash patronage paid to members(5) ......         31.3         25.9         20.0           10.6         30.7
Equity revolvement paid to members(6) ..         27.4         14.4         28.7           43.6         16.2
BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and short-term investments ........   $     13.8   $      4.5   $    197.8     $      4.0   $    130.2
Working capital(7) .....................        351.7        407.3        464.8          476.9        368.5
Property, plant and equipment, net .....        283.1        450.1        461.8          467.8        675.3
Total assets ...........................      1,565.9      2,291.8      2,700.1        2,473.3      3,091.4
Total debt(8) ..........................        434.0        453.2        783.9          628.8      1,010.3
Capital Securities of Trust Subsidiary .         --          200.0        200.0          190.7        190.7
Minority interests .....................          8.3         10.0         14.9           55.1         59.8
Total member equities and retained
  earnings .............................        539.4        781.1        768.8          805.0        836.5
</TABLE>

   See accompanying Notes to Selected Land O'Lakes Historical Financial Data.


                                       20
<PAGE>
<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                           ----------------------------------------------------------------
                                              1997         1998         1999           2000        2001
                                           ----------   ----------   ----------     ----------   ----------
                                                               (DOLLARS IN MILLIONS)
<S>                                        <C>          <C>          <C>            <C>          <C>
SELECTED SEGMENT FINANCIAL
  INFORMATION
DAIRY FOODS
Net sales ..............................   $  2,234.1   $  3,266.6   $  3,291.1     $  3,194.2   $  3,572.4
EBITDA(3) ..............................         69.6         99.8         36.8(4)       115.4        108.9
Depreciation and amortization ..........         26.9         37.1         47.4           42.8         42.5
Capital expenditures ...................         39.1         55.5         63.3           60.3         37.7
ANIMAL FEED(9)(10)
Net sales ..............................        882.7        824.3        931.2        1,182.2      1,864.0
EBITDA(3) ..............................         27.1         34.4         33.9           41.8         80.7
Depreciation and amortization ..........          9.3         10.8         14.7           18.6         31.7
Capital expenditures ...................         12.1         14.4         17.4           21.5         24.9
CROP SEED
Net sales ..............................         93.2        145.3        190.8          365.5        413.6
EBITDA(3) ..............................          8.1          9.9          8.4           18.6         17.6
Depreciation and amortization ..........          2.1          0.9          2.7            5.6          5.0
Capital expenditures ...................          2.1          2.4          4.8            3.5          2.7
SWINE(10)
Net sales ..............................         44.3         62.5         82.7          102.0        109.9
EBITDA(3) ..............................          2.5        (17.7)       (12.6)           6.8         12.0
Depreciation and amortization ..........          0.7          4.7          7.9            6.2          5.6
Capital expenditures ...................         27.6         22.6         14.0            9.6          7.3
AGRONOMY(11)
Net sales ..............................        786.6        774.7      1,023.3          857.0         --
EBITDA(3) ..............................         50.3         24.3         17.6           27.5        (10.1)
Depreciation and amortization ..........         --            0.8          3.4            4.6          6.3
Capital expenditures ...................         --           --           --             --           --
OTHER
Net sales ..............................        154.4        100.9         96.7           67.9         13.5
EBITDA(3) ..............................          5.0          7.2          3.8            4.0          4.6
Depreciation and amortization ..........          4.2          7.1          5.6            5.8          6.2
Capital expenditures ...................          6.0          8.2          9.8            9.5         11.3
</TABLE>

   See accompanying Notes to Selected Land O'Lakes Historical Financial Data.


                                       21
<PAGE>
     NOTES TO SELECTED LAND O'LAKES CONSOLIDATED HISTORICAL FINANCIAL DATA

(1)   The following table summarizes restructuring and impairment charges
      (reversals):

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                         -----------------------------------
                                          1999          2000           2001
                                         ------        -------        ------
                                               (DOLLARS IN MILLIONS)
<S>                                      <C>           <C>            <C>
Restructuring charges
  (reversals) ......................     $   --        $   9.7        $ (4.1)
Impairment of assets ...............        3.9           44.5           7.8
                                         ------        -------        ------
     Total .........................     $  3.9        $  54.2        $  3.7
                                         ======        =======        ======
</TABLE>


      The impairment charge of $3.9 million in 1999 was related to
      under-utilization of the Land O'Lakes cheese production assets in Poland.
      The impairment charge of $44.5 million in 2000 resulted primarily from a
      write-down of goodwill related to a previous acquisition. The impairment
      charge of $7.8 in 2001 included $6.0 million related to our investment in
      a Mexican feed operation held for sale at December 31, 2001. We recorded
      this impairment charge in order to value the investment at its expected
      selling price less costs of disposal. In addition, our swine segment
      recorded an impairment charge of $1.8 million to reduce undeveloped land
      with permit issues to its estimated fair value.

      In 2000, we recorded restructuring charges of $9.7 million resulting from
      the consolidation of facilities and reduced personnel at Land O'Lakes
      Farmland Feed. Of the $9.7 million, $7.2 million related to the closing
      and planned sale of 12 plants and consisted of $5.5 million to write down
      the book value of the plants and $1.7 million for demolition and
      environmental clean-up. The remaining $2.5 million represented severance
      and outplacement costs for 119 non-plant employees. In 2001, we recorded
      restructuring charges of ($4.1) million. Our dairy foods segment recorded
      a restructuring charge of $1.7 million, which had not been paid at
      December 31, 2001, for severance costs for 63 production employees
      resulting from the consolidation of production facilities. Our animal feed
      segment reversed $5.7 million of a prior year restructuring charge
      primarily due to the decision we made following the acquisition of Purina
      Mills to continue to operate plants that were held for sale at December
      31, 2000.

(2)   In November 1999, we sold our flavoring business for $75.9 million in
      cash, resulting in a gain of $54.2 million. In April 2000, we divested
      swine assets in North Carolina for net proceeds of $4.4 million, resulting
      in a gain of $0.5 million. In July 2000, we sold our fluid dairy assets
      for $179.7 million, resulting in a gain of $88.5 million.

(3)   EBITDA is defined as earnings before income taxes, extraordinary items,
      interest expense (net of interest income), depreciation and amortization,
      non-cash impairment charges or reversals, equity in earnings or loss of
      affiliated companies, gain from divestiture of businesses, minority
      interest, and the other items described below. EBITDA is presented because
      it is a widely accepted financial indicator of a company's ability to
      incur and service indebtedness. EBITDA should not be considered an
      alternative to net sales in excess of expenses as a measure of our
      operating results or to cash flow as a measure of liquidity. In addition,
      although EBITDA is not recognized under generally accepted accounting
      principles, it is widely used as a general measure of a company's
      performance because it assists in comparing performance on a relatively
      consistent basis across companies without regard to depreciation and
      amortization, which can vary significantly depending on accounting methods
      (particularly where acquisitions are involved) or nonoperating factors
      such as historical cost basis. Because EBITDA is not calculated
      identically by all companies, the presentation herein may not be
      comparable to other similarly titled measures of other companies. The
      definition of EBITDA conforms to that which is included in the indenture
      for our 8 3/4% senior notes due 2011.


                                       22
<PAGE>
      Other items excluded from EBITDA are:

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                      ----------------------------------------------
                                       1997      1998      1999      2000      2001
                                      -------   -------   -------   -------  -------
                                                  (DOLLARS IN MILLIONS)
<S>                                   <C>       <C>       <C>       <C>      <C>
Unrealized hedging losses(a) .....    $    --   $    --   $    --   $    --  $   6.6
Gain sale of assets(b) ...........         --        --        --        --     (1.8)
Non-cash impairment charges(c) ...         --        --       3.9      44.5      7.8
EBITDA from unrestricted
  subsidiaries(d) ................       (1.4)     (1.7)     (2.3)      2.8     (0.1)
                                      -------   -------   -------   -------  -------
     Total .......................    $  (1.4)  $  (1.7)  $   1.6   $  47.3  $  12.5
                                      =======   =======   =======   =======  =======
</TABLE>

      (a)   Reflects non-cash expense for mark-to-market derivative contracts
            incurred as a result of adopting SFAS No. 133 in 2001. See "Item 7.
            Management's Discussion and Analysis of Financial Condition and
            Results of Operations".

      (b)   Reflects cash gain resulting from the sale of certain swine assets.

      (c)   See note 1.

      (d)   Reflects exclusion of earnings of unrestricted subsidiaries as
            required by the definition of EBITDA included in the indenture for
            our 8 3/4% senior notes due 2011.

(4)   Period results include an inventory write-down of $62.1 million for cheese
      and butter due to lower of cost or market adjustments.

(5)   Reflects the portion of earnings allocated to members for the prior fiscal
      year distributed in cash in the current fiscal year.


<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                       ----------------------------------------------
                                        1997      1998      1999      2000      2001
                                       -------   -------   -------   -------  -------
                                                   (DOLLARS IN MILLIONS)
 <S>                                   <C>       <C>       <C>       <C>      <C>
 20% required for tax deduction ...    $  21.7   $  18.6   $  15.0   $   7.0  $  28.5
 Discretionary ....................        9.6       7.3       5.0       3.6      2.2
                                       -------   -------   -------   -------  -------
      Total .......................    $  31.3   $  25.9   $  20.0   $  10.6  $  30.7
                                       =======   =======   =======   =======  =======
</TABLE>

(6)   Reflects the distribution of earnings previously allocated to members and
      not paid out as cash patronage. The years 1999, 2000 and 2001 include the
      distribution of a portion of the equity issued in connection with the
      acquisition of Dairyman's Cooperative Creamery Association and acquisition
      of certain assets of Countrymark Cooperative.

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                      ----------------------------------------------
                                       1997      1998      1999      2000      2001
                                      -------   -------   -------   -------  -------
                                                  (DOLLARS IN MILLIONS)
<S>                                   <C>       <C>       <C>       <C>      <C>
Revolvement
  Dairy Foods ....................    $   5.9   $   4.1   $  15.6   $  13.8  $  14.0
  Ag Services ....................       21.5      10.3      13.1      29.8      2.2
                                      -------   -------   -------   -------  -------
   Total .........................    $  27.4   $  14.4   $  28.7   $  43.6  $  16.2
                                      =======   =======   =======   =======  =======
</TABLE>


(7)   Working capital is defined as current assets (less cash and cash
      equivalents) minus current liabilities (less notes and short-term
      obligations, and current maturities of long-term debt).

(8)   Total debt excludes the 7.45% Capital Securities due on March 15, 2028, of
      our trust subsidiary which are subordinated to our 8 3/4% senior notes due
      2011 and allow for the deferment of interest payments up to ten semiannual
      periods at our option.

(9)   On October 1, 2000, we combined our feed assets with those of Farmland
      Industries to form Land O'Lakes Farmland Feed. We consolidate the
      operating activities of Land O'Lakes Farmland Feed.


                                       23
<PAGE>
(10)  Historically, Purina Mills reported results of its swine business together
      with its feed business. Accordingly, the portion of our swine business
      which we acquired from Purina Mills is reported in our pro forma animal
      feed segment results for the year ended December 31, 2001.

(11)  On July 28, 2000, we contributed all of our revenue generating agronomy
      assets (excluding our investment in CF Industries and assets held for
      sale) to Agriliance, a joint venture with United Country Brands, in
      exchange for a 50% interest in Agriliance. Beginning July 29, 2000, our
      share of earnings or losses in Agriliance were reported under the equity
      method of accounting.

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

      You should read the following discussion of financial condition and
results of operations together with the financial statements and the notes to
such statements included elsewhere in this Annual Report on Form 10-K. As
mentioned under the heading "Forward-Looking Statements," this discussion
contains forward-looking statements based on current expectations, assumptions,
estimates and projections of our management. These forward-looking statements
are subject to risks and uncertainties, including those discussed under "Risk
Factors" on pages 46 to 59 of this Annual Report on Form 10-K, that could
cause actual results to differ materially from those projected.

OVERVIEW

GENERAL

Segments

      We operate our business in five segments, dairy foods, animal feed, crop
seed, swine and agronomy, predominantly in the United States. We have limited
international operations, certain of which have recently been sold or are in the
process of being sold. Our dairy foods segment produces, markets and sells
butter, spreads, cheese and other dairy products. We operate our animal feed
segment principally through Land O'Lakes Farmland Feed LLC, our 92% owned joint
venture with Farmland Industries. Our animal feed segment develops, produces,
markets and distributes animal feed to both commercial and lifestyle customers.
The results of the animal feed business are consolidated in our financial
statements and the minority interest is eliminated. As a result of the Purina
Mills acquisition in October 2001, animal feed results in 2001 include Purina
Mills swine marketing activities since Purina Mills historically reported
results of its swine business together with its feed business. Our crop seed
segment sells seed for a variety of crops, including alfalfa, corn, soybeans and
forage and turf grasses. Our swine segment produces and markets both young
feeder pigs and mature market hogs. Our agronomy segment distributes crop
nutrient and crop protection products. Historically, our agronomy segment
consisted primarily of the assets we contributed to Agriliance, our
unconsolidated joint venture. Since the contribution of those assets to
Agriliance at the end of July 2000, our investment has been accounted for on the
equity method through our agronomy segment, along with the agronomy assets we
retained. Our membership interest in CF Industries, an interregional plant food
manufacturing cooperative, is accounted for through this segment on a cost
basis. We also derive a portion of revenues and income from other related
businesses, which are insignificant to our overall results. We allocate
corporate administration expense to all five of our business segments using two
methodologies, direct usage for services for which we are able to track this
usage, such as payroll and legal, and invested capital for all other expenses. A
majority of these costs is allocated based on direct usage. We allocate these
costs to segments whether or not they are solely composed of investments and
joint ventures.

Principles of Consolidation

      We have numerous business activities that are not wholly-owned. The
results of Land O'Lakes Farmland Feed, Cheese & Protein International and other
majority-owned businesses are fully consolidated. The minority owners' share in
these businesses is eliminated in our consolidated financial statements. Most of
our investments in joint ventures in which we have 50% or less of the governance
rights are accounted for under the equity method of accounting. These include
Agriliance, MoArk, Dairy Marketing Alliance and Advanced Food Products. When we
record equity income or loss from these joint ventures, we also allocate an
overhead charge on these investments. These charges are based upon our costs
rather than the fair market value of the services. In addition, we invest in
other cooperatives such as CF Industries, Ag Processing and CoBank, which are
accounted for on the cost basis


                                       24
<PAGE>
method of accounting. Under this method, patronage income, if any, from these
cooperative investments is recorded in our financial statements either as a
reduction in cost of sales or, in the case of CoBank, as a reduction in interest
expense in the year in which the patronage income is earned.

Unconsolidated Businesses

      We have investments in certain entities that are not consolidated in our
financial statements. In 2001, unconsolidated businesses contributed earnings of
$48.6 million to us, compared to a loss of $35.6 million in 2000 and earnings of
$7.3 million in 1999. Our investment in unconsolidated businesses as of December
31, 2001 was $568.1 million, compared to $465.8 million as of December 31, 2000
and $460.0 million as of December 31, 1999. Cash flow from our investment in
unconsolidated businesses in 2001 was $2.5 million, compared to $3.5 million in
2000 and $2.9 million in 1999.

      Agriliance and CF Industries constitute the most significant of our
investments in unconsolidated businesses, both of which are reflected in our
agronomy results. Our investment in and earnings or losses from Agriliance,
beginning July 29, 2000, and CF Industries were as follows as of and for the
year ended:

<TABLE>
<CAPTION>
                                      DECEMBER 31,    DECEMBER 31,  DECEMBER 31,
                                          1999           2000           2001
                                      ------------    ------------  ------------
                                                     (IN MILLIONS)
<S>                                   <C>            <C>            <C>
AGRILIANCE:
  Investment .......................        N/A        $   44.2       $   84.0
  Equity in earnings (loss) ........        N/A           (32.4)          34.2

CF INDUSTRIES:
  Investment .......................     $248.5        $  248.5       $  248.5
  Patronage income .................         --              --             --
</TABLE>

We did not receive cash distributions from Agriliance or CF Industries during
these periods.

      We, Cenex Harvest States Cooperatives ("CHS") and Farmland Industries,
Inc. contributed substantially all of our agronomy marketing assets to
Agriliance in July 2000. Our agronomy marketing operations, and those of CHS and
Farmland were previously managed through various operating entities. We have a
50 percent equity ownership in Agriliance. The other 50 percent ownership
interest in Agriliance is owned by United Country Brands (jointly owned by CHS
and Farmland). We provide certain support services to Agriliance at competitive
market prices. Agriliance was billed $4.9 million in the five months ended
December 31, 2000 and $7.1 million in 2001 for the support services. In
addition, we purchase insignificant amounts of product from Agriliance. The
fiscal year of Agriliance ends on August 31. Unless otherwise indicated,
references to the annual or quarterly results of Agriliance are presented on a
calendar year basis to conform with our presentation. Agriliance funds its
operations from operating cash flows, an initial working capital contribution on
formation and borrowings from unaffiliated third parties. Agriliance has entered
into syndicated secured term and revolving credit arrangements in an aggregate
amount of $407 million as of August 31, 2001. Since then, credit arrangements
were renegotiated and as of December 31, 2001 amounted to $325 million. In
addition, Agriliance has entered into a $200 million receivables securitization
with CoBank. We do not guarantee these obligations. We do not have an obligation
to contribute additional capital to finance Agriliance's operations. Agriliance
performance reflects the seasonal nature of its business. Most of its annual
sales and earnings, which are principally derived from the distribution of
fertilizer and crop protection products manufactured by others, including CF
Industries, occur in the first and second quarter of each year, with off-season
losses in the third and fourth quarter. The equity in loss of $32.4 million from
Agriliance that we recorded in 2000 reflected its operating results from July
29, 2000 through the end of the year, an off-season period. In contrast, the
equity in earnings that we recorded for 2001 included a full year of operations.

      CF Industries is an inter-regional cooperative involved in the manufacture
of crop nutrients, in which we have a 34% ownership interest based on our
product purchases. As a member, we are allowed to elect one board member out of
a total of nine board members for CF Industries. Agriliance is one of CF
Industries' most significant customers. CF Industries operates in a highly
cyclical industry. The oversupply of nitrogen in the industry since 1998 has
resulted in depressed prices and, consequently, depressed earnings. Since CF
Industries is a cooperative, we only receive earnings from our investment when
the cooperative allocates and distributes patronage to us. No patronage was
allocated and distributed to us in the last three years because CF Industries
realized losses in those


                                       25
<PAGE>
years. We anticipate that no patronage allocations will occur until these losses
have been recouped. Our $248.5 million investment in CF Industries consists of
approximately $150 million in noncash patronage income from prior periods (not
distributed to us) and approximately $100 million that was acquired as part of
our Countrymark acquisition in 1998 based on Countrymark's prior business with
CF Industries. Prior to the contribution of our agronomy assets to Agriliance,
our agronomy business earned patronage income on the business it conducted with
CF Industries. Since July 29, 2000, we have been entitled to receive patronage
income for business that Agriliance transacts with CF Industries on behalf of
our members, primarily fertilizer purchases. We believe these sales are on terms
comparable to those available to unaffiliated third parties.

      We have an investment in CoBank, an agricultural cooperative bank, which
amounted to $21.5 million on December 31, 2001, $20.6 million on December 31,
2000 and $19.7 million on December 31, 1999. This investment constitutes less
than one percent of CoBank's total shareholder equity. We account for our
investment in CoBank under the cost basis method of accounting. The investment
consists of an initial nominal cash amount of $1,000 and equity additions based
on a percentage (currently 11.5%) of our five-year average loan volume. Since
CoBank operates as a cooperative, we receive patronage income from CoBank based
on our annual loan volume with CoBank. This patronage income reduces our
interest expense. We believe these loan transactions to be on terms comparable
to those available to unaffiliated third parties.

Critical Accounting Policies

      We utilize certain accounting measurements under applicable generally
accepted accounting principles, which involve the exercise of management's
judgment about subjective factors and estimates about the effect of matters
which are inherently uncertain. The following is a summary of those accounting
measurements which we believe are most critical to our reported results of
operations and financial condition.

      Inventory Valuation. Inventories are valued at the lower of cost or
market. Cost is determined on a first-in, first-out or average cost basis. Many
of our products, particularly in our dairy foods, animal feed and swine
segments, use dairy or agricultural commodities as inputs or constitute dairy or
agricultural commodity outputs. Consequently, our results are affected by the
cost of commodity inputs and the market price of outputs. Government regulation
of the dairy industry and industry practices in animal feed tend to stabilize
margins in those segments but do not protect against large movements in either
input costs or output prices. Such large movements in commodity prices could
result in significant write-downs to our inventories, which could have a
significant negative impact on our operating results.

      We use derivative commodity instruments, primarily futures contracts, in
our operations to lock in our ingredient input prices, primarily for our product
inputs such as milk, butter and soybean oil for dairy foods, soybean meal and
corn for animal feed, and soybeans for crop seed. The degree of our hedging
position varies from less than one percent for butter to nearly 100% for soybean
oil. In addition, purchase agreements with various vendors are used to varying
degrees to lock in input prices. This decreases our exposure to changes in
commodity prices. We do not use derivative commodity instruments for speculative
purposes. The futures contracts are not designated as hedges under Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Accordingly, since the adoption of SFAS No.
133, effective January 1, 2001, the futures contracts are marked to market
(either Chicago Mercantile Exchange or Chicago Board of Trade) on the last day
of each month and unrealized gains and losses are recognized as an adjustment to
cost of sales. Prior to 2001, we did not mark our derivative commodity
instruments to market; instead, we recorded losses or gains only when realized.

      Allowance for Doubtful Accounts. We estimate our allowance for doubtful
accounts based on an analysis of specific accounts, an analysis of historical
trends, payment and write-off histories, current sales levels and the state of
the economy. Our credit risks are continually reviewed and management believes
that adequate provisions have been made for doubtful accounts. However,
unexpected changes in the financial strength of customers or changes in the
state of the economy could result in write-offs which exceed estimates and
negatively impact our financial results.

      Recoverability of Long-Lived Assets. We assess the recoverability of
goodwill and other long-lived assets annually or whenever events or changes in
circumstances indicate that expected future undiscounted cash flows might not be
sufficient to support the carrying amount of an asset. We deem an asset to be
impaired if a forecast of


                                       26
<PAGE>
undiscounted future operating cash flows is less than an asset's carrying
amount. If an asset is determined to be impaired, the loss is measured as the
amount by which the carrying value of the asset exceeds its fair value. Changes
in our business strategies and/or changes in the economic environment in which
we operate may result in future impairment charges.

Cooperative Structure

      We are incorporated in Minnesota as a cooperative corporation.
Cooperatives resemble traditional corporations in most respects, but with two
primary distinctions. First, a cooperative's common shareholders, its "members",
either supply the cooperative with raw materials or purchase its goods and
services. Second, to the extent a cooperative allocates its earnings from member
business to its members and meets certain other requirements, it is allowed to
deduct this "patronage income" from its taxable income. Patronage income is
allocated in accordance with the amount of business each member conducts with
the cooperative.

      Cooperatives typically derive a majority of their business from members,
although they are allowed by the Internal Revenue Code to conduct non-member
business. Earnings from non-member business are retained as permanent equity by
the cooperative and taxed as corporate income in the same manner as a typical
corporation. Earnings from member business are either allocated to patronage
income or retained as permanent equity (in which case it is taxed as corporate
income) or some combination thereof.

      In order to obtain favorable tax treatment on allocated patronage income,
the Internal Revenue Code requires that at least 20% of each member's annual
allocated patronage income be distributed in cash. The portion of patronage
income that is not distributed in cash is retained by the cooperative and
allocated to member equities. Member equities may be distributed to members at a
later time as a "revolvement" as determined by our board of directors. The
cooperative's members must recognize the amount of allocated patronage income
(whether distributed to members or retained by the cooperative) in the
computation of their individual taxable income.

      Cooperatives are also allowed to designate patronage income as
"nonqualified" patronage income and allocate it to member equities. The
cooperative pays taxes on this nonqualified patronage income as if it were
derived from non-member business. The cooperative may revolve the nonqualified
patronage equity to members at some later date and is allowed to deduct those
amounts from its taxable income at that time. When nonqualified patronage income
is revolved to the cooperative's members, the revolvement must be included in
the members' taxable income.

      For the fiscal year ended December 31, 2001, our net earnings from member
business were $73.3 million, excluding the portion (10% holdback) added to
permanent equity. Of this amount, $70.6 million was applied to allocated
patronage refunds and $2.7 million was applied to deferred equities. The $70.6
million of allocated patronage refunds consisted of an estimated $19.9 million
to be paid in cash in 2002 and $50.7 million to be retained as allocated member
equities and revolved at a later time, subject to approval by the board of
directors. The $2.7 million of deferred equities represent earnings from certain
member businesses that are held in an equity reserve account rather than being
allocated to members. We had net losses of $1.8 million applied to retained
earnings which represents permanent equity derived from non-member business, the
10% holdback of member earnings and income taxes.

      In 2001, we made payments of $46.9 million for the redemption of member
equities. This included $30.7 million for the cash patronage portion of the 2000
earnings allocated to members. It also included $16.2 million for the
revolvement of member equities previously allocated to members, and not paid as
cash patronage, and the revolvement of a portion of equities issued in
connection with the 1998 acquisitions of Dairyman's Cooperative Creamery
Association and certain assets of Countrymark Cooperative.

Wholesaling and Brokerage Activities

      Our dairy foods segment operates a wholesale milk marketing program. We
purchase excess raw milk over our production needs from our members and sell it
directly to other dairy processors. We generate losses or insignificant earnings
on these transactions; however, there are three principal reasons for doing
this: first, we need to sell a certain percentage of our raw milk to fluid dairy
processors in order to participate in the Federal market order


                                       27
<PAGE>
system, which lowers our input cost of milk for the manufacture of dairy
products; second, it reduces our need to purchase raw milk from sources other
than members during periods of low milk production in the United States
(typically August, September and October) and third, it ensures that our members
have a market for the milk that they produce during periods of high milk
production. In 2001, we sold 5,283.0 million pounds of milk, which resulted in
$801.4 million of net sales or 22.4% of our dairy segment net sales for that
year and generated a negative gross profit of $5.4 million.

      Our animal feed segment, in addition to selling its own products, buys and
sells or brokers for a fee soybean meal and other feed ingredients. We market
these ingredients to our local member cooperatives and to other feed
manufacturers, which use them to produce their own feed. Although this activity
generates substantial revenues, it is a very low-margin business. However, we
benefit from increased purchasing power, resulting in lower prices for our own
feed manufacturing inputs. In 2001, ingredient merchandising generated net sales
of $523.8 million, or 28.1% of total animal feed segment net sales, and a gross
profit of $16.6 million, or 9.6% of total animal feed segment gross profit.

Seasonality

      Certain segments of our business are subject to seasonal fluctuations in
demand. In our dairy foods segment, butter sales typically increase in the fall
and winter months due to increased demand during holiday periods. Animal feed
sales tend to increase in the fourth and first quarter of each year because
cattle are less able to graze during cooler months. Most crop seed sales occur
in the first and second quarter of each year. Agronomy product sales tend to be
much higher in the first and second quarter of each year, as farmers buy crop
nutrients and crop protection products to meet their seasonal needs.

FACTORS AFFECTING COMPARABILITY

Dairy and Agricultural Commodity Inputs and Outputs

      Many of our products, particularly in our dairy foods, animal feed and
swine segments, use dairy or agricultural commodities as inputs or constitute
dairy or agricultural commodity outputs. Consequently, our results are affected
by the cost of commodity inputs and the market price of commodity outputs.
Government regulation of the dairy industry and industry practices in animal
feed tend to stabilize margins in those segments but do not protect against
large movements in either input costs or output prices.

      Dairy Foods. Raw milk is the major commodity input for our dairy foods
segment. In 2001, our raw milk input cost was $1,896.2 million, or 58.7% of the
cost of sales for our dairy foods segment. Cream, butter and bulk cheese are
also significant dairy foods commodity inputs. Cost of sales for these inputs
was $243.8 million for cream, $172.6 million for butter and $281.3 million for
bulk cheese in 2001. Our dairy foods outputs, namely butter, cheese and nonfat
dry milk, are also commodities.

      The minimum price of raw milk and cream is set monthly by Federal
regulators based on regional prices of dairy foods products produced. These
prices provide the basis for our raw milk and cream input costs. As a result,
those dairy foods products for which the sales price is fixed shortly after
production, such as most bulk cheese, are not subject to significant commodity
price risk as the price received for the output varies with the cost of the
significant inputs. In 2001, bulk cheese, which is generally sold the day made,
represented $308.3 million, or 8.6% of our dairy foods segment's net sales.
Other products, such as private label butter, which have significant net sales,
are also generally sold shortly after they are made.

      We also maintain significant inventories of butter and cheese for sale to
our retail and food service customers, which are subject to commodity price
risk. Because production of raw milk and demand for butter varies seasonally, we
inventory significant amounts of butter. Demand for butter is highest during the
fall and winter, when milk supply is lowest. As a result, we produce and store
excess quantities of butter during the spring when milk supply is highest. In
addition, we maintain some inventories of cheese for aging. In 2001, branded and
private label retail and foodservice net sales of cheese and butter represented
$1,326.5 million, or 37.1% of our dairy foods segment's net sales.


                                       28
<PAGE>
      In 1999, our earnings were significantly impacted by the dramatic declines
in the price of cheese and butter, which caused significant devaluations of our
inventory of cheese products and, to a lesser extent, butter. Based on data from
the Chicago Mercantile Exchange, commodity block cheese prices began the year at
$1.90 per pound and finished at $1.20 per pound, and commodity butter prices
began the year at $1.43 per pound and finished at $0.88 per pound. These
declining commodity prices occurred throughout the year as we were building our
inventory for the peak sales periods of fall and winter. The resulting $62.1
million inventory write-down in 1999 partially accounted for the decrease in
earnings of the dairy foods segment.

      In 2000, butter prices remained volatile, and cheese prices were depressed
throughout most of the year, averaging only slightly higher than government
price support levels. In 2001, we saw continued volatility of pricing; however,
the net impact on operating results was not significant due to the use of
pricing practices, inventory policies and risk management.

      Animal Feed. The animal feed segment follows industry standards for feed
pricing. The feed industry generally prices products based on income over
ingredient cost ("IOIC") per ton of feed. This practice tends to mitigate the
impact of volatility in commodity ingredient markets on our animal feed profits.
As ingredient costs fluctuate, the changes are generally passed on to customers
through weekly or monthly changes in prices. Thus, the key indicator of business
performance in the animal feed segment is IOIC rather than net sales. Net sales
are considered a poor indicator as large fluctuations can occur from
period-to-period due to volatility in underlying commodity ingredient prices.

      We also enter into forward contracts to supply feed, which currently
represent approximately 20% of our feed output. When we enter into these
contracts, we also generally enter into forward input supply contracts to "lock
in" our IOIC.

      Changes in commodity grain prices also have an impact on the mix of
products we sell. When grain prices are relatively high, the demand for complete
feed rises since many livestock producers are also grain growers and will sell
their grain in the market and purchase complete feed as needed. When grain
prices are relatively low, these producers will feed their grain to their
livestock and purchase premixes and supplements to provide complete nutrition to
their animals. These fluctuations in product mix generally have minimal effects
on our operating results. Complete feed has a far lower margin per ton than
supplements and premixes. Thus, during periods of relatively high grain prices,
although our margins per ton are lower, we sell substantially more tonnage
because the grain portion of complete feed makes up the majority of its weight.

      Swine. We produce and market both young feeder pigs (approximately 45
pounds) and mature market hogs (approximately 260 pounds) under three primary
programs: swine aligned, farrow-to-finish and cost-plus.

      Under the swine aligned program, we own sows and raise feeder pigs that we
sell to our local member cooperatives under ten-year contracts. For the first
five years, we receive a fixed base price for our feeder pigs and are reimbursed
for feed costs. In years six through ten, the price is based on the cost of
production, plus a margin designed to achieve a target return on invested
capital. Since the price for the duration of the contract is not tied to the
live hog market, we do not have market risk on feeder pig prices. In addition,
there is no risk on corn or soybean meal prices since we are reimbursed for
actual feed costs. We do incur production risk if we do not produce enough
feeder pigs or if we do not produce them at a competitive cost.

      Under the farrow-to-finish program, we produce and sell market hogs.
Historically, market hog price fluctuations have resulted in volatility in our
net sales and earnings. In order to mitigate this risk, we have committed to
sell substantially all of the market hogs we produce annually through 2005 to a
major United States pork processor under a packer agreement. Under this packer
agreement, we are paid market prices for our hogs with a settlement based on the
sales price of the pork products produced from those hogs. This approach
mitigates some of the volatility under this program because market hog and pork
product margins do not tend to move together. We sell the balance of our market
hogs on the open market.

      Under the cost-plus program, we provide minimum hog price guarantees to
producers in exchange for swine feed sales and profit participation. We are in
the process of phasing out our existing cost-plus contracts and will not be
entering into new ones due to the significant adverse effects this program has
had on our results of operations. The


                                       29
<PAGE>
program generated minimal earnings in 2001; it incurred pretax losses in 2000
and 1999 of $2.0 million and $8.8 million, respectively.

      Historically, Purina Mills reported results of its swine business together
with its feed business. Accordingly, the portion of our swine business which we
acquired from Purina Mills in October 2001 is reported within our feed segment
in 2001. In the fourth quarter of 2001, the Purina Mills swine business
generated earnings of $0.5 million compared to a loss of $1.7 million in the
fourth quarter of 2000 and a loss of $3.2 million in the fourth quarter of 1999.

Acquisitions/Joint Ventures/Divestitures

      We have engaged in various significant acquisitions, joint ventures and
divestitures since January 1, 1999. Each of the acquisitions was accounted for
as a purchase transaction. The Land O'Lakes Farmland Feed and Agriliance joint
ventures, our most significant joint ventures, involved the combination of our
existing business units with those of our joint venture partners to create new
entities. Since its formation on October 1, 2000, we have consolidated Land
O'Lakes Farmland Feed. However, because we do not control Agriliance, it is
accounted for under the equity method.


                                       30
<PAGE>
    The following table lists each acquisition, joint venture and divestiture in
excess of $50 million in asset value since 1999.

<TABLE>
<CAPTION>
YEAR                                               TRANSACTION            TOTAL ASSETS
----                                           -----------------------    --------------
<S>                                            <C>                        <C>
2001     Purina Mills.......................   Acquisition for cash of    $540.5 million
                                               stock of commercial and
                                               lifestyle feed company
                                               (October 2001)

2000     Madison Dairy Produce Co...........   Acquisition for cash       $59.3 million
                                               of private label butter
                                               company (January 2000)

         Fluid dairy assets.................   Divestiture for cash       $112.2 million
                                               of fluid dairy assets
                                               (July 2000)

         Land O'Lakes Farmland Feed.........   Joint venture with         $91.7 million
                                               Farmland Industries        (our contribution)
                                               involving transfer of
                                               existing Land O'Lakes
                                               animal feed business
                                               (October 2000)

         Agriliance.........................   Joint venture with         $79.5 million
                                               United Country Brands      (our contribution)
                                               involving transfer of
                                               certain Land O'Lakes
                                               agronomy assets
                                               (July 2000)

1999     Terra Industries...................   Acquisition for cash       $70.7 million
                                               of selected
                                               agronomy retail
                                               distribution assets
                                               in the eastern
                                               United States
                                               (June 1999)


         Agro Distribution..................   Investment in joint        $50.0 million
                                               venture with CHS
                                               Cooperatives (June
                                               1999) formed to
                                               acquire selected
                                               northern and southern
                                               ag retail distribution
                                               assets from Terra
                                               Industries
</TABLE>

      In June 1999, certain of the northern and southern retail agronomy assets
of Terra Industries were acquired by Agro Distribution, our unconsolidated joint
venture with CHS Cooperatives, which was subsequently contributed to Agriliance.
The objective of this acquisition was to sell each retail agronomy location to
one or more of our local cooperative members. Nearly all of the northern
locations have been sold. We were unable to sell most of the southern locations.
Operation of these locations resulted in significant losses in 2000 and 2001.
These losses were reflected in our agronomy segment as a reduction to our
investment in Agro Distribution for the first seven months of 2000 and were
recorded through our investment in Agriliance thereafter as equity in earnings
or loss from affiliated companies. The loss as of the end of July 2000 was $14.6
million, prior to the asset contribution to Agriliance. Subsequent to its
contribution to Agriliance, the losses continued and we recorded an additional
$20 million charge in 2000 (recorded in equity in earnings or loss of affiliated
companies) related to the southern retail agronomy assets which were held for
sale as of December 31, 2000. In 2001, with the hiring of a new Chief Executive
Officer and after a proposed sale to an unaffiliated third party did not
materialize, Agriliance decided to continue to operate the southern retail
agronomy assets. As a result, $12.6 million of the reserve established in 2000
was reversed to earnings (recorded in equity in earnings or loss of affiliated
companies) in 2001. In addition, we separately acquired in June 1999 a selected
portion of Terra Industries' agricultural retail distribution assets, primarily
those located in Indiana, Michigan and Ohio. Nearly all of these locations have
now been sold to local cooperative members. Operation of these assets held for
sale resulted in a loss of $11.9 million (which was reflected in selling and
administration expense) in 2000.


                                       31
<PAGE>
      In October 2001, we acquired Purina Mills, Inc. The total purchase price
of the Purina Mills acquisition was $358.6 million. The acquisition added $86.9
million of goodwill and $98.9 million of other intangible assets to our balance
sheet. This acquisition resulted in a substantial increase in our leverage
(long-term debt, including Capital Securities, to capital) from 43.5% at
December 31, 2000 to 56.1% at December 31, 2001 and increased interest costs by
approximately $40 million annually. By the end of 2002, we expect to have
implemented programs that would enable us to generate recurring annual cost
savings of approximately $50 million as a result of the acquisition, relative to
costs that would have been incurred separately. In 2002, we expect to generate
approximately $25 million in savings, which are expected to be essentially
offset by plant closing, severance, employee relocation and information
technology integration costs of approximately $24 million.

First Quarter 2002 Outlook

       We expect to report a net loss for the first quarter ending March 31,
2002 compared with net earnings of $15.2 million for the first quarter ended
March 31, 2001. First quarter comparisons will be impacted primarily by reduced
earnings in our dairy foods segment, as well as in our animal feed and crop seed
segments. Results in our dairy foods segment will be affected mainly by softness
in demand for our consumer dairy products, increases in investment spending on
brand and lower returns for cheese products produced in the Upper Midwest due to
competitive pricing pressures on milk inputs. In our animal feed segment,
results will be affected largely by one-time integration and restructuring costs
associated with the Purina Mills acquisition, as well as by the effects of
reduced sales volume due to warmer weather conditions. Crop seed segment results
will be impacted by the effects of lower volume as favorable weather conditions
and marketing programs in late 2001 contributed to an appreciable amount of seed
product sales in the fourth quarter of 2001 that typically would have occurred
in the first quarter of 2002. We also expect that our results from investments
in joint ventures will be lower than a year ago. The major portion of the
variance is expected to be reflected in our agronomy segment and attributable to
weakness in crop nutrient margins due to soft demand and oversupply in the U.S.
market.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                   -------------------------------------------------------------------
                                            1999                    2000                   2001
                                   ---------------------   --------------------   --------------------
                                                   % OF                   % OF                   % OF
                                   $ AMOUNT       TOTAL     $ AMOUNT     TOTAL     $ AMOUNT      TOTAL
                                   ----------    -------   ----------    ------   ----------    ------
                                                          (DOLLARS IN MILLIONS)

<S>                                <C>           <C>       <C>           <C>      <C>           <C>
NET SALES
Dairy foods ..................     $  3,291.1       58.6   $  3,194.2      55.4   $  3,572.4      59.8
Animal feed ..................          931.2       16.6      1,182.2      20.5      1,864.0      31.2
Crop seed ....................          190.8        3.4        365.5       6.3        413.6       6.9
Swine ........................           82.7        1.5        102.0       1.8        109.9       1.8
Agronomy .....................        1,023.3       18.2        857.0      14.9          0.0       0.0
Other ........................           96.7        1.7         67.9       1.2         13.5       0.3
                                   ----------    -------   ----------    ------   ----------    ------
  Total net sales ............     $  5,615.8              $  5,768.8             $  5,973.4
                                   ==========              ==========             ==========
</TABLE>

<TABLE>
<CAPTION>
                                                  % OF                    % OF                   % OF
                                                  NET                     NET                     NET
                                   $ AMOUNT      SALES     $ AMOUNT      SALES    $ AMOUNT      SALES
                                   ----------    -------   --------      -----    ----------    ------
<S>                                <C>           <C>       <C>           <C>      <C>           <C>
COST OF SALES
Dairy foods ..................     $  3,003.5       91.3   $  2,823.0      88.4   $  3,228.4      90.4
Animal feed ..................          829.1       89.0      1,064.7      90.1      1,691.3      90.7
Crop seed ....................          152.0       79.7        308.5      84.4        354.2      85.6
Swine ........................           93.2      112.7         93.4      91.6         97.0      88.2
Agronomy .....................          933.8       91.3        794.6      92.7          0.0       0.0
Other ........................           88.8       91.8         61.9      91.2          7.7      57.0
                                   ----------    -------   ----------    ------   ----------    ------
  Total cost of sales ........        5,100.4       90.8      5,146.1      89.2      5,378.6      90.0
SELLING AND ADMINISTRATION EXPENSE
Dairy foods ..................          298.1        9.1        299.3       9.4        277.5       7.8
Animal feed ..................           80.7        8.7         84.4       7.1        130.4       7.0
Crop seed ....................           33.2       17.4         44.0      12.0         49.0      11.8
Swine ........................           10.0       12.1          7.9       7.7          5.2       4.7
Agronomy .....................           75.3        7.4         39.5       4.6         16.4       0.0
Other ........................            9.6        9.9         10.2      15.0          8.7      64.4
                                   ----------    -------   ----------    ------   ----------    ------
  Total selling and administration
       expense ...............          506.9        9.0        485.3       8.4        487.2       8.2
Restructuring and impairment
  charges ....................            3.9        0.1         54.2       0.9          3.7       0.1
                                   ----------    -------   ----------    ------   ----------    ------
Earnings from operations .....            4.6        0.1         83.2       1.4        103.9       1.7
Interest expense, net ........           44.7        0.8         52.4       0.9         56.1       0.9
(Gain) from divestiture of
  businesses .................          (54.2)       1.0        (89.0)      1.5          0.0       0.0
Equity in loss (earnings) of
  affiliated companies .......           (7.3)       0.1         35.6       0.6        (48.6)      0.8
Minority interest in (loss)
  earnings of subsidiaries ...           (0.1)       0.0         (1.4)      0.0          6.9       0.1
Earnings before income taxes
  and extraordinary item .....           21.5        0.4         85.6       1.5         89.5       1.5
Income tax expense (benefit) .            0.1        0.0        (13.7)      0.2          3.6       0.1
                                   ----------    -------   ----------    ------   ----------    ------
Earnings before extraordinary item       21.4        0.4   $     99.3       1.7   $     85.9       1.4
                                   ==========    =======   ==========    ======   ==========    ======
</TABLE>


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net Sales

      Net sales in 2001 increased $204.6 million, or 3.5%, to $5,973.4 million,
compared to net sales of $5,768.8 million in 2000. Excluding the effects of the
contribution of certain of our agronomy assets to the Agriliance joint venture
on July 28, 2000, the formation of the Advanced Food Products joint venture in
March 2001 and the


                                       32
<PAGE>
divestiture of our fluid dairy assets in July 2000, net sales in 2001 increased
$1,296.7 million, or 27.8%, from $4,663.0 million in 2000 to $5,959.8 million in
2001. The increase was primarily attributed to the full-year effect of the Land
O'Lakes Farmland Feed joint venture, which began operations in October 2000,
increased average commodity dairy prices and the acquisition of Purina Mills in
October 2001.

      Dairy Foods. Net sales in 2001 increased $378.2 million, or 11.8%, to
$3,572.4 million, compared to net sales of $3,194.2 million in 2000. Excluding
the effect of the fluid dairy divestiture and the Advanced Food Products joint
venture, net sales increased $613.3 million, or 20.8%, from $2,945.4 million to
$3,558.7 million. Average butter and cheese prices increased $0.49 per pound and
$0.29 per pound, respectively, a significant increase compared to depressed
prices which existed throughout 2000. The increase was driven by decreased milk
supply as a result of the shrinking United States cow herds due to depressed
prices in prior years. In general, we are able to pass through these higher
prices. Consequently, favorable pricing increased net sales by $147.3 million
for butter and $67.3 million for cheese. However, higher sales prices resulted
in declines in dairy volumes as consumers shifted to substitute products or
reduced consumption. Cheese volumes decreased 12.1 million pounds, representing
a decrease in net sales of $22.0 million from the same period last year. Butter
volumes were down 5.3 million pounds, representing a decrease in net sales of
$8.8 million. In addition, the Gustine, CA cheese facility, acquired in July
2000, contributed $76.9 million in incremental sales to our dairy operations,
and the Melrose, MN cheese joint venture in March 2001 resulted in $69.2 million
of incremental sales. Sales of bulk cheese to co-packers and other manufacturers
added $78.8 million in incremental sales. A combination of pricing and volume
changes in other product categories accounted for the remaining increase of
$120.0 million. Finally, sales in 2001 under our wholesale milk marketing
program increased $84.6 million, or 11.8%, to $801.4 million, compared to $716.8
million in 2000. This increase was due to increases in the sale of milk to Dean
Foods under an agreement established in July 2000 subsequent to Dean Foods'
purchase of our fluid dairy assets.

      Animal Feed. Net sales in 2001 increased $681.8 million, or 57.7%, to
$1,864.0 million, compared to net sales of $1,182.2 million in 2000. Most of the
increase was a result of the full-year impact of the addition of Farmland
Industries' feed assets to form the Land O'Lakes Farmland Feed joint venture,
which accounted for $453.0 million of the growth in net sales from the prior
period. The growth in sales in ingredient merchandising of $207.0 million, or
65.3%, from $316.8 million in 2000 to $523.8 million in 2001 was also driven by
the consolidation of Farmland Industries' ingredient merchandising results (and
is included in the $453.0 million increase in net sales). The Purina Mills
acquisition in October 2001 contributed $195.4 million in incremental feed
sales. Additionally, in July 2000, we increased our ownership from 50% to 100%
in Nutra-Blend, L.L.C. (a Midwestern premix production company); and as a
result, we consolidated their financial results into ours. Prior to July 1,
2000, we recorded our share of income from Nutra-Blend as equity income. This
change in ownership and the subsequent consolidation of results added $37.9
million of net sales. Sales reductions with some of our large poultry integrator
customers amounted to $6.1 million and offset some of the above increases.

      Crop Seed. Net sales in 2001 increased $48.1 million, or 13.2%, to $413.6
million, compared to net sales of $365.5 million in 2000. Strong volume growth
resulted in increased sales of soybeans of $40.3 million, or 35.3%, increased
sales of corn of $9.7 million, or 10.5%, and increased sales of alfalfa of $7.6
million, or 24.0%. Other seed categories grew by $16.4 million, or 29.5%. We
shipped $42.0 million in sales in the fourth quarter of 2001 that historically
would have occurred in the first quarter of 2002. These $42.0 million shipments
reflected 87.3% of total sales growth and included $28.5 million for soybeans
and $11.0 million for corn. An early fall harvest and mild winter allowed us to
ship product early in the season, and third-party suppliers also provided
incentives to customers to take seed product early. In addition, prior-year seed
acquisitions, which were integrated into our existing seed business, contributed
incremental volume growth. Some offsetting volume decline occurred in other seed
categories, primarily cotton, resulting in a decline in sales of $26.0 million.
The decline in cotton sales reflects the decision to direct bill from our vendor
to our major cotton customer in 2001; consequently, we recorded only a sales
support fee on such shipments as an offset to our selling expense.

      Swine. Net sales in 2001 increased $7.9 million, or 7.8%, to $109.9
million, compared to $102.0 million in 2000. The increase was due mainly to
higher unit sales and improvements in market prices for hogs. While the number
of market hogs sold increased by 36,537 with a corresponding sales increase of
$4.2 million, the total number of feeder pigs sold decreased by 3,601 with a
corresponding sales decrease of $0.2 million, resulting in a net increase in
sales of $4.0 million. Strong consumer demand coupled with reduced hog
production in the United States as a result of depressed hog prices in prior
years increased the average market price in 2001 to about $46.52 per


                                       33
<PAGE>
hundredweight versus an average market price of approximately $45.35 in 2000.
The increase in average market hog prices of $1.17 per hundredweight increased
sales by $2.1 million. The average price per feeder pig increased $0.41 from
$47.63 in 2000 to $48.04 in 2001, which increased sales by $1.8 million. This
increase was due primarily to the fact that we added more swine aligned
contracts with a higher base price. In addition, we were reimbursed for higher
feed costs in 2001, which also contributed to the increase in our average feeder
pig sales price that year. We signed a packer agreement with a major United
States pork processor effective September 25, 2000, which ties the price we
receive for market hogs to the price that the packer receives for pork products.
In 2001, this agreement reduced our sales by $0.7 million, since the agreement
limits our upside as well as downside potential from market price swings.

      Agronomy. No agronomy segment sales were reported by Land O'Lakes for
2001, due to the contribution of our agronomy business to the Agriliance joint
venture in 2000. Net sales for the period of January through July of 2000 were
$857.0 million.

Cost of Sales

      Cost of sales in 2001 increased $232.5 million, or 4.5%, to $5,378.6
million, compared to cost of sales of $5,146.1 million in 2000. Cost of sales as
a percent of net sales increased 0.8 percentage points to 90.0% for 2001,
compared to 89.2% for the prior year. The formation of the Agriliance and
Advanced Food Products joint ventures impacted our reported results because we
no longer consolidate their results in our financial statements. In addition, we
divested of our fluid dairy assets. Adjusting for the effects of these
transactions, cost of sales increased $1,231.8 million, or 29.8%, to $5,366.0
million, compared to cost of sales of $4,134.2 million in 2000. Cost of sales as
a percentage of net sales adjusted for the effects of these transactions
increased 1.3 percentage points from 88.7% in 2000 to 90.0% in 2001. At the same
time, the consolidation of our feed joint venture results in our financial
statements added significantly to our cost of sales, resulting in an increase of
$424.7 million. Higher average milk input costs and changes in our feed and seed
product mix also contributed to the increase. For 2001, patronage income from
other cooperatives that was directly attributable to product purchases amounted
to $6.2 million, compared to $3.9 million for 2000. Our cost of sales was
reduced by these amounts.

      Dairy Foods. Cost of sales in 2001 increased $405.4 million, or 14.4%, to
$3,228.4 million, compared to cost of sales of $2,823.0 million in 2000. Cost of
sales as a percent of sales increased 2.0 percentage points from 88.4% in 2000
to 90.4% in 2001. Excluding the effects of the divestiture of our fluid dairy
assets and the formation of the Advanced Food Products joint venture, cost of
sales increased $610.2 million to $3,215.8 million in 2001, compared to $2,605.6
million in 2000. Cost of sales as a percent of sales, excluding the effect of
the divestiture and the joint venture, increased 1.9 percentage points, from
88.5% in 2000 to 90.4% in 2001. The increase in cost of sales was largely due to
higher average milk costs and higher prices for bulk cheese and butter.
Specifically, costs increased $147.3 million for butter and $67.3 million for
cheese. These cost increases were partially offset by reduced sales volume,
which decreased cost of sales by $20.9 million in cheese and $13.4 million in
butter. The effect of the Melrose, MN joint venture and Gustine, CA cheese plant
acquisition permitted us to sell more products and resulted in incremental cost
of sales of $73.8 million and $71.6 million, respectively. Increased sales of
bulk cheese to co-packers and other manufacturers contributed $74.6 million in
incremental cost of sales growth. Finally, cost of sales for other products
increased $105.1 million over the prior year. Energy costs increased by $8.9
million over the prior year. Plant underutilization in the upper Midwest due to
shrinking milk supplies also contributed to the increase in cost of sales. Cost
of sales in 2001 under our wholesale milk marketing program increased $95.9
million, or 13.5%, to $806.8 million, compared to $710.9 million in 2000.

      Animal Feed. Cost of sales in 2001 increased $626.6 million, or 58.8%, to
$1,691.3 million compared to $1,064.7 million in 2000. The majority of the
increase in cost of sales was due to the Land O'Lakes Farmland Feed joint
venture, which added $424.7 million in costs, including $252.5 million in
ingredient merchandising cost. As a result, our ingredient merchandising cost of
sales was $507.2 million for 2001, compared to $309.4 million in 2000, the
increase being driven primarily by the addition of the Farmland Industries
ingredient merchandising results. The acquisition of Purina Mills added $162.7
million in cost of sales for 2001, and the consolidation of Nutra-Blend added
another $32.0 million in incremental cost of sales. Cost of sales as a percent
of sales increased 0.6 percentage points, from 90.1% in 2000 to 90.7% in 2001.
The increase was due primarily to lower margins on Farmland Industries products.
Partially offsetting these lower-margin Farmland Industries products were
certain Purina Mills product lines, which carry a comparatively higher margin
than our traditional product lines. An unrealized hedging


                                       34
<PAGE>
loss in 2001 related to corn and soybean meal futures contracts increased cost
of sales by $3.7 million. Additionally, costs increased more than sales growth
due to higher energy costs and plant employee costs, which resulted in $4.0
million of additional cost. IOIC as a percent of cost of sales decreased from
18.9% in 2000 to 18.5% in 2001 due to the change in product mix mentioned above.

      Crop Seed. Cost of sales in 2001 increased $45.7 million, or 14.8%, to
$354.2 million, compared to cost of sales of $308.5 million in 2000. Cost of
sales as a percent of sales increased 1.2 percentage points, from 84.4% in 2000
to 85.6% in 2001. Cost of sales increased for soybeans ($38.6 million), corn
($9.6 million), alfalfa ($4.4 million) and other forages ($4.8 million),
primarily from volume growth due to early shipment of $42.0 million of product
that historically would have occurred in the first quarter of 2002. This early
shipment accounted for $36.1 million, or 79.0%, of the cost of sales increase
and included $24.5 million for soybeans and $9.5 million for corn. Reduction in
sales of lower margin products such as cotton partially offset the impact of
this additional volume and resulted in an overall improvement of our cost of
sales ratio. An unrealized hedging loss in 2001 related to soybean futures
contracts added $2.3 million to cost of sales.

      Swine. Cost of sales in 2001 increased $3.6 million, or 3.9%, to $97.0
million, compared to $93.4 million in 2000. Cost of sales as a percent of sales
decreased 3.4 percentage points from 91.6% to 88.2% of sales due to reduced
losses in our cost-plus program and the improvement in hog market prices.
Additional unit sales added $3.4 million in cost of sales, while lower
production cost per unit reduced cost of sales by $0.3 million. An unrealized
hedging loss increased cost of sales by $0.4 million.

      Agronomy. No cost of sales was reported by Land O'Lakes in 2001, due to
the contribution of our agronomy business to the Agriliance joint venture in
2000. Cost of sales for 2000 was $794.6 million.

Selling and Administration Expense

      Selling and administration expense in 2001 increased $1.9 million, or
0.4%, to $487.2 million, compared to selling and administration expense of
$485.3 million in 2000. Selling and administration expense as a percent of sales
decreased 0.2 percentage points from 8.4% in 2000 to 8.2% in 2001. Excluding the
effects of the formation of our Agriliance and Advanced Food Products joint
ventures and the divestiture of our fluid dairy assets, selling and
administration expense increased $48.9 million, or 11.6%, to $470.2 million in
2001, compared to $421.3 million in 2000. The full-year effect of the formation
of the Land O'Lakes Farmland Feed joint venture contributed to the increase.
Selling and administration expense as a percent of sales excluding the effect of
the divestiture and the formation of the Agriliance and Advanced Food Products
joint ventures decreased 1.1 percentage points from 9.0% in 2000 to 7.9% in
2001.

      Dairy Foods. Selling and administration expense in 2001 decreased $21.8
million, or 7.3%, to $277.5 million, compared to $299.3 million in 2000. Selling
and administration expense as a percent of sales decreased 1.6 percentage points
from 9.4% in 2000 to 7.8% in 2001. Excluding the effects of the divestiture of
our fluid dairy assets and the formation of the Advanced Food Products joint
venture, selling and administration expense for 2001 was $277.0 million, up $2.1
million, or 0.8%, compared to $274.9 million in 2000. This increase was
primarily due to an increase in advertising and promotion expense of $4.9
million, primarily to promote our foodservice and branded deli cheese, offset by
reductions in administration expense. Excluding the effects of the divestiture
and the joint venture, selling and administration expense as a percent of sales
decreased 1.5 percentage points from 9.3% in 2000 to 7.8% in 2001.

      Animal Feed. Selling and administration expense in 2001 increased $46.0
million, or 54.5%, to $130.4 million, compared to $84.4 million in 2000. Selling
and administration expense as a percent of sales declined 0.1 percentage points
from 7.1% in 2000 to 7.0% in 2001. The change in selling and administration
expense was partially due to the consolidation of Farmland Industries' feed
operations, which added $22.0 million in expense. Additionally, the
consolidation of Purina Mills' business resulted in increased selling and
administration expense of $25.3 million. Selling and administration expense as a
percent of IOIC decreased from 42.4% in 2000 to 41.8% in 2001.

      Crop Seed. Selling and administration expense in 2001 increased $5.0
million, or 11.4%, to $49.0 million, compared to $44.0 million in 2000. Selling
expense increased $2.0 million, while advertising and promotion spending
increased $1.0 million due to increased sales and promotional efforts. Income
for sales support to


                                       35
<PAGE>
Agriliance, which is accounted for as an offset to selling
and administration expense, decreased $1.0 million. Administration expense
increased $0.2 million. Selling and administration expense as a percent of sales
decreased 0.2 percentage points, from 12.0% in 2000 to 11.8% in 2001.

      Swine. Selling and administration expense in 2001 decreased $2.7 million,
or 34.2%, to $5.2 million, compared to $7.9 million in 2000. Selling and
administration expense as a percent of sales decreased from 7.7% in 2000 to 4.7%
in 2001. A gain on the sale of swine facilities contributed $1.9 million to the
decrease. Reductions in administrative staff and reduced information systems
spending resulted in savings of $1.1 million, partially offset by an increase in
corporate administration allocations of $0.3 million compared to the prior year.

      Agronomy. Selling and administration expense in 2001 decreased $23.1
million, or 58.5%, to $16.4 million, compared to $39.5 million in 2000, due to
the formation of the Agriliance joint venture. Results for 2000 included seven
months of consolidated selling and administration expense from our agronomy
businesses prior to the contribution of certain of our agronomy assets to
Agriliance on July 28, 2000 and parent administrative support charges for the
remaining five months of 2000. Subsequent to the formation of Agriliance, we
continued to record allocated parent expenses for interest on our investment in
Agriliance and corporate overhead. In addition, selling and administration
expense in 2001 included $3.6 million in losses recorded for eastern agronomy
assets held for sale, compared to losses of $11.9 million recorded in 2000.

Restructuring and Impairment Charges

      In 2001, Land O'Lakes recorded restructuring and impairment charges of
$3.7 million, compared to $54.2 million in 2000. Dairy foods recorded a
restructuring charge of $1.7 million, which had not been paid at December 31,
2001, for severance costs for 63 production employees resulting from the
consolidation of production facilities. Animal feed reversed $5.7 million of a
prior-year restructuring charge primarily due to a change in business strategy
following the Purina Mills acquisition, which resulted in the decision to
continue to operate plants that were held for sale at December 31, 2000. An
impairment charge of $6.0 million related to our animal feed operation in Mexico
and held for sale at December 31, 2001, was recorded in order to value the
business at its expected selling price less costs of disposal. Swine recorded an
impairment charge of $1.8 million to reduce the book value of undeveloped land
with permit issues to its estimated fair value.

      In 2000, we recorded restructuring and impairment charges of $54.2
million. A restructuring charge of $9.7 million resulted from initiatives within
Land O'Lakes Farmland Feed LLC to consolidate facilities and reduce personnel.
Of the $9.7 million, $7.2 million related to the closing and planned sale of 12
plants and consisted of $5.5 million to write down the book value of the plants
and $1.7 million for demolition expense and incidental exit costs. The remaining
$2.5 million represented severance and outplacement costs for 119 non-plant
employees. An impairment charge of $44.5 million resulted from a reduction in
the carrying amounts of certain impaired assets to their estimated fair value,
determined on the basis of third-party appraisals or estimated cash flows. The
impairment was related to cheese marketing and production assets that were
significantly underutilized due to changes in consumer product preferences and
costs associated with sourcing raw materials.

      We anticipate restructuring charges of approximately $24 million in 2002
related to the integration of Purina Mills into Land O'Lakes Farmland Feed. In
addition, we anticipate restructuring charges of approximately $9 million in
2002 related to the consolidation of dairy operations in the upper Midwest and
California.

Interest Expense

      Interest expense in 2001 was $56.1 million compared to $52.4 million in
2000. The $3.7 million, or 7.1%, increase primarily resulted from increased
borrowing to finance the Purina Mills acquisition, offset by lower interest
rates for most of the year. Average debt balances increased by $111.5 million
over 2000. CoBank patronage reduced interest expense by $1.3 million in 2001,
compared to $1.1 million in 2000. Combined interest rates for borrowings,
excluding CoBank patronage, averaged 6.6% in 2001, compared to 7.2% in 2000.


                                       36
<PAGE>
Gain on Divestitures

      In 2001, we did not divest of any businesses. In 2000 we recorded a gain
of $88.5 million from the divestiture of our fluid dairy assets and a gain of
$0.5 million from the divestiture of a swine subsidiary. We used funds from
these divestitures to reduce outstanding debt balances.

Equity in Loss or Earnings of Affiliated Companies

      In 2001, equity in earnings of affiliated companies was $48.6 million
compared to a loss of $35.6 million in 2000. Results in 2001 included earnings
from Agriliance of $34.2 million, various dairy, feed and swine joint ventures
of $12.6 million, and MoArk of $1.8 million. Results in 2000 primarily reflected
a loss from Agriliance of $32.4 million.

      The increase in equity in Agriliance earnings of $66.6 million over the
prior year was mainly attributable to the full-year effect of the joint venture.
In 2001, we recorded twelve months of our 50% share of Agriliance results. In
2000, we recorded only five months of our 50% share of Agriliance results
(August through December), subsequent to the contribution of certain of our
agronomy assets to Agriliance in July 2000. Due to the seasonal nature of the
agronomy business, most of the revenues and earnings tend to occur during the
spring planting and early summer growing seasons. In 2001, we recorded equity in
earnings from Agriliance of $35.1 million for the first seven months and equity
in losses of $13.5 million for the last five months, excluding a $12.6 million
reversal pertaining to the reserve related to assets held for sale established
in 2000. For the five-month period August through December 2000, we recorded
equity in loss of Agriliance of $12.4 million, excluding a one-time $20 million
reserve for assets held for sale. The $12.6 million reversal to earnings in 2001
of the $20 million reserve that Land O'Lakes recorded in 2000 resulted from the
decision to retain and operate Agriliance's southern retail distribution assets
that were previously held for sale as of December 31, 2000.

Minority Interest in Loss or Earnings of Subsidiaries

      In 2001, we recorded minority interest in earnings of subsidiaries of $6.9
million compared to a loss of $1.4 million in 2000. Minority interest in
earnings of animal feed related subsidiaries was $8.0 million, partially offset
by minority interest in the earnings of other consolidated subsidiaries.

Income Taxes

      Income tax expense was $3.6 million in 2001, compared with a tax benefit
of $13.7 million in 2000. The tax expense was attributed to a more normalized
level of non-member income and holdbacks as compared to 2000. The 2000 tax
benefit resulted from non-member losses, primarily due to impairment charges and
losses associated with the repositioning of agronomy retail distribution assets
acquired in 1999. The effect of allocated patronage refunds reduced our
statutory tax rate from 35.0% to a tax rate of 7.4% for 2001 compared to a tax
credit of 22.3% in 2000. The disposal of investments, partially offset by the
effect of foreign operations and other factors further reduced our tax rate,
resulting in an effective tax rate of 4.0% for 2001, compared to an effective
tax rate of (16.0)% in 2000.

Extraordinary Loss or Gain on Early Extinguishment of Debt, Net of Income Taxes

      In 2001, an extraordinary loss on early extinguishment of debt of $14.5
million, net of an income tax benefit of $9.0 million, was incurred on the
refinancing of our debt in conjunction with the Purina Mills acquisition. In
2000, an extraordinary gain on early extinguishment of debt of $3.6 million, net
of income taxes of $0.8 million, was realized on the repurchase of $9.3 million
of our Capital Securities.

Net Earnings

      Net earnings decreased $31.4 million to $71.5 million in 2001, compared to
$102.9 million in 2000.

Allocation of Net Earnings

      In 2001, net earnings of $73.3 million from member business were allocated
to member equities, and retained earnings were reduced by $1.8 million,
reflecting minor losses from non-member business. In 2000, net earnings of
$136.9 million were allocated to member equities, and retained earnings were
reduced by $34.0 million. The 2000


                                       37
<PAGE>
allocation to member equities reflected the gain on the sale of the fluid dairy
business, which was recorded as a gain from member business. Conversely, in 2000
retained earnings decreased primarily because the impairment charge of $44.5
million, which was related to the write-down of cheese marketing and production
assets, pertained to non-member business.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net Sales

      Net sales in 2000 increased $153.0 million, or 2.7%, to $5,768.8 million,
compared to net sales of $5,615.8 million in 1999. Increases in sales resulted
from the January 2000 acquisition of Madison Dairy Produce Co. (a private label
butter company) in January 2000, the formation of Land O'Lakes Farmland Feed in
October 2000, the acquisition of the Gustine, CA cheese plant, and the
acquisition of selected seed assets throughout the year. Partially offsetting
these increases were the divestiture of our fluid dairy assets in July 2000 and
the contribution of certain of our agronomy assets to Agriliance in July 2000 as
well as the divestiture of our flavoring business in October 1999. Excluding the
effects of the fluid dairy and flavoring business divestitures and the formation
of the Agriliance joint venture, sales increased $498.1 million, or 11.7%, to
$4,750.1 million in 2000, compared to $4,252.0 million in 1999.

      Dairy Foods. Net sales in 2000 decreased $96.9 million, or 2.9%, to
$3,194.2 million, compared to net sales of $3,291.1 million in 1999. Excluding
the effect of the fluid dairy and flavoring business divestitures, net sales
increased $81.8 million, or 2.8%, from $2,950.6 million to $3,032.4 million. The
acquisitions of Madison Dairy and the Gustine, CA cheese plant contributed
$195.6 million and $25.9 million, respectively, in incremental sales to our
dairy operations. Butter volumes increased over the prior year by 8.1 million
pounds, resulting in a net sales increase of $14.8 million. Decreased sales in
other categories, primarily retail cheese, lowered sales by $20.5 million.
Finally, sales in 2000 under our wholesale milk marketing program decreased
$134.0 million, or 15.7%, to $716.8 million, compared to $850.8 million in 1999,
due to increased demand for milk at our manufacturing facilities as a result of
sales volume growth.

      Animal Feed. Net sales in 2000 increased $251.0 million, or 27.0%, to
$1,182.2 million, compared to net sales of $931.2 million in 1999, mainly as a
result of the formation in October 2000 of Land O'Lakes Farmland Feed, which
accounted for $160.9 million of the sales increase. Additionally, our 2000 net
sales included five months of Nutra-Blend's net sales, which accounted for a
sales increase of $36.9 million. In 2000, we also realized strong volume
increases of 48.2% in our ingredient merchandising activities, accounting for
increased sales of $103.1 million from $213.7 million in 1999 to $316.8 million
in 2000 (and is included in the $160.9 million increase in net sales as a result
of the formation of Land O'Lakes Farmland Feed).

      Crop Seed. Net sales in 2000 increased $174.7 million, or 91.6%, to $365.5
million, compared to net sales of $190.8 million in 1999. This increase
principally reflects the effect of the purchase of certain seed assets (Wilfarm
and Agro Distribution) in 2000, as well as internal growth. These acquisitions
contributed 168.7 million pounds in soybean volume. As a result of the combined
2000 seed acquisitions, soybean sales volume nearly tripled over 1999 from 118.3
million pounds to 340.0 million pounds. Corn seed volume increased from 29.3
million pounds to 57.0 million pounds, which corresponded to an increase of
$76.4 million, from $38.0 million in 1999 to $114.4 million in 2000. Growth from
other categories amounted to $27.0 million. New product lines in cotton and rice
from the 2000 acquisitions contributed $23.4 million to the sales. Sales prices
for the most part remained flat in 2000 compared to 1999.

      Swine. Net sales in 2000 increased $19.3 million, or 23.3%, to $102.0
million, compared to $82.7 million in 1999. The increase was due to improvements
in market prices for hogs and increased unit sales. Strong consumer demand
coupled with reduced hog production in the United States as a result of
depressed hog prices in prior years increased the average market price to about
$45 per hundredweight versus an average market price of approximately $34 in
1999. The increase in average market hog prices of $11.90 per hundredweight
increased sales by $13.0 million. Total feeder pigs and market hogs sold in 2000
was 80,000 head more than in 1999, increasing sales by an additional $6.3
million. The average price per feeder pig increased $2.80 from $44.83 in 1999 to
$47.63 in 2000. This increase was due primarily to the fact that we added more
swine aligned contracts with a higher base price. In addition, we were
reimbursed for higher feed costs in 2000, which also contributed to the increase
in our average


                                       38
<PAGE>
feeder pig sales price that year. We signed a packer agreement with a major
United States pork processor effective September 25, 2000, which ties the price
we receive for market hogs to the price that the packer receives for pork
products. In 2000, this agreement contributed $0.2 million to our swine sales
growth.

      Agronomy. Net sales in 2000 decreased $166.3 million, or 16.3%, to $857.0
million, compared to net sales of $1,023.3 million in 1999. Results for the year
2000 included seven months of consolidated sales from our agronomy businesses
prior to July 29, 2000, and no sales for the remaining five months of 2000 due
to the contribution of certain of our agronomy assets to the Agriliance joint
venture. Sales through July 2000 increased $136.9 million, or 19.0%, to $857.0
million, compared to $720.1 million for the prior year period due to 1999
acquisitions.

Cost of Sales

      Cost of sales in 2000 increased $45.7 million, or 0.9%, to $5,146.1
million, compared to cost of sales of $5,100.4 million in 1999. The formation of
Land O'Lakes Farmland Feed contributed to the cost of sales increase. Cost of
sales as a percent of net sales decreased 1.6 percentage points from 90.8% to
89.2%, largely due to lower raw material costs in all of our business segments,
particularly bulk butter, bulk cheese and soybeans as a feed ingredient.
Excluding the effects of the fluid dairy and flavoring business divestitures and
the formation of the Agriliance joint venture, cost of sales increased $337.6
million, or 8.7%, to $4,212.0 million, compared to $3,874.4 million in 1999.
Excluding these effects, cost of sales as a percent of net sales decreased 2.4
percentage points from 91.1% in 1999 to 88.7% in 2000. In 2000, patronage income
from other cooperatives that was directly attributable to product purchases
decreased $4.9 million, or 55.7%, to $3.9 million, compared to $8.8 million in
1999. Our cost of sales was reduced by corresponding amounts.

      Dairy Foods. Cost of sales in 2000 decreased $180.5 million, or 6.0%, to
$2,823.0 million, compared to cost of sales of $3,003.5 million in 1999. Cost of
sales as a percent of sales decreased 2.9 percentage points, from 91.3% in 1999
to 88.4% in 2000. Excluding the effect of the fluid dairy and flavoring business
divestitures, cost of sales decreased $27.9 million to $2,683.4 million in 2000,
compared to $2,711.3 million in 1999. Cost of sales as a percent of sales,
excluding the effect of the above divestitures, decreased 3.4 percentage points,
from 91.9% in 1999 to 88.5% in 2000. Declining milk input prices reduced cheese
costs by $122.8 million and butter costs by $10.3 million. Contributing to the
decrease was the fact that no material inventory write-downs occurred in 2000 as
compared to write-downs of $62.1 million in 1999, which were accounted for as an
increase in cost of sales. Partially offsetting the decrease driven by reduced
market prices was the acquisition of Madison Dairy, which added $187.7 million
to cost of sales in 2000 and the acquisition of the Gustine, CA plant, which
added $26.3 million to cost of sales in 2000. Increased labor, energy and other
fixed manufacturing costs added $22.0 million to cost of sales in 2000. Finally,
cost of sales in 2000 under our wholesale milk marketing program decreased
$129.9 million, or 15.4%, to $710.9 million, compared to $840.8 million in 1999.

      Animal Feed. Cost of sales in 2000 increased $235.6 million, or 28.4%, to
$1,064.7 million compared to $829.1 million in 1999. This increase was due
primarily to the consolidation of Farmland Industries' feed business ($149.3
million) and the consolidation of Nutra-Blend ($33.6 million). The increase in
ingredient merchandising of $100.3 million was driven primarily by the addition
of the Farmland Industries ingredient merchandising results. Cost of sales as a
percent of sales increased 1.1 percentage points from 89.0% in 1999 to 90.1% in
2000 primarily due to the consolidation of Farmland Industries' lower margin
products. Farmland Industries traditionally sold a significant amount of
lower-margin commercial feed compared to Land O'Lakes. IOIC as a percent of cost
of sales decreased from 21.2% in 1999 to 18.9% in 2000 due mainly to the change
in product mix resulting from the Land O'Lakes Farmland Feed joint venture.

      Crop Seed. Cost of sales in 2000 increased $156.5 million, or 103.0%, to
$308.5 million, compared to $152.0 million in 1999. Cost of sales as a percent
of sales increased 4.7 percentage points, from 79.7% to 84.4%. The increase was
primarily driven by acquisitions, which added $123.3 million to seed cost of
sales. Changes in the seed product mix driven by these acquisitions contributed
to the overall increase in the cost of sales ratio. Prior to the 2000 seed
acquisitions, our seed product mix contained a large proportion of higher-margin
proprietary products. The acquisitions added significant volumes of lower-margin
third-party products to our mix, particularly soybeans and corn.


                                       39
<PAGE>
      Swine. Cost of sales in 2000 increased $0.2 million, or 0.2%, to $93.4
million, compared to $93.2 million in 1999. Cost of sales as a percent of sales
decreased from 112.7% to 91.6% of sales due to the improvement in hog market
prices and reduced losses in our cost-plus program. Average hog market prices
improved $11 per hundredweight from $34 to $45 due to increased demand for live
hogs and reduced production as a result of record-low hog prices in 1998 and
1999. Cost of sales in our cost-plus program, a marketing support program, is
impacted by the hog market, because when market hog prices fall below support
levels, we are obligated to make up the difference between sales price and
support price, which increases our cost of sales. The increased hog market price
lowered the cost-plus cost of sales by $6.4 million compared to 1999. Lower
cost-plus cost of sales was partially offset by increased sales volume, which
added $5.8 million to cost of sales and higher average corn prices, which
increased $0.12 per bushel from $1.79 in 1999 to $1.91 in 2000 and increased
cost of sales by $0.8 million.

      Agronomy. Cost of sales in 2000 decreased $139.2 million, or 14.9%, to
$794.6 million, compared to cost of sales of $933.8 million in 1999, primarily
due to the formation of the Agriliance joint venture. Results for 2000 included
seven months of consolidated sales from our agronomy businesses prior to July
28, 2000, and no sales for the remaining five months of 2000 due to the
contribution of certain of our agronomy assets to Agriliance. Cost of sales
through July 2000 increased $133.4 million, or 20.2%, to $794.6 million,
compared to $661.2 million for the prior year period. Cost of sales as a percent
of sales increased 0.9 percentage points from 91.8% through July 1999 to 92.7%
through July 2000 due to 1999 acquisitions.

Selling and Administration Expense

      Selling and administration expense in 2000 decreased $21.6 million, or
4.3%, to $485.3 million, compared to selling and administration expense of
$506.9 million in 1999. Selling and administration expense as a percent of sales
decreased 0.6 percentage points from 9.0% in 1999 to 8.4% in 2000. Excluding the
effects of the fluid dairy and flavoring business divestitures as well as the
formation of Agriliance, selling and administration expense increased $40.0
million, or 10.4%, to $426.5 million in 2000, compared to $386.5 million in
1999. The formation of the Land O'Lakes Farmland Feed joint venture contributed
to the increase. Selling and administration expense as a percent of sales
excluding the effect of the divestitures and the formation of Agriliance
decreased 0.1 percentage points from 9.1% in 1999 to 9.0% in 2000.

      Dairy Foods. Selling and administration expense in 2000 increased $1.2
million, or 0.4%, to $299.3 million, compared to $298.1 million in 1999. Selling
and administration expense as a percent of sales increased 0.3 percentage points
from 9.1% in 1999 to 9.4% in 2000. Excluding the effects of the fluid dairy and
flavoring business divestitures, selling and administration expense for 2000 was
$280.0 million, up $27.1 million, or 10.7%, compared to $253.0 million in 1999.
Excluding these effects, selling and administration expense as a percent of
sales increased 0.6 percentage points, from 8.6% in 1999 to 9.2% in 2000. This
increase was primarily due to an increase in advertising and promotion expense
of $17.8 million, primarily to promote our branded deli cheese and butter. The
acquisition of Madison Dairy Produce Co. in 2000 added $2.0 million in selling
and administration expense. Compensation and benefits increases accounted for
the majority of the remaining $7.6 million increase.

      Animal Feed. Selling and administration expense in 2000 increased $3.7
million, or 4.6%, to $84.4 million, compared to $80.7 million in 1999. Selling
and administration expense as a percent of sales declined 1.6 percentage points
from 8.7% in 1999 to 7.1% in 2000. The change in selling and administration
expense was mostly due to the consolidation of Farmland Industries' feed
operations, which added $8.4 million in expense. Offsetting this increase was a
$4.0 million decrease in the amount of foreign currency exchange losses recorded
by the international feed operations, from $4.1 million in 1999 to $0.1 million
in 2000. Selling and administration expense as a percent of IOIC decreased from
46.0% in 1999 to 42.4% in 2000.

      Crop Seed. Selling and administration expense in 2000 increased $10.8
million, or 32.5%, to $44.0 million, compared to $33.2 million in 1999.
Administration expense increased $7.5 million and selling expense increased $5.8
million due to additional headcount from acquisitions. These additional costs
were partially offset by $2.5 million in savings generated from synergies in the
areas of selling, advertising and promotion, and administrative support. Selling
and administration expense as a percent of sales decreased 5.4 percentage
points, from 17.4% in 1999 to 12.0% in 2000.


                                       40
<PAGE>
      Swine. Selling and administration expense in 2000 decreased $2.1 million,
or 21.0%, to $7.9 million, compared to $10.0 million in 1999. Selling and
administration expense as a percent of sales decreased from 12.1% in 1999 to
7.7% in 2000. Reduction in information systems costs and staff reductions
contributed to the decreased cost. In 1999, we implemented a new software
system, which increased our administrative costs. With the implementation
complete, information systems costs declined by $1.5 million in 2000. In
addition, administrative staff reductions resulted in savings of $0.6 million.

      Agronomy. Selling and administration expense in 2000 decreased $35.8
million, or 47.5%, to $39.5 million, compared to $75.3 million in 1999, due to
the formation of the Agriliance joint venture. Results for 2000 included seven
months of consolidated selling and administration expense from our agronomy
businesses prior to the contribution of certain of our agronomy assets to
Agriliance on July 28, 2000 and parent administrative support charges for the
remaining five months of 2000. Selling and administration expense for the seven
months prior to the formation of Agriliance increased $1.0 million, or 2.3%, to
$45.3 million in 2000, compared to $44.3 million for 1999. Selling and
administration expense as a percent of sales decreased 0.9 percentage points
from 6.2% through July 1999 to 5.3% through July 2000. Subsequent to the
contribution of assets to Agriliance, we continued to record parent overhead
expenses. In addition, selling and administration expense in 2000 included $11.9
million in losses recorded for eastern agronomy assets held for sale, while in
1999 no losses were recorded because the assets had been held for sale for less
than one year from the date of acquisition.

Restructuring and Impairment Charges

      In 2000, Land O'Lakes recorded restructuring and impairment charges of
$54.2 million compared to $3.9 million in 1999. A reduction in the carrying
amounts of certain impaired dairy foods assets to their estimated fair value
resulted in an impairment charge of $44.5 million in 2000. The impairment was
related to cheese marketing and production assets that were under-utilized due
to changes in consumer product preferences and costs associated with sourcing
raw materials. Restructuring charges of $9.7 million in 2000 resulted from
initiatives within the newly formed Land O'Lakes Farmland Feed joint venture to
consolidate facilities and reduce personnel. This restructuring charge consisted
of $7.2 million for the write-down of assets held for sale to their estimated
fair value, demolition expense and incidental exit costs, and $2.5 million in
severance and outplacement costs for 119 non-plant employees. The impairment
charge of $3.9 million in 1999 was related to the under-utilization of our
cheese production assets in Poland.

Interest Expense

      Interest expense in 2000 was $52.4 million compared with $44.7 million in
1999. The $7.7 million, or 17.2%, increase primarily resulted from increased
borrowing to finance acquisitions and from higher interest rates. Average debt
balances increased by $86.6 million over 1999. CoBank patronage reduced interest
expense by $1.1 million in 2000, compared to an increase in interest expense of
$1.3 million in 1999. Combined interest rates for borrowings excluding CoBank
patronage averaged 7.2% in 2000, compared to 6.2% in 1999.

Gain on Divestitures

      In 2000, we realized a gain of $88.5 million from the divestiture of our
fluid dairy assets and a gain of $0.5 million from the divestiture of certain
swine assets. In 1999, a gain of $54.2 million was recorded on the sale of a
flavoring business. We used funds from these divestitures to reduce outstanding
debt balances.

Equity in Loss or Earnings of Affiliated Companies

      In 2000, equity in loss of affiliated companies was $35.6 million compared
to equity in earnings of $7.3 million in 1999. Results for 2000 included losses
from Agriliance of $32.4 million and Agro Distribution of $14.6 million and
earnings from MoArk of $3.5 million, various swine joint ventures of $3.5
million, and earnings of $4.4 million from other affiliated companies.


                                       41
<PAGE>
Minority Interest in Loss or Earnings of Subsidiaries

      In 2000, we recorded a minority interest in loss of subsidiaries of $1.4
million compared to a loss of $0.1 million in 1999. Minority interest in loss of
animal feed related subsidiaries was $1.8 million, partially offset by minority
interest in the earnings of other consolidated subsidiaries.

Income Taxes

      Income taxes decreased $13.8 million to a tax benefit of $13.7 million in
2000, compared with a tax expense of $0.1 million in 1999. The tax benefit was
attributed to non-member losses, which included impairment charges and losses
associated with the agronomy retail distribution assets held for sale, that were
acquired directly or indirectly from Terra Industries in 1999. The tax benefit
from the non-member losses was partially offset by the non-member portion of the
gain from the divestiture of fluid dairy assets. The effect of allocated
patronage refunds reduced our statutory tax rate from 35.0% to a tax credit of
20.4% for 2000 compared to a tax credit of 22.3% in 1999. The amortization of
goodwill, the effect of foreign operations, and other factors increased our tax
rate, resulting in an effective tax rate of (16.0)% for 2000, compared to an
effective tax rate of 0.5% in 1999.

Extraordinary Loss or Gain on Early Extinguishment of Debt, Net of Income Taxes

      In 2000, an extraordinary gain on early extinguishment of debt of $4.4
million, net of income taxes of $0.8 million, was realized on the repurchase of
$9.3 million of our Capital Securities.

Net Earnings

      Net earnings increased $81.5 million to $102.9 million in 2000, compared
to $21.4 million in 1999.

Allocation of Net Earnings

      In 2000, net earnings of $136.9 million were allocated to member equities,
and retained earnings were reduced by $34.0 million. Member equities increased
because the gain on the sale of the fluid dairy business was recorded as a gain
from member business. Conversely, retained earnings decreased primarily because
the impairment charge of $44.5 million, which was related to the write-down of
cheese marketing and production assets, pertained to non-member business. In
1999, net earnings of $27.3 million were allocated to member equities, and
retained earnings were reduced by $5.9 million.

LIQUIDITY AND CAPITAL RESOURCES

      We rely on cash from operations, borrowings under our bank facilities and
bank term debt and other institutionally placed funded debt as the main sources
for financing working capital requirements, additions to property, plant and
equipment and to complete acquisitions and joint ventures. Other sources of
funding consist of leasing arrangements, a receivables securitization and the
sale of non-strategic assets. Total long-term debt was $1,147.5 million,
including $190.7 million in Capital Securities, as of December 31, 2001 and
$662.7 million, including $190.7 million in Capital Securities, as of December
31, 2000.

      Net cash from operating activities was $274.3 million for the year ended
December 31, 2001, $115.2 million for the year ended December 31, 2000, and
$59.0 million for the year ended December 31, 1999. For the year ended December
31, 2001, net cash from operating activities was $159.1 million more than in
2000. This increase was primarily due to the effects of changes in our working
capital management, partially offset by decreased earnings. For the year ended
December 31, 2000, net cash from operating activities was $56.2 million more
than in 1999 due to earnings improvements, somewhat offset by the effects of the
reduction of working capital such as inventory and accounts payable related to
the contribution of assets to Agriliance.

      Net cash flows used by investing activities was $461.2 million for the
year ended December 31, 2001, $82.6 million for the year ended December 31,
2000, and $147.1 million for the year ended December 31, 1999. The significant
increase in 2001 was primarily due to the Purina Mills acquisition.

      Net cash flows provided (used) by financing activities was $313.1 million
for the year ended December 31, 2001, $(226.4) million for the year ended
December 31, 2000 and $281.4 million for the year ended December 31,


                                       42
<PAGE>
1999. For the year ended December 31, 2001, proceeds of $1,369.5 million
resulted from new financing, offset by the payment of $935.1 million on existing
long-term debt and the payment of $53.8 million on short-term debt. For the year
ended December 31, 2000, payments of $179.1 million were made to reduce
long-term debt. For the year ended December 31, 1999, proceeds of $303 million
resulted from issuance of long-term debt.

      Our principal liquidity requirements are to service our debt and meet our
working capital and capital expenditure needs. Following the Purina Mills
acquisition, we have significantly increased our leverage. As of December 31,
2001 we had $1,147.5 million outstanding in long-term debt, including $190.7
million of Capital Securities, and $53.5 million outstanding in short-term debt.
In addition, as of December 31, 2001, $228.3 million was available under a $250
million revolving credit facility for working capital and general corporate
purposes, after giving effect to $21.7 million of outstanding letters of credit,
which reduce availability. Total equity as of December 31, 2001 was $836.5
million. On a pro forma basis, for 2001, our interest expense would have been
$73.3 million, including dividends on Capital Securities.

      The principal term loans consist of a $325.0 million syndicated Term Loan
A Facility with a final maturity of five years and a $250.0 million syndicated
Term Loan B Facility with a final maturity of seven years. Each of these
facilities was fully drawn at closing of the Purina Mills acquisition on October
11, 2001. Our $250.0 million revolving credit facility terminates on June 28,
2004.

      Borrowings under the term loans and the revolving credit facility bear
interest at variable rates (either LIBOR or an Alternative Base Rate) plus
applicable margins. The margins are dependent upon Land O'Lakes credit ratings.

      The Term Loan A Facility is prepayable at any time without penalty. The
Term Loan B Facility is prepayable with a penalty of 3% during the first year,
2% during the second year, 1% during the third year, and no penalty thereafter.
The term loans will be subject to mandatory prepayments, subject to certain
limited exceptions, in an amount equal to (1) 50% of excess cash flow of Land
O'Lakes and the subsidiaries restricted pursuant to our credit agreement, (2)
100% of the net cash proceeds of asset sales and dispositions of property of
Land O'Lakes and the restricted subsidiaries, if not reinvested, (3) 100% of any
casualty or condemnation receipts by Land O'Lakes and the restricted
subsidiaries, if not used to repair or replace assets, (4) 100% of joint venture
dividends or distributions received by Land O'Lakes or the restricted
subsidiaries, to the extent that they relate to the sale of property, casualty
or condemnation receipts, or the issuance of any equity interest in the joint
venture, (5) 100% of net cash proceeds from the sale of inventory or accounts
receivable in a securitization transaction to the extent cumulative proceeds
from such transactions exceed $100.0 million and (6) 100% of net cash proceeds
from the issuance of unsecured senior or subordinated indebtedness issued by
Land O'Lakes. In February 2002, we made a $33.8 million prepayment on Term Loan
A Facility and a $16.2 million prepayment on Term Loan B Facility, of which 75%
was mandatory and 25% was optional.

      The amortization schedules for the Term Loan A and Term Loan B Facilities
are provided below. (Schedules reflect the impact of the February 2002
prepayment.)

<TABLE>
<CAPTION>
                              TERM LOAN A     TERM LOAN B
                              -----------     -----------
<S>                           <C>             <C>
2002 (paid 2/22/02)...        $33,782,609     $ 16,217,391
2003..................         54,337,200        2,116,744
2004..................         71,064,057        2,822,325
2005..................         94,752,077        2,822,325
2006..................         71,064,057        2,822,325
2007..................                 --        2,822,325
2008..................                 --      220,376,564
                              -----------     ------------
     Total............        $325,000,000    $250,000,000
                              ============    ============
</TABLE>

      In November 2001, we issued $350 million of senior notes. These notes bear
interest at a fixed rate of 8 3/4% and mature on November 15, 2011. The notes
are callable beginning in year six at a redemption price of 104.375%. In years
seven and eight, the redemption price is 102.917% and 101.458%, respectively.
The notes are callable at par beginning in year nine.

      In 1998, Capital Securities in an amount of $200 million were issued by a
trust subsidiary of ours, and the net proceeds were used to acquire a junior
subordinated note of ours. The holders of these securities are entitled to
receive dividends at an annual rate of 7.45% until the securities mature in 2028
and correspond to the payment terms


                                       43
<PAGE>
of the junior subordinated debentures which are the sole asset of the trust
subsidiary. Interest payments on the debentures can be deferred for up to five
years, and the obligations under the debentures are junior to all of our debt.
As of December 31, 2001, the outstanding balance of Capital Securities was
$190.7 million.

      The credit agreements relating to the term loans and revolving credit
facility and the indenture relating to the 8 3/4% senior notes impose certain
restrictions on us, including restrictions on our ability to incur indebtedness,
make payments to members, make investments, grant liens, sell our assets and
engage in certain other activities. In addition, the credit agreements relating
to the term loans and revolving credit facility require us to maintain certain
financial ratios. Indebtedness under the term loans and revolving credit
facility is secured by substantially all of the material assets of Land O'Lakes,
Inc. and its wholly-owned domestic subsidiaries (other than LOL Finance Co. and
LOLFC, LLC) and Land O'Lakes Farmland Feed and its wholly-owned domestic
subsidiaries (other than LOL Farmland Feed SPV, LLC), including real and
personal property, inventory, accounts receivable, intellectual property and
other intangibles, other than those receivables which have been sold in
connection with our receivables securitization. Indebtedness under the term
loans and revolving credit facility is also guaranteed by our wholly-owned
domestic subsidiaries (other than LOL Finance Co. and LOLFC, LLC) and Land
O'Lakes Farmland Feed and its wholly-owned domestic subsidiaries (other than LOL
Farmland Feed SPV, LLC). The 8 3/4% senior notes are unsecured but are
guaranteed by the same entities which guaranty the obligations under the term
loans and revolving credit facility.

OFF-BALANCE SHEET ARRANGEMENTS

      In order to reduce overall financing costs, the Company entered into a
revolving receivables securitization program with CoBank in December 2001 for up
to $100 million in advances against eligible receivables. Under this program,
Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC and Purina Mills, LLC sell
feed, seed and certain swine receivables to LOL Farmland Feed SPV, LLC, a
limited purpose wholly-owned subsidiary of Land O'Lakes Farmland Feed. This
subsidiary is a qualifying special purpose entity ("QSPE") under applicable
accounting rules. The QSPE was established for the limited purpose of purchasing
and obtaining financing for these receivables. The transfers of the receivables
to the QSPE are structured as sales and, in accordance with applicable
accounting rules, these receivables are not reflected in the consolidated
balance sheets of Land O'Lakes Farmland Feed LLC or Land O'Lakes, Inc. The QSPE
purchases the receivables with a combination of cash initially received from
CoBank, equal to the present value of eligible receivables times the agreed
advance rate; and notes, equal to the unadvanced present value of the
receivables. Land O'Lakes, Inc. and the other receivables sellers are subject to
credit risk related to the repayment of the QSPE notes, which in turn is
dependent upon the ultimate collection on the QSPE's receivables pool.
Accordingly, we have retained reserves for estimated losses. $75.8 million was
initially drawn under this securitization and was used to repay a $75 million
bridge facility with CoBank. Any additional draws under the receivables
securitization facility will be used to pay down outstanding borrowings under
our revolving credit facility.

      In addition, we lease various equipment and real properties under
long-term operating leases. Total consolidated rental expense was $29.8 million
in 2001, $31.7 million in 2000 and $26.7 million in 1999. Most of the leases
require payment of operating expenses applicable to the leased assets. We expect
that in the normal course of business most leases that expire will be renewed or
replaced by other leases. We are also contingently liable for a $114 million
synthetic lease entered into by Cheese and Protein International, LLC, ("CPI"),
a consolidated joint venture 70% owned by us, for the construction of a cheese
and whey plant. The construction of the plant has been financed by a special
purpose entity. The special purpose entity is not consolidated in our financial
statements and we have accounted for this arrangement as an operating lease in
accordance with Statement of Financial Accounting Standards No. 13, "Accounting
for Leases", as amended. The base term of the lease commences upon substantial
completion of the plant expected at the end of March 2002 and expires on the
fifth anniversary, unless we request and the lessor approves one or more
one-year base term extensions, which could extend the base term to no more than
ten years. The interest rate on the lease is LIBOR-based and actual lease
payments will vary with short-term interest rate fluctuations. Future minimum
lease payments under this lease are included in the table below. At the
conclusion of the lease term, CPI is obligated to pay the remaining lease
balance. In the event CPI defaults on its obligations under the lease, we could
elect one of the following options: (i) assume the lease obligations of CPI,
(ii) purchase the leased assets, (iii) fully cash collateralize the lease or
(iv) nominate a replacement lessee to be approved by the lessor. As of December
31, 2001, the amount of the contingent liability was $79.8 million, the lease
balance as of that date.


                                       44
<PAGE>
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

      At December 31, 2001, we had certain contractual obligations, which
required us to make payments as follows:

                PAYMENTS DUE BY PERIOD (AS OF DECEMBER 31, 2001)

<TABLE>
<CAPTION>
                                                                                                     AFTER
CONTRACTUAL CASH OBLIGATIONS                   TOTAL        1 YEAR      2-3 YEARS      4-5 YEARS    5 YEARS
----------------------------                   -----        ------      ---------      ---------    -------
                                                                     (IN THOUSANDS)
<S>                                         <C>           <C>         <C>            <C>          <C>
Revolving Credit
  Facility(1) ..........................    $       --     $     --    $      --      $      --    $      --
Long-Term Debt(2) ......................     1,167,011       19,546      160,107        179,721      807,637
Operating Leases(3) ....................       233,138       27,323       52,387         42,151      111,277
                                            ----------     --------    ---------      ---------    ---------
     Total Contractual

       Obligations .....................    $1,400,149     $ 46,869    $ 212,494      $ 221,872    $ 918,914
                                            ==========     ========    =========      =========    =========
</TABLE>

----------

(1)   Maximum $250 million facility, of which $228.3 million was available as of
      December 31, 2001. $21.7 million of this commitment was unavailable due to
      outstanding letters of credit.

(2)   Term Loan A and Term Loan B Facilities are subject to certain mandatory
      prepayment obligations in certain events as explained above. See
      "Off-balance Sheet Arrangements" for information concerning our
      receivables securitization program.

(3)   Includes lease payments under the synthetic lease identified above, which
      is an off-balance sheet contingent liability. See "Off-balance Sheet
      Arrangements."

      We expect that our total capital expenditures will be approximately $90
million in 2002 and approximately $96 million in 2003. Of such amounts, we
currently estimate that a minimum range of $35 million to $45 million of ongoing
maintenance capital expenditures is required each year.

      We expect that funds from operations and available borrowings under our
revolving credit facility and receivables securitization facility will provide
sufficient working capital to operate our business, to make expected capital
expenditures and to meet foreseeable liquidity requirements, including debt
service on the term debt, the revolving credit facilities and the 8 3/4% senior
notes.

RECENT ACCOUNTING PRONOUNCEMENTS

      We adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
effective January 1, 2001. The standard requires derivatives to be recorded on
the balance sheet as assets or liabilities, measured at fair value. The impact
upon adoption did not have a material effect on the consolidated financial
statements.

      In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 was effective immediately and SFAS No. 142 was effective
January 1, 2002. Under the provisions of SFAS No. 141, no amortization of
goodwill is recorded on acquisitions (except for acquisitions of cooperatives)
completed after June 30, 2001. Existing goodwill and other intangible assets
were amortized until the January 1, 2002 adoption of SFAS No. 142. Goodwill
related to the acquisition of cooperatives and the formation of joint ventures
will continue to be amortized at least until the Financial Accounting Standards
Board provides further guidance. Because of the extensive effort needed to
comply with adopting SFAS No. 141 and SFAS No. 142, it is not practicable to
reasonably estimate the impact of adopting these statements on the financial
statements at this time, including whether it will require the recognition of
any transitional impairment losses as a cumulative effect of a change in
accounting principle. We will review our goodwill balances for potential
impairment by the third quarter of 2002. Amortization expense related to
goodwill that will cease to be amortized under SFAS No. 142 was $6.2 million for
the year ended December 31, 2001. As of January 1, 2002, the Company had
unamortized goodwill in the amount of $160.7 million and no unamortized
identifiable intangible assets, which will be subject to the transition
provisions of SFAS No. 141 and SFAS No. 142.


                                       45
<PAGE>
      In April 2001, the Emerging Issues Task Force (EITF) issued a consensus on
EITF No. 00-25, "Vendor Income Statement Characterization of Consideration to a
Purchaser of the Vendor's Products or Services." EITF No. 00-25 deals with the
accounting for consideration paid from a vendor (typically a manufacturer or
distributor) to a retailer, including slotting fees, cooperative advertising
arrangements and buy-downs. The guidance in EITF 00-25 generally requires that
these incentives be classified as a reduction of sales. The consensus is
effective for the Company in the first quarter of fiscal year 2002. We are
currently assessing the impact of adopting EITF No. 00-25, which has no impact
on net earnings.

      In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
supersedes both SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
-- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No.
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
SFAS No. 144 provides guidance on how a long-lived asset that is used as part of
a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale and prescribes the accounting for a long-lived
asset that will be disposed of other than by sale. SFAS No. 144 retains the
basic provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment
assessment under SFAS No. 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under SFAS No. 142, "Goodwill and
Other Intangible Assets". We have elected to adopt SFAS No. 144 as of January 1,
2001 and have applied its provisions in our financial statements. The impact of
the adoption did not have a material effect on the consolidated financial
statements.

RISK FACTORS

OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR
OBLIGATIONS UNDER OUR DEBT OBLIGATIONS AND OPERATE OUR BUSINESS.

      We are highly leveraged and have significant debt service obligations. As
of December 31, 2001, after eliminating intercompany activity, our aggregate
outstanding indebtedness was $1,201.0 million, excluding unused commitments, and
our total equity was $836.5 million. For the year ended December 31, 2001,
giving pro forma effect to the acquisition of Purina Mills as of January 1,
2001, our interest expense would have been $73.3 million. We may incur
additional debt from time to time to finance strategic acquisitions, investments
and alliances, capital expenditures or for other purposes, subject to the
restrictions contained in the New Credit Facilities and in the indenture.

      Our substantial debt could have important consequences to persons holding
our outstanding indebtedness, including the following:

      -     we will be required to use a substantial portion of our cash flow
            from operations to pay principal and interest on our debt, thereby
            reducing the availability of our cash flow to fund working capital,
            capital expenditures, strategic acquisitions, investments and
            alliances and other general corporate requirements;

      -     our interest expense could increase if interest rates in general
            increase because a substantial portion of our debt will bear
            interest at floating rates;

      -     our substantial leverage will increase our vulnerability to general
            economic downturns and adverse competitive and industry conditions
            and could place us at a competitive disadvantage compared to those
            of our competitors which are less leveraged;

      -     our debt service obligations could limit our flexibility to plan
            for, or react to, changes in our business and the dairy and
            agricultural industries;


                                       46
<PAGE>
      -     our level of debt may restrict us from raising additional financing
            on satisfactory terms to fund working capital, capital expenditures,
            strategic acquisitions, investments and joint ventures and other
            general corporate requirements;

      -     our level of debt may prevent us from raising the funds necessary to
            repurchase all of our 8-3/4% senior notes due 2011 tendered to us
            upon the occurrence of a change of control, which would constitute
            an event of default under the senior notes; and

      -     our failure to comply with the financial and other restrictive
            covenants in our debt instruments, which, among other things,
            require us to maintain specified financial ratios and limit our
            ability to incur debt and sell assets, could result in an event of
            default that, if not cured or waived, could have a material adverse
            effect on our business or prospects.

See "Item 7A. Quantitative and Qualitative Disclosures about Market Risk".

SERVICING OUR INDEBTEDNESS REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

      We expect to obtain the cash to make payments on our debt and to fund
working capital, capital expenditures, strategic acquisitions, investments and
joint ventures and other general corporate requirements from our operations. Our
ability to generate cash is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. We cannot
assure investors that our business will generate sufficient cash flow from
operations, that we will realize currently anticipated cost savings, net sales
growth and operating improvements on schedule, or at all, or that future
borrowings will be available to us under our credit facilities, in each case, in
amounts sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. If we cannot service our indebtedness, we will have to take
actions such as reducing or delaying capital expenditures, strategic
acquisitions, investments and joint ventures, selling assets, restructuring or
refinancing our indebtedness, or seeking additional equity capital, which may
adversely affect our membership and affect their willingness to remain members.
We cannot assure investors that any of these remedies could, if necessary, be
effected on commercially reasonable terms, or at all. In addition, the terms of
existing or future indebtedness agreements may restrict us from adopting any of
these alternatives. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DESPITE OUR SUBSTANTIAL LEVERAGE, WE WILL BE ABLE TO INCUR MORE DEBT, WHICH MAY
INTENSIFY THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE, INCLUDING OUR
ABILITY TO SERVICE OUR DEBT.

      The agreements governing our debt will permit us, subject to certain
conditions to incur a significant amount of additional indebtedness. In
addition, we may incur additional debt under our $250.0 million revolving credit
facility, of which approximately $227.6 million was available to us as of
December 31, 2001. If we incur additional debt, the risks associated with our
substantial leverage, including our ability to service our debt, could
intensify.

RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO FINANCE FUTURE
OPERATIONS OR CAPITAL NEEDS OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE
IN OUR INTEREST.

      The terms of our current debt agreements impose, and the terms of any
future debt may impose, operating and other restrictions on us and certain of
our subsidiaries. These restrictions will affect, and in many respects will
limit or prohibit, among other things, our and our subsidiaries' ability to:

      -     incur additional debt;

      -     issue redeemable equity interests and preferred equity interests;

      -     pay dividends or make other distributions;

      -     repurchase equity interests;


                                       47
<PAGE>
      -     make other restricted payments including, without limitation,
            investments;

      -     create liens;

      -     redeem debt that is junior in right of payment to existing debt;

      -     sell or otherwise dispose of assets, including capital stock of
            subsidiaries;

      -     enter into agreements that restrict dividends from subsidiaries;

      -     enter into sale/leaseback transactions;

      -     enter into mergers or consolidations; and

      -     enter into transactions with affiliates.

In addition, the agreements governing certain of our outstanding indebtedness
also require us to achieve specified financial and operating results and
maintain compliance with specified financial ratios. Our ability to comply with
these ratios may be affected by events beyond our control.

      The restrictions contained in our debt agreements could:

      -     limit our ability to plan for or react to market conditions or meet
            capital needs or otherwise restrict our activities or business
            plans; and

      -     adversely affect our ability to finance our operations, strategic
            acquisitions, investments or alliances or other capital needs or to
            engage in other business activities that would be in our interest.

A breach of any of these restrictive covenants or our inability to comply with
the required financial ratios could trigger cross default provisions in the
agreements governing our other debt. If a default occurs, certain of our debt
agreements allow the lenders to declare all borrowings outstanding, together
with accrued interest and other fees, to be immediately due and payable which
would result in an event of default under the indenture governing our senior
notes and a termination event under the agreements governing our receivables
securitization. Lenders will also have the right in these circumstances to
terminate any commitments they have to provide further borrowings. If we are
unable to repay outstanding borrowings when due, those lenders will also have
the right to proceed against the collateral, including our available cash,
granted to them to secure the indebtedness. If this debt was to be accelerated,
we cannot assure investors that our assets would be sufficient to repay in full
that indebtedness and our other indebtedness. If not cured or waived, such
default could have a material adverse effect on our business and our prospects.

CHANGES IN CONSUMER PREFERENCES AND DISTRIBUTION CHANNELS COULD ADVERSELY AFFECT
OUR BUSINESS.

    Like other food manufacturing businesses, we are subject to the risks of:

      -     evolving consumer preferences and nutritional and health-related
            concerns; and

      -     changes in food distribution channels, such as consolidation of the
            supermarket industry and other retail outlets that result in a
            smaller customer base and intensify the competition for fewer
            customers.


                                       48
<PAGE>
      To the extent that consumer preference evolves away from products that we
produce for health or other reasons, and we are unable to create new products
that satisfy new consumer preferences, there will be a decreased demand for our
products. There has been a recent trend toward consolidation among food
retailers which we expect to continue. As a result, these food retailers are
selecting product suppliers who can meet their needs nationwide. If we are not
selected by these food retailers for one or more of our products, our sales
volumes could be significantly reduced. In addition, national distributors or
regional food brokers could choose not to carry our products. Because of the
high degree of consolidation of national food distributors, the decision of a
single such distributor not to carry our products could have a serious impact.
Any of these could have a material adverse effect on our business, financial
condition, and results of operations.

COMPETITION IN THE INDUSTRY MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

      Our business segments operate in highly competitive industries. In
addition, some of our business segments compete with companies that have greater
capital resources, research and development staffs, facilities, diversity of
product lines and brand recognition than ours. Increased competition as to any
of our products could result in reduced prices which would reduce our margins
and negatively affect our business, financial condition and results of
operations.

      Our competitors may succeed in developing new or enhanced products which
are better than ours. These companies may also prove to be more successful in
marketing and selling their products than we are with ours. We cannot make any
assurances that we will continue to be able to compete successfully with any of
these companies.

      Sectors of the dairy industry are highly fragmented, with the bulk of the
industry consisting of national and regional competitors. However, consolidation
among food retailers is leading to increased competition for fewer customers. If
we are unable to meet our customers' needs, we may lose major customers, which
could materially adversely affect our business and financial condition.

      The animal feed industry is highly fragmented, with the bulk of the
industry consisting of many small local manufacturers, several regional
manufacturers and a limited number of national manufacturers. However, as meat
processors become larger they tend to integrate their business by acquiring or
constructing their own feed production facilities. As a result, the available
market for commercial feed may become smaller and competition may increase,
which could materially adversely affect our business and financial condition. In
addition, purchasers of commercial feed tend to select products based on price
rather than manufacturer. Furthermore, some of our feed products are purchased
from third parties with minimal further processing by us. As a result of this
price competition and the lack of significant processing for some of our
products, the barriers to entry for competing feed products are low.

      The crop seed industry consists of large companies such as Pioneer Hi-Bred
International, Monsanto Company and Syngenta which possess large genetic
databases and produce and distribute a wide range of seeds, as well as niche
companies which distribute seed products for only one or a few crops. Because
approximately 88% of our crop seed sales come from sales of alfalfa, soybeans,
corn and forage and turf grasses, technological developments by our competitors
in these areas could result in significantly decreased sales and could
materially adversely affect our business and financial condition.

      The swine industry is highly fragmented with the bulk of the industry
consisting of many regional producers. However, as pork processors become larger
they tend to integrate their businesses by acquiring their own swine production
facilities. As a result, the demand for weanling and feeder pigs and market hogs
produced by independent producers may decrease and competition among independent
producers may increase.

      The wholesale agronomy industry consists of a few national crop protection
product distributors such as UAP, Helena and Wilbur-Ellis, a few national crop
nutrient product distributors such as Cargill, IMC, PCS, Agrium and
Royster-Clark, as well as smaller regional brokers and distributors. Competition
in the industry may intensify as distributors consolidate to increase
distribution capabilities and efficiencies and as chemical manufacturers sell
directly to customers and bypass distributors such as Agriliance, which could
materially adversely affect Agriliance's business and our financial condition.


                                       49
<PAGE>
OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY EXTREME WEATHER
CONDITIONS.

      Our operating results within many of our segments are affected by seasonal
fluctuations of our sales and operating profits. There is significantly
increased demand for butter in the months prior to Thanksgiving and Christmas.
Because our supply of milk is lowest at this time, we produce and store surplus
quantities of butter in the months preceding the increase in demand for butter.
As a result, we are subject both to the risk that butter prices may decrease and
that increased demand for butter may never materialize, resulting in decreased
net sales.

      Our animal feed sales are seasonal, with a higher percentage of sales
generated during the fourth and first quarters of the year. This seasonality is
driven largely by weather conditions affecting sales of our beef cattle
products. If the weather is particularly warm during the winter, then sales of
feed for beef cattle may decrease because the cattle may be better able to graze
under warmer conditions.

      The sales of crop seed and crop nutrient and crop protection products are
dependent upon the planting and growing season, which varies from year to year,
resulting in both highly seasonal patterns and substantial fluctuations in our
quarterly sales and operating profits. Most sales of our seed products and of
Agriliance's agronomy products are in the first half of the year during the
spring planting season in the United States. If the spring is particularly wet,
farmers will not apply crop nutrient and crop protection products because they
will be washed away and ineffective if applied.

      Live hog and wholesale pork prices are also affected by seasonal factors.
Because of production times for hogs, there are generally fewer hogs available
in the second quarter, causing live hog and wholesale pork prices to be higher
at these times. Conversely, there are generally more hogs available in the
fourth quarter, which generally causes live hog and wholesale pork prices to be
lower on average during these months.

      In addition, severe weather conditions and natural disasters, such as
floods, droughts, frosts or earthquakes, or adverse growing conditions, diseases
and insect-infestation problems may reduce the quantity and quality of
commodities available for processing by us. For example, dairy cows produce less
milk when subjected to extreme weather conditions, including hot and cold
temperatures. A significant reduction in the quantity or quality of commodities
harvested or produced due to adverse weather conditions, disease, insect
problems or other factors could result in increased processing costs and
decreased production, with adverse financial consequences to us.

INCREASED ENERGY AND GAS COSTS COULD ADVERSELY AFFECT OUR BUSINESS.

      We require a substantial amount of electricity, natural gas and gasoline
to manufacture, store and transport our products. The prices of electricity,
natural gas and gasoline fluctuate significantly over time. Many of our products
compete based on price and we may not be able to pass on increased costs of
production, storage or transportation to our customers. As a result, increases
in the cost of electricity, natural gas or gasoline could substantially harm our
business and results of operations. For instance, prices for natural gas, a key
component in the manufacture of fertilizer, increased from approximately $2.50
per million Btu in January 2000 to approximately $10.00 per million Btu in
January 2001. Depending upon the type of fertilizer produced, a one dollar
increase in the price of gas can result in increased fertilizer costs ranging
from $11.70 to $33.50 per ton. Agriliance was not able to pass on the entire
increase in fertilizer costs to customers; therefore Agriliance's margins on
fertilizer products were lower than they would have been had natural gas and
fertilizer costs remained constant. In addition, the higher sales price of
fertilizer resulted in a reduction of expected sales volume.

      Our dairy business requires a continuous supply of energy to refrigerate
raw materials and finished products. Our largest dairy processing facility is
located in California, which recently experienced an energy crisis that
disrupted our dairy processing operations and increased our expenses. As a
result of blackouts at our Tulare, California plant, to date we have been forced
to dispose of approximately one million pounds of milk (which represents
approximately 10% of one day's throughput at that plant). Although we have added
electrical generating capacity at the Tulare plant, future blackouts at this or
other plants may result in the interruption of our processing operations and the
loss of perishable ingredients and products which could substantially harm our
business and results of operations.


                                       50
<PAGE>
OUTBREAKS OF DISEASE CAN ADVERSELY AFFECT OUR NET SALES AND OPERATING MARGINS.

      The productivity and profitability of our businesses depend on animal and
crop health and on disease control.

      We face the risk of outbreaks of mad cow disease, which could lead to the
destruction of beef cattle and dairy cows and decreased demand for dairy and
beef products. If this occurs, we would also face reduced milk supply and
increased cost to produce our dairy products, which could have an adverse effect
on our financial condition or results of operations. In addition, we could have
decreased demand for our feed products as dairy and beef producers decrease
their herd sizes due to decreased demand for dairy and beef products.

      We face the risk of outbreaks of foot-and-mouth disease, which could lead
to a massive destruction of cloven-hoofed animals such as dairy cattle, beef
cattle, swine, sheep and goats and significantly reduce the demand for meat
products. Because foot-and-mouth disease is highly contagious and destructive to
susceptible livestock, any outbreak of foot-and-mouth disease could result in
the widespread destruction of all potentially infected livestock. Our feed
operations could suffer as a result of decreased demand for feed products. If
this happens, we could also have difficulty procuring the milk we need for our
dairy operations and incur increased cost to produce our dairy products, which
could have an adverse effect on our financial condition or results of
operations. In addition, our ability to sell or transport hogs could be
materially adversely affected.

      Outbreaks of plant diseases and pests could destroy entire crops of plants
for which we sell crop seed. If this occurs, the crops grown to produce seed
could also be destroyed, resulting in a shortage of crop seed available for us
to sell for the next planting season. In addition, there may be decreased demand
for our crop seed from farmers who choose not to plant those species of crops
affected by these diseases or pests. Our results of operations could be
materially adversely affected by these shortages and decreased demand.

OUR OPERATING PROFIT IS AFFECTED BY THE MARKET PRICES OF THE DAIRY AND
AGRICULTURAL COMMODITIES THAT WE USE AS INPUTS AS WELL AS THE PRODUCTS WE
MARKET.

      Many of our products, particularly in our dairy foods, animal feed and
swine segments, use dairy or agricultural commodities as inputs or constitute
dairy or agricultural commodity outputs. Consequently, our results are affected
by the cost of commodity inputs and the market price of commodity outputs.

      We are major purchasers of commodities used as inputs in our dairy foods
segment, namely milk, cream, butter and bulk cheese. Our dairy food outputs,
namely butter, cheese and nonfat dry milk, are also commodities. We inventory a
significant amount of the cheese and butter products we produce for sale to our
customers at a later date and at the market price on that date. For example, we
build significant butter inventories in the spring when milk supply is highest
for sale to our retail customers in the fall when butter demand is highest. If
the market price we receive at the time we sell our products is less than the
market price on the day we made the products, we will have lower (or negative)
margins which may have a material adverse impact on our results of operations.
In addition, we maintain significant inventories of cheese for aging and face
the same risk with respect to these products.

      In 1999, our earnings were significantly impacted by the dramatic declines
in the price of cheese and butter, which caused significant devaluations of our
inventory of cheese products and, to a lesser extent, butter. Based on data from
the Chicago Mercantile Exchange, commodity block cheese prices began the year at
$1.90 per pound and finished at $1.20 per pound, and commodity butter prices
began at $1.43 per pound and finished at $0.88 per pound. These declining
commodity prices occurred throughout the year as we were building our inventory
necessary during the peak sales periods of fall and winter. The resulting $62.1
million inventory write-down partially accounted for the decrease in earnings of
the dairy foods segment, as compared with 1998.

      The animal feed segment follows industry standards for feed pricing. The
feed industry generally prices products on the basis of income over ingredient
cost ("IOIC") per ton of feed. This practice mitigates the impact of volatility
in commodity ingredient markets on our animal feed margins. However, if our
commodity input prices were to increase dramatically, we may be unable to pass
these prices on to our customers, who may find alternative feed sources at lower
prices or may exit the market entirely. This could adversely affect our results.

      We have ownership interests in swine. In recent years, the market for hogs
and wholesale pork has been the subject of extreme market fluctuations as a
result of a number of factors, including industry expansion, processor capacity
and consumer demand. In December 1998, the price of hogs hit its lowest point in
nearly forty years,


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resulting in the price we received for a finished hog being substantially less
than the cost to produce the hog. The prices for weanling and feeder pigs also
decreased dramatically. As a result, in the fiscal years ended December 31, 2000
and 1999, on a pro forma basis, we experienced operating losses in the swine
production business of approximately $8.3 million and $42.0 million,
respectively. The Purina Mills portion of these losses was largely responsible
for Purina Mills filing for bankruptcy.

      During the fiscal years ended December 31, 2000 and 1999, a large portion
of these losses were attributable to our cost-plus contracts (or comparable
contracts of Purina Mills), which guarantee swine producers certain minimum
prices for feeder pigs. Although we do not intend to renew or extend these
contracts, which expire over time, we may continue to incur losses under these
contracts until the last one expires in 2005.

      We cannot predict the future costs or prices of these commodities. These
markets will continue to experience significant price fluctuations, which may
have a material adverse impact on our results.

DECREASE IN MILK SUPPLY COULD ADVERSELY AFFECT OUR SALES AND COST OF PRODUCTION.

      We operate 14 dairy facilities which are located in different regions of
the United States. Milk production in certain regions, including the Midwest and
Northeast is decreasing as smaller producers in these regions have ceased milk
production and larger producers in the West have increased milk production. A
producer, whether a member or a non-member, may decide not to supply milk to us
or may decide to stop supplying milk to us when the term of its contractual
obligation expires. Where milk production in the Midwest and Northeast is not
sufficient to fully support our operations, or where producers decide not to
supply us with milk, we may not be able to operate our plants or may be forced
to transport milk from a distance. This could result in our inability to meet
customer demand and cause a decrease in sales. In addition, our costs of
production would be increased due to increased transportation costs.

WE OPERATE THROUGH JOINT VENTURES IN WHICH OUR RIGHTS TO EARNINGS AND TO CONTROL
THE JOINT VENTURE ARE LIMITED.

      We produce, market and sell products through numerous joint ventures with
unaffiliated third parties. Our feed operations are operated though Land O'Lakes
Farmland Feed, a joint venture in which we own 92% of the economic interest and
we appoint three of the five managers to the Land O'Lakes Farmland Feed board of
managers. We own 50% of the economic interest and have 50% of the governance
rights in Agriliance, the joint venture through which a substantial portion of
our agronomy business is operated. We own a 70% interest in Cheese & Protein
International, a joint venture formed to produce cheese and whey. We are a
member of CF Industries, which produces products that are distributed by
Agriliance. In addition, we own 50% of the economic interest in MoArk, our egg
production and marketing joint venture. We have many additional joint ventures
and investments.

      The terms of each joint venture are different, but our joint venture
agreements generally contain:

      -     restrictions on our ability to transfer our ownership interest in
            the joint venture;

      -     no right to receive distributions without the unanimous consent of
            the members of the joint venture; and

      -     noncompetition arrangements restricting our ability to engage
            independently in the same line of business as the joint venture.

In addition to these restrictions, in connection with the formation of some of
our joint ventures, we have entered into purchase or supply agreements which
require us to purchase a minimum amount of the products produced by the joint
venture or supply a minimum amount of the raw materials used by the joint
venture. The day-to-day operations of some of our joint ventures are managed by
us through a management contract and others are managed by other joint venture
members. As a result, we do not have day-to-day control over certain of these
companies.

AGRILIANCE'S BUSINESS MAY BE ADVERSELY AFFECTED BY AGRILIANCE'S DEPENDENCE UPON
ITS SUPPLIERS.

      Agriliance relies on a limited number of suppliers for the agronomy
products it sells. In 2001, approximately 58% of Agriliance's crop protection
products were sourced from three suppliers. In addition, Agriliance procures


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approximately 80% of its fertilizer needs from CF Industries and Farmland
Industries. In the event Agriliance is unable to purchase its agronomy products
on favorable terms from these suppliers, Agriliance's business and our financial
condition could be adversely affected.

A LOSS OF OUR COOPERATIVE TAX STATUS COULD HAVE AN ADVERSE IMPACT ON US AND OUR
MEMBERS.

      Subchapter T of the Internal Revenue Code sets forth rules for the tax
treatment of cooperatives. As a cooperative, we are not taxed on earnings from
member business that we deem to be patronage income allocated to our members.
However, we are taxed as a typical corporation on the remainder of our earnings
from our member business (those earnings which we have not deemed to be
patronage income) and on earnings from nonmember business. If we were not
entitled to be taxed as a cooperative, our tax liability would be significantly
increased.

OUR LIMITED ACCESS TO EQUITY MARKETS COULD ADVERSELY AFFECT OUR ABILITY TO
OBTAIN ADDITIONAL EQUITY CAPITAL.

      As a cooperative, we may not sell our common stock in the traditional
equity markets. In addition, our articles of incorporation and by-laws contain
limitations on dividends and liquidation preferences of any preferred stock we
issue. These limitations restrict our ability to raise equity capital and may
adversely affect our ability to compete with entities that do not face similar
restrictions.

WE MAY NOT SUCCESSFULLY IMPLEMENT THE STRATEGIES RELATING TO OUR RECENT
ACQUISITIONS OR ACHIEVE THE ANTICIPATED BENEFITS FROM THESE ACQUISITIONS.

      In addition to the acquisition of Purina Mills, we have added more than 20
joint ventures and acquisitions over the past five years. However, Purina Mills
represents our largest acquisition to date. The integration and consolidation of
Purina Mills as well as the other acquisitions into our business require
substantial management, financial and other resources. Such integration involves
a number of significant risks, including:

      -     unforeseen liabilities;

      -     unanticipated problems with the quality of the assets of the
            acquired businesses;

      -     loss of customers;

      -     personnel turnover;

      -     loss of relationships with suppliers or service providers; and

      -     diversion of management's attention from other aspects of our
            business.

      The effects of these risks and our inability to integrate and manage
Purina Mills and the other acquired businesses successfully or to achieve a
substantial portion of the anticipated cost savings from these acquisitions in
the timeframe we anticipate, could have a material adverse effect on our
business, financial condition or results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO
POTENTIAL CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR BUSINESS.

      We are subject to Federal, state and local laws and regulations relating
to the manufacturing, labeling, packaging, health and safety, sanitation,
quality control, fair trade practices, and other aspects of our business. In
addition, zoning, construction and operating permits are required from
governmental agencies which focus on issues such as land use, environmental
protection, waste management, and the movement of animals across state lines.
These laws and regulations may, in certain instances, affect our ability to
develop and market new products and to utilize technological innovations in our
business. In addition, changes in these rules might increase the cost of
operating our facilities or conducting our business which would adversely affect
our finances.


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      Our dairy business is affected by Federal price support programs and
federal and state pooling and pricing programs. Since 1949, the Federal
government has maintained price supports for cheese, butter and nonfat dry milk.
The government stands as a ready purchaser of these products at their price
support levels. Historically, when the product price reached 110% of its price
support level, the government would sell its inventory into the market,
effectively limiting the price of these products. Because prices for these
products have generally been higher than their support level for a number of
years, the government currently has minimal inventories of cheese and butter. As
a result, these commodity prices have been able to be greater than 110% of their
price support levels for several years. According to data from the USDA, over
the past five years, butter has sold at an average of 176% of the support price
without reaching support levels, and cheese has sold at an average of 121% of
the support price. However, cheese sold at or near support levels at points
between October 2000 and January 2001. The 1996 Federal Agricultural Improvement
and Reform Act ("FAIR") provided for the termination of dairy price supports.
The termination of price supports was initially set to occur on December 31,
1999. This date was subsequently extended, and is currently set for May 31,
2002. On October 5, 2001, the United States House of Representatives passed a
bill which, if enacted, would extend the dairy price supports until December 31,
2011. On February 12, 2002, the United States Senate passed a bill which, if
enacted, would extend the dairy price supports until December 31, 2006. The
extension of dairy price supports is a part of a much larger farm bill which is
currently in conference committee. If FAIR is not renewed we will no longer
benefit from the existence of price supports, which means that we will no longer
have a ready purchaser of our products at a certain minimum price. This could
have an adverse effect on our financial results.

      Federal and certain similar state regulations attempt to ensure that the
supply of raw milk flows in priority to fluid milk and soft cream producers
before producers of hard products such as cheese and butter. This is
accomplished in two ways. First, the Federal market order system sets minimum
prices for raw milk. The minimum price of raw milk for use in fluid milk and
soft cream production is set as a premium to the minimum price of raw milk used
to produce hard products. The minimum price of raw milk used to produce hard
products is, in turn, set based on the market prices of cheese and butter.
Second, the Federal market order system establishes a pooling program under
which participants are required to send at least some of their raw milk to fluid
milk producers. The specific amount varies based on region, but is at least 10%
of the raw milk a participant handles. Certain areas in the country, such as
California, have adopted systems which supersede the Federal market order system
but are similar to it. In addition, because the Federal market order system is
not intended as an exclusive regulation of the price of raw milk, certain states
have, and others could, adopt regulations which could increase the price we pay
for raw milk, which could have an adverse effect on our financial results. We
also pay a premium above the market order price based on competitive conditions
in different regions.

      Producers of dairy products which are participants in the Federal market
order system pay into regional "pools" for the milk they use based on the amount
of each class of dairy product produced and the price of those products. As
described above, only producers of dairy products who send the required minimum
amount of raw milk to fluid milk producers may participate in the pool. The
amounts paid into the pool for raw milk used to make fluid milk and soft creams
are set at a premium to the amounts paid into the pool for raw milk used to make
cheese or butter. The pool then returns to each dairy product producer for raw
milk it handled the weighted average price for all raw milk (including that used
for fluid milk and soft creams, whose producers must pay into the pool) sold in
that region. The dairy product producer pays at least this pool price to the
dairy farmer for milk received. This pooling system provides an incentive for
hard product producers to participate in the pool (and therefore supply the
required minimum for fluid milk production) because the average price for raw
milk received by these producers from the pool is more than the average price
they pay into the pool.

      As a cooperative, we are exempt from the requirement that we pay pool
prices to our members for raw milk supplied to us. However, as a practical
matter, we must pay a competitive price to our members in order to ensure
adequate supply of raw milk for our production needs and therefore our
operations are affected by these regulations.

      If we did not participate in the pool, we would not receive the advantage
of the average pool payment and we would not be able to pay our milk producers
as much as participating processors without incurring higher costs for our raw
milk. To maintain our participation in the federal market order program and
avoid this competitive disadvantage, we must procure at least 110% of our raw
milk requirements to meet our production needs. If we are unable to procure at
least 110% of our requirements, we would have lower production which could have
a material adverse affect on our results of operations. In addition, if the pool
was eliminated we would be subject to additional


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market forces when procuring raw milk, which could result in increased milk
costs and decreased supply, which could materially affect our business.

      As a manufacturer and distributor of food and animal feed products, we are
subject to the Federal Food, Drug and Cosmetic Act and regulations issued
thereunder by the Food and Drug Administration ("FDA"). This regulatory scheme
governs the manufacture (including composition and ingredients), labeling,
packaging, and safety of food. The FDA regulates manufacturing practices for
foods through its good manufacturing practices regulations, specifies the
standards of identity for certain foods and animal feed, and prescribes the
format and content of certain information required to appear on food and animal
feed product labels. In addition, the FDA enforces the Public Health Service Act
and regulations issued thereunder, which authorize regulatory activity necessary
to prevent the introduction, transmission, or spread of communicable diseases.
We and our products are also subject to state and local regulation through
mechanisms such as the licensing of dairy manufacturing facilities, enforcement
by state and local health agencies of state standards for food products,
inspection of facilities, and regulation of trade practices. Modification of
these Federal, state and local laws and regulations could increase our costs of
sales or prevent us from marketing foods in the way we currently do and could
have a material adverse effect on our business prospects, results of operations
and financial condition.

      Pasteurization of milk and milk products is also subject to inspection by
the United States Department of Agriculture. We and our products are also
subject to state and local regulation through mechanisms such as the licensing
of dairy manufacturing facilities, enforcement by state and local health
agencies of state standards for food products, inspection of facilities, and
regulation of trade practices in connection with the sale of food products.
Modification of these Federal, state and local laws and regulations could
increase our costs of sales or prevent us from marketing foods in the way we
currently do and could have a material adverse effect on our business prospects,
results of operations and financial condition.

      We distribute our animal feed products through a network of approximately
4,000 independent dealers. Various states in which these dealers are located
have enacted dealer protection laws which could have the effect of limiting our
rights to terminate dealers. In addition, failure to comply with such laws could
result in awards of damages or statutory sanctions. As a result, it may be
difficult to modify the way we distribute our feed products which may put us at
a competitive disadvantage.

      Several states have enacted "corporate farming laws" that restrict the
ability of corporations to engage in farming activities. Minnesota, North
Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Missouri, Iowa and Wisconsin,
states in which we conduct business, have corporate farming laws. We believe
that our operations currently comply with the corporate farming laws in these
states and their exemptions, but these laws could change in the future and
additional states could enact corporate farming laws that regulate our
businesses. Even with the exemptions, these corporate farming laws restrict our
ability to expand or alter our operations in these states.

INABILITY TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS COULD ADVERSELY
IMPACT OUR COMPETITIVE POSITION.

      We rely on patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our intellectual
property. We cannot be certain that steps we have taken to protect our
intellectual property will be adequate or that third parties will not infringe
or misappropriate any of our intellectual property. Any infringement or
misappropriation of our intellectual property could damage its value and could
have a material adverse effect on our business, prospects, results of operations
and financial condition. We may have to engage in litigation to protect our
rights to our intellectual property, which could result in significant
litigation costs and require a significant amount of management's time.

      We own several registered and unregistered trademarks that we use in the
marketing and sale of our products, including LAND O LAKES, the Indian Maiden
logo, Alpine Lace, New Yorker, Lake to Lake, Extra Melt, GRIP `N GO, CROPLAN
GENETICS, Maxi Care, Amplifier Max and Omolene. However, the degree of
protection that these trademarks afford us is unknown and these trademarks may
expire or be terminated. In the event that someone infringes on or
misappropriates our trademarks, the brand images and reputations which we have
developed could be damaged.


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<PAGE>
      We also license our LAND O LAKES and the Indian Maiden logo trademarks to
certain of our joint ventures and other third parties for use in marketing
certain of their products. Pursuant to our trademark license agreement with Dean
Foods Company, an unaffiliated third party, we have granted Dean Foods the right
to market certain dairy products, including milk, under the LAND O LAKES brand
name and the Indian Maiden logo. We have invested substantially in the promotion
and development of our trademarked brands and establishing their reputation as
high-quality products. Actions taken by these parties may damage our reputation
and our trademarks' value.

      We believe that the recipes and production methods for our dairy and
spread products and formulas for our feed products are trade secrets. In
addition, we have amassed a large body of knowledge regarding animal nutrition
and feed formulation which we believe to be proprietary. Because most of this
proprietary information is not patented, it may be more difficult to protect. We
rely on security procedures and confidentiality agreements to protect this
proprietary information, however there can be no guarantee that such agreements
and security procedures will keep others from acquiring this information. Any
such dissemination or misappropriation of this information could have a material
adverse effect on our business, prospects, results of operations and financial
condition. We have patented formulas for a number of our milk replacement animal
feed products. In the event that any of these patents expired or were found to
be invalid, our competitors could more effectively compete with our products.

      Purina Mills, LLC, a wholly-owned subsidiary of Land O'Lakes Farmland Feed
licenses the trademarks Purina, Chow and the "Checkerboard" Nine Square Logo
under a perpetual, royalty-free license from Nestle Purina PetCare Company. This
license only gives Purina Mills the right to use these trademarks in the United
States to market the particular products currently marketed by Purina Mills.
Under the terms of the license agreement, Nestle Purina PetCare Company retains
primary responsibility for protecting the licensed trademarks from infringement.
If Nestle Purina PetCare Company fails to assert its rights to the licensed
trademarks, Purina Mills may be unable to stop such infringement or cause them
to do so. Any such infringement of the licensed trademarks, or of similar
trademarks of Nestle Purina PetCare Company, could result in a dilution in the
value of the licensed trademarks. Any such infringement or misappropriation of
or the termination or expiration of existing licenses for, patents, trademarks
or other intellectual property could have a material adverse effect on our
animal feed segment business, prospects, results of operations and financial
condition.

      Land O'Lakes Farmland Feed licenses certain trademarks from Land O'Lakes,
including LAND O LAKES, the Indian Maiden logo, Maxi Care, and Amplifier Max,
for use in connection with its animal feed and milk replacer products. Land
O'Lakes Farmland Feed also licenses the Farmland trademark and other animal feed
trademarks owned by Farmland Industries. If the license agreements in place
between Land O'Lakes Farmland Feed and its members are terminated, it could have
a material adverse effect upon Land O'Lakes Farmland Feed's business, prospects,
results of operations and financial condition.

      We license trademarks and patents from others which we use to produce and
market certain of the products we sell. If the licenses for these trademarks or
patents are terminated or expire and are not renewed, our business, prospects,
results of operations and financial condition may be materially and adversely
affected.

OUR BRAND NAMES COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES WHO, BY THEIR
ACT OR OMISSION, COULD ADVERSELY AFFECT THE VALUE OF OUR BRAND NAMES.

      Purina Mills' products are generally marketed under the trademarks Purina,
Chow and the "Checkerboard" Nine Square Logo under a perpetual, royalty-free
license from Nestle Purina PetCare Company. Nestle Purina PetCare Company
markets widely recognized products under the same trademarks and has given other
unaffiliated companies the right to market products under these trademarks. A
competitor of ours, Cargill, licenses from Nestle Purina PetCare Company the
right to market the same types of products which we sell under these trademarks
in countries other than the United States. Acts or omissions by Nestle Purina
PetCare Company or other unaffiliated companies may adversely affect the value
of the Purina, Chow and the "Checkerboard" Nine Square Logo trademarks and the
demand for our products. Third-party announcements or rumors about these
unaffiliated companies could also have these negative effects.


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PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
REPUTATION AND EXPOSE US TO INCREASED SCRUTINY BY FEDERAL AND STATE REGULATORS.

      The sale of food products for human consumption involves the risk of
injury to consumers and the sale of animal feed products involves the risk of
injury to those animals as well as human consumers of those animals. Such
hazards could result from:

      -     tampering by unauthorized third parties;

      -     product contamination (such as listeria and salmonella) or spoilage;

      -     the presence of foreign objects, substances, chemicals, and other
            agents;

      -     residues introduced during the growing, storage, handling or
            transportation phases; or

      -     improperly formulated products which either do not contain the
            proper mixture of ingredients or which otherwise do not have the
            proper attributes.

      On January 17, 2001, Purina Mills voluntarily recalled one animal feed
product that was manufactured at its Gonzales, Texas plant and shipped to one
customer. Purina Mills discovered ruminant meat and bone meal in the product,
which is not permitted in feed intended for ruminant animals. Purina Mills
purchased the 1,222 cattle that were fed the product and used the cattle for
nonhuman food purposes. This matter has now been settled.

      Since September 1, 1998, we have voluntarily recalled our products on four
occasions as a precautionary measure. These recalls involved the suspected
presence of metal pieces in 1/4 pound sticks of butter, the suspected
contamination of milk and cream products with listeria, the presence of
undeclared peanuts in caramel pecan ice cream and undeclared pineapple juice in
orange juice. Three of these recalls were on products which were produced for us
by third parties. None of these recalls resulted in material consumer claims
against us.

      Because some of the products which we sell are produced for us by third
parties, or contain inputs manufactured by third parties, we can provide no
assurance that such third-party producers have adequate quality control
standards, or that such products are not adulterated, misbranded, contaminated
or otherwise defective. In addition, we license our LAND O LAKES brand for use
on products produced and marketed by third parties, for which we receive
royalties. We may be subject to claims made by consumers as a result of products
manufactured by these third parties which are marketed under our brand names.

      We can provide no assurance that consumption of our products will not
cause a serious health-related illness in the future or that we will not be
subject to claims or lawsuits relating to such matters. Even an inadvertent
shipment of adulterated products is a violation of law and may lead to an
increased risk of exposure to product liability claims, product recalls and
increased scrutiny by federal and state regulatory agencies. There also can be
no assurance that any such claims or liabilities will be covered by our
insurance or by any rights of indemnity or contribution which we may have
against others in the case of products which are produced by third parties. In
addition, even if a product liability claim is not successful or is not fully
pursued, the negative publicity surrounding any assertion that our products
caused illness or injury could have a material adverse effect on our reputation
with existing and potential customers and on our brand image, business,
prospects, results of operations, and financial condition.

OUR BUSINESS IS SUBJECT TO THE RISK OF ENVIRONMENTAL LIABILITY AND WE COULD BE
NAMED AS A RESPONSIBLE OR POTENTIALLY RESPONSIBLE PARTY.

      We are subject to various federal, state, local, and foreign environmental
laws and regulations, including those governing the use, storage, discharge and
disposal of hazardous materials. Violations of these laws and regulations may
lead to civil and criminal fines and penalties or other sanctions. These laws
and regulations may also impose liability for the cleanup of environmental
contamination. We generate large volumes of waste water in connection with the
manufacturing of our products. Changes in environmental regulations governing
disposal of these materials could have a material adverse effect on our
business, financial condition or results of operations.


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      We use regulated substances in operating our manufacturing equipment and
we use and store other chemicals on site (including acids, caustics and
refrigeration chemicals). Agriliance stores petroleum products and other
chemicals on-site (including fertilizers, pesticides and herbicides). Discovery
of significant contamination or changes in environmental regulations governing
the handling of these materials could have a material adverse effect on our
business, financial condition, or results of operations.

      Many of our current and former facilities have been in operation for many
years and, over that time, we and other operators of those facilities have
generated, used, stored, or disposed of substances or wastes that are or might
be considered hazardous under applicable environmental laws, including chemicals
and fuel stored in underground and above-ground tanks, animal wastes and large
volumes of wastewater discharges. As a result, the soil and groundwater at or
under certain of our current and former facilities (and/or in the vicinity of
such facilities) may have been contaminated, and we may be required to make
material expenditures to investigate, control and remediate such contamination.

      We have potential responsibility for environmental conditions at a number
of current and former facilities and at waste disposal facilities operated by
third parties. We also have been identified as a Potentially Responsible Party
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") at several National Priority List sites and currently
have unresolved liability with respect to the past disposal of hazardous
substances at several such sites. CERCLA may impose joint and several liability
on certain statutory classes of persons for the costs of investigation and
remediation of contaminated properties, regardless of fault or the legality of
the original disposal. These persons include the present and former owners or
operators of a contaminated property, and companies that generated, disposed of,
or arranged for the disposal of hazardous substances found at the property.

      In addition, federal and state environmental authorities have proposed new
regulations and attempted to apply certain existing regulations for the first
time to agricultural operations. These regulations could result in significant
restraints on some of our operations, particularly our swine operations, and
could require us to spend significant amounts of money to bring these operations
into compliance. Any failure to comply could result in the imposition of fines
and penalties. We cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating our facilities and conducting
our business. Any such changes could adversely affect our business, financial
condition or results of operations.

AN ADVERSE RULING AGAINST US IN CERTAIN LITIGATION COULD HAVE AN ADVERSE EFFECT
ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      We are currently and from time to time involved in litigation incidental
to the conduct of our business. The damages claimed against us in some of these
cases are substantial. Although the amount of liability that may result from
these matters cannot be ascertained, we do not currently believe that, in the
aggregate, they will result in liabilities material to our consolidated
financial condition, future results of operations or cash flow.

      In a letter dated January 18, 2001, we were identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party for the hazardous waste located at the Hudson Refinery Superfund Site in
Cushing, Oklahoma. The letter invited us to enter into negotiations with the EPA
for the performance of a remedial investigation and feasibility study in
connection with the site, and also demanded that we reimburse the EPA
approximately $8.9 million for remediation expenses already incurred at the
site. We have responded to the EPA denying any responsibility, and have received
no further communication from the EPA.

STRIKES OR WORK STOPPAGES COULD ADVERSELY AFFECT OUR BUSINESS.

      At March 1, 2002, approximately 27% of our employees were covered by
collective bargaining agreements, some of which are due to expire within the
year. Our inability to negotiate acceptable contracts with the unions upon
expiration of these contracts could result in strikes or work stoppages and
increased operating costs as a result of higher wages or benefits paid to union
members or replacement workers. If the unionized workers were to engage in a
strike or work stoppage, or other nonunionized operations were to become
unionized, we could experience a significant disruption of our operations or
higher ongoing labor costs, which could have a material adverse effect on


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our business, financial condition or results of operations. See "Item 7.
Business -- Employees" for additional information.

THERE IS NO ASSURANCE THAT OUR SENIOR MANAGEMENT TEAM OR OTHER KEY EMPLOYEES
WILL REMAIN WITH US.

      We believe that our ability to successfully implement our business
strategy and to operate profitably depends on the continued employment of our
senior management team and other key employees. If members of the management
team or other key employees become unable or unwilling to continue in their
present positions, our business and financial results could be materially
adversely affected.

ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

COMMODITY RISK

      In the ordinary course of business, we are subject to market risk
resulting from changes in commodity prices associated with dairy and other
agricultural markets. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview -- Factors Affecting
Comparability -- Dairy and Agricultural Commodity Inputs and Outputs." To manage
the potential negative impact of price fluctuations, we engage in various
hedging and other risk management activities.

      As part of our trading activity, we utilize futures and option contracts
offered through regulated commodity exchanges to reduce risk on the market value
of our inventories and our fixed or partially fixed purchase and sale contracts.
We do not utilize hedging instruments for speculative purposes.

      Certain commodities cannot be hedged with futures or option contracts
because such contracts are not offered for these commodities by regulated
commodity exchanges. Inventories and purchase contracts for those commodities
are hedged with forward sales contracts to the extent practical so as to arrive
at a net commodity position within the formal position limits set by us and
deemed prudent for each of those commodities. Commodities for which future
contracts and options are available are also typically hedged first in this
manner, with futures and options used to hedge within position limits that
portion not covered by forward contracts.

INTEREST RATE RISK

      We are exposed to changes in interest rates. As of December 31, 2001, we
had $575 million in debt outstanding under the credit agreements relating to the
term loans and revolving credit facility, all of which is variable rate debt.
Interest rate changes generally do not affect the market value of this debt but
do impact the amount of our interest payments and, therefore, our future
earnings and cash flows, assuming other factors are held constant. Holding other
variables constant, including levels of indebtedness, a one-percentage point
increase in interest rates would have an estimated negative impact on pretax
earnings and cash flows for the next year of approximately $5.8 million.

INFLATION RISK

      Inflation is not expected to have a significant impact on our business,
financial condition or results of operations. We generally have been able to
offset the impact of inflation through a combination of productivity
improvements and price increases.

ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The financial statements and notes thereto required pursuant to this Item
begin immediately after the signature pages of this Annual Report on Form 10-K.

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

         None.


                                       59
<PAGE>
                                    PART III

ITEM  10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The following table sets forth certain information with respect to our
directors and executive officers:

<TABLE>
<CAPTION>
                NAME                     AGE                  TITLE
---------------------------------        ---     --------------------------------------------
<S>                                      <C>     <C>
John E. Gherty...................        58      President and Chief Executive Officer
Daniel Knutson...................        45      Senior Vice President and Chief Financial
                                                 Officer
Robert DeGregorio................        45      President, Land O'Lakes Farmland Feed
Duane Halverson..................        56      Executive Vice President and Chief Operating
                                                 Officer, Ag Services
John Prince......................        59      Senior Vice President, Western Region Dairy
                                                 Foods Group
Chris Policinski.................        43      Executive Vice President and Chief Operating
                                                 Officer, Dairy Foods
Don Berg.........................        55      Vice President, Public Affairs
John Rebane......................        55      Vice President and General Counsel
James Wahrenbrock................        60      Vice President, Planning and Business
                                                 Development
Dr. David Hettinga...............        61      Vice President and Chief Technical Officer
Karen Grabow.....................        52      Vice President of Human Resources
Lynn Boadwine....................        38      Director
Connie Cihak.....................        47      Director
James Fife.......................        52      Director, Chairman of the Board
D. Stanley Gomes.................        59      Director
Gordon Hoover....................        44      Director, Secretary
Peter Kappelman..................        39      Director, First Vice Chairman of the Board
Cornell Kasbergen................        44      Director
Paul Kent, Jr....................        51      Director
Charles Lindner..................        49      Director
John Long........................        52      Director
Manuel Maciel, Jr................        57      Director
Robert Marley....................        50      Director
Dayton Merrell...................        64      Director
Ronnie Mohr......................        53      Director
Art Perdue.......................        57      Director
Marlin Rasmussen.................        58      Director
Douglas Reimer...................        51      Director
Charles Schilling................        64      Director
Kenneth Schoenberg...............        54      Director
Laura Stacy......................        63      Director
James Sunde......................        54      Director
Robert Winner....................        53      Director
Larry Wojchik....................        50      Director, Second Vice Chairman of the Board
John Zonneveld, Jr...............        48      Director
Roger Ginder.....................        55      Nonvoting Advisory Member
</TABLE>


      Unless otherwise indicated, each director of Land O'Lakes has been in his
or her current profession for at least the past five years.

      John E. Gherty, President and Chief Executive Officer since 1989. Mr.
Gherty began his career at Land O'Lakes in 1970 after completing graduate
degrees in law and industrial relations at the University of Wisconsin. In the
1980s, he served as group vice president and chief administrative officer. He
was appointed to his present position in 1989.


                                       60
<PAGE>
      Daniel Knutson, Senior Vice President and Chief Financial Officer of Land
O'Lakes and Chief Financial Officer of Land O'Lakes Farmland Feed since 2000.
Mr. Knutson began his career at the Company in 1978. He received his BS Degree
in Accounting in 1977 and MBA with emphasis in Finance in 1988, both from
Mankato State University, and has earned his CPA and CMA certifications.

      Robert DeGregorio, President of Land O'Lakes Farmland Feed LLC since 2000
and Manager of Land O'Lakes Farmland Feed since 2002. Mr. DeGregorio began his
career at Land O'Lakes in 1982 in the Agriculture Research Department and became
Vice President of Land O'Lakes Feed Division in 1997. He became President of
Land O'Lakes Farmland Feed LLC at the formation of the joint venture in 2000.

      Duane Halverson, Executive Vice President and Chief Operating Officer of
Ag Services since 1993 and Manager of Land O'Lakes Farmland Feed since 2000. Mr.
Halverson began his career at Land O'Lakes in 1970 in corporate planning. He has
served in a variety of executive positions at the Company, and now heads up Land
O'Lakes Ag Services businesses, which include animal feed, crop seed and swine
operations.

      John Prince, Senior Vice President, Western Region Dairy Foods Group, was
appointed to this office in March of 2002. From 1999 to 2002, Mr. Prince served
as our Executive Vice President and Chief Operating Officer of the Dairy Foods
division's Industrial Group. From 1998 until 1999 Mr. Prince served as Senior
Vice President of Dairy Foods, Western Region. Prior to this, Mr. Prince was the
Chief Executive Officer of Dairyman's Cooperative Creamery Association. He held
this position from March, 1994 until May, 1998 when Dairyman's Cooperative
Creamery merged with our company.

      Chris Policinski, Executive Vice President and Chief Operating Officer of
the Dairy Foods division, was appointed to this office in March, 2002. From 1999
to 2002, Mr. Policinski served as our Executive Vice President of the Dairy
Foods division's Value Added Group. Mr. Policinski joined Land O'Lakes in 1997
with more than 21 years of management experience in the food industry. Prior to
his current position, he was Vice President of Strategy, Business Development
and International Development. Before joining Land O'Lakes, Chris spent four
years with The Pillsbury Company in leadership roles in Marketing/General
Management as Vice President of their Pizza and Mexican Food Groups.

      Don Berg, Vice President of Public Affairs since December, 2000. Prior to
his appointment to this position Mr. Berg served as Vice President of Milk
Procurement for 15 years. Don has been employed with our company for 30 years.

      John Rebane, Vice President and General Counsel since 1984. Mr. Rebane
joined our company in 1973. He holds a Juris Doctor degree from the University
of Minnesota.

      James Wahrenbrock, Vice President, Planning and Business Development since
April, 2000 and Manager of Land O'Lakes Farmland Feed since October, 2000. Prior
to his appointment to this position, Mr. Wahrenbrock served as Vice President
Swine & New Ventures. He joined our company in 1976.

      Dr. David Hettinga, Vice President and Chief Technical Officer since 1989.
Dr. Hettinga joined our company in 1983. He obtained a M.S. in Food Science from
Purdue University, and a Ph.D. in Food Microbiology from Iowa State University.

      Karen Grabow, Vice President of Human Resources since September, 2001.
Prior to joining our company, Karen was employed as the Vice President, Human
Resources of Target Corporation. She held this position since 1993.

      Lynn Boadwine has held his position as director since 1999 and his present
term of office as a director will end in 2004. Mr. Boadwine operates Boadwine
Farms, Inc., a farm in South Dakota.

      Connie Cihak has held her position as director since 1994 and her present
term of office as a director will end in 2004. Ms. Cihak operates a farm in
Minnesota.


                                       61
<PAGE>
      James Fife has held his position as a director since 1991 and his present
term of office as a director will end in 2002. Mr. Fife is general manager of Ag
Supply Company in Wenatchee.

      D. Stanley Gomes has held his position as director since 1998 and his
present term of office as a director will end in 2003. Mr. Gomes operates a
dairy farm in California. He is the chair of the board's Dairy Foods Committee.

      Gordon Hoover has held his position as director since 1997 and his present
term of office as a director will end in 2002. Mr. Hoover operates a dairy farm
in Pennsylvania.

      Peter Kappelman has held his position as director since 1996 and his
present term of office as a director will end in 2003. Mr. Kappelman is co-owner
of Meadow Brook Dairy Farms, LLC, a dairy farm in Wisconsin.

      Cornell Kasbergen has held his position as director since 1998 and his
present term of office as a director will end in 2002. Mr. Kasbergen operates a
dairy in California.

      Paul Kent, Jr. has held his position as director since 1990 and his
present term of office as a director will end in 2002. Mr. Kent operates a dairy
farm in Minnesota.

      Charles Lindner has held his position as director since 1996 and his
present term of office as a director will end in 2005. Mr. Lindner operates a
dairy farm in Wisconsin.

      John Long has held his position as director since 1991 and his present
term of office as a director will end in 2005. Mr. Long operates a ranch in
North Dakota.

      Manuel Maciel, Jr. has held his position as director since 1998 and his
present term of office as a director will end in 2004. Mr. Maciel operates
Macy-L Holsteins, a dairy farm in California.

      Robert Marley has held his position as director since 2000 and his present
term of office as a director will end in 2004. Mr. Marley is Chief Executive
Officer of Jackson Jennings Farm Bureau Co-operative Association, a local
cooperative located in Seymour, Indiana.

      Dayton Merrell has held his position as director since 2000 and his
present term of office as a director will end in 2002. Mr. Merrell operates
Dayton Merrell Farms Inc., a farm and a hog operation in Indiana.

      Ronnie Mohr has held his position as director since 1998 and his present
term of office as a director will end in 2003. Mr. Mohr operates a farm, hog
finishing operation and grain bin and equipment sales business in Indiana. Mr.
Mohr has served as a director of Holiday Gulf Homes Inc. since 1996. Mr. Mohr is
chair of the Ag Services Committee of the board.

      Art Perdue has held his position as director since 2000 and his present
term of office as a director will end in 2004. Mr. Perdue is the general manager
of Farmers Union Oil Co. of Minot, a full-service cooperative located in Minot,
North Dakota. Mr. Perdue is the vice chair of the Ag Services Committee of the
board.

      Marlin Rasmussen has held his position as director since 2000 and his
present term of office as a director will end in 2003. Mr. Rasmussen is
President of Sar-Ben Farms Inc., a dairy farm in Oregon.

      Douglas Reimer has held his position as director since 2001 and his
present term of office as a director will end in 2005. Mr. Reimer is a farmer in
Iowa.

      Charles Schilling has held his position as director since 1997 and his
present term of office as a director will end in 2003. Mr. Schilling is
self-employed in Agribusiness in Pennsylvania. Mr. Schilling serves on the
Executive, Governance and Political Action committees of the board.

      Kenneth Schoenberg has held his position as director since 1997 and his
present term of office as a director will end in 2005. Mr. Schoenberg operates a
dairy farm in Pennsylvania.


                                       62
<PAGE>
      Laura Stacy has held her position as director since 1998 and her present
term of office as a director will end in 2005. Ms. Stacy operates a farm and
custom sawmill in Ohio.

      James Sunde has held his position as director since 1988 and his present
term of office as a director will end in 2003. Mr. Sunde serves as operations
manager of First Cooperative Association, a local cooperative located in
Cherokee, Iowa.

      Robert Winner has held his position as director since 1997 and his present
term of office as a director will end in 2004. Mr. Winner operates Pleasant
Acres Dairy Farms, Inc. a dairy farm in New Jersey. Mr. Winner chairs the Land
O'Lakes Foundation board.

      Larry Wojchik has held his position as director since 1986 and his present
term of office as a director will end in 2002. Mr. Wojchik has served as general
manager of Goldstar Cooperative since 2000. From 1978-2000, he served as general
manager of Equity Cooperative.

      John Zonneveld, Jr. has held his position as director since 2000 and his
present term of office as a director will end in 2005. Mr. Zonneveld operates a
dairy farm in California.

      Roger Ginder is a nonvoting advisory member of the board. He is appointed
by the Board of Directors annually and has held his position since 1997. Mr.
Ginder is a professor of economics at Iowa State University.

      We transact business in the ordinary course with its directors and with
our local cooperative members with which the directors are associated. Such
transactions are on terms no more favorable than those available to our other
members.

      The Land O'Lakes board is made up of 24 directors. Twelve directors are
chosen by our dairy members and 12 by our Ag members. Each board member must
also be a member of the group of members, dairy or Ag, which elects him. The
board may also choose to elect up to 3 nonvoting advisory members. Currently,
there is one such advisory board member. Our board of directors governs our
affairs in virtually the same manner as any other corporation. See "Item 1.
Business -- Description of the Cooperative -- Governance" of this Annual Report
on Form 10-K for more information regarding the election of our directors.

      We have seven committees of our board of directors: the Executive
Committee, the Advisory Committee, the Audit Committee, the Governance
Committee, the Expense Committee, the PAC Committee and the Board
Performance/Operations Committee.

ITEM 11.          EXECUTIVE COMPENSATION.

      The following table shows, for the Chief Executive Officer of Land O'Lakes
and each of our four other most highly compensated executive officers,
information concerning compensation earned for services in all capacities during
the fiscal year ended December 31, 2001.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG-TERM COMPENSATION
                                                                                   --------------------------
                                                                                  AWARDS            PAYOUTS
                                                                ANNUAL            ------            -------
                                                             COMPENSATION         SECURITIES
                                                     --------------------------   UNDERLYING          LTIP           ALL OTHER
     NAME AND PRINCIPAL POSITION            YEAR     SALARY ($)    BONUS ($)      OPTIONS/SARS(#)   PAYOUTS($)   COMPENSATION($)(1)
----------------------------------------    ----     ----------   -------------   ---------------   -----------  -------------------
<S>                                         <C>      <C>           <C>            <C>               <C>          <C>

John E. Gherty, President and Chief
  Executive Officer(2) .................    2001     $653,935     $199,833         16,000            $101,696           28,074
Duane Halverson, Executive Vice
  President and Chief Operating
Officer,
  Ag Services(2) .......................    2001      429,212      174,107          7,000              56,400           21,277
Chris Policinski, Executive Vice
  President and Chief Operating
Officer,
  Dairy Foods Value-Added Group ........    2001      352,209      255,696          7,000              44,000           13,141
John Prince, Executive Vice President
  and Chief Operating Officer, Dairy
  Foods Industrial Group ...............    2001      350,605      166,716          7,000              35,200           51,365
Robert DeGregorio, President, Land
  O'Lakes Farmland Feed LLC(2)(3) ......    2001      302,412      109,782          5,000              22,800           11,683
</TABLE>


                                       63
<PAGE>
----------

      (1)   The amounts shown in the table for 2001 reflect life insurance
            premiums paid by Land O'Lakes in the amount of $8,600 for Mr.
            Gherty, $8,400 for Mr. Halverson, $3,475 for Mr. Policinski, $39,500
            for Mr. Prince, and $3,800 for Mr. DeGregorio. The amounts also
            include contributions made by Land O'Lakes on behalf of the named
            individuals under the qualified and non-qualified defined
            contribution plans of Land O'Lakes as follows:

<TABLE>
<CAPTION>
                       COMPANY MATCHING
                         CONTRIBUTION      COMPANY CONTRIBUTION
      NAME             (QUALIFIED PLAN)    (NON-QUALIFIED PLAN)
---------------        -----------------   --------------------
<S>                    <C>                 <C>
Mr. Gherty.......           $ 5,100              $ 14,374
Mr. Halverson....             5,100                 7,777
Mr. Policinski...             5,100                 4,566
Mr. Prince.......             5,100                 6,765
Mr. DeGregorio...             5,100                 2,783
</TABLE>
----------

      (2)   Compensation is for services performed for Land O'Lakes and Land
            O'Lakes Farmland Feed, as described below in the summary
            compensation table for Land O'Lakes Farmland Feed.

      (3)   Mr. DeGregorio is the President of Land O'Lakes Farmland Feed and
            also performs policy making functions for Land O'Lakes.


                                       64
<PAGE>
                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                       INDIVIDUAL GRANTS
                         -----------------------------------------------------
                                         PERCENT OF                                  AT ASSUMED ANNUAL RATES
                           NUMBER OF        TOTAL                                        OF STOCK PRICE
                          SECURITIES    OPTIONS/SARS                                 APPRECIATION FOR OPTION
                          UNDERLYING     GRANTED TO    EXERCISE                              TERM(2)
                         OPTIONS/SARS   EMPLOYEES IN    OF BASE     EXPIRATION   ----------------------------
       NAME              GRANTED(#)(1)   FISCAL YEAR  PRICE($/SH)      DATE           5%($)         10%($)
------------------       -------------  ------------  -----------   ----------   --------------  -----------
<S>                      <C>            <C>           <C>           <C>          <C>             <C>
John E. Gherty.....        16,000           14.3%       $ 51.50     3-31-2011       $534,681      $1,364,781
Duane Halverson....         7,000            6.2          51.50     3-31-2011        233,923         597,092
Chris Policinski...         7,000            6.2          51.50     3-31-2011        233,923         597,092
John Prince(3).....         7,000            6.2          51.50     3-31-2011        233,923         597,092
Robert DeGregorio..         5,000            4.5          51.50     3-31-2011        167,088         426,494
</TABLE>

----------

(1)   Options granted are to purchase "Units" described below under the Land
      O'Lakes Long-Term Incentive Plan. The vesting schedule for all grants of
      Units is set forth below in the plan descriptions.

(2)   The dollar amounts under these columns are the results of calculations at
      the 5% and 10% annual appreciation rates set by the Securities and
      Exchange Commission for illustrative purposes, and, therefore, are not
      intended to forecast future financial performance. Accordingly, these
      calculations assume 5% and 10% appreciation in the value of the Units.

(3)   Grants of options to John Prince are made under the California Cooperative
      Value Incentive Plan, described below.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

      The purpose of the following table is to report exercises of options to
purchase Units by the named executive officers of Land O'Lakes during the fiscal
year ended December 31, 2001 and any value of their unexercised options as of
December 31, 2001. The named executive officers did not exercise options in
fiscal 2001. Land O'Lakes has not issued any stock appreciation rights to the
named executive officers.

<TABLE>
<CAPTION>
                                                                                   VALUE OF UNEXERCISED IN-
                                                      NUMBER OF UNEXERCISED         THE-MONEY OPTIONS/SARS
                                                      OPTIONS AT FY-END(#)              AT FY-END($)(1)
                     SHARES ACQUIRED     VALUE     ---------------------------  ---------------------------
       NAME          ON EXERCISE(#)   REALIZED($)  EXERCISABLE   UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
------------------   ---------------  -----------  -----------   -------------  -----------  --------------
<S>                  <C>              <C>          <C>           <C>            <C>           <C>
John E. Gherty...          --             --         4,000          12,000            --           --
Duane Halverson..          --             --         1,750           5,250            --           --
Chris Policinski.          --             --         1,750           5,250            --           --
John Prince......          --             --         1,750           5,250            --           --
Robert DeGregorio          --             --         1,250           3,750            --           --
</TABLE>
----------

(1)   Value is based on a Unit value of $35.69, which was the value of the Units
      on December 31, 2001, minus the purchase price.

LAND O'LAKES EMPLOYEES SAVINGS AND SUPPLEMENTAL RETIREMENT PLAN

      The Land O'Lakes Employee Savings and Supplemental Retirement Plan is a
qualified defined contribution 401(k) plan which permits employees to make both
pre-tax and after-tax contributions. All full-time, non-union Land O'Lakes
employees are eligible to participate. Union employees may participate if their
participation is specified by their collective bargaining agreement. Subject in
all cases to maximum contribution limits established by law, the maximum total
contribution for non-highly compensated employees is 50% of compensation; the
maximum pre-tax contribution for such employees is also 50%. For highly
compensated employees, the maximum total contribution is 12% of compensation and
the maximum pre-tax contribution is 8%. The Company matches 50%


                                       65
<PAGE>
of the first 6% of pre-tax contributions made by employees. Employees are
immediately 100% vested in their full account balance, including the company
match.

EXECUTIVE ANNUAL VARIABLE COMPENSATION PLAN

      The Executive Annual Variable Compensation Plan is a plan for executive
officers of Land O'Lakes. The maximum award opportunity varies by the
participant's position up to a maximum of 60% of base pay. Awards from this plan
are dependent on a combination of three elements of performance: 1) company
overall results (30%); 2) targets for business performance (55%); and 3)
individual performance commitments (15%). A minimum of 8% after-tax return on
equity is the threshold performance level required to trigger any payments from
the plan. Targets for company results, unit business performance and individual
performance commitments are established annually. Once maximum awards from each
of these components is achieved, excess awards may be granted. These awards also
vary based on the participant's position, between 80-96% of base salary.

LAND O'LAKES, INC. EXECUTIVE LONG-TERM VARIABLE COMPENSATION PLAN (1999-2001)

      The Land O'Lakes, Inc. Executive Long-Term Variable Compensation Plan was
effective only for the years 1999-2001. The President and all officers of Land
O'Lakes who were not otherwise participating in a long-term variable plan were
eligible. The maximum award under this plan to any individual was 60% of their
base salary at the end of the performance period. Awards made under the plan
were based on the return on equity and net earnings of Land O'Lakes for the
period between 1999 and 2001. One half of all awards was subject to mandatory
deferral, with the other half payable in cash or eligible to be deferred, at the
option of the award recipient.

LAND O'LAKES LONG-TERM INCENTIVE PLAN

      The Land O'Lakes Long-Term Incentive Plan, initiated in 2001, is a phantom
stock plan which allows certain employees to purchase "Units" under the plan.
Neither options granted nor Units may be transferred, assigned, pledged,
encumbered, or otherwise alienated from the grantee. Officers are eligible to
participate, as are selected non-officers identified by the Chief Executive
Officer. Participants are granted an annual award of options. One quarter of the
options vest on December 31 of the year in which they are granted, with the rest
vesting ratably on December 31 of the succeeding three years. These Units are
not traditional stock, and do not provide the purchaser with any voting rights
or rights to receive assets of Land O'Lakes.

      The purchase price of the option is established as of December 31 of the
year prior to the grant of the option, based on a formula reflecting the value
of the enterprise at the close of the fiscal year preceding the grant of the
option. Participants may elect to exercise vested options to purchase units only
during the period between January 1 and March 31 of any year. Units are valued
each year on December 31, and are valued by the same formula by which the
purchase price of the option is determined. Participants in the plan may
purchase Units using cash or amounts in their deferred compensation accounts. In
addition, the options have a net exercise provision which allows participants to
use the value of appreciated options to buy Units. Finally, Land O'Lakes will
loan participants, on an interest-free basis, an amount up to the appreciated
value of the Units which the participant has, in order to purchase Units.

      Participants' ability to redeem owned Units while employed is limited to
50% of the appreciated value of the cumulative total of Units previously
purchased by such participant, until the value of the owned Units reaches an
established ratio to the participant's annual base pay. These ratios are
established based on the level of the participant. Following death, inability to
work due to disability, retirement or other termination, the participant has a
limited period of time during which to exercise remaining vested options and/or
redeem purchased units, which varies according to the circumstances of the
participant's cessation of employment.

LAND O'LAKES NON-QUALIFIED DEFERRED COMPENSATION PLAN

      The Land O'Lakes Non-Qualified Deferred Compensation Plan provides a
select group of employees with base salaries in excess of $90,000 an opportunity
to elect to defer a portion of their compensation for later payment at the
earlier of their death, disability, retirement or other termination. Eligible
employees may elect to defer a minimum of $1,000 up to a maximum 30% of
compensation. The default distribution is monthly installments over a five year


                                       66
<PAGE>
period. Deferred compensation is not included as compensation for purposes of
the company's qualified plans. The Company adds an additional amount equal to
three percent (3%) of the participant's elective deferrals to this plan. In
addition, at the end of each calendar quarter, the Company credits the
participant's account balance with modest interest at a rate announced in
advance of each calendar year. Benefits of this plan are paid out of the general
assets of the corporation.

      Land O'Lakes maintains three non-qualified excess benefit plans for its
officers. Benefits for all three of these plans are paid out of the general
assets of the corporation.

NON-QUALIFIED EXECUTIVE EXCESS BENEFIT PLAN (IRS LIMITS)

      The Non-Qualified Executive Excess Benefit Plan (IRS Limits) provides for
a payment of a benefit to officers which is the equivalent of the difference
between the benefit that would have been payable to the executive if the Land
O'Lakes Employee Retirement Plan benefit formula were applied to the executive's
actual compensation, without regard for limitations on compensation or benefits
imposed by the Internal Revenue Code, and the benefit actually payable under the
Land O'Lakes Employee Retirement Plan.

NON-QUALIFIED EXECUTIVE EXCESS BENEFIT PLAN (1989 FORMULA)

      The Non-Qualified Executive Excess Benefit Plan (1989 Formula) provides a
non-qualified benefit to individuals who were officers as of January 1, 1989 at
the time the defined benefit formula was changed. This excess benefit plan
provides a benefit representing the difference between the accrued benefit under
the formula as of December 31, 1988 and the accrued benefit under the Land
O'Lakes Employee Retirement Plan at the time of the individual's retirement.

NON-QUALIFIED EXECUTIVE EXCESS BENEFIT SAVINGS PLAN

      The Non-Qualified Executive Excess Benefit Savings Plan provides a benefit
to officers who participate in this savings plan by crediting an amount to a
deferred compensation account which represents 3% of total compensation, net of
any deferred compensation, less the amount of the company match contributed to
the savings plan. Account balances are credited with a modest rate of interest
quarterly. Distributions are made under the same circumstances and on the same
terms as the individual has elected under the Land O'Lakes Non-Qualified
Deferred Compensation Plan, or according to the default provisions of the Land
O'Lakes Non-Qualified Deferred Compensation Plan in the absence of an election.

CALIFORNIA COOPERATIVE VALUE INCENTIVE PLAN

      The California Cooperative Value Incentive Plan is similar to the Land
O'Lakes Long-Term Incentive Plan. The primary difference is that participants
may only purchase the phantom stock "Units" under this plan through the net
exercise method.

LAND O'LAKES EMPLOYEE RETIREMENT PLAN

      The Land O'Lakes Employee Retirement Plan is a qualified defined benefit
pension plan. All full-time, non-union Land O'Lakes employees are eligible to
participate. Union employees may participate if their participation is specified
by their collective bargaining agreement. An employee is fully vested in the
plan after five years of vesting service. For most employees, the plan provides
for a monthly benefit for the employee's lifetime beginning at normal retirement
age (social security retirement age), calculated according to the following
formula: {[1.08% x Final Average Pay]+[.52% x (Final Average Pay-Covered
Compensation)]} x years of credited service (up to a maximum of 30 years). These
levels are illustrated by Table A below. Due to provisions of this plan
providing that certain benefits existing in a previous version of the plan will
not be reduced, certain employees, including Messrs. Gherty and Halverson, will
instead receive the compensation at levels previously in effect for the
retirement plan. These sums are described in Table B below.


                                       67
<PAGE>
      Final Average Pay is average monthly compensation for the highest paid 60
consecutive months of employment out of the last 132 months worked. Covered
Compensation is an amount used to coordinate pension benefits with Social
Security benefits. It is adjusted annually to reflect changes in the Social
Security Taxable Wage Base, and varies with the employee's year of birth and the
year in which employment ends. The normal form of benefit for a single employee
is a life-only annuity; for a married employee, the normal form is a 50% joint
and survivor annuity. There are other optional annuity forms available.
Terminated or retired employees who are at least 55 with 10 years of vesting
service may elect a reduced early retirement benefit.

      As of January 1, 2002, Mr. Gherty was credited with 31 years of service,
Mr. Halverson was credited with 31 years of service, Mr. DeGregorio was credited
with 20 years of service, Mr. Prince was credited with 6 years of service and
Mr. Policinski was credited with 5 years of service.

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>
                 FINAL
              AVERAGE PAY                    YEARS OF SERVICE AT RETIREMENT
             ------------  ----------------------------------------------------------------
                               10        15         20         25          30         35
                           --------   --------   --------   --------    --------   --------
<S>          <C>           <C>        <C>        <C>        <C>         <C>        <C>
TABLE A       $  200,000   $ 30,100   $ 45,100   $ 60,100   $ 75,200    $ 90,200   $ 90,200
                 400,000     62,100     93,100    124,100    155,200     186,200    186,200
                 600,000     94,100    141,100    188,100    235,200     282,200    282,200
                 800,000    126,100    189,100    252,100    315,200     378,200    378,200
               1,000,000    158,100    237,100    316,100    395,200     474,200    474,200
               1,200,000    190,100    285,100    380,100    475,200     570,200    570,200

TABLE B       $  200,000   $ 34,700   $ 52,000   $ 69,400   $ 86,700    $104,100   $104,100
                 400,000     76,000    114,000    152,100    190,100     228,100    228,100
                 600,000    117,400    176,000    234,700    293,400     352,100    352,100
                 800,000    158,700    238,000    317,400    396,700     476,100    476,100
               1,000,000    200,000    300,000    400,100    500,100     600,100    600,100
               1,200,000    241,400    362,000    482,700    603,400     724,100    724,100
</TABLE>

COMPENSATION OF DIRECTORS AND MANAGERS

      The Chairman of the Board of Land O'Lakes is paid $30,000 annually; all
other directors are paid $10,000 annually. In addition, all directors receive a
$300 per diem and are reimbursed for their reasonable expenses incurred in
attending board of directors meetings.

EMPLOYMENT CONTRACTS

      Jack Prince is party to an Employment Agreement dated August 19, 1998,
which was amended as of February 4, 2002. Pursuant to the terms of this
employment agreement, Mr. Prince may terminate his employment with Land O'Lakes
upon 60 days notice. In the event that Mr. Prince terminates his employment, he
will receive one year of base pay. The terms of Mr. Prince's employment
agreement prevent him from competing in any industry which comprises a
significant portion of the business of Land O'Lakes prior to July 1, 2004.

ITEM  12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
            RELATED STOCKHOLDER MATTERS.

      At December 31, 2001, no person, either individually or as a member of a
group, beneficially owned in excess of five percent of any class of our voting
securities, and our directors and executive officers did not, either
individually or as a member of a group, beneficially own in excess of one
percent of any class of our voting securities.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      Land O'Lakes transacts business in the ordinary course with our directors
and with our local cooperative members with which the directors are associated
on terms no more favorable than those available to our other members.


                                       68
<PAGE>
                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)         DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON  FORM 10-K:

      1.    Consolidated Financial Statements:

LAND O'LAKES, INC.

Financial Statements for the years ended December 31, 2001, 2000 and 1999

Independent Auditors' Report of KPMG LLP

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended December 31, 2001,
  2000 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001,
  2000 and 1999

Consolidated Statements of Equities for the years ended December 31, 2001, 2000
  and 1999

Notes to Consolidated Financial Statements


LAND O'LAKES FARMLAND FEED LLC

Financial Statements for the year ended December 31, 2001 and the three months
  ended December 31, 2000

Independent Auditors' Report of KPMG LLP

Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000

Consolidated Statements of Operations for the year ended December 31, 2001 and
  the three months ended December 31, 2000

Consolidated Statements of Cash Flows for the year ended December 31, 2001 and
  the three months ended December 31, 2000

Consolidated Statements of Equities for the year ended December 31, 2001 and the
  three months ended December 31, 2000

Notes to Consolidated Financial Statements

LAND O'LAKES FEED DIVISION

Financial Statements for the nine months ended September
  30, 2000 and the year ended December 31, 1999

Independent Auditors' Report of KPMG LLP

Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999

Consolidated Statements of Operations for the nine months ended September 30,
  2000 and the year ended December 31, 1999

Consolidated Statements of Cash Flows for the nine months ended September 30,
  2000 and the year ended December 31, 1999

Notes to Consolidated Financial Statements


PURINA MILLS, INC.

Financial Statements (unaudited) for the six months ended June 30, 2001 and 2000

Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000

Consolidated Statements of Operations for the three and six months ended June
  30, 2001 and 2000

Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and
  2000

Notes to Consolidated Financial Statements

Financial Statements for the years ended December 31, 2000 and 1999

Independent Auditors' Report of KPMG LLP

Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated
  Statements of Operations -- Six months ended December 31, 2000, six months
  ended June 30, 2000 and year ended December 31, 1999

Consolidated Statements of Stockholder's Equity (Deficit) -- Six months ended
  December 31, 2000, six months ended June 30, 2000 and year ended December 31,
  1999

Consolidated Statements of Cash Flows -- Six months ended December 31, 2000, six
  months ended June 30, 2000 and year ended December 31, 1999

Notes to Consolidated Financial Statements

AGRILIANCE, LLC

Financial Statements for the year ended August 31, 2001

Independent Auditors' Report of KPMG LLP

Consolidated Balance Sheet as of August 31, 2001

Consolidated Statement of Operations for the year ended August 31, 2001

Consolidated Statement of Cash Flows for the year ended August 31, 2001

Consolidated Statement of Members' Equity for the year ended August 31, 2001

Notes to Consolidated Financial Statements


                                       69
<PAGE>
      2.    Financial Statement Schedules:

            Financial statement schedules are omitted because they are not
            applicable or the required information is shown in the financial
            statements or the notes thereto.

(b)   REPORTS ON FORM 8-K

      No reports were filed on Form 8-K during the fourth quarter of the fiscal
year ended December 31, 2001.

(c)   EXHIBITS:

                                  EXHIBIT INDEX

EXHIBIT                     DESCRIPTION                                     PAGE

      3.1         Restated Articles of Incorporation of Land
                  O'Lakes, Inc., as amended, August 1998.
                  (1)

      3.2         By-Laws of Land O'Lakes Inc., as amended,
                  December 2000. (1)

      4.1         Credit Agreement among Land O'Lakes, Inc.,
                  the Lenders party thereto and The Chase
                  Manhattan Bank, dated as of October 11,
                  2001. (1)

      4.2         First Amendment dated November 6, 2001 to
                  the Credit Agreement dated October 11,
                  2001. (1)

      4.3         Second Amendment dated February 15, 2002
                  to the Credit Agreement dated October 11,
                  2001. (1)

      4.4         Guarantee and Collateral Agreement among
                  Land O'Lakes, Inc. and certain of its
                  subsidiaries and The Chase Manhattan Bank,
                  dated as of October 11, 2001. (1)

      4.5         Indenture dated as of November 14, 2001,
                  among Land O'Lakes, Inc. and certain of
                  its subsidiaries, and U.S. Bank, including
                  Form of 83/4% Senior Notes due 2011 and
                  Form of 8 3/4% Senior Notes due 2011. (1)

      4.6         Registration Rights Agreement dated
                  November 14, 2001 by and among Land
                  O'Lakes, Inc. and certain of its
                  subsidiaries, J.P. Morgan Securities Inc.,
                  SPP Capital Partners, LLC, SunTrust
                  Robinson Capital Markets, Inc.,
                  Tokyo-Mitsubishi International plc and
                  U.S. Bancorp Piper Jaffray, Inc. (1)

      4.7         Purchase Agreement by and between Land
                  O'Lakes, Inc., and certain of its
                  subsidiaries, J.P. Morgan Securities Inc.,
                  SPP Capital Partners, LLC, SunTrust
                  Robinson Capital Markets, Inc.,
                  Tokyo-Mitsubishi International plc and
                  U.S. Bancorp Piper Jaffray, Inc., dated as
                  of November 8, 2001. (1)

      4.8         Form of Old Note (included in Exhibit
                  4.5). (1)

      4.9         Form of New Note (included in Exhibit
                  4.5). (1)

      10.1        Amended and Restated Five Year Credit
                  Agreement dated as of October 11, 2001
                  among Land O'Lakes, Inc., The Chase
                  Manhattan Bank, CoBank, ACB, and the
                  Lenders party thereto. (1)

      10.2        First Amendment dated November 6, 2001 to
                  the Amended and Restated Five-Year Credit
                  Agreement dated October 11, 2001. (1)

      10.3        Second Amendment dated February 15, 2002
                  to the Amended and Restated Five-Year
                  Credit Agreement dated October 11, 2001.
                  (1)

      10.4        Joint Venture Agreement by and between
                  Farmland Industries, Inc. and Land
                  O'Lakes, Inc. dated as of July 18, 2000.
                  (1)

      10.5        Operating Agreement of Agriliance LLC
                  among United Country Brands, LLC, Cenex
                  Harvest States Cooperatives, Farmland
                  Industries, Inc. and Land O'Lakes, Inc.
                  dated as of January 4, 2000. (1)

      10.6        Joint Venture Agreement among Cenex
                  Harvest States Cooperatives, Farmland
                  Industries, Inc. and Land O'Lakes Inc.
                  dated as of January 1, 2000. (1)

      10.7        Operating Lease between Arden Hills
                  Associates and Land O'Lakes, Inc. dated as
                  of May 31, 1980. (1)

      10.8        Ground Lease between Land O'Lakes, Inc.
                  and Arden Hills Associates dated as of May
                  31, 1980. (1)

      10.9        License Agreement among Ralston Purina
                  Company, Purina Mills, Inc. and BP
                  Nutrition Limited dated as of October 1,
                  1986. (1)


      10.10       License Agreement between Land O'Lakes,
                  Inc. and Land O'Lakes Farmland Feed LLC
                  dated September 25, 2000. (1)


                             70
<PAGE>
      10.11       Trademark License Agreement by and between
                  Land O'Lakes, Inc. and Dean Foods dated as
                  of July 10, 2000. (1)

      10.12       Asset Purchase Agreement between Land
                  O'Lakes, Inc. and Dean Foods dated as of
                  May 30, 2000. (1)

      10.13       Agreement and Plan of Merger, dated as of
                  June 17, 2001, by and among Purina Mills,
                  Inc., Land O'Lakes, Inc., LOL Holdings II,
                  Inc. and LOL Holdings III, Inc. (1)

      10.14       Management Services Agreement, dated
                  September 1, 2000, by and between Land
                  O'Lakes and Land O'Lakes Farmland Feed
                  LLC. (1)

      #10.15      Employment Agreement between John Prince
                  and Land O'Lakes, Inc. dated August 19,
                  1998. (1)

      #10.16      Amendment dated February 4, 2002 to
                  Employment Agreement between John Prince
                  and Land O'Lakes, Inc. (1)

      10.17       Purchase and Sale Agreement dated as of
                  December 18, 2001, among Land O'Lakes,
                  Inc., Land O'Lakes Farmland Feed LLC,
                  Purina Mills, LLC and LOL Farmland Feed
                  SPV, LLC. (1)

      10.18       Receivables Purchase Agreement dated as of
                  December 18, 2001, among Land O'Lakes
                  Farmland Feed LLC, LOL Farmland Feed SPV,
                  LLC, and CoBank, ACB. (1)

      #10.19      Executive Annual Variable Compensation
                  Plan of Land O'Lakes. (1)

      #10.20      Land O'Lakes Long Term Incentive Plan. (1)

      #10.21      Land O'Lakes Non-Qualified Deferred
                  Compensation Plan. (1)

      #10.22      Land O'Lakes Non-Qualified Executive
                  Excess Benefit Plan (IRS Limits). (1)

      #10.23      Land O'Lakes Non-Qualified Executive
                  Excess Benefit Plan (1989 Formula). (1)

      #10.24      Land O'Lakes Non-Qualified Executive
                  Excess Benefit Savings Plan. (1)

      #10.25      California Cooperative Value Incentive
                  Plan of Land O'Lakes. *

        21        Subsidiaries of the Registrant (1)


(1)   Incorporated by reference to the identical exhibit to the Registrant's
      Registration Statement on Form S-4 filed March 18, 2002.

#     Management contract, compensatory plan or arrangement required to be filed
      as an exhibit to this Form 10-K.

*     Filed electronically herewith


                                       71
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 29, 2002.

                           LAND O'LAKES, INC.


                           By  /s/ Daniel Knutson
                           -------------------------------------------
                               Daniel Knutson
                               Senior Vice President and Chief Financial Officer

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 on March 29, 2002.

<TABLE>
<S>                                                 <C>
         /s/ John E. Gherty                         President and Chief Executive Officer
---------------------------------                   (Principal Executive Officer)
            John E. Gherty

         /s/ Daniel Knutson                         Senior Vice President and Chief Financial Officer
---------------------------------                   (Principal Financial and Accounting Officer)
            Daniel Knutson


          /s/ Lynn Boadwine                         Director
---------------------------------
            Lynn Boadwine

          /s/ Connie Cihak                          Director
---------------------------------
             Connie Cihak

           /s/ James Fife                           Director
---------------------------------
              James Fife

        /s/ D. Stanley Gomes                        Director
---------------------------------
           D. Stanley Gomes

          /s/ Gordon Hoover                         Director
---------------------------------
            Gordon Hoover

         /s/ Peter Kappelman                        Director
---------------------------------
           Peter Kappelman

        /s/ Cornell Kasbergen                       Director
---------------------------------
          Cornell Kasbergen

         /s/ Paul Kent, Jr.                         Director
---------------------------------
            Paul Kent, Jr.
</TABLE>


                                       72
<PAGE>
<TABLE>
<S>                                                 <C>
         /s/ Charles Lindner                        Director
---------------------------------
           Charles Lindner

            /s/ John Long                           Director
---------------------------------
              John Long

       /s/ Manuel Maciel, Jr.                       Director
---------------------------------
          Manuel Maciel, Jr.


          /s/ Robert Marley                         Director
---------------------------------
            Robert Marley

         /s/ Dayton Merrell                         Director
---------------------------------
            Dayton Merrell

           /s/ Ronnie Mohr                          Director
---------------------------------
            Ronnie Mohr

           /s/ Art Perdue                           Director
---------------------------------
             Art Perdue

        /s/ Marlin Rasmussen                        Director
---------------------------------
          Marlin Rasmussen

         /s/ Douglas Reimer                         Director
---------------------------------
           Douglas Reimer

        /s/ Charles Schilling                       Director
---------------------------------
         Charles Schilling

       /s/ Kenneth Schoenberg                       Director
---------------------------------
         Kenneth Schoenberg

           /s/ Laura Stacy                          Director
---------------------------------
            Laura Stacy

           /s/ James Sunde                          Director
---------------------------------
            James Sunde

          /s/ Robert Winner                         Director
---------------------------------
           Robert Winner
</TABLE>


                                       73
<PAGE>
<TABLE>
<S>                                                 <C>
          /s/ Larry Wojchik                         Director
---------------------------------
           Larry Wojchik

       /s/ John Zonneveld, Jr.                      Director
---------------------------------
         John Zonneveld, Jr.
</TABLE>


                                       74
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                               PAGE
                                                               -----
<S>                                                            <C>
LAND O'LAKES, INC.
Financial Statements for the years ended December 31, 2001,
  2000 and 1999
Independent Auditors' Report of KPMG LLP....................     F-3
Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................     F-4
Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999..........................     F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................     F-6
Consolidated Statements of Equities for the years ended
  December 31, 2001, 2000 and 1999..........................     F-7
Notes to Consolidated Financial Statements..................     F-8

LAND O'LAKES FARMLAND FEED LLC
Financial Statements for the year ended December 31, 2001
  and the three months ended December 31, 2000
Independent Auditors' Report of KPMG LLP....................    F-34
Consolidated Balance Sheets as of December 31, 2001 and
  December 31, 2000.........................................    F-35
Consolidated Statements of Operations for the year ended
  December 31, 2001 and the three months ended December 31,
  2000......................................................    F-36
Consolidated Statements of Cash Flows for the year ended
  December 31, 2001 and the three months ended December 31,
  2000......................................................    F-37
Consolidated Statements of Equities for the year ended
  December 31, 2001 and the three months ended December 31,
  2000......................................................    F-38
Notes to Consolidated Financial Statements..................    F-39

LAND O'LAKES FEED DIVISION
Financial Statements for the nine months ended September 30,
  2000 and the year ended December 31, 1999
Independent Auditors' Report of KPMG LLP....................    F-48
Consolidated Balance Sheets as of September 30, 2000 and
  December 31, 1999.........................................    F-49
Consolidated Statements of Operations for the nine months
  ended September 30, 2000 and the year ended December 31,
  1999......................................................    F-50
Consolidated Statements of Cash Flows for the nine months
  ended September 30, 2000 and the year ended December 31,
  1999......................................................    F-51
Notes to Consolidated Financial Statements..................    F-52

PURINA MILLS, INC.
Financial Statements (unaudited) for the six months ended
  June 30, 2001 and 2000
Consolidated Balance Sheets as of June 30, 2001 and December
  31, 2000..................................................    F-59
Consolidated Statements of Operations for the three and six
  months ended June 30, 2001 and 2000.......................    F-60
Consolidated Statements of Cash Flows for the six months
  ended June 30, 2001 and 2000..............................    F-61
Notes to Consolidated Financial Statements..................    F-62
</Table>

                                       F-1
<PAGE>

<Table>
<Caption>
                                                               PAGE
                                                               -----
<S>                                                            <C>
Financial Statements for the years ended December 31, 2000
  and 1999
Independent Auditors' Report of KPMG LLP....................    F-68
Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................    F-69
Consolidated Statements of Operations -- Six months ended
  December 31, 2000, six months ended June 30, 2000 and year
  ended December 31, 1999...................................    F-70
Consolidated Statements of Stockholder's Equity
  (Deficit) -- Six months ended December 31, 2000, six
  months ended June 30, 2000 and year ended December 31,
  1999......................................................    F-71
Consolidated Statements of Cash Flows -- Six months ended
  December 31, 2000, six months ended June 30, 2000 and year
  ended December 31, 1999...................................    F-72
Notes to Consolidated Financial Statements..................    F-73

AGRILIANCE, LLC
Financial Statements for the year ended August 31, 2001
Independent Auditors' Report of KPMG LLP....................    F-94
Consolidated Balance Sheet as of August 31, 2001............    F-95
Consolidated Statement of Operations for the year ended
  August 31, 2001...........................................    F-96
Consolidated Statement of Cash Flows for the year ended
  August 31, 2001...........................................    F-97
Consolidated Statement of Members' Equity for the year ended
  August 31, 2001...........................................    F-98
Notes to Consolidated Financial Statements..................    F-99
</Table>

                                       F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Land O'Lakes, Inc:

     We have audited the accompanying consolidated balance sheets of Land
O'Lakes, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, cash flows and equities for each of the
years in the three-year period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 Land
O'Lakes, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

     As discussed in Note 1 to the consolidated financial statements, in 2001,
the Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activity", as amended by Statement No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities"; Statement
No. 141, "Business Combinations"; and Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets".

                                          /s/ KPMG LLP

Minneapolis, Minnesota
January 28, 2002

                                       F-3
<PAGE>

                               LAND O'LAKES, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 2001         2000
                                                              ----------   ----------
                                                                 ($ IN THOUSANDS)
<S>                                                           <C>          <C>
                                       ASSETS

Current assets:
  Cash and short-term investments...........................  $  130,169   $    3,994
  Receivables, net..........................................     574,011      586,058
  Inventories...............................................     450,774      436,089
  Prepaid expenses..........................................     185,490      173,460
  Other current assets......................................      27,038       24,686
                                                              ----------   ----------
          Total current assets..............................   1,367,482    1,224,287
Investments.................................................     568,130      465,849
Property, plant and equipment, net..........................     675,277      489,089
Goodwill, net...............................................     255,027      161,407
Other intangibles...........................................     108,987        8,788
Other assets................................................     116,475      123,923
                                                              ----------   ----------
          Total assets......................................  $3,091,378   $2,473,343
                                                              ==========   ==========

                              LIABILITIES AND EQUITIES

Current liabilities:
  Notes and short-term obligations..........................  $   33,971   $   87,783
  Current portion of long-term debt.........................      19,546       68,936
  Accounts payable..........................................     652,309      493,173
  Accrued expenses..........................................     187,569      212,751
  Patronage refunds payable.................................      28,900       37,493
                                                              ----------   ----------
          Total current liabilities.........................     922,295      900,136
Long-term debt..............................................   1,147,465      662,742
Employee benefits and other liabilities.....................      82,801       50,424
Deferred tax liabilities....................................      42,495           --
Minority interests..........................................      59,806       55,087
Equities:
  Capital stock.............................................       2,305        2,345
  Member equities...........................................     805,860      768,941
  Retained earnings.........................................      28,351       33,668
                                                              ----------   ----------
          Total equities....................................     836,516      804,954
                                                              ----------   ----------
Commitments and contingencies
Total liabilities and equities..............................  $3,091,378   $2,473,343
                                                              ==========   ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-4
<PAGE>

                               LAND O'LAKES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31
                                                           ------------------------------------
                                                              2001         2000         1999
                                                           ----------   ----------   ----------
                                                                     ($ IN THOUSANDS)
<S>                                                        <C>          <C>          <C>
Net sales................................................  $5,973,433   $5,768,790   $5,615,794
Cost of sales............................................   5,378,614    5,146,110    5,100,414
                                                           ----------   ----------   ----------
Gross profit.............................................     594,819      622,680      515,380
Selling and administration...............................     487,161      485,306      506,921
Restructuring and impairment charges.....................       3,733       54,226        3,856
                                                           ----------   ----------   ----------
Earnings from operations.................................     103,925       83,148        4,603
Interest expense, net....................................      56,086       52,439       44,702
Gain from divestiture of businesses......................          --      (89,034)     (54,175)
Equity in (earnings) loss of affiliated companies........     (48,583)      35,566       (7,282)
Minority interest in earnings (loss) of subsidiaries.....       6,882       (1,405)        (140)
                                                           ----------   ----------   ----------
Earnings before income taxes and extraordinary item......      89,540       85,582       21,498
Income tax expense (benefit).............................       3,601      (13,715)          99
                                                           ----------   ----------   ----------
Earnings before extraordinary item.......................      85,939       99,297       21,399
Extraordinary loss (gain) on early extinguishment of
  debt, net of income tax (benefit) expense of $(9,002)
  and $815 in 2001 and 2000, respectively................      14,451       (3,635)          --
                                                           ----------   ----------   ----------
Net earnings.............................................  $   71,488   $  102,932   $   21,399
                                                           ==========   ==========   ==========
Applied to:
  Member equities
     Allocated patronage refunds.........................  $   70,552   $  142,271   $   34,860
     Deferred equities...................................       2,708       (5,347)      (7,547)
                                                           ----------   ----------   ----------
                                                               73,260      136,924       27,313
  Retained earnings......................................      (1,772)     (33,992)      (5,914)
                                                           ----------   ----------   ----------
                                                           $   71,488   $  102,932   $   21,399
                                                           ==========   ==========   ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-5
<PAGE>

                               LAND O'LAKES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31
                                                              ---------------------------------
                                                                 2001        2000       1999
                                                              ----------   --------   ---------
                                                                      ($ IN THOUSANDS)
<S>                                                           <C>          <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings..............................................  $   71,488   $102,932   $  21,399
  Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Depreciation and amortization..........................      97,288     83,621      81,675
     Bad debt expense.......................................       1,871      4,550       4,576
     Proceeds from patronage revolvement received...........       2,895     16,350       2,066
     Non-cash patronage income..............................      (4,999)    (9,914)     (4,568)
     Increase in other assets...............................      (1,699)   (23,580)    (18,998)
     Increase in other liabilities..........................       3,778        673       9,531
     Restructuring and impairment charges...................       3,733     54,226       3,856
     Gain from divestiture of businesses....................          --    (89,034)    (54,175)
     Equity in (earnings) losses of affiliated companies....     (48,583)    35,566      (7,282)
     Minority interests.....................................       6,882     (1,405)       (140)
     Other..................................................      (6,153)     1,164       5,711
  Changes in current assets and liabilities, net of
     acquisitions and divestitures:
     Receivables............................................      37,298    (25,568)    (43,959)
     Inventories............................................      21,139    103,641      29,486
     Other current assets...................................         747     74,179     (63,539)
     Accounts payable.......................................     124,402   (283,313)     79,629
     Accrued expenses.......................................     (35,783)    71,073      13,736
                                                              ----------   --------   ---------
  Net cash provided by operating activities.................     274,304    115,161      59,004
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and equipment................     (83,936)  (104,343)   (109,267)
  Acquisitions, net of cash acquired........................    (371,858)  (101,076)    (73,912)
  Payments for investments..................................     (46,189)   (86,611)    (55,344)
  Net proceeds from divestiture of businesses...............          --    184,106      75,893
  Proceeds from sale of investments.........................       5,264      3,248       9,241
  Proceeds from sale of property, plant and equipment.......      30,224     25,189       6,368
  Other.....................................................       5,293     (3,088)        (54)
                                                              ----------   --------   ---------
  Net cash used by investing activities.....................    (461,202)   (82,575)   (147,075)
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Decrease) increase in short-term debt....................     (53,812)   (42,762)     32,299
  Proceeds from issuance of long-term debt..................   1,369,528     58,955     303,306
  Payments on principal of long-term debt...................    (935,104)  (179,133)     (8,249)
  Payments for debt issuance costs..........................     (20,265)        --          --
  Payments for purchase of capital securities...............          --     (9,300)         --
  Payments for redemption of member equities................     (46,896)   (54,260)    (48,660)
  Other.....................................................        (378)       109       2,722
                                                              ----------   --------   ---------
  Net cash provided (used) by financing activities..........     313,073   (226,391)    281,418
                                                              ----------   --------   ---------
  Net increase (decrease) in cash...........................     126,175   (193,805)    193,347
Cash and cash equivalents at beginning of year..............       3,994    197,799       4,452
                                                              ----------   --------   ---------
Cash and cash equivalents at end of year....................  $  130,169   $  3,994   $ 197,799
                                                              ==========   ========   =========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>

                               LAND O'LAKES, INC.

                      CONSOLIDATED STATEMENTS OF EQUITIES

<Table>
<Caption>
                                                      YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                             ---------------------------------------------------------------
                                                               MEMBER EQUITIES
                                             CAPITAL   -------------------------------   RETAINED    TOTAL
                                              STOCK    ALLOCATED   DEFERRED     NET      EARNINGS   EQUITIES
                                             -------   ---------   --------   --------   --------   --------
                                                                    ($ IN THOUSANDS)
<S>                                          <C>       <C>         <C>        <C>        <C>        <C>
BALANCE, DECEMBER 31, 1998.................  $2,170    $705,386    $(1,398)   $703,988   $74,986    $781,144
Capital stock issued.......................      20          --         --          --        --          20
Capital stock redeemed.....................    (117)         --         --          --        --        (117)
1999 earnings, as applied..................      --      34,860     (7,547)     27,313    (5,914)     21,399
  Less portion stated as current
     liability.............................      --     (10,515)        --     (10,515)       --     (10,515)
Portion of member equities stated as
  current liability........................      --      (8,835)        --      (8,835)       --      (8,835)
Cash patronage and redemption of member
  equities.................................      --     (48,660)        --     (48,660)       --     (48,660)
Redemption included in prior year's
  liabilities..............................      --      31,580         --      31,580        --      31,580
Other, net.................................      --      (1,142)     1,251         109     2,710       2,819
                                             ------    --------    -------    --------   -------    --------
BALANCE, DECEMBER 31, 1999.................  $2,073    $702,674    $(7,694)   $694,980   $71,782    $768,835
Capital stock issued.......................     411          --         --          --        --         411
Capital stock redeemed.....................    (139)         --         --          --        --        (139)
2000 earnings, as applied..................      --     142,271     (5,347)    136,924   (33,992)    102,932
  Less portion stated as current
     liability.............................      --     (28,593)        --     (28,593)       --     (28,593)
Portion of member equities stated as
  current liability........................      --      (8,900)        --      (8,900)       --      (8,900)
Equities issued for mergers and
  acquisitions.............................      --       2,250         --       2,250        --       2,250
Cash patronage and redemption of member
  equities.................................      --     (54,260)        --     (54,260)       --     (54,260)
Redemption included in prior year's
  liabilities..............................      --      19,350         --      19,350        --      19,350
Deferred equities transfer.................      --          --      8,290       8,290    (8,290)         --
Other, net.................................      --         129     (1,229)     (1,100)    4,168       3,068
                                             ------    --------    -------    --------   -------    --------
BALANCE, DECEMBER 31, 2000.................  $2,345    $774,921    $(5,980)   $768,941   $33,668    $804,954
Capital stock issued.......................      65          --         --          --        --          65
Capital stock redeemed.....................    (105)         --         --          --        --        (105)
2001 earnings, as applied..................      --      70,552      2,708      73,260    (1,772)     71,488
  Less portion stated as current
     liability.............................      --     (19,900)        --     (19,900)       --     (19,900)
Portion of member equities stated as
  current liability........................      --      (9,000)        --      (9,000)       --      (9,000)
Cash patronage and redemption of member
  equities.................................      --     (46,896)        --     (46,896)       --     (46,896)
Redemption included in prior year's
  liabilities..............................      --      37,493         --      37,493        --      37,493
Other, net.................................      --        (608)     2,570       1,962    (3,545)     (1,583)
                                             ------    --------    -------    --------   -------    --------
BALANCE, DECEMBER 31, 2001.................  $2,305    $806,562    $  (702)   $805,860   $28,351    $836,516
                                             ======    ========    =======    ========   =======    ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-7
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           ($ IN THOUSANDS IN TABLES)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  NATURE OF OPERATIONS

     Land O'Lakes, Inc. is a dairy food and agricultural cooperative serving
family farmers throughout the United States. The Company procures 12 billion
pounds of member milk annually, markets more than 300 dairy products and
provides nearly 1,400 member cooperatives with agronomic production materials
including feed, seed, crop nutrients and crop protection products.

  REVENUE RECOGNITION

     Sales are primarily recognized upon shipment of product to the customer.

  STATEMENT PRESENTATION

     The consolidated financial statements include the accounts of Land O'Lakes,
Inc. and wholly owned and majority-owned subsidiaries and limited liability
companies ("Land O'Lakes" or the "Company"). Intercompany transactions and
balances have been eliminated. Certain reclassifications have been made to the
2000 and 1999 consolidated financial statements to conform to the 2001
presentation.

  CASH AND SHORT-TERM INVESTMENTS

     Cash and short-term investments include short-term, highly liquid
investments with original maturities of three months or less.

  INVENTORIES

     Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out or average cost basis.

  DERIVATIVE COMMODITY INSTRUMENTS

     The Company uses derivative commodity instruments, primarily futures
contracts, to reduce the exposure to changes in commodity prices. These
contracts are not designated as hedges under Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities". Accordingly, since the adoption of SFAS No. 133, effective January
1, 2001, the futures contracts are marked to market each month and gains and
losses are recognized in earnings. Unrealized losses related to future contracts
recognized in 2001 results totaled $6.6 million.

  INVESTMENTS

     Investments in other cooperatives are stated at cost plus unredeemable
patronage refunds received, or estimated to be received, in the form of capital
stock and other equities. Estimated patronage refunds are not recognized for tax
purposes until notices of allocation are received. The Company believes it is
not practical to estimate the fair value of investments in other cooperatives
due to the excessive cost involved as there is no established market for these
investments. The equity method of accounting is used for investments in other
companies in which Land O'Lakes voting interest is 20 to 50 percent. Investments
in less than 20 percent owned companies are stated at cost.

  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives (15 to
30 years for land improvements and buildings, 5 to 10 years for

                                       F-8
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

machinery and equipment and 5 years for software) of the respective assets in
accordance with the straight-line method. Accelerated methods of depreciation
are used for income tax purposes.

  INTANGIBLES

     The excess purchase price paid over net assets of businesses acquired
(goodwill) is generally amortized on a straight-line basis over periods ranging
from 15 to 20 years, except for acquisitions completed after June 30, 2001.
Accumulated amortization of goodwill at December 31, 2001 and 2000 was $35.0
million and $21.3 million, respectively.

  RECOVERABILITY OF LONG-LIVED ASSETS

     The Company assesses the recoverability of goodwill and other long-lived
assets whenever events or changes in circumstances indicate that expected future
undiscounted cash flows might not be sufficient to support the carrying amount
of an asset. The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows is less than its carrying amount. If an
asset is determined to be impaired, the loss is measured as the amount by which
the carrying value of the asset exceeds its fair value.

  INCOME TAXES

     Land O'Lakes is a non-exempt agricultural cooperative and is taxed on all
non-member earnings and any member earnings not paid or allocated to members by
qualified written notices of allocation as that term is used in section 1388(c)
of the Internal Revenue Code. The Company files a consolidated tax return with
its fully taxable subsidiaries.

     The Company establishes deferred income tax assets and liabilities based on
the difference between the financial and income tax carrying values of assets
and liabilities using existing tax rates.

  RESEARCH AND DEVELOPMENT

     Expenditures for research and development are charged to administration
expense in the year incurred. Total research and development expenses were $23.8
million, $20.2 million and $18.8 million in 2001, 2000 and 1999, respectively.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     All financial instruments are carried at amounts that approximate estimated
fair value, except for investments in cooperatives, for which it is not
practicable to provide fair value information.

  RECENT ACCOUNTING PRONOUNCEMENTS

     The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
effective January 1, 2001. The Standard requires derivatives to be recorded on
the balance sheet as assets or liabilities, measured at fair value. The impact
of the adoption did not have a material effect on the consolidated financial
statements.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 was effective immediately and SFAS No. 142 is effective
January 1, 2002. Under the provisions of SFAS No. 141, no amortization of
goodwill will be recorded on acquisitions (except for acquisitions of
cooperatives) completed after June 30, 2001. Existing goodwill and other
intangible assets were amortized until the January 1, 2002 adoption of SFAS No.
142. Goodwill related to the acquisition of cooperatives and the formation of
joint ventures will continue to be amortized at least until the Financial
Accounting Standards Board provides further guidance. Because of the extensive
effort needed to comply with adopting SFAS No. 141 and SFAS
                                       F-9
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

No. 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the financial statements at the date of this report,
including whether it will require the recognition of any transitional impairment
losses as a cumulative effect of a change in accounting principle. Amortization
expense related to goodwill that will cease to be amortized under SFAS No. 142
was $6.2 million for the year ended December 31, 2001. As of January 1, 2002,
the Company had unamortized goodwill in the amount of $160.7 million and
unamortized identifiable intangible assets in the amount of $0.0 million, which
will be subject to the transition provisions of SFAS No. 141 and SFAS No. 142.

     In April 2001, the Emerging Issues Task Force (EITF) issued a consensus on
EITF No. 00-25, "Vendor Income Statement Characterization of Consideration to a
Purchaser of the Vendor's Products or Services." EITF No. 00-25 deals with the
accounting for consideration paid from a vendor (typically a manufacturer or
distributor) to a retailer, including slotting fees, cooperative advertising
arrangements and buy-downs. The guidance in EITF 00-25 generally requires that
these incentives be classified as a reduction of sales. The consensus is
effective for the Company in the first quarter of fiscal year 2002. The Company
is currently assessing the impact of adopting EITF No. 00-25, which has no
impact on net earnings.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" , which
supersedes both SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No.
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
SFAS No. 144 provides guidance on how a long-lived asset that is used as part of
a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale and prescribes the accounting for a long-lived
asset that will be disposed of other than by sale. SFAS No. 144 retains the
basic provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment
assessment under SFAS No. 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under SFAS No. 142, "Goodwill and
Other Intangible Assets".

     The Company has elected to adopt SFAS No. 144 as of January 1, 2001 and has
applied its provisions in these financial statements. The impact of the adoption
did not have a material effect on the consolidated financial statements.

  ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

                                       F-10
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

2.  RECEIVABLES

     A summary of receivables at December 31 is as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Trade accounts..............................................  $287,229   $472,698
Notes and contracts.........................................    50,626     65,384
Notes from sale of trade receivables (see Note 3)...........   192,403         --
Other.......................................................    66,707     65,846
                                                              --------   --------
                                                               596,965    603,928
Less allowance for doubtful accounts........................    22,954     17,870
                                                              --------   --------
Total receivables, net......................................  $574,011   $586,058
                                                              ========   ========
</Table>

     A substantial portion of Land O'Lakes receivables is concentrated in the
agricultural industry. Collections of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's credit
risks are continually reviewed, and management believes that adequate provisions
have been made for doubtful accounts.

3.  RECEIVABLES PURCHASE FACILITY

     In December 2001, the Company established a $100.0 million receivables
purchase facility with CoBank, ACB (CoBank). A wholly owned unconsolidated
special purpose entity (SPE) was established to purchase certain receivables
from the Company. CoBank has been granted an interest in the pool of receivables
owned by the SPE. The transfers of the receivables from the Company to the SPE
are structured as sales and, accordingly, the receivables transferred to the SPE
are not reflected in the consolidated balance sheet. However, the Company
retains credit risk related to the repayment of the notes receivable with the
SPE, which in turn is dependent upon the credit risk of the SPE's receivables
pool. Accordingly, the Company has retained reserves for estimated losses. The
Company expects no significant gains or losses from the facility. At December
31, 2001, $75.8 million was outstanding under this facility and $24.2 million
remained available. The total accounts receivable sold during 2001 was $383.2
million.

4.  INVENTORIES

     A summary of inventories at December 31 is as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Raw materials...............................................  $ 81,923   $ 48,542
Work in process.............................................    37,423     42,650
Finished goods..............................................   331,428    344,897
                                                              --------   --------
Total inventories...........................................  $450,774   $436,089
                                                              ========   ========
</Table>

                                       F-11
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

5.  INVESTMENTS

     A summary of investments at December 31 is as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
CF Industries, Inc. ........................................  $248,502   $248,502
Agriliance LLC..............................................    84,030     44,212
Ag Processing Inc. .........................................    38,977     35,339
MoArk LLC...................................................    47,593     31,950
Advanced Food Products LLC..................................    27,487         --
CoBank, ACB.................................................    21,549     20,618
Melrose Dairy Proteins, LLC.................................     8,253         --
PEC Mark II (Malta Cleyton).................................     7,681     13,511
Universal Cooperatives......................................     6,196      6,094
Prairie Farms Dairy, Inc. ..................................     4,754      5,710
Other -- principally cooperatives and joint ventures........    73,108     59,913
                                                              --------   --------
Total investments...........................................  $568,130   $465,849
                                                              ========   ========
</Table>

     During 2001, the Company made an additional cash investment of $27.7
million in MoArk LLC, an egg production and marketing company, of which $13.1
million was recorded as goodwill.

     In a non-cash transaction, the Company contributed its aseptic processing
assets of $24.5 million in exchange for a 35% equity investment in Advanced Food
Products LLC.

     Effective January 1, 2000, Land O'Lakes, Cenex Harvest States Cooperatives
(CHS) and Farmland Industries, Inc. (Farmland) formed Agriliance, LLC
("Agriliance"), a distributor of crop nutrients, crop protection products and
other agronomic inputs and services. From formation through July 2000,
Agriliance jointly managed the agronomy marketing operations of Land O'Lakes,
CHS and Farmland.

     In a series of transactions from January through July 2000, Land O'Lakes
paid $57.0 million in cash and exchanged $11.2 million of property, plant and
equipment and 50% ownership positions in Cenex/Land O'Lakes Agronomy Company and
Agro Distribution, LLC for a 50% equity ownership interest in Agriliance. The
other 50% ownership interest in Agriliance is held equally by CHS and Farmland
and was obtained through similar exchanges of assets. In addition, Agriliance
purchased from its respective owners the net working capital related to agronomy
operations. Subsequent to July 2000, Land O'Lakes accounted for its ownership
interest in Agriliance earnings under the equity method. The Company retained
its ownership in CF Industries, Inc., an interregional cooperative involved in
the manufacture of crop nutrients, and its interest in an agronomy distribution
business in Canada.

     Also during 2000, Land O'Lakes made a cash investment of $28.5 million for
50% ownership interest in MoArk LLC.

                                       F-12
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     Summarized financial information for the Company's three largest equity
investments, which comprise most of the equity investments, is as follows:

<Table>
<Caption>
                                                                 2001         2000
                                                              ----------   ----------
<S>                                                           <C>          <C>
Net sales...................................................  $4,726,434   $1,151,794
Gross profit................................................     449,995      103,730
Net income (loss)...........................................      45,935      (45,837)
Current assets..............................................   1,571,554    1,724,209
Non-current assets..........................................     368,828      319,523
Current liabilities.........................................   1,400,215    1,628,362
Non-current liabilities.....................................     234,088      220,532
Total equity................................................     306,079      194,838
</Table>

6.  PROPERTY, PLANT AND EQUIPMENT

     A summary of property, plant and equipment at December 31 is as follows:

<Table>
<Caption>
                                                                 2001        2000
                                                              ----------   --------
<S>                                                           <C>          <C>
Land and land improvements..................................  $   51,818   $ 43,144
Buildings and building equipment............................     311,499    222,860
Machinery and equipment.....................................     560,244    401,076
Software....................................................      38,438     30,430
Construction in progress....................................      56,769     74,453
                                                              ----------   --------
Total property, plant and equipment.........................   1,018,768    771,963
Less accumulated depreciation...............................     343,491    282,874
                                                              ----------   --------
Total property, plant and equipment, net....................  $  675,277   $489,089
                                                              ==========   ========
</Table>

7.  DEBT OBLIGATIONS

     The Company had notes and short-term obligations at December 31, 2001 and
2000 of $34.0 million and $87.8 million, respectively.

     The Company also has a $250.0 million 5-year revolving credit facility with
a variable interest rate based on LIBOR. There were no borrowings on this
facility as of December 31, 2001.

                                       F-13
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     A summary of long-term debt at December 31 is as follows:

<Table>
<Caption>
                                                                 2001        2000
                                                              ----------   --------
<S>                                                           <C>          <C>
Term A loan -- quarterly installments through 2006;
  (variable rate based on LIBOR)............................  $  325,000   $     --
Term B loan -- quarterly installments through 2008;
  (variable rate based on LIBOR)............................     250,000         --
Senior unsecured notes -- due 2011; (8.75%).................     350,000         --
Syndicated Loan Agreement -- due 2001 through 2004; retired
  2001; (7.47%).............................................          --   $175,000
CoBank fixed interest loans -- quarterly installments
  through 2008; retired 2001; (5.41% to 7.85%)..............          --    186,000
The Prudential Insurance Co. of America -- due 2002 through
  2009; retired 2001; (6.18% to 6.58%)......................          --    135,000
Industrial development revenue bonds and other secured notes
  payable-due 2002 through 2016; (.95% to 6.00%)............      26,329     13,572
Capital Securities of Trust Subsidiary -- due 2028;
  (7.45%)...................................................     190,700    190,700
Other debt..................................................      24,982     31,406
                                                              ----------   --------
                                                               1,167,011    731,678
Less current portion........................................      19,546     68,936
                                                              ----------   --------
Total long-term debt........................................  $1,147,465   $662,742
                                                              ==========   ========
</Table>

     During 2001, the Company obtained a Term A loan for $325.0 million and a
Term B loan for $250.0 million. In addition, a long-term bond offering for
$350.0 million, due 2011, was completed in November 2001. Debt covenants include
certain minimum financial ratios that were all satisfied.

     The early extinguishment of previous credit facilities in 2001 resulted in
an extraordinary loss, net in income taxes, of $14.5 million.

     The Company has loans to producers facilitated through the LOL Finance Co.,
a wholly owned, consolidated subsidiary of Land O'Lakes. At December 31, 2001
and 2000, $42.6 million and $41.8 million, respectively, of long-term debt
financed these loans.

     Land O'Lakes Capital Trust I (the "Trust") was created for the sole purpose
of issuing $200.0 million of Capital Securities and investing the proceeds
thereof in an equivalent amount of debentures of the Company. The sole assets of
the Trust, $206.2 million principal amount Junior Subordinated Deferrable
Interest Debentures (the "Debentures") of the Company, bearing interest at 7.45%
and maturing on March 15, 2028, are eliminated upon consolidation. The Capital
Securities are guaranteed to the extent set forth in the Offering Memorandum of
the Capital Securities by the Company and bear the same interest rate and
maturity date as the Debentures.

     During 2000, the Company purchased $9.3 million of Capital Securities,
which resulted in an extraordinary gain, net of income taxes, of $3.6 million.
The Company did not purchase any Capital Securities in 2001 and $190.7 million
remained outstanding at December 31, 2001.

     Interest paid, including interest paid on capital securities and net of
amounts capitalized ($0.1 million, $1.5 million and $1.7 million in 2001, 2001
and 1999, respectively), was $55.7 million, $59.8 million and $49.9 million in
2001, 2000 and 1999, respectively.

                                       F-14
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     The maturity of long-term debt for the next five years and thereafter is as
follows:

<Table>
<Caption>
                            YEAR                                AMOUNT
                            ----                               --------
<S>                                                            <C>
2002........................................................   $ 19,546
2003........................................................     82,588
2004........................................................     77,519
2005........................................................    102,385
2006........................................................     77,336
2007 and thereafter.........................................    807,637
</Table>

8.  LEASE COMMITMENTS

     The Company leases various equipment and real properties under long-term
operating leases. Total rental expense was $29.8 million in 2001, $31.7 million
in 2000 and $26.7 million in 1999. The minimum annual lease payments for the
next five years and thereafter are as follows:

<Table>
<Caption>
                            YEAR                                AMOUNT
                            ----                               --------
<S>                                                            <C>
2002........................................................   $ 27,323
2003........................................................     28,430
2004........................................................     23,957
2005........................................................     21,704
2006........................................................     20,447
2007 and thereafter.........................................    111,277
</Table>

     Most of the leases require payment of operating expenses applicable to the
leased assets. Management expects that in the normal course of business most
leases that expire will be renewed or replaced by other leases.

9.  INCOME TAXES

     The components of the income tax provision are summarized as follows:

<Table>
<Caption>
                                                          2001       2000      1999
                                                        --------   --------   -------
<S>                                                     <C>        <C>        <C>
Current (benefit) expense
  Federal.............................................  $(14,516)  $ 15,945   $(3,953)
  State...............................................    (1,979)     2,164      (667)
                                                        --------   --------   -------
                                                         (16,495)    18,109    (4,620)
Deferred expense (benefit)............................    20,096    (31,824)    4,719
                                                        --------   --------   -------
Income tax expense (benefit)..........................  $  3,601   $(13,715)  $    99
                                                        ========   ========   =======
</Table>

                                       F-15
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     The effective tax rate differs from the statutory rate primarily as a
result of the following:

<Table>
<Caption>
                                                              2001    2000    1999
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Statutory rate..............................................   35.0%   35.0%   35.0%
Patronage refunds...........................................  (27.6)  (57.3)  (57.3)
State income tax, net of federal benefit....................    0.6    (1.3)    0.2
Amortization of goodwill....................................    0.3     5.5    11.7
Effect of foreign operations................................    1.1     0.9     9.3
Disposal of investment......................................   (3.8)     --      --
Other, net..................................................   (1.6)    1.2     1.6
                                                              -----   -----   -----
Effective tax rate..........................................    4.0%  (16.0)%   0.5%
                                                              =====   =====   =====
</Table>

     The significant components of the deferred tax assets and liabilities are
as follows:

<Table>
<Caption>
                                                           2001      2000      1999
                                                         --------   -------   -------
<S>                                                      <C>        <C>       <C>
Deferred tax assets related to:
Deferred patronage.....................................  $ 12,443   $12,810   $    --
Accrued expenses.......................................    33,145    21,017    25,501
Allowance for doubtful accounts........................    12,040     5,557     6,140
Inventories............................................     5,064     3,588     4,171
Asset impairments......................................     8,037    16,020        --
Joint ventures.........................................     1,680    20,898     2,863
Other, net.............................................     3,829     3,710     6,501
                                                         --------   -------   -------
Total deferred tax assets..............................    76,238    83,600    45,176
                                                         --------   -------   -------
Deferred tax liabilities related to:
Property, plant and equipment..........................    77,904    12,946    15,588
Intangibles............................................    16,944    10,085       863
                                                         --------   -------   -------
Total deferred tax liabilities.........................    94,848    23,031    16,451
                                                         --------   -------   -------
Net deferred tax (liabilities) assets..................  $(18,610)  $60,569   $28,725
                                                         ========   =======   =======
</Table>

     SFAS No. 109 "Accounting for Income Taxes" requires consideration of a
valuation allowance if it is "more likely than not" that benefits of deferred
tax assets will not be realized. Management has determined, based on prior
earnings history and anticipated earnings, that no valuation allowance is
necessary.

     Income taxes paid (recovered) in 2001, 2000, and 1999 were $22.3 million,
$5.1 million and ($18.5) million, respectively.

10.  PENSION AND OTHER POSTRETIREMENT PLANS

     The Company has a defined pension plan, which covers all eligible employees
not participating in a labor negotiated plan. Plan benefits are generally based
on years of service and employees' highest compensation during five consecutive
years of employment. Annual payments to the pension trust fund are determined in
compliance with the Employee Retirement Income Security Act (ERISA).

     The Company also sponsors plans that provide certain health care benefits
for retired employees. Employees become eligible for these benefits upon meeting
certain age and service requirements. The Company funds only the plans' annual
cash requirements.

                                       F-16
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     Reconciliation of the funded status of the plans and the amounts included
in the balance sheets are as follows:

<Table>
<Caption>
                                                                   OTHER POSTRETIREMENT
                                              PENSION BENEFITS           BENEFITS
                                             -------------------   ---------------------
                                               2001       2000       2001        2000
                                             --------   --------   ---------   ---------
<S>                                          <C>        <C>        <C>         <C>
Change in benefit obligation:
  Benefit obligation at beginning of
     year..................................  $288,267   $279,726   $ 51,530    $ 47,679
  Service cost.............................     9,471      9,749        818         794
  Interest cost............................    21,091     19,931      3,918       3,649
  Plan amendments..........................       750         --         --       3,724
  Actuarial loss (gain)....................    10,922     (5,139)     8,112        (579)
  Benefits paid............................   (16,821)   (16,000)    (5,082)     (3,737)
                                             --------   --------   --------    --------
  Benefit obligation at end of year........  $313,680   $288,267   $ 59,296    $ 51,530
                                             ========   ========   ========    ========
Change in plan assets:
  Fair value of plan assets at beginning of
     year..................................  $304,506   $284,335   $     --    $     --
  Actual (loss) return on plan assets......    (5,702)    23,171         --          --
  Company contributions....................     2,000     13,000      5,082       3,737
  Benefits paid............................   (16,821)   (16,000)    (5,082)     (3,737)
                                             --------   --------   --------    --------
  Fair value of plan assets at end of
     year..................................  $283,983   $304,506   $     --    $     --
                                             ========   ========   ========    ========
Reconciliation of prepaid (accrued)
  benefits:
  Funded status............................  $(29,697)  $ 16,239   $(59,296)   $(51,530)
  Unrecognized net actuarial loss..........    65,591     20,538     28,191      21,405
  Unrecognized transition obligation.......        --         --      7,071       7,714
  Unrecognized prior service cost..........     3,823      3,887      3,192       3,458
                                             --------   --------   --------    --------
  Prepaid (accrued) benefit cost...........  $ 39,717   $ 40,664   $(20,842)   $(18,953)
                                             ========   ========   ========    ========
Weighted-average assumptions:
  Discount rate............................      7.25%      7.50%      7.25%       7.50%
  Expected return on plan assets...........      9.50%      9.50%       N/A         N/A
  Rate of compensation increase............      4.75%      4.75%       N/A         N/A
</Table>

     For measurement purposes, a 6.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for all years. The health care
cost trend rate assumption affects the amounts reported. For example, a 1%
increase in the assumed trend rate for health care costs would have increased
the service cost and the interest cost components of 2001 postretirement health
care benefits expense by $0.3 million and the accumulated postretirement benefit
obligation by $4.2 million as of December 31, 2001. In contrast, a 1% decrease
in the assumed trend rate for health care costs would have decreased the service
cost and interest cost components of 2001 postretirement health care benefits
expense by $0.2 million and the accumulated postretirement benefit obligation by
$3.5 million as of December 31, 2001.

                                       F-17
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     Components of net periodic benefit cost are as follows:

<Table>
<Caption>
                                     PENSION BENEFITS          OTHER POSTRETIREMENT BENEFITS
                              ------------------------------   ------------------------------
                                2001       2000       1999       2001       2000       1999
                              --------   --------   --------   --------   --------   --------
<S>                           <C>        <C>        <C>        <C>        <C>        <C>
Service cost................  $  9,471   $  9,749   $  9,433    $  818     $  794     $  472
Interest cost...............    21,091     19,931     19,047     3,918      3,649      3,264
Expected return on assets...   (28,428)   (26,916)   (23,249)       --         --         --
Amortization of prior
  service cost..............       814        814        814       266        266         --
Amortization of actuarial
  loss......................        --         --      1,567     1,326      1,346      1,476
Amortization of transition
  obligation................        --         --         --       643        643        643
                              --------   --------   --------    ------     ------     ------
Net periodic benefit cost...  $  2,948   $  3,578   $  7,612    $6,971     $6,698     $5,855
                              ========   ========   ========    ======     ======     ======
</Table>

     In addition to the defined benefit pension plan, the Company has a
noncontributory, supplemental executive retirement plan (SERP), which is an
unfunded, defined benefit plan. The projected benefit obligation of the unfunded
plan was $14.4 million and $15.7 million at December 31, 2001 and 2000,
respectively. The accumulated benefit obligation of this plan and the accrued
SERP liability were $13.2 million and $12.8 million at December 31, 2001 and
2000, respectively. Net periodic pension cost was $1.2 million, $1.9 million and
$2.3 million for 2001, 2000 and 1999, respectively.

     Certain eligible employees are covered by defined contribution plans. The
expense for these plans was $4.9 million, $5.8 million and $6.8 million for
2001, 2000 and 1999, respectively.

     As a result of the acquisition of Purina Mills on October 11, 2001, the
Company has two additional defined benefit pension plans as of December 31,
2001. As of the November 30, 2001 measurement date, the pension plan for
production employees and the discretionary capital accumulation plan had
estimated projected benefit obligations of $26.2 million and $24.9 million,
respectively. The fair value of assets was $20.9 million and $0, respectively.
At December 31, 2001, the accrued pension liability was $5.3 million and the
accrued discretionary capital accumulation liability was $24.9 million.

11.  EQUITIES

     The authorized capital stock at December 31, 2001 consists of 2,000 shares
of Class A Common, $1,000 par value; 50,000 shares of Class B Common, $1 par
value; 500 shares of nonvoting Class C Common, $1,000 par value; 10,000 shares
of nonvoting Class D Common, $1 par value; and 1,000,000 shares of nonvoting, 8%
non-cumulative Preferred $10 par value.

                                       F-18
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     The following details the activity in membership shares during the three
years ended December 31, 2001:

<Table>
<Caption>
                                                           NUMBER OF SHARES
                                               -----------------------------------------
                                                          COMMON
                                               -----------------------------
                                                 A       B       C      D      PREFERRED
                                               -----   ------   ---   ------   ---------
<S>                                            <C>     <C>      <C>   <C>      <C>
December 31, 1998............................    911    8,287   127    3,078    112,077
  New Members................................     22      405     3      703         --
  Redemptions................................    (55)    (938)  (13)    (682)    (5,354)
                                               -----   ------   ---   ------    -------
December 31, 1999............................    878    7,754   117    3,099    106,723
  New Members................................    327      295    84      671         --
  Redemptions................................    (39)  (2,159)   (4)  (2,270)    (9,289)
                                               -----   ------   ---   ------    -------
December 31, 2000............................  1,166    5,890   197    1,500     97,434
  New Members................................     47      716    18      364         --
  Redemptions................................    (41)    (739)  (15)    (426)    (4,865)
                                               -----   ------   ---   ------    -------
December 31, 2001............................  1,172    5,867   200    1,438     92,569
                                               =====   ======   ===   ======    =======
</Table>

     Patronage refunds to members of $70.6 million, $142.3 million and $34.9
million for the years ended December 31, 2001, 2000 and 1999, respectively, are
based on earnings in specific patronage or product categories and in proportion
to the business each member does within each category. For 2001, Land O'Lakes
will issue qualified patronage refunds in the amount of $70.6 million. Qualified
patronage refunds are tax deductible by the Company when qualified written
notices of allocation are issued and non-qualified patronage refunds are tax
deductible when redeemed with cash. The Company will not issue any non-qualified
patronage refunds for 2001.

     The allocation to retained earnings of $(1.8) million in 2001, $(34.0)
million in 2000 and $(5.9) million in 1999 represent losses generated by
non-member businesses plus amounts under the retained earnings program as
provided in the by-laws of the Company.

12.  ACQUISITIONS, MERGERS AND DIVESTITURES

     On October 11, 2001, the Company acquired 100% of the outstanding stock of
Purina Mills, Inc. (Purina Mills). The Company contributed the stock to Land
O'Lakes Farmland Feed LLC in exchange for increasing its ownership in the LLC
from 73.7% to 92.0%. The results of operations of Purina Mills are included in
the consolidated financial statements since that date. Purina Mills is a
commercial and lifestyle feed company. This acquisition allowed the Company to
diversify into lifestyle feed products.

     The aggregate purchase price was approximately $359 million, net of cash
acquired, of which $247 million represented cash payments for stock and
acquisition costs and $112 million represented debt retirement. In connection
with the acquisition, the Company refinanced certain existing bank financing
arrangements and entered into new bank financing arrangements (see Note 7).

                                       F-19
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition. The Company is in
the process of obtaining final third party valuations of certain assets; thus,
the allocation of the purchase price is subject to refinement.

<Table>
<Caption>
                                                               AT OCTOBER 11, 2001
                                                               -------------------
<S>                                                            <C>
Current assets..............................................        $ 92,486
Investments.................................................          10,430
Property, plant and equipment...............................         218,913
Goodwill....................................................          86,872
Other intangibles...........................................          98,940
Other assets................................................          32,892
                                                                    --------
  Total assets acquired.....................................         540,533
                                                                    --------
Current liabilities.........................................          64,338
Other liabilities...........................................         117,638
                                                                    --------
  Total liabilities assumed.................................         181,976
                                                                    --------
  Net assets acquired.......................................        $358,557
                                                                    ========
</Table>

     Goodwill of $86.9 million was recognized and assigned to the Feed segment.
None of the goodwill is expected to be deductible for tax purposes. Of the $98.9
million of acquired identifiable intangible assets, $76.5 million is not subject
to amortization, and relates primarily to trade names and trademarks. The
remaining intangible assets of $22.4 million, have a weighted average useful
life of approximately 12 years and consist of patents in the amount of $16.4
million (14 year weighted average useful life) and contracts of $6.0 million (3
year weighted average useful life). The following table summarizes the unaudited
pro forma results of operations for the years ended December 31, 2001 and 2000
for the Company as if the Purina Mills acquisition had occurred on January 1,
2001 and 2000, respectively. The unaudited pro forma results of operations are
for informational purposes only and do not purport to represent what the
Company's results of operations would have been if the acquisition had actually
occurred on those dates.

<Table>
<Caption>
                                                                  PRO FORMA YEAR
                                                                 ENDED DECEMBER 31
                                                              -----------------------
                                                                 2001         2000
                                                              ----------   ----------
<S>                                                           <C>          <C>
Net sales...................................................  $6,638,776   $6,608,595
Earnings before extraordinary item..........................      85,603      101,520
Net earnings................................................      71,152       90,735
</Table>

     During 2000, Land O'Lakes completed acquisitions that required cash outlays
of $101.1 million. The Company received $184.1 million of net cash proceeds from
divestitures.

     In January 2000, Land O'Lakes expanded its butter production capacity with
the acquisition of Madison Dairy Produce Co. in Madison, Wisconsin. The Company
broadened its seed operations during the year by acquiring the seed assets of
several companies, including WilFarm LLC, Agro Distribution, Advanta Seeds, Inc.
and AgriBioTech Inc. Other acquisitions in 2000 included the purchase of a
cheese plant in Gustine, California and a feed mill in Neosho, Missouri.

     In April 2000, the Company divested of a swine business in North Carolina
for net proceeds of $4.4 million which resulted in a gain of $0.5 million. In
July 2000, the Company sold its fluid dairy assets to Dean Foods Company for net
proceeds of $179.7 million which resulted in a gain of $88.5 million.

                                       F-20
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

     In October 2000, the Company and Farmland entered into a new venture that
combined both of their feed businesses into a single entity -- Land O'Lakes
Farmland Feed LLC. Land O'Lakes owned 69% of the venture at the date of
combination; and as majority-owner, fully consolidates its operating activities.

     Land O'Lakes acquisitions in 1999 required cash outlays of $73.9 million.
In June 1999, Land O'Lakes acquired a selected portion of Terra Industries, Inc.
(Terra) agricultural retail distribution assets, primarily the assets located in
Indiana, Michigan and Ohio. The remainder of Terra retail distribution assets
was acquired by Agro Distribution, LLC, a joint venture company that was equally
owned by Land O'Lakes and Cenex Harvest States Cooperatives. Other acquisitions
in 1999 included the purchase of a seed company and a retail farm supply
business. The Company also disposed of a flavoring business for $75.9 million of
net cash proceeds, which resulted in a gain of $54.2 million.

     All of the above acquisitions have been accounted for as purchases and
accordingly the acquired assets and liabilities have been recorded at their
estimated fair value at the date of acquisition. The operating results are
included in the Statements of Operations from the date of acquisition.

13.  RESTRUCTURING AND IMPAIRMENT CHARGES

     A summary of restructuring and impairment charges is as follows:

<Table>
<Caption>
                                                            2001      2000      1999
                                                           -------   -------   ------
<S>                                                        <C>       <C>       <C>
Restructuring (reversals) charges........................  $(4,067)  $ 9,700   $   --
Impairment charges.......................................    7,800    44,526    3,856
                                                           -------   -------   ------
Total restructuring and impairment charges...............  $ 3,733   $54,226   $3,856
                                                           =======   =======   ======
</Table>

     In 2001, the Company recorded restructuring and impairment charges of $3.7
million. Dairy Foods recorded a restructuring charge of $1.7 million, which had
not been paid at December 31, 2001, for severance costs for 63 production
employees resulting from the consolidation of production facilities. Feed
reversed $5.7 million of a prior-year restructuring charge primarily due to a
change in business strategy following the Purina Mills acquisition, which
resulted in the decision to continue to operate plants that were held for sale
at December 31, 2000. An impairment charge of $6.0 million related to the
Company's feed operation in Mexico held for sale at December 31, 2001, was
recorded in order to value the business at its expected selling price less costs
of disposal. Swine recorded an impairment charge of $1.8 million to reduce
undeveloped land with permit issues to its estimated fair value.

     In 2000, the Company recorded restructuring and impairment charges of $54.2
million. The restructuring charge of $9.7 million resulted from initiatives
within Land O'Lakes Farmland Feed LLC to consolidate facilities and reduce
personnel. Of the $9.7 million, $7.2 million related to the closing and planned
sale of 12 plants and consisted of $5.5 million to write down assets held for
sale to their estimated fair value and $1.7 million for demolition expenses and
incidental exit costs. The remaining $2.5 million represented severance and
outplacement costs for 119 non-plant employees. The impairment charge of $44.5
million resulted from a reduction in the carrying amounts of certain impaired
assets to their estimated fair value, determined on the basis of third-party
appraisals or estimated cash flows. The impairment was related to cheese
marketing and production assets that were significantly underutilized due to
changes in consumer product preferences and costs associated with sourcing raw
materials. The impairment charge of $3.9 million in 1999 was related to
underutilization of the Company's cheese production assets in Poland.

14.  CONTINGENCIES

     The Company is currently and from time to time involved in litigation and
environmental claims incidental to the conduct of business. The damages claimed
in some of these cases are substantial. Although the amount of liability that
may result from these matters cannot be ascertained, the Company does not

                                       F-21
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

currently believe that, in the aggregate, they will result in liabilities
material to the Company's consolidated financial condition, future results of
operations or cash flows.

     In a letter dated January 18, 2001, the Company was identified by the
United States Environmental Protection Agency ("EPA") as a potentially
responsible party for the hazardous waste located at the Hudson Refinery
Superfund Site in Cushing, Oklahoma. The letter invited the Company to enter
into negotiations with the EPA for the performance of a remedial investigation
and feasibility study in connection with the site, and also demanded that the
Company reimburse the EPA approximately $8.9 million for remediation expenses
already incurred at the site. The Company has responded to the EPA denying any
responsibility. No further communication has been received from the EPA.

     The Company is contingently liable for a lease obligation at Cheese and
Protein International, LLC, (CPI) a 70% owned joint venture consolidated by Land
O'Lakes. In the event CPI defaults on its obligations under the Lease, the
Company could elect one of the following options: (i) assume the obligations of
CPI, (ii) purchase the leased assets, (iii) fully cash collateralize the Lease
or (iv) nominate a replacement lessee to be approved by the lessor. If the
Company elected to assume the obligations of CPI, the Company would be liable
for up to $79.8 million at December 31, 2001.

15.  SEGMENT INFORMATION

     The Company operates in five segments, dairy foods, animal feed, crop seed,
swine and agronomy.

     The dairy foods segment produces, markets and sells products such as
butter, spreads, cheese, and other dairy related products. Products are sold
under well-recognized national brand names including LAND O LAKES, the Indian
Maiden logo and Alpine Lace, as well as under regional brand names such as New
Yorker and Lake to Lake.

     The animal feed segment is made up of a 92% ownership position in Land
O'Lakes Farmland Feed LLC. Land O'Lakes Farmland Feed LLC develops, produces,
markets and distributes animal feeds such as ingredient feed, formula feed, milk
replacers, vitamins and additives.

     The crop seed segment is a supplier and distributor of crop seed products
in the United States. A variety of crop seed is sold, including alfalfa,
soybeans, corn and forage and turf grasses.

     The swine segment has three programs, farrow-to-finish, swine aligned and
cost-plus. The farrow-to-finish program produces and sells market hogs. The
swine aligned program raises feeder pigs which are sold to local member
cooperatives. The cost-plus program provides minimum hog price guarantees to
producers in exchange for swine feed sales and profit participation.

     The agronomy segment consists primarily of the Company's 50% ownership in
Agriliance, LLC, which is accounted for under the equity method. Agriliance, LLC
markets and sells two primary product lines: crop protection (including
herbicides and pesticides) and crop nutrients (including fertilizers and
micronutrients).

     The Company allocates corporate administration expense to all of its
business segments, both directly and indirectly. Corporate staff functions that
are able to determine actual services provided to each segment allocate expense
on a direct and predetermined basis. All other corporate staff functions
allocate expense indirectly based on each segment's percent of total invested
capital. A majority of corporate administration expense is allocated directly.

<Table>
<Caption>
                                     DAIRY FOODS      FEED        SEED      SWINE      AGRONOMY     OTHER     CONSOLIDATED
                                     -----------   ----------   --------   --------   ----------   --------   ------------
<S>                                  <C>           <C>          <C>        <C>        <C>          <C>        <C>
FOR THE YEAR ENDED DECEMBER 31,
  2001
  Net sales........................  $3,572,420    $1,864,029   $413,567   $109,895   $       --   $ 13,522    $5,973,433
  Cost of sales....................   3,228,430     1,691,317    354,175     96,980           --      7,712     5,378,614
  Selling and administration.......     277,507       130,442     48,980      5,155       16,394      8,683       487,161
  Restructuring and impairment
    charges........................       1,661           272         --      1,800           --         --         3,733
</Table>

                                       F-22
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

<Table>
<Caption>
                                     DAIRY FOODS      FEED        SEED      SWINE      AGRONOMY     OTHER     CONSOLIDATED
                                     -----------   ----------   --------   --------   ----------   --------   ------------
<S>                                  <C>           <C>          <C>        <C>        <C>          <C>        <C>
  Interest expense, net............      20,046        13,786      6,481      6,182        8,057      1,534        56,086
  Equity in (earnings) loss of
    affiliated companies...........      (4,940)       (4,437)       324     (3,325)     (34,704)    (1,501)      (48,583)
  Minority interest in (loss)
    earnings of subsidiaries.......      (1,000)        7,992          6         --           --       (116)        6,882
                                     ----------    ----------   --------   --------   ----------   --------    ----------
  Earnings (loss) before income
    taxes and extraordinary item...  $   50,716    $   24,657   $  3,601   $  3,103   $   10,253   $ (2,790)   $   89,540
                                     ==========    ==========   ========   ========   ==========   ========    ==========
FOR THE YEAR ENDED DECEMBER 31,
  2000
  Net sales........................  $3,194,175    $1,182,230   $365,522   $101,991   $  857,004   $ 67,868    $5,768,790
  Cost of sales....................   2,822,973     1,064,772    308,498     93,449      794,564     61,854     5,146,110
  Selling and administration.......     299,328        84,384     44,007      7,888       39,545     10,154       485,306
  Restructuring and impairment
    charges........................      44,526         9,700         --         --           --         --        54,226
  Interest expense, net............      29,437         4,300      6,419      6,477        6,109       (303)       52,439
  Gain from divestiture of
    business.......................     (88,530)           --         --       (504)          --         --       (89,034)
  Equity in (earnings) loss of
    affiliated companies...........      (1,301)       (2,433)      (147)    (3,485)      46,033     (3,101)       35,566
  Minority interest in (loss)
    earnings of subsidiaries.......        (171)       (1,786)         1         40          211        300        (1,405)
                                     ----------    ----------   --------   --------   ----------   --------    ----------
  Earnings (loss) before income
    taxes and extraordinary item...  $   87,913    $   23,293   $  6,744   $ (1,874)  $  (29,458)  $ (1,036)   $   85,582
                                     ==========    ==========   ========   ========   ==========   ========    ==========
FOR THE YEAR ENDED DECEMBER 31,
  1999
  Net sales........................  $3,291,095    $  931,247   $190,832   $ 82,719   $1,023,298   $ 96,603    $5,615,794
  Cost of sales....................   3,003,528       829,152    151,979     93,165      933,758     88,832     5,100,414
  Selling and administration.......     298,116        80,712     33,175      9,984       75,292      9,642       506,921
  Restructuring and impairment
    charges........................       3,856            --         --         --           --         --         3,856
  Interest expense, net............      30,326         3,907      2,038      4,878        4,908     (1,355)       44,702
  Gain from divestiture of
    business.......................     (54,175)           --         --         --           --         --       (54,175)
  Equity in (earnings) loss of
    affiliated companies...........        (474)       (2,238)    (1,674)       488       (3,083)      (301)       (7,282)
  Minority interest in (loss)
    earnings of subsidiaries.......        (754)          627         22        (34)          --         (1)         (140)
                                     ----------    ----------   --------   --------   ----------   --------    ----------
  Earnings (loss) before income
    taxes..........................  $   10,672    $   19,087   $  5,292   $(25,762)  $   12,423   $   (214)   $   21,498
                                     ==========    ==========   ========   ========   ==========   ========    ==========
2001
  Total assets.....................  $  730,365    $  981,229   $379,912   $ 77,911   $  411,738   $510,223    $3,091,378
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Depreciation and amortization....      42,466        31,707      5,008      5,575        6,321      6,211        97,288
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Capital expenditures.............      37,749        24,872      2,685      7,310           --     11,320        83,936
                                     ==========    ==========   ========   ========   ==========   ========    ==========
2000
  Total assets.....................  $  715,267    $  446,249   $335,260   $ 95,999   $  417,602   $462,966    $2,473,343
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Depreciation and amortization....      42,766        18,618      5,583      6,180        4,624      5,850        83,621
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Capital expenditures.............      60,291        21,507      3,521      9,572           --      9,452       104,343
                                     ==========    ==========   ========   ========   ==========   ========    ==========
1999
  Total assets.....................  $  741,284    $  231,505   $220,576   $102,943   $  497,754   $906,062    $2,700,124
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Depreciation and amortization....      47,426        14,739      2,685      7,879        3,388      5,558        81,675
                                     ==========    ==========   ========   ========   ==========   ========    ==========
  Capital expenditures.............      63,310        17,366      4,803     13,950           --      9,838       109,267
                                     ==========    ==========   ========   ========   ==========   ========    ==========
</Table>

                                       F-23
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

16.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<Table>
<Caption>
                             FIRST        SECOND       THIRD        FOURTH
                            QUARTER      QUARTER      QUARTER      QUARTER     FULL YEAR
                           ----------   ----------   ----------   ----------   ----------
<S>                        <C>          <C>          <C>          <C>          <C>
2001
Net sales................  $1,400,622   $1,399,091   $1,443,114   $1,730,606   $5,973,433
Gross profit.............     139,133      140,445      121,451      193,790      594,819
Earnings (loss) before
  extraordinary item.....      12,207       51,464       (4,551)      26,819       85,939
Net earnings (loss)......      15,218       42,568       (4,988)      18,690       71,488
</Table>

     In the fourth quarter, net earnings included $6.3 million for the operating
results of Purina Mills, acquired on October 11, 2001. Net earnings were reduced
by charges of $14.5 million for the extraordinary loss on early extinguishment
of debt, $3.0 million (pre-tax) for a legal reserve booked as the result of a
patent infringement judgment, and $7.9 million (pre-tax) for restructuring and
impairment charges. Net earnings in the fourth quarter of 2001 included a $12.6
million pre-tax reversal of a $20 million pre-tax charge recorded in the fourth
quarter of 2000 for Agriliance assets held for sale. The 2001 reversal and the
2000 charge were recorded in "Equity in (earnings) loss of affiliated companies"
in the consolidated statement of operations.

<Table>
<Caption>
                             FIRST        SECOND       THIRD        FOURTH
                            QUARTER      QUARTER      QUARTER      QUARTER     FULL YEAR
                           ----------   ----------   ----------   ----------   ----------
<S>                        <C>          <C>          <C>          <C>          <C>
2000
Net sales................  $1,472,086   $1,761,988   $1,146,280   $1,388,436   $5,768,790
Gross profit.............     166,008      180,429      116,666      159,577      622,680
Earnings (loss) before
  extraordinary item.....      30,274       34,593       49,172      (14,742)      99,297
Net earnings (loss)......      26,841       38,190       50,642      (12,741)     102,932
</Table>

     In the third quarter, net earnings included a $83.5 million (pre-tax) gain
from the sale of the Company's fluid dairy assets, a $1.6 million extraordinary
gain on early extinguishment of debt, and a $37.5 million charge for the
write-down of impaired assets. In the fourth quarter, net earnings included a
$2.0 million extraordinary gain on early extinguishment of debt, and a $16.7
million (pre-tax) restructuring and impairment charge.

17.  RELATED PARTY TRANSACTIONS

     The Company has a 55% interest in Melrose Dairy Proteins, LLC, a joint
venture with Dairy Farmers of America formed in April 2001. For the year ended
December 31, 2001, the Company purchased $1.3 million in product from the
venture and sold $63.2 million in product to the venture.

     The Company has a 50% interest in Agriliance LLC, a joint venture with
United Country Brands formed in July 2000. For the years ended December 31, 2001
and 2000, the Company sold services to the venture of $7.1 million and $4.9
million, respectively.

                                       F-24
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           ($ IN THOUSANDS IN TABLES)

18.  ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

<Table>
<Caption>
                                                       ADDITIONS
                                                      ------------
                                         BALANCE AT   NET CHARGES
                                         BEGINNING      TO COSTS     (OTHER ADDITIONS)/   BALANCE AT
DESCRIPTION                               OF YEAR     AND EXPENSES       DEDUCTIONS       END OF YEAR
-----------                              ----------   ------------   ------------------   -----------
<S>                                      <C>          <C>            <C>                  <C>
Year ended December 31, 2001...........   $17,870        $1,871           $(3,213)(a)       $22,954
Year ended December 31, 2000...........    15,355         4,550             2,035(b)         17,870
Year ended December 31, 1999...........    13,512         4,576             2,733(c)         15,355
</Table>

---------------

(a)  Includes ($6,206) from the acquisition of Purina Mills, Inc. and accounts
     charged off, net of recoveries.

(b)  Includes ($15) from the acquisition of Seedbiotics, LLC, ($57) from the
     acquisition of Nutra Blend and ($80) from the acquisition of Advanta and
     accounts charged off, net of recoveries.

(c)  Includes ($35) from the acquisition of Seed Research of Oregon and accounts
     charged off, net of recoveries.

19. CONSOLIDATING FINANCIAL INFORMATION

     The Company entered into financing arrangements which are guaranteed by the
Company and certain of its wholly and majority owned subsidiaries (the
"Guarantor Subsidiaries"). Such guarantees are full, unconditional and joint and
several.

     The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's other
subsidiaries (the "Non-Guarantor Subsidiaries"). The supplemental financial
information reflects the investments of the Company in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting.

                                       F-25
<PAGE>

                                  LAND O'LAKES

                    SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2001

<Table>
<Caption>
                                    LAND        CONSOLIDATED     MAJORITY
                                O'LAKES, INC.      WHOLLY         OWNED
                                   PARENT          OWNED       CONSOLIDATED   NON-GUARANTOR
                                   COMPANY       GUARANTORS     GUARANTORS    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                -------------   ------------   ------------   -------------   ------------   ------------
                                                                    ($ IN THOUSANDS)
<S>                             <C>             <C>            <C>            <C>             <C>            <C>
                                                         ASSETS
Current assets:
  Cash and short-term
     investments..............   $  111,054       $  9,090       $ (1,027)      $ 11,052       $      --      $  130,169
  Receivables, net............      552,951         23,659        136,949         47,109        (186,657)        574,011
  Inventories.................      276,115         57,388        107,548          9,723              --         450,774
  Prepaid expenses............      168,486          9,625          6,265          1,114              --         185,490
  Other current assets........       27,038             --             --             --              --          27,038
                                 ----------       --------       --------       --------       ---------      ----------
       Total current assets...    1,135,644         99,762        249,735         68,998        (186,657)      1,367,482
Investments...................    1,047,711          3,596         50,751          1,453        (535,381)        568,130
Property, plant and equipment,
  net.........................      272,328         29,146        319,164         54,639              --         675,277
Goodwill, net.................      138,054         12,224        103,790            959              --         255,027
Other intangibles.............        3,484          2,669        102,503            331              --         108,987
Other assets..................       73,403          2,111          4,521         48,141         (11,701)        116,475
                                 ----------       --------       --------       --------       ---------      ----------
       Total assets...........   $2,670,624       $149,508       $830,464       $174,521       $(733,739)     $3,091,378
                                 ==========       ========       ========       ========       =========      ==========
                                                LIABILITIES AND EQUITIES
Current liabilities:
  Notes and short-term
     obligations..............   $      270       $  2,701       $ 88,902       $ 68,261       $(126,163)     $   33,971
  Current portion of long-term
     debt.....................       19,995         59,506             23             59         (60,037)         19,546
  Accounts payable............      436,177         61,786        133,872         20,550             (76)        652,309
  Accrued expenses............      142,820          6,959         33,769          4,021              --         187,569
  Patronage refunds payable...       28,900             --             --             --              --          28,900
                                 ----------       --------       --------       --------       ---------      ----------
       Total current
          liabilities.........      628,162        130,952        256,566         92,891        (186,276)        922,295
Long-term debt................    1,125,437          9,924             65         24,121         (12,082)      1,147,465
Employee benefits and other
  liabilities.................       45,459          1,434         35,626            282              --          82,801
Decreased tax benefit.........       42,495             --             --             --              --          42,495
Minority interests............        5,494             --            972         13,744          39,596          59,806
Equities:
  Capital stock...............        2,305          1,084        504,916         58,410        (564,410)          2,305
  Member equities.............      805,860             --             --             --              --         805,860
  Retained earnings...........       15,412          6,114         32,319        (14,927)        (10,567)         28,351
                                 ----------       --------       --------       --------       ---------      ----------
       Total equities.........      823,577          7,198        537,235         43,483        (574,977)        836,516
                                 ----------       --------       --------       --------       ---------      ----------
Total liabilities and
  equities....................   $2,670,624       $149,508       $830,464       $174,521       $(733,739)     $3,091,378
                                 ==========       ========       ========       ========       =========      ==========
</Table>

                                       F-26
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                         LAND      CONSOLIDATED     MAJORITY
                                       O'LAKES        WHOLLY         OWNED
                                        PARENT        OWNED       CONSOLIDATED   NON-GUARANTOR
                                       COMPANY      GUARANTORS     GUARANTORS    SUBSIDIARIES    CONSOLIDATED
                                      ----------   ------------   ------------   -------------   ------------
                                                                 ($ IN THOUSANDS)
<S>                                   <C>          <C>            <C>            <C>             <C>
Net sales...........................  $3,870,257     $215,187      $1,763,928      $124,061       $5,973,433
Cost of sales.......................   3,485,601      180,692       1,599,083       113,238        5,378,614
                                      ----------     --------      ----------      --------       ----------
Gross profit........................     384,656       34,495         164,845        10,823          594,819
Selling and administration..........     315,639       31,625         125,188        14,709          487,161
Restructuring and impairment charges
  (reversals).......................       9,461           --          (5,728)           --            3,733
                                      ----------     --------      ----------      --------       ----------
Earnings (loss) from operations.....      59,556        2,870          45,385        (3,886)         103,925
Interest expense, net...............      46,375        4,677           5,616          (582)          56,086
Equity in earnings of affiliated
  companies.........................     (46,006)          --          (2,577)           --          (48,583)
Minority interest in earnings
  (losses) of subsidiaries..........       7,275           --             359          (752)           6,882
                                      ----------     --------      ----------      --------       ----------
Earnings (loss) before income taxes
  and extraordinary item............      51,912       (1,807)         41,987        (2,552)          89,540
Income tax expense..................       2,355          761              --           485            3,601
                                      ----------     --------      ----------      --------       ----------
Earnings (loss) before extraordinary
  item..............................      49,557       (2,568)         41,987        (3,037)          85,939
Extraordinary loss on early
  extinguishment of debt, net of
  income tax benefit of $9,002......      14,451           --              --            --           14,451
                                      ----------     --------      ----------      --------       ----------
Net earnings (loss).................  $   35,106     $ (2,568)     $   41,987      $ (3,037)      $   71,488
                                      ==========     ========      ==========      ========       ==========
</Table>

                                       F-27
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                              LAND      CONSOLIDATED     MAJORITY
                                            O'LAKES        WHOLLY         OWNED
                                             PARENT        OWNED       CONSOLIDATED   NON-GUARANTOR
                                            COMPANY      GUARANTORS     GUARANTORS    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                           ----------   ------------   ------------   -------------   ------------   ------------
                                                                              ($ IN THOUSANDS)
<S>                                        <C>          <C>            <C>            <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)....................  $   35,106     $ (2,568)     $  41,987       $ (3,037)      $      --      $   71,488
  Adjustments to reconcile net earnings
    (loss) to net cash provided (used) by
    operating activities:
    Depreciation and amortization........      62,643        5,207         26,396          3,042              --          97,288
    Bad debt expense.....................       1,871           --             --             --              --           1,871
    Proceeds from patronage revolvement
      received...........................       2,895           --             --             --              --           2,895
    Non-cash patronage...................      (4,999)          --             --             --              --          (4,999)
    Increase (decrease) in other
      assets.............................     (30,767)         (71)        26,147            291           2,701          (1,699)
    (Decrease) increase in other
      liabilities........................      92,507         (533)      (137,049)            88          48,765           3,778
    Restructuring and impairment charges
      (reversals)........................       9,461           --         (5,728)            --              --           3,733
    Equity in earnings of affiliated
      companies..........................     (46,006)          --         (2,577)            --              --         (48,583)
    Minority interest....................       7,275           --            359           (752)             --           6,882
    Other................................     (10,973)          --          5,198           (378)             --          (6,153)
  Changes in current assets and
    liabilities, net of acquisitions and
    divestitures:
    Receivables..........................      57,537          464         (8,646)        (5,427)         (6,630)         37,298
    Inventories..........................      12,449       (1,952)        11,057           (415)             --          21,139
    Prepaid expenses and other current
      assets.............................     (21,347)       2,263         19,967           (136)             --             747
    Accounts payable.....................     124,532      (59,137)        (2,701)         1,666          60,042         124,402
    Accrued expenses.....................     (10,815)      (1,217)       (24,480)           729              --         (35,783)
                                           ----------     --------      ---------       --------       ---------      ----------
  Net cash provided (used) by operating
    activities...........................     281,369      (57,544)       (50,070)        (4,329)        104,878         274,304
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and
    equipment............................     (46,240)      (1,475)       (19,353)       (16,868)             --         (83,936)
  Acquisitions, net of cash acquired.....          --           --       (371,858)            --              --        (371,858)
  Payments for investments...............    (403,488)        (278)       (20,883)        (1,405)        379,865         (46,189)
  Proceeds from sale of investments......       5,264           --             --             --              --           5,264
  Proceeds from sale of property, plant
    and equipment........................      29,940          145             --            139              --          30,224
  Other..................................         392           --          4,901             --              --           5,293
                                           ----------     --------      ---------       --------       ---------      ----------
  Net cash (used) provided by investing
    activities...........................    (414,132)      (1,608)      (407,193)       (18,134)        379,865        (461,202)
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Decrease) increase in short-term
    debt.................................     (80,726)      61,703         67,401          6,715        (108,905)        (53,812)
  Proceeds from issuance of long-term
    debt.................................   1,347,917           --             --         17,584           4,027       1,369,528
  Payments on principal of long-term
    debt.................................    (922,823)         (55)        (8,702)        (3,524)             --        (935,104)
  Payments for debt issuance costs.......     (20,265)          --             --             --              --         (20,265)
  Payments for redemption of member
    equities.............................     (46,896)          --             --             --              --         (46,896)
  Other..................................     (38,714)       7,140        409,212          1,849        (379,865)           (378)
                                           ----------     --------      ---------       --------       ---------      ----------
  Net cash (used) provided by financing
    activities...........................     238,493       68,788        467,911         22,624        (484,743)        313,073
                                           ----------     --------      ---------       --------       ---------      ----------
  Net increase in cash...................     105,730        9,636         10,648            161              --         126,175
Cash and cash equivalents at beginning of
  year...................................       5,324         (546)       (11,675)        10,891              --           3,994
                                           ----------     --------      ---------       --------       ---------      ----------
Cash and cash equivalents at end of
  year...................................  $  111,054     $  9,090      $  (1,027)      $ 11,052       $      --      $  130,169
                                           ==========     ========      =========       ========       =========      ==========
</Table>

                                       F-28
<PAGE>

                               LAND O'LAKES, INC.

                    SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2000

<Table>
<Caption>
                                       LAND                         MAJORITY
                                   O'LAKES, INC.   CONSOLIDATED      OWNED
                                      PARENT       WHOLLY OWNED   CONSOLIDATED   NON-GUARANTOR
                                      COMPANY       GUARANTORS     GUARANTORS    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                   -------------   ------------   ------------   -------------   ------------   ------------
                                                                       ($ IN THOUSANDS)
<S>                                <C>             <C>            <C>            <C>             <C>            <C>
                                                           ASSETS

Current assets:
  Cash and short-term
     investments.................   $    5,324       $   (546)      $(11,675)      $ 10,891       $      --      $    3,994
  Receivables, net...............      616,559         24,123         96,965         41,698        (193,287)        586,058
  Inventories....................      299,217         55,435         72,155          9,282              --         436,089
  Prepaid expenses...............      150,471         11,888         10,118            983              --         173,460
  Other current assets...........       24,686             --             --             --              --          24,686
                                    ----------       --------       --------       --------       ---------      ----------
          Total current assets...    1,096,257         90,900        167,563         62,854        (193,287)      1,224,287
  Investments....................      598,723          3,318         19,277             47        (155,516)        465,849
  Property, plant and equipment,
     net.........................      313,481         31,391        103,433         40,784              --         489,089
  Goodwill, net..................      127,879         13,837         17,317          2,374              --         161,407
  Other intangibles..............        2,744          2,499          3,179            366              --           8,788
  Other assets...................       80,508          2,230          3,038         47,147          (9,000)        123,923
                                    ----------       --------       --------       --------       ---------      ----------
          Total assets...........   $2,219,592       $144,175       $313,807       $153,572       $(357,803)     $2,473,343
                                    ==========       ========       ========       ========       =========      ==========

                                                  LIABILITIES AND EQUITIES

Current liabilities:
  Notes and short-term
     obligations.................   $   82,009       $     --       $ 21,634       $ 61,435       $ (77,295)     $   87,783
  Current portion of long-term
     debt........................       68,372            504             --             60              --          68,936
  Accounts payable...............      356,986        114,313         67,939         14,053         (60,118)        493,173
  Accrued expenses...............      158,569          8,174         42,634          3,374              --         212,751
  Patronage refunds payable......       37,493             --             --             --              --          37,493
                                    ----------       --------       --------       --------       ---------      ----------
          Total current
            liabilities..........      703,429        122,991        132,207         78,922        (137,413)        900,136
Long-term debt...................      650,044          9,979          8,861          9,967         (16,109)        662,742
Employee benefits and other
  liabilities....................       41,962          1,966         55,067            194         (48,765)         50,424
Minority interests...............           --             --         (1,439)        14,937          41,589          55,087
Equities:
  Capital stock..................        2,345            111        126,860         55,179        (182,150)          2,345
  Member equities................      768,941             --         (1,752)         1,752              --         768,941
  Retained earnings..............       52,871          9,128         (5,997)        (7,379)        (14,955)         33,668
                                    ----------       --------       --------       --------       ---------      ----------
          Total equities.........      824,157          9,239        119,111         49,552        (197,105)        804,954
                                    ----------       --------       --------       --------       ---------      ----------
Total liabilities and equities...   $2,219,592       $144,175       $313,807       $153,572       $(357,803)     $2,473,343
                                    ==========       ========       ========       ========       =========      ==========
</Table>

                                       F-29
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                              LAND                         MAJORITY
                                          O'LAKES, INC.   CONSOLIDATED      OWNED
                                             PARENT       WHOLLY OWNED   CONSOLIDATED   NON-GUARANTOR
                                             COMPANY       GUARANTORS     GUARANTORS    SUBSIDIARIES    CONSOLIDATED
                                          -------------   ------------   ------------   -------------   ------------
                                                                       ($ IN THOUSANDS)
<S>                                       <C>             <C>            <C>            <C>             <C>
Net sales...............................   $5,140,321       $205,113       $352,575        $70,781       $5,768,790
Cost of sales...........................    4,605,870        161,079        323,412         55,749        5,146,110
                                           ----------       --------       --------        -------       ----------
Gross profit............................      534,451         44,034         29,163         15,032          622,680
Selling and administration..............      401,916         39,638         24,731         19,021          485,306
Restructuring and impairment charges....        7,100         37,426          9,700             --           54,226
                                           ----------       --------       --------        -------       ----------
Earnings (loss) from operations.........      125,435        (33,030)        (5,268)        (3,989)          83,148
Interest expense, net...................       48,370          4,182          1,933         (2,046)          52,439
Gain from divestiture of businesses.....      (89,034)            --             --             --          (89,034)
Equity in loss (earnings) of affiliated
  companies.............................       35,874             --           (308)            --           35,566
Minority interest in (loss) earnings of
  subsidiaries..........................       (1,470)           211             42           (188)          (1,405)
                                           ----------       --------       --------        -------       ----------
Earnings (losses) before income taxes
  and extraordinary item................      131,695        (37,423)        (6,935)        (1,755)          85,582
Income tax (benefit) expense............      (14,869)           787           (244)           611          (13,715)
                                           ----------       --------       --------        -------       ----------
Earnings (loss) before extraordinary
  item..................................      146,564        (38,210)        (6,691)        (2,366)          99,297
Extraordinary (loss) gain on early
  extinguishment of debt, net of income
  tax expense of $815...................       (3,635)            --             --             --           (3,635)
                                           ----------       --------       --------        -------       ----------
Net earnings (loss).....................   $  150,199       $(38,210)      $ (6,691)       $(2,366)      $  102,932
                                           ==========       ========       ========        =======       ==========
</Table>

                                       F-30
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                            LAND                         MAJORITY
                                        O'LAKES, INC.   CONSOLIDATED      OWNED
                                           PARENT       WHOLLY OWNED   CONSOLIDATED   NON-GUARANTOR
                                           COMPANY       GUARANTORS     GUARANTORS    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                        -------------   ------------   ------------   -------------   ------------   ------------
                                                                            ($ IN THOUSANDS)
<S>                                     <C>             <C>            <C>            <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss).................    $ 150,199       $(38,210)     $  (6,691)      $ (2,366)       $     --      $ 102,932
  Adjustments to reconcile net (loss)
    earnings to net cash provided by
    operating activities:
    Depreciation and amortization.....       73,248          3,558          4,860          1,955              --         83,621
    Bad debt expense..................        4,550             --             --             --              --          4,550
    Proceeds from patronage
      revolvement received............       16,350             --             --             --              --         16,350
    Non-cash patronage................       (9,914)            --             --             --              --         (9,914)
    Increase (decrease) in other
      assets..........................       57,205          6,165        (29,726)        (4,107)        (53,117)       (23,580)
    (Decrease) increase in other
      liabilities.....................       (5,700)           390         54,269              7         (48,293)           673
    Restructuring and impairment
      charges.........................        7,100         37,426          9,700             --              --         54,226
    Gain from divestiture of
      businesses......................      (89,034)            --             --             --              --        (89,034)
    Equity in earnings (losses) of
      affiliated companies............       35,874             --           (308)            --              --         35,566
    Minority interest.................       (1,470)           211             42           (188)             --         (1,405)
    Other.............................        1,064           (211)        (6,103)         6,414              --          1,164
  Changes in current assets and
    liabilities, net of acquisitions
    and divestitures:
    Receivables.......................      (62,067)         2,867        (97,256)        (5,004)        136,432        (25,568)
    Inventories.......................      192,446        (11,838)       (75,528)        (1,439)             --        103,641
    Prepaid expenses and other current
      assets..........................       89,042         (4,394)       (10,333)          (136)             --         74,179
    Accounts payable..................     (306,366)        28,317         81,759          1,597         (88,620)      (283,313)
    Accrued expenses..................       40,819         (3,321)        33,296            279              --         71,073
                                          ---------       --------      ---------       --------        --------      ---------
  Net cash provided (used) by
    operating activities..............      192,806         20,960        (42,019)        (2,988)        (53,598)       115,161
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and
    equipment.........................       (2,286)        (2,579)       (81,358)       (18,120)             --       (104,343)
  Acquisitions, net of cash
    acquired..........................      (80,269)       (20,807)            --             --              --       (101,076)
  Payments for investments............      (72,447)          (816)       (54,714)        (1,156)         42,522        (86,611)
  Net proceeds from divestiture of
    businesses........................      184,106             --             --             --              --        184,106
  Proceeds from sale of investments...        3,248             --             --             --              --          3,248
  Proceeds from sale of property,
    plant and equipment...............       25,169              7             --             13              --         25,189
  Other...............................       (7,010)         3,755             22            145              --         (3,088)
                                          ---------       --------      ---------       --------        --------      ---------
  Net cash provided (used) by
    investing activities..............       50,511        (20,440)      (136,050)       (19,118)         42,522        (82,575)
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Decrease) increase in short-term
    debt..............................      (77,012)            (3)        21,624         12,629              --        (42,762)
  Proceeds from issuance of long-term
    debt..............................        5,329             --             --             28          53,598         58,955
  Payments on principal of long-term
    debt..............................     (165,707)        (3,190)        (6,603)        (3,633)             --       (179,133)
  Payments for purchase of capital
    securities........................       (9,300)            --             --             --              --         (9,300)
  Payments for redemption of member
    equities..........................      (54,260)            --             --             --              --        (54,260)
  Other...............................     (109,273)        (1,689)       142,160         11,433         (42,522)           109
                                          ---------       --------      ---------       --------        --------      ---------
  Net cash (used) provided by
    financing activities..............     (410,223)        (4,882)       157,181         20,457          11,076       (226,391)
                                          ---------       --------      ---------       --------        --------      ---------
  Net decrease in cash................     (166,906)        (4,362)       (20,888)        (1,649)             --       (193,805)
Cash and cash equivalents at beginning
  of year.............................      172,230          3,816          9,213         12,540              --        197,799
                                          ---------       --------      ---------       --------        --------      ---------
Cash and cash equivalents at end of
  year................................    $   5,324       $   (546)     $ (11,675)      $ 10,891        $     --      $   3,994
                                          =========       ========      =========       ========        ========      =========
</Table>

                                       F-31
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                       LAND      CONSOLIDATED     MAJORITY
                                     O'LAKES        WHOLLY         OWNED           NON-
                                      PARENT        OWNED       CONSOLIDATED    GUARANTOR
                                     COMPANY      GUARANTORS     GUARANTORS    SUBSIDIARIES   CONSOLIDATED
                                    ----------   ------------   ------------   ------------   ------------
                                                               ($ IN THOUSANDS)
<S>                                 <C>          <C>            <C>            <C>            <C>
Net sales.........................  $5,126,847     $334,057       $88,407        $66,483       $5,615,794
Cost of sales.....................   4,687,497      278,955        78,340         55,622        5,100,414
                                    ----------     --------       -------        -------       ----------
Gross profit......................     439,350       55,102        10,067         10,861          515,380
Selling and administration........     420,408       60,621         5,468         20,424          506,921
Restructuring and impairment
  charges.........................       3,856           --            --             --            3,856
                                    ----------     --------       -------        -------       ----------
Earnings (loss) from operations...      15,086       (5,519)        4,599         (9,563)           4,603
Interest expense, net.............      39,063        5,597         1,016           (974)          44,702
Gain from divestiture of
  businesses......................     (54,175)          --            --             --          (54,175)
Equity in (earnings) of affiliated
  companies.......................      (7,282)          --            --             --           (7,282)
Minority interest in earnings
  (loss) of subsidiaries..........         328           --           389           (857)            (140)
                                    ----------     --------       -------        -------       ----------
Earnings (loss) before income
  taxes...........................      37,152      (11,116)        3,194         (7,732)          21,498
Income tax (benefit) expense......      (4,101)       2,155         1,114            931               99
                                    ----------     --------       -------        -------       ----------
Net earnings (loss)...............  $   41,253     $(13,271)      $ 2,080        $(8,663)      $   21,399
                                    ==========     ========       =======        =======       ==========
</Table>

                                       F-32
<PAGE>

                               LAND O'LAKES, INC.

               SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                             LAND       CONSOLIDATED     MAJORITY
                                            O'LAKES        WHOLLY         OWNED           NON-
                                          INC. PARENT      OWNED       CONSOLIDATED    GUARANTOR
                                            COMPANY      GUARANTORS     GUARANTORS    SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                          -----------   ------------   ------------   ------------   ------------   ------------
                                                                             ($ IN THOUSANDS)
<S>                                       <C>           <C>            <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)...................   $  41,253      $(13,271)      $ 2,080        $ (8,663)      $     --      $  21,399
  Adjustments to reconcile net earnings
     (loss) to net cash provided (used)
     by operating activities:
     Depreciation and amortization......      75,462         2,938         1,299           1,976             --         81,675
     Bad debt expense...................       4,570            --             6              --             --          4,576
     Proceeds from patronage revolvement
       received.........................       2,066            --            --              --             --          2,066
     Non-cash patronage.................      (4,568)           --            --              --             --         (4,568)
     (Increase) decrease in other
       assets...........................     (56,277)         (118)          122             (34)        37,309        (18,998)
     Increase (decrease) in other
       liabilities......................      11,908           593          (588)             --         (2,382)         9,531
     Restructuring and impairment
       charges..........................       3,856            --            --              --             --          3,856
     Gain from divestiture of
       businesses.......................     (54,175)           --            --              --             --        (54,175)
     Equity in earnings of affiliated
       companies........................      (7,282)           --            --              --             --         (7,282)
     Minority interest..................         328            --           389            (857)            --           (140)
     Other..............................       3,818            --         1,913             (20)            --          5,711
  Changes in current assets and
     liabilities, net of acquisitions
     and divestitures:
     Receivables........................     (38,355)        4,959        (1,601)        (10,919)         1,957        (43,959)
     Inventories........................      30,844        (2,396)           (4)          1,042             --         29,486
     Other current assets...............     (59,367)       (4,158)          (55)             41             --        (63,539)
     Accounts payable...................      38,857        13,831         2,850           5,333         18,758         79,629
     Accrued expenses...................       8,444         1,400         3,332             560             --         13,736
                                           ---------      --------       -------        --------       --------      ---------
  Net cash provided (used) by operating
     activities.........................       1,382         3,778         9,743         (11,541)        55,642         59,004
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and
     equipment..........................     (97,289)       (5,026)         (649)         (6,303)            --       (109,267)
  Acquisitions, net of cash acquired....     (73,912)           --            --              --             --        (73,912)
  Payments for investments..............     (52,044)       (3,294)           --              (6)            --        (55,344)
  Net proceeds from divestiture of
     businesses.........................      75,893            --            --              --             --         75,893
  Proceeds from sale of investments.....      10,346            --            --             (50)        (1,055)         9,241
  Proceeds from sale of property, plant
     and equipment......................       6,353            --            --              15             --          6,368
  Other.................................       3,507          (280)           --          (3,281)            --            (54)
                                           ---------      --------       -------        --------       --------      ---------
  Net cash used by investing
     activities.........................    (127,146)       (8,600)         (649)         (9,625)        (1,055)      (147,075)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in short-term
     debt...............................      33,650        (5,690)       (1,942)          6,281             --         32,299
  Proceeds from issuance of long-term
     debt...............................     345,310           840            --           4,761        (47,605)       303,306
  Payments on principal of long-term
     debt...............................        (568)       (4,200)       (1,125)         (2,356)            --         (8,249)
  Payments for redemption of member
     equities...........................     (46,315)           --        (2,125)           (220)            --        (48,660)
  Other.................................     (26,310)       16,771          (229)         19,472         (6,982)         2,722
                                           ---------      --------       -------        --------       --------      ---------
  Net cash provided (used) by financing
     activities.........................     305,767         7,721        (5,421)         27,938        (54,587)       281,418
  Net increase in cash..................     180,003         2,899         3,673           6,772             --        193,347
Cash and cash equivalents at beginning
  of year...............................      (7,773)          917         5,540           5,768             --          4,452
                                           ---------      --------       -------        --------       --------      ---------
Cash and cash equivalents at end of
  year..................................   $ 172,230      $  3,816       $ 9,213        $ 12,540       $     --      $ 197,799
                                           =========      ========       =======        ========       ========      =========
</Table>

                                       F-33
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Managers
Land O'Lakes Farmland Feed LLC:

     We have audited the accompanying consolidated balance sheets of Land
O'Lakes Farmland Feed LLC and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, cash flows and equities for
the year ended December 31, 2001 and the three months ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Land O'Lakes
Farmland Feed LLC and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the year ended December 31,
2001 and the three months ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.

     As discussed in note 1 to the consolidated financial statements, in 2001,
the Company adopted the provisions of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activity," as amended by Statement No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," Statement
No. 141, "Business Combinations," and Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets".

                                          /s/ KPMG LLP

Minneapolis, Minnesota
January 28, 2002

                                       F-34
<PAGE>

                         LAND O'LAKES FARMLAND FEED LLC

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                               ($ IN THOUSANDS)
<S>                                                           <C>        <C>
                                     ASSETS

Current assets:
  Cash and short-term investments...........................  $  3,019   $     --
  Receivables, net..........................................   119,063    126,365
  Inventories...............................................   113,559     77,519
  Prepaid expenses and other current assets.................     6,472     10,213
                                                              --------   --------
          Total current assets..............................   242,113    214,097
Investments.................................................    31,496     20,848
Property, plant and equipment, net..........................   326,956    112,698
Goodwill, net...............................................   104,749     18,360
Intangible assets, net......................................   100,663      1,704
Other assets................................................    27,640      7,213
                                                              --------   --------
          Total assets......................................  $833,617   $374,920
                                                              ========   ========

                            LIABILITIES AND EQUITIES
Current liabilities:
  Notes and short-term obligations..........................  $  5,000   $  3,971
  Notes payable -- Land O'Lakes, Inc. -- current............    29,210     94,143
  Accounts payable..........................................   117,074     92,886
  Accrued expenses..........................................    35,132     43,825
                                                              --------   --------
          Total current liabilities.........................   186,416    234,825
Notes payable -- Land O'Lakes, Inc. -- noncurrent...........    59,664         --
Employee benefits and other liabilities.....................    36,656      7,306
Minority interests..........................................     2,919      4,220
Equities:
  Contributed capital.......................................   515,044    134,797
  Retained earnings (accumulated deficit)...................    32,918     (6,228)
                                                              --------   --------
          Total equities....................................   547,962    128,569
                                                              --------   --------
Total liabilities and equities..............................  $833,617   $374,920
                                                              ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-35
<PAGE>

                         LAND O'LAKES FARMLAND FEED LLC

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                             THREE MONTHS
                                                               YEAR ENDED       ENDED
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2001           2000
                                                              ------------   ------------
                                                                   ($ IN THOUSANDS)
<S>                                                           <C>            <C>
Net sales...................................................   $1,837,377      $389,908
Cost of sales...............................................    1,672,385       354,243
Selling and administration..................................      127,185        30,495
Restructuring and impairment (reversals) charges............       (5,728)        9,700
                                                               ----------      --------
Earnings (loss) from operations.............................       43,535        (4,530)
Interest expense, net.......................................        6,088         2,052
Equity in earnings of affiliated companies..................       (2,577)         (308)
Minority interest in earnings (loss) of subsidiaries........          878           (46)
                                                               ----------      --------
Net earnings (loss).........................................   $   39,146      $ (6,228)
                                                               ==========      ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-36
<PAGE>

                         LAND O'LAKES FARMLAND FEED LLC

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                             THREE MONTHS
                                                               YEAR ENDED       ENDED
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2001           2000
                                                              ------------   ------------
                                                                   ($ IN THOUSANDS)
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss).......................................   $  39,146      $  (6,228)
  Adjustments to reconcile net earnings (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization..........................      29,631          3,597
     Bad debt (recovery) expense............................        (783)         1,260
     Increase in other assets...............................      (4,759)       (13,771)
     (Decrease) increase in other liabilities...............      (6,017)        11,572
     Restructuring and impairment (reversals) charges.......      (5,728)         9,700
     Equity in earnings of affiliated companies.............      (2,577)          (308)
     Minority interest......................................         878            (46)
  Changes in current assets and liabilities, net of
     acquisitions and divestitures:
     Receivables............................................      37,989       (120,137)
     Inventories............................................      10,436        (69,958)
     Other current assets...................................       6,272        (10,213)
     Accounts payable.......................................     (11,319)        92,886
     Accrued expenses.......................................     (17,864)        23,068
                                                               ---------      ---------
  Net cash provided by (used in) operating activities.......      75,305        (78,578)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and equipment................     (21,931)       (21,352)
  Proceeds from sale of property, plant and equipment.......       5,211          1,816
                                                               ---------      ---------
  Net cash used by investing activities.....................     (16,720)       (19,536)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in short-term debt....................       1,029          3,971
  Proceeds from note payable to Land O'Lakes, Inc. .........     358,030        185,243
  Payments on note payable to Land O'Lakes, Inc. ...........    (422,965)       (91,100)
  Capital contributions by members..........................       8,340             --
                                                               ---------      ---------
  Net cash (used) provided by financing activities..........     (55,566)        98,114
  Net increase in cash and short-term investments...........       3,019             --
Cash and short-term investments at beginning of period......          --             --
                                                               ---------      ---------
Cash and short-term investments at end of period............   $   3,019      $      --
                                                               =========      =========
Supplemental schedules of noncash investing and financing
  activities:
  Capital contributions by members..........................     371,907        134,797
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-37
<PAGE>

                         LAND O'LAKES FARMLAND FEED LLC

                      CONSOLIDATED STATEMENTS OF EQUITIES
  FOR THE YEAR ENDED DECEMBER 31, 2001 AND THE THREE MONTHS ENDED DECEMBER 31,
                                      2000

<Table>
<Caption>
                                                                         RETAINED
                                                                         EARNINGS
                                                         CONTRIBUTED   (ACCUMULATED       TOTAL
                                                           CAPITAL       DEFICIT)        EQUITIES
                                                         -----------   ------------   --------------
                                                                      ($ IN THOUSANDS)
<S>                                                      <C>           <C>            <C>
Initial capital contributions..........................   $134,797       $    --         $134,797
Net loss...............................................                   (6,228)          (6,228)
                                                          --------       -------         --------
Balance, December 31, 2000.............................    134,797        (6,228)         128,569
Capital contributions:
  Purina Mills stock...................................    366,897                        366,897
  Other................................................     13,350                         13,350
Net earnings...........................................                   39,146           39,146
                                                          --------       -------         --------
Balance, December 31, 2001.............................   $515,044       $32,918         $547,962
                                                          ========       =======         ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-38
<PAGE>

                         LAND O'LAKES FARMLAND FEED LLC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000
                           ($ IN THOUSANDS IN TABLES)

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  ORGANIZATION

     Land O'Lakes Farmland Feed LLC (the "Company") produces both commercial and
lifestyle feed for a variety of animals, including dairy cattle, beef cattle,
swine, poultry, horses, and other specialty animals.

     The Company was established in October 2000 through the combination of the
feed operations of Land O'Lakes, Inc. and Farmland Industries, Inc. Through
their relative contributions Land O'Lakes, Inc. and Farmland Industries, Inc.
had ownership interests of 73.7% and 26.3%, respectively. The initial capital
contributions made by each of the members to the Company consisted primarily of
property, plant, and equipment and other long-lived assets. In October 2000, the
Company purchased inventories from the respective members. The merger was
accounted for as a purchase in accordance with APB No. 16, "Business
Combinations." As such, the contributions of Farmland Industries, Inc. have been
recorded at fair value.

     In October 2001, an indirect subsidiary of Land O'Lakes, Inc. acquired
Purina Mills, Inc. and contributed the business to the Company. As a result,
Land O'Lakes, Inc. increased its direct and indirect ownership in the Company to
92%. Farmland Industries, Inc. retains an 8% ownership interest.

  REVENUE RECOGNITION

     Sales are recognized primarily upon shipment of product to the customer.

  STATEMENT PRESENTATION

     The consolidated financial statements include the accounts of the Company
and wholly owned and majority-owned subsidiaries and limited liability
companies. Intercompany transactions and balances have been eliminated.

  CASH AND SHORT-TERM INVESTMENTS

     Cash and short-term investments include short-term, highly liquid
investments with original maturities of three months or less.

  INVENTORIES

     Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out or average cost basis.

  DERIVATIVE COMMODITY INSTRUMENTS

     The Company uses derivative commodity instruments, primarily futures
contracts, to reduce the exposure to changes in commodity prices. These
contracts are not designated as hedges under Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities". Accordingly, since the adoption of SFAS No. 133, effective January
1, 2001, the futures contracts are marked to market each month and gains and
losses are recognized in earnings. Unrealized losses related to future contracts
recognized in 2001 results totaled $3.7 million.

     Prior to the adoption of SFAS No. 133, the Company accounted for its
derivatives as hedges under SFAS No. 80, "Accounting for Futures Contracts."
Unrealized gains and losses on unsettled contracts were reflected in
receivables. Realized gains and losses were reflected in cost of sales. The net
gains and losses deferred and

                                       F-39
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expensed at December 31, 2000 are immaterial. At December 31, 2000, the
aggregate fair value of our derivatives was $1.3 million.

  INVESTMENTS

     The equity method of accounting is used for investments in which the
Company has significant influence. Generally, this represents ownership of at
least 20 percent and not more than 50 percent. Investments in less than 20
percent owned companies are stated at cost.

  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives (15 to
30 years for land improvements and buildings and 5 to 10 years for machinery and
equipment) of the respective assets.

  INTANGIBLES

     The excess purchase price paid over net assets of businesses acquired
(goodwill) is generally amortized on a straight-line basis over periods ranging
from 15 to 20 years, except for acquisitions completed after June 30, 2001 for
which no amortization is recorded. Accumulated amortization of goodwill at
December 31, 2001 and 2000 was $1.6 million and $0.3 million, respectively.

  RECOVERABILITY OF LONG-LIVED ASSETS

     The Company assesses the recoverability of goodwill and other long-lived
assets whenever events or changes in circumstances indicate that expected future
undiscounted cash flows may not be sufficient to support the carrying amount of
an asset. The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows is less than its carrying amount. If an
asset is determined to be impaired, the loss is measured as the amount by which
the carrying value of the asset exceeds its fair value.

  INCOME TAXES

     The Company's taxable operations pass directly to the joint venture owners
under the LLC organization. As a result, no provision for income taxes is
provided in the accompanying consolidated statement of operations.

  RESEARCH AND DEVELOPMENT

     Expenditures for research and development are charged to administration
expense in the year incurred. Total research and development expenses for 2001
and the three months ended December 31, 2000 were $5.3 million and $0.9 million,
respectively.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     All financial instruments are carried at amounts that approximate estimated
fair value, except for investments in cooperatives, for which it is not
practicable to provide fair value information.

  RECENT ACCOUNTING PRONOUNCEMENTS

     The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
effective January 1, 2001. The standard requires derivatives to be recorded on
the balance sheet as assets or liabilities, measured at fair value. The impact
upon adoption did not have a material effect on the consolidated financial
statements.

                                       F-40
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 was effective immediately and SFAS No. 142 is effective
January 1, 2002. Under the provisions of SFAS No. 141, no amortization of
goodwill is recorded on acquisitions (except for acquisitions of cooperatives)
completed after June 30, 2001. Existing goodwill and other intangible assets
were amortized until the January 1, 2002 adoption of SFAS No. 142. Goodwill
related to the acquisition of cooperatives and the formation of joint ventures
will continue to be amortized at least until the Financial Accounting Standards
Board provides further guidance. Because of the extensive effort needed to
comply with adopting SFAS No. 141 and SFAS No. 142, it is not practical to
reasonably estimate the impact of adopting these Statements on the financial
statements at the date of this report, including whether it will require the
recognition of any transitional impairment losses as a cumulative effect of a
change in accounting principle. Amortization expense related to goodwill that
will cease to be amortized under SFAS No. 142 was $1.3 million in 2001. As of
January 1, 2002, the Company had unamortized goodwill of $104.7 million and
unamortized identifiable intangible assets of $0, which will be subject to the
transition provisions of SFAS No. 141 and SFAS No. 142.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
supersedes both SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions"
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No.
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
SFAS No. 144 provides guidance on how a long-lived asset that is used as part of
a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. SFAS No. 144
retains the basic provisions of Opinion 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike SFAS No.
121, an impairment assessment under SFAS No. 144 will never result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS
No. 142, "Goodwill and Other Intangible Assets".

     The Company has elected to adopt SFAS No. 144 as of January 1, 2001 and has
applied its provisions in these financial statements. The impact upon adoption
did not have a material effect on the consolidated financial statements.

  ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

                                       F-41
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.  RECEIVABLES

     A summary of receivables at December 31 is as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Trade accounts..............................................  $ 25,320   $113,740
Notes and contracts.........................................     4,628         --
Notes from sale of trade receivables (see Note 3)...........    84,321         --
Other.......................................................    13,879     16,836
                                                              --------   --------
                                                               128,148    130,576
Less allowance for doubtful accounts........................     9,085      4,211
                                                              --------   --------
Total receivables, net......................................  $119,063   $126,365
                                                              ========   ========
</Table>

3.  RECEIVABLES PURCHASE FACILITY

     In December 2001, Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and
Purina Mills, LLC established a $100.0 million receivables purchase facility
with CoBank, ACB (CoBank). A wholly owned unconsolidated special purpose entity,
Land O'Lakes Farmland Feed SPV, LLC, (SPE), was established to purchase certain
receivables from Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and Purina
Mills, LLC and the Company. CoBank has been granted an interest in the
receivables owned by the SPE. The transfers of the receivables from the Company
to the SPE are structured as sales and, accordingly, the receivables transferred
to the SPE are not reflected in the Company's consolidated balance sheet.
However, Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and Purina Mills,
LLC retain the credit risk related to the repayment of the notes receivable with
the SPE, which in turn is dependent upon the credit risk of the SPE's
receivables. Accordingly, the Company has retained reserves for estimated
losses. The Company expects no significant gains or losses from the sale of the
receivables. At December 31, 2001, there was $75.8 million outstanding under
this facility and $24.2 million remained available. The total accounts
receivable sold by the Company during 2001 was $289.8 million.

4.  INVENTORIES

     A summary of inventories at December 31 is as follows:

<Table>
<Caption>
                                                                2001      2000
                                                              --------   -------
<S>                                                           <C>        <C>
Raw materials...............................................  $ 63,435   $42,656
Finished goods..............................................    50,124    34,863
                                                              --------   -------
Total inventories...........................................  $113,559   $77,519
                                                              ========   =======
</Table>

                                       F-42
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  INVESTMENTS

     The Company's investments at December 31 are as follows:

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Harmony Farms, LLC..........................................  $ 3,969   $    --
New Feeds, LLC..............................................    3,214     3,700
Iowa River Feeds, LLC.......................................    2,648     2,883
Agland Farmland Feed, LLC...................................    2,435     2,418
Pro-Pet, LLC................................................    2,362     2,359
Nutri-Tech Feeds, LLC.......................................    2,314     2,224
LOLFF SPV, LLC..............................................    1,805        --
Northern Country Feeds, LLC.................................    1,652     1,688
CalvaAlto Liquid, LLC.......................................    1,302     1,150
T-PM Holding Company........................................    1,290        --
Northern Colorado Feed, LLC.................................    1,210        --
Strauss Feeds, LLC..........................................    1,073       950
Nutrikowi, LLC..............................................      783       526
Dakotaland Feeds, LLC.......................................      736       532
Other LLCs..................................................    4,703     2,418
                                                              -------   -------
Total investments...........................................  $31,496   $20,848
                                                              =======   =======
</Table>

All of the above investments are accounted for under the equity method with the
exception of a portion of the investments under the caption "Other LLCs."

6.  PROPERTY, PLANT AND EQUIPMENT

     A summary of property plant and equipment at December 31 is as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Land and land improvements..................................  $ 23,826   $ 10,298
Buildings and building equipment............................   124,205     57,748
Machinery and equipment.....................................   247,186     97,674
Construction in progress....................................    13,019     16,192
                                                              --------   --------
                                                               408,236    181,912
Less accumulated depreciation...............................    81,280     69,214
                                                              --------   --------
Total property, plant and equipment, net....................  $326,956   $112,698
                                                              ========   ========
</Table>

7.  NOTES AND SHORT-TERM OBLIGATIONS

     A summary of notes and short-term obligations at December 31 is as follows:

<Table>
<Caption>
                                                               2001     2000
                                                              ------   ------
<S>                                                           <C>      <C>
Union Bank of California line of credit.....................  $5,000   $3,100
Bank of America line of credit..............................       0      871
                                                              ------   ------
Total notes and short-term obligations......................  $5,000   $3,971
                                                              ======   ======
</Table>

                                       F-43
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The lines of credit are held by wholly owned and majority owned
subsidiaries of the Company. The Union Bank of California line of credit of $5
million is unsecured and bears interest, at the Company's election, of either
LIBOR plus 1.50% or Union Bank of California's Reference Rate minus 0.50%. This
line terminates on July 5, 2002 and is renewable annually. The Bank of America
line of credit of $7 million, which bore interest of prime less 1.30%, was not
renewed in September 2001.

     Interest paid, net of amount capitalized, for 2001 and the three months
ended December 31, 2000 was $0.7 million and $0.6 million, respectively.

8.  LEASE COMMITMENTS

     Total rental expense was $4.8 million and $0.4 million for the year ended
December 31, 2001 and the three months ended December 31, 2000, respectively.
The minimum annual lease payments for the next five years and thereafter are as
follows:

<Table>
<Caption>
                            YEAR                               AMOUNT
                            ----                               ------
<S>                                                            <C>
2002........................................................   $3,568
2003........................................................    2,659
2004........................................................    1,661
2005........................................................    1,064
2006........................................................    1,053
2007 and thereafter.........................................    1,350
</Table>

     Most of the leases require payment of operating expenses applicable to the
leased assets. Management expects that in the normal course of business most
leases that expire will be renewed or replaced by other leases.

9.  PENSION AND OTHER POSTRETIREMENT PLANS

     The Company participates in Land O'Lakes, Inc.'s defined pension plan,
which covers substantially all employees. Plan benefits are generally based on
years of service and employees' highest compensation during five consecutive
years of employment. Annual payments to the pension trust fund are determined in
compliance with the Employee Retirement Income Security Act (ERISA). The
actuarial present values of accumulated plan benefits and net assets available
for benefits relating to only the Company's employees are not available.

     The Company also participates in Land O'Lakes, Inc.'s plans that provide
certain health care benefits for retired employees. Employees become eligible
for these benefits upon meeting certain age and service requirements.
Actuarially determined financial information relating to only the Company's
employees is not available.

     Certain Company employees are eligible for benefits under Land O'Lakes,
Inc.'s defined contribution plans.

     Costs relating to the plans are allocated to the Company by Land O'Lakes,
Inc. The Company's allocated expenses relating to these plans was $3.9 million
and $1.4 million for the year ended December 31, 2001 and the three months ended
December 31, 2000, respectively.

     As a result of the acquisition of Purina Mills on October 11, 2001, the
Company has two additional defined benefit plans and one defined contribution
plan as of December 31, 2001. As of the November 30, 2001 measurement date, the
pension plan for production employees and the discretionary capital accumulation
plan had estimated projected benefit obligations of $26.2 million and $24.9
million, respectively. The fair value of plan assets was $20.9 million and $0.0
million, respectively. At December 31, 2001, the accrued

                                       F-44
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pension liability was $5.3 million and the accrued discretionary capital
accumulation liability was $24.9 million.

10.  ACQUISITIONS, MERGERS AND DIVESTITURES

     On October 11, 2001, an indirect subsidiary of Land O'Lakes acquired 100
percent of the outstanding stock of Purina Mills, Inc. (Purina Mills) and
contributed the stock to Land O'Lakes Farmland Feed LLC. In exchange for this
contribution, Land O'Lakes direct and indirect ownership of Land O'Lakes
Farmland Feed increased to 92.0%. The results of operations of Purina Mills are
included in the consolidated financial statements since that date. Purina Mills
is a commercial and lifestyle feed company. This acquisition allowed the Company
to diversify into lifestyle feed (other than dog and cat food) under the leading
brands of Purina, Chow, and the "Checkerboard" Nine Square logo.

     The aggregate purchase price was approximately $359 million, net of cash
acquired, of which $247 million represented cash payments for stock and
acquisition costs and $112 million represented debt retirement.

     The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition. The Company is in
the process of obtaining final third party valuations of certain assets; thus,
the allocation of the purchase price is subject to refinement.

<Table>
<Caption>
                                                              AT OCTOBER 11, 2001
                                                              -------------------
<S>                                                           <C>
Current assets..............................................       $ 92,486
Investments.................................................         30,114
Property, plant and equipment...............................        218,913
Goodwill....................................................         86,872
Other intangibles...........................................         98,940
Other assets................................................         13,208
                                                                   --------
          Total assets acquired.............................        540,533
                                                                   --------
Current liabilities.........................................         64,338
Other liabilities...........................................        117,638
                                                                   --------
          Total liabilities assumed.........................        181,976
                                                                   --------
          Net assets acquired...............................       $358,557
                                                                   ========
</Table>

     Goodwill of $86.9 million was recognized, none of which is expected to be
deductible for tax purposes. Of the $98.9 million of acquired identifiable
intangible assets, $76.5 million is not subject to amortization, and relates
primarily to trade names and trademarks. The remaining intangible assets of
$22.4 million, have a weighted average useful life of approximately 12 years and
consists of patents in the amount of $16.4 million (14 year weighted average
useful life) and contracts of $6.0 million (3 year weighted average useful
life). The following table summarizes the unaudited pro forma results of
operations for the year ended December 31, 2001 and three months ended December
31, 2000 for the Company as if the Purina Mills acquisition had occurred on
January 1, 2001 and October 1, 2000, respectively. The unaudited pro forma
results of operations are for informational purposes only and do not purport to
represent what the Company's results of operations would actually have been if
the acquisition had actually occurred on those dates.

<Table>
<Caption>
                                                                 2001        2000
                                                              ----------   --------
<S>                                                           <C>          <C>
Net sales...................................................  $2,502,720   $627,483
Earnings from operations....................................      62,082      6,893
Net earnings................................................      60,772      6,055
</Table>

                                       F-45
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  RESTRUCTURING CHARGES

     In 2001, the Company recorded restructuring and impairment reversals of
$5.7 million. This reversal of a portion of the prior-year restructuring charge
was primarily due to a change in business strategy following the Purina Mills
acquisition, which resulted in the decision to continue to operate plants that
were held for sale at December 31, 2000.

     In the three months ended December 31, 2000, the Company recorded a
restructuring and impairment charge of $9.7 million. This charge of $9.7 million
resulted from initiatives to consolidate facilities and reduce personnel
following the formation of the LLC. Of this amount, $7.2 million related to the
closing and planned sale of 12 plants and consisted of $5.5 million to write
down the book value of the plants and $1.7 million for demolition and
environmental clean-up. The remaining $2.5 million represented severance and
outplacement costs for 119 non-plant employees.

     The following table summarizes the restructuring and impairment charge
activity and the resulting reserve for the above-mentioned periods:

<Table>
<S>                                                           <C>
Balance at December 31, 2000................................  $ 9,749
2001 Activity:
  Restructuring expenses paid against accrual...............   (3,052)
  Restructuring reversals...................................   (5,728)
  Other.....................................................     (743)
                                                              -------
Balance at December 31, 2001................................  $   226
                                                              =======
</Table>

12.  COMMITMENTS AND CONTINGENCIES

  GUARANTEE OF PARENT DEBT

     In November 2001, Land O'Lakes, Inc., which owns 92% of the Company, issued
$350 million of senior notes, due 2011. These notes are guaranteed by certain
domestic wholly owned subsidiaries of Land O'Lakes, Inc., the Company, and by
each domestic wholly owned subsidiary of the Company, including Purina Mills,
LLC.

     This guarantee is a general unsecured obligation, ranks equally in right of
payment with all existing and future senior indebtedness of the Company, is
senior in right of payment to all existing and future subordinated obligations
of the Company, and is effectively subordinated to any secured indebtedness of
the Company and its subsidiaries to the extent of the value of the assets
securing such indebtedness.

     The notes are not be guaranteed by certain majority-owned subsidiaries of
the Company (the "Non-Guarantors"). Summarized financial information of the
Non-Guarantors, which is consolidated in the financial statements of the
Company, as of and for the periods ended December 31, are as follows:

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Total assets................................................  $25,864   $24,063
Net sales...................................................   72,848    13,153
Net earnings (loss).........................................      964      (231)
</Table>

     In November 2001, Land O'Lakes, Inc. entered into new term facilities
consisting of a $325 million five-year Term Loan A facility and a $250 million
seven-year Term Loan B facility. These facilities are unconditionally guaranteed
by certain domestic wholly owned subsidiaries of Land O'Lakes, Inc., the
Company, and by each domestic wholly owned subsidiary of the Company, including
Purina Mills, LLC.

                                       F-46
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  GUARANTEES OF PRODUCER LOANS

     The Company also guarantees certain loans to large producers financed by
Land O'Lakes Finance Company. The loans totaled $19.8 million and $22.9 million
at December 31, 2001 and 2000, respectively. Reserves for these guarantees of
$1.0 million and $2.3 million at December 31, 2001 and 2000, respectively, are
included in the allowance for doubtful accounts. The $1.3 million reduction in
the reserve from December 31, 2000 to December 31, 2001 has been included in
selling and administration expense. There were no writeoffs related to these
loans in either the year ended December 31, 2001 or the three months ended
December 31, 2000.

  GENERAL

     The Company is currently and from time to time involved in litigation and
environmental claims incidental to the conduct of business. The damages claimed,
in some of these cases, are substantial. Although the amount of liability that
may result from these matters cannot be ascertained, the Company does not
currently believe that, in the aggregate, they will result in liabilities
material to the Company's consolidated financial condition, future results of
operations or cash flows.

13.  RELATED PARTY TRANSACTIONS

     In accordance with the Management Services Agreement between Land O'Lakes,
Inc. and the Company, costs are charged to the Company by Land O'Lakes, Inc. for
corporate services such as legal, insurance administration, tax administration,
human resources, payroll and benefit administration, leasing, public relations,
credit and collections, accounting, and IT support. These costs totaled $6.6
million and $0.9 million for the year ended December 31, 2001 and the three
months ended December 31, 2000, respectively. In addition, payroll and
benefit-related costs are paid directly by Land O'Lakes, Inc. and reimbursed by
the Company. These costs totaled $102.8 million and $14.9 million for the year
ended December 31, 2001 and the three months ended December 31, 2000,
respectively.

     As part of the acquisition of Purina Mills on October 11, 2001, Land
O'Lakes, Inc. assumed certain liabilities, including a $59.7 million deferred
tax liability. The Company has established a noncurrent note payable for this
and, as future taxes relating to the deferred tax liability are paid by Land
O'Lakes, Inc., the Company will make a corresponding payment to Land O'Lakes,
Inc. This note is non-interest bearing and $59.7 million was outstanding at
December 31, 2001.

     The Company has a $100 million revolving credit facility with Land O'Lakes,
Inc. which bears interest at LIBOR plus 260 basis points. The facility
terminates on October 31, 2002, and is renewable annually. The amount
outstanding under the revolving credit facility was $29.2 million and $94.1
million at December 31, 2001 and 2000, respectively.

     The Company entered into a Feed Supply Agreement with Farmland Industries
(Farmland) whereby Farmland agreed to purchase all of its feed and ingredients,
excluding grain, from the Company. Such sales are made at prices competitive
with those available from other suppliers. Sales to Farmland under the agreement
totaled $6.8 million and $1.9 million for the year ended December 31, 2001 and
the three months ended December 31, 2000, respectively.

     Sales with unconsolidated subsidiaries of the Company totaled $45.0 million
and $9.5 million for the year ended December 31, 2001 and the three months ended
December 31, 2000, respectively.

                                       F-47
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Land O'Lakes, Inc:

     We have audited the accompanying consolidated balance sheets of Land
O'Lakes Feed Division (the Company) as of September 30, 2000 and December 31,
1999, and the related consolidated statements of operations and cash flows for
the nine months ended September 30, 2000 and the year ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Land O'Lakes
Feed Division as of September 30, 2000 and December 31, 1999, and the results of
their operations and their cash flows for the nine months ended September 30,
2000 and the year ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.

                                          /s/ KPMG LLP

Minneapolis, Minnesota
January 28, 2002

                                       F-48
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                           LAND O'LAKES FEED DIVISION

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
                                                                    ($ IN THOUSANDS)
<S>                                                           <C>             <C>
                                          ASSETS

Current assets:
  Cash and short-term investments...........................    $  5,989        $ 16,328
  Receivables, net..........................................      74,650          52,275
  Inventories...............................................      49,283          43,395
  Prepaid expenses and other current assets.................       3,458           4,125
                                                                --------        --------
          Total current assets..............................     133,380         116,123
Investments.................................................      18,577          22,688
Property, plant and equipment, net..........................      70,692          62,934
Goodwill, net...............................................      11,068           9,802
Other assets................................................      14,765          16,198
                                                                --------        --------
          Total assets......................................    $248,482        $227,745
                                                                ========        ========

                                 LIABILITIES AND EQUITIES
Current liabilities:
  Notes and short-term obligations..........................    $  6,394        $  1,294
  Accounts payable..........................................      52,649          47,218
  Accrued expenses..........................................      13,014          14,465
  Other current liabilities.................................       4,598              --
                                                                --------        --------
          Total current liabilities.........................      76,655          62,977
Other liabilities...........................................       1,754           5,691
Minority interests..........................................       2,934           2,927
Investment and advances by Land O'Lakes, Inc. ..............     167,139         156,150
                                                                --------        --------
Total liabilities and investments and advances by Land
  O'Lakes, Inc. ............................................    $248,482        $227,745
                                                                ========        ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-49
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                           LAND O'LAKES FEED DIVISION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                              FOR THE NINE    FOR THE YEAR
                                                              MONTHS ENDED       ENDED
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
                                                                    ($ IN THOUSANDS)
<S>                                                           <C>             <C>
Net sales...................................................    $702,171        $899,340
Cost of sales...............................................     627,414         802,264
Selling and administration..................................      53,059          69,953
                                                                --------        --------
Earnings from operations....................................      21,698          27,123
Interest expense, net.......................................         444           1,867
Equity in earnings of affiliated companies..................      (1,410)           (957)
Minority interest in earnings of subsidiaries...............         445             851
                                                                --------        --------
Earnings before income taxes................................      22,219          25,362
Income tax expense..........................................       2,837           2,992
                                                                --------        --------
Net earnings................................................    $ 19,382        $ 22,370
                                                                ========        ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-50
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                           LAND O'LAKES FEED DIVISION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                              FOR THE NINE
                                                                 MONTHS       FOR THE YEAR
                                                                  ENDED          ENDED
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
                                                                    ($ IN THOUSANDS)
<S>                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings..............................................    $ 19,382        $ 22,370
  Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Depreciation and amortization..........................       9,177           8,991
     Bad debt (recovery) expense............................         (14)          1,493
     Increase (decrease) in other assets....................       1,103          (1,806)
     Decrease in other liabilities..........................      (7,670)           (626)
     Equity in earnings of affiliated companies.............      (1,410)           (957)
     Minority interest......................................         445             851
  Changes in current assets and liabilities, net of
     acquisitions and divestitures:
     Receivables............................................     (14,481)         13,463
     Inventories............................................         560            (196)
     Other current assets...................................         885            (825)
     Accounts payable.......................................      (2,720)          6,446
     Accrued expenses.......................................      (1,530)         (2,472)
     Other current liabilities..............................       4,598              13
                                                                --------        --------
  Net cash provided by operating activities.................       8,325          46,745
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and equipment................     (13,104)         (6,478)
  Acquisition of investments, net of cash acquired..........      (2,522)           (120)
  Proceeds from sale of property, plant and equipment.......         255             482
                                                                --------        --------
  Net cash used by investing activities.....................     (15,371)         (6,116)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in short-term debt...............................       5,100           1,294
  Net investments and advances by Land O'Lakes, Inc. .......      (8,393)        (45,495)
                                                                --------        --------
  Net cash used by financing activities.....................      (3,293)        (44,201)
  Net decrease in cash and short-term investments...........     (10,339)         (3,572)
Cash and short-term investments at beginning of period......      16,328          19,900
                                                                --------        --------
Cash and short-term investments at end of period............    $  5,989        $ 16,328
                                                                ========        ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-51
<PAGE>
                         LAND O'LAKES FARMLAND FEED LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                           LAND O'LAKES FEED DIVISION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
                           ($ IN THOUSANDS IN TABLES)

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  NATURE OF OPERATIONS

     The Land O'Lakes Feed Division (the "Company") produces both commercial and
lifestyle feed for a variety of animals, including dairy cattle, beef cattle,
swine, poultry, horses, and other specialty animals. The Company is a division
of Land O'Lakes, Inc.

  REVENUE RECOGNITION

     Sales are recognized primarily upon shipment of product to the customer.

  STATEMENT PRESENTATION

     The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting and include the accounts of the Land O'Lakes
Feed Division and wholly-owned and majority-owned subsidiaries, and limited
liability companies that were part of the initial contribution of Land O'Lakes,
Inc. to Land O'Lakes Farmland Feed LLC in October 2000.

     These financial statements do not necessarily reflect the financial
position and results of operations of the Company in the future or what the
financial position and results of operations would have been had the Company
been an independent entity during the periods presented. Certain costs are
charged to the Company by Land O'Lakes, Inc. and are generally based on
proportional allocations and in certain circumstances based on specific
identification of applicable costs. Intercompany transactions and balances have
been eliminated.

  CASH AND SHORT-TERM INVESTMENTS

     Cash and short-term investments include short-term, highly liquid
investments with original maturities of three months or less.

  INVENTORIES

     Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out or average cost basis.

  DERIVATIVE COMMODITY INSTRUMENTS

     The Company uses derivative commodity instruments, primarily futures
contracts, to reduce the exposure to changes in commodity prices. These
contracts are designated as hedges under SFAS No. 80, "Accounting for Futures
Contracts." Unrealized gains and losses on unsettled contracts were reflected in
receivables. Realized gains and losses were reflected in cost of sales. The net
gains and losses deferred and expensed at September 30, 2000 and December 31,
1999 are immaterial. The aggregate fair value of our derivatives was $0.1
million and $0.1 million at September 30, 2000 and December 31, 1999,
respectively.

                                       F-52
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  INVESTMENTS

     The equity method of accounting is used for investments in which the
Company has a significant influence. Generally this represents ownership of at
least 20 percent and not more than 50 percent. Investments in less than 20
percent owned companies are stated at cost.

  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives (10 to
20 years for land improvements and buildings, 3 to 5 years for machinery and
equipment, and 5 years for software) of the respective assets in accordance with
the straight-line method. Accelerated methods of depreciation are used for
income tax purposes.

  INTANGIBLES

     The excess purchase price paid over net assets of businesses acquired
(goodwill) is generally amortized on a straight-line basis over periods ranging
from 15 to 20 years. Accumulated amortization of goodwill at September 30, 2000
and December 31, 1999 was $0.7 million and $0.3 million, respectively.

  RECOVERABILITY OF LONG-LIVED ASSETS

     The Company assesses the recoverability of goodwill and other long-lived
assets whenever events or changes in circumstances indicate that expected future
undiscounted cash flows may not be sufficient to support the carrying amount of
an asset. The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows is less than its carrying amount. If an
asset is determined to be impaired, the loss is measured as the amount by which
the carrying value of the asset exceeds its fair value.

  INCOME TAXES

     The Company is part of Land O'Lakes, Inc. which is a non-exempt
agricultural cooperative and is taxed on all non-member earnings and any member
earnings not paid or allocated to members by qualified written notices of
allocation as that term is used in section 1388 of the Internal Revenue Code.
Land O'Lakes, Inc. files a consolidated tax return with its fully taxable
subsidiaries.

     Income taxes have been allocated to the Company on the basis of its taxable
income included in the consolidated Land O'Lakes, Inc. return. Deferred income
taxes have been recognized, using existing tax rates, for temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and income tax purposes.

  RESEARCH AND DEVELOPMENT

     Expenditures for research and development are charged to administration
expense in the year incurred. Total research and development expenses for the
nine months ended September 30, 2000 and the year ended December 31, 1999 were
$1.6 million and $2.2 million, respectively.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     All financial instruments are carried at amounts that approximate estimated
fair value, except for investments in cooperatives, for which it is not
practicable to provide fair value information.

  FUTURE ACCOUNTING REQUIREMENTS

     Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities", effective for the year ending
December 31, 2001, will require derivatives to be recorded
                                       F-53
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

on the balance sheet as assets or liabilities, measured at fair value. The
Company has determined that the impact upon adoption will not have a material
effect on its consolidated financial statements.

  ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

2.  RECEIVABLES

     A summary of receivables is as follows:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Trade accounts..............................................     $77,067        $57,355
Other.......................................................       3,320            405
                                                                 -------        -------
                                                                  80,387         57,760
Less allowance for doubtful accounts........................       5,737          5,485
                                                                 -------        -------
Total receivables, net......................................     $74,650        $52,275
                                                                 =======        =======
</Table>

3.  INVENTORIES

     A summary of inventories is as follows:

<Table>
<Caption>
                                                               SEPTEMBER 30,      DECEMBER 31,
                                                                    2000              1999
                                                              ----------------   ---------------
<S>                                                           <C>                <C>
Raw materials...............................................      $40,072            $33,176
Finished goods..............................................        9,211             10,219
                                                                  -------            -------
Total inventories...........................................      $49,283            $43,395
                                                                  =======            =======
</Table>

4.  INVESTMENTS

     A summary of investments is as follows:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
New Feeds, LLC..............................................     $ 3,897        $ 4,205
Land O'Lakes/Harvest States Feed, LLC.......................       3,500          3,500
Iowa River Feeds, LLC.......................................       2,943          2,965
Pro-Pet, LLC................................................       2,913          2,067
Nutri-Tech Feeds, LLC.......................................       2,183          2,109
Northern Country Feeds, LLC.................................       1,856          1,482
CalvaAlto Liquid, LLC.......................................         875             --
Nutra Blend, LLC............................................          --          4,615
Other -- LLC's..............................................         410          1,745
                                                                 -------        -------
Total investments...........................................     $18,577        $22,688
                                                                 =======        =======
</Table>

                                       F-54
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     All of the above investments are accounted for under the equity method with
the exception of a portion of the investments under the caption "Other LLC's."

5.  PROPERTY, PLANT AND EQUIPMENT

     A summary of property, plant and equipment is as follows:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Land and land improvements..................................    $  6,354        $  4,088
Buildings and building equipment............................      43,420          34,762
Machinery and equipment.....................................      81,947          77,532
Construction in progress....................................       7,313           7,086
                                                                --------        --------
                                                                 139,034         123,468
Less accumulated depreciation...............................      68,342          60,534
                                                                --------        --------
Total property, plant and equipment, net....................    $ 70,692        $ 62,934
                                                                ========        ========
</Table>

6.  NOTES AND SHORT-TERM OBLIGATIONS

     A summary of notes and short-term obligations is as follows:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Union Bank of California line of credit.....................     $3,100          $1,294
Bank of America line of credit..............................      3,294              --
                                                                 ------          ------
Total notes and short-term obligations......................     $6,394          $1,294
                                                                 ======          ======
</Table>

     The lines of credit are held by a wholly owned and a majority owned
subsidiary of the Company. The Union Bank of California line of credit of $4
million is unsecured and bears interest, at the Company's election, of either
LIBOR plus 1.50% or Union Bank of California's Reference Rate minus 0.50%. This
line terminates on July 5, 2002 and is renewable annually. The Bank of America
line of credit of $7 million, which bears interest of prime less 1.30%,
terminates in September 2001 and is renewable annually.

     Interest paid, net of amount capitalized, for the nine months ended
September 30, 2000 and the year ended December 31, 1999 was $0.4 million and
$0.1 million, respectively.

7.  LEASE COMMITMENTS

     Total rental expense was $1.7 million and $2.0 million for the nine months
ended September 30, 2000 and the year ended December 31, 1999, respectively. The
minimum annual lease payments for the next five calendar years and thereafter
are as follows:

<Table>
<Caption>
YEAR                                                           AMOUNT
----                                                           ------
<S>                                                            <C>
2001........................................................   $2,389
2002........................................................    3,568
2003........................................................    2,659
2004........................................................    1,661
2005........................................................    1,064
2006 and thereafter.........................................    2,403
</Table>

                                       F-55
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Most of the leases require payment of operating expenses applicable to the
leased assets. Management expects that in the normal course of business most
leases that expire will be renewed or replaced by other leases.

8.  INCOME TAXES

     The components of the income tax provision are summarized as follows:

<Table>
<Caption>
                                                             FOR THE NINE    FOR THE YEAR
                                                             MONTHS ENDED       ENDED
                                                             SEPTEMBER 30,   DECEMBER 31,
                                                                 2000            1999
                                                             -------------   ------------
<S>                                                          <C>             <C>
Current expense:
  Federal..................................................     $1,242          $3,380
  State....................................................        184             583
                                                                ------          ------
                                                                 1,426           3,963
Deferred (benefit) expense.................................      1,411            (971)
                                                                ------          ------
Income tax expense.........................................     $2,837          $2,992
                                                                ======          ======
</Table>

     The effective tax rate differs from the statutory rate primarily as a
result of the following:

<Table>
<Caption>
                                                             FOR THE NINE    FOR THE YEAR
                                                             MONTHS ENDED       ENDED
                                                             SEPTEMBER 30,   DECEMBER 31,
                                                                 2000            1999
                                                             -------------   ------------
<S>                                                          <C>             <C>
Statutory rate.............................................       35.0%          35.0%
Patronage refunds..........................................      (24.3)         (24.4)
State income tax, net of federal benefit...................        1.2            1.1
Amortization of goodwill...................................        0.2            0.2
Meals and entertainment....................................        0.6            0.4
Other, net.................................................        0.1           (0.5)
                                                                 -----          -----
Effective tax rate.........................................       12.8%          11.8%
                                                                 =====          =====
</Table>

     The significant components of the deferred tax assets and liabilities are
as follows:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Deferred tax assets related to:
  Accrued expenses..........................................     $1,142          $1,704
  Allowance for doubtful accounts...........................        446           1,419
  Inventories...............................................        304             236
  Intangible assets.........................................        579             523
                                                                 ------          ------
Total deferred tax assets...................................      2,471           3,882
Deferred tax liabilities related to:
  Joint ventures............................................        351             614
  Property, plant and equipment.............................        678             416
                                                                 ------          ------
  Total deferred tax liabilities............................      1,029           1,030
                                                                 ------          ------
  Net deferred tax assets...................................     $1,442          $2,852
                                                                 ======          ======
</Table>

                                       F-56
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     SFAS No. 109 "Accounting for Income Taxes" requires consideration of a
valuation allowance if it is "more likely than not" that benefits of deferred
tax assets will not be realized. Management has determined, based on prior
earnings history and anticipated earnings, that no valuation allowance is
necessary. Income taxes paid for the nine months ended September 30, 2000 and
the year ended December 31, 1999 were $1.4 million and $4.0 million,
respectively.

9.  INVESTMENT AND ADVANCES BY LAND O'LAKES, INC.

     Investment and advances by Land O'Lakes, Inc. represents Land O'Lakes,
Inc.'s ownership interest in the recorded net assets of the Company. All cash
and intercompany transactions flow through this account. A summary of the
activity for the nine months ended September 30, 2000 and the year ended
December 31, 1999 is as follows:

<Table>
<Caption>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Balance at beginning of period..............................  $156,150   $179,275
Net earnings................................................    19,382     22,370
Net intercompany activity...................................    (8,393)   (45,495)
                                                              --------   --------
Balance at end of period....................................  $167,139   $156,150
                                                              ========   ========
</Table>

10.  PENSION AND OTHER POSTRETIREMENT PLANS

     The Company participates in Land O'Lakes, Inc.'s defined pension plan,
which covers substantially all employees. Plan benefits are generally based on
years of service and employees' highest compensation during five consecutive
years of employment. Annual payments to the pension trust fund are determined in
compliance with the Employee Retirement Income Security Act (ERISA). The
actuarial present values of accumulated plan benefits and net assets available
for benefits relating to only the Company's employees are not available.

     The Company also participates in Land O'Lakes, Inc.'s plans that provide
certain health care benefits for retired employees. Employees become eligible
for these benefits upon meeting certain age and service requirements.
Actuarially determined financial information relating to only the Company's
employees is not available.

     Certain Company employees are eligible for benefits under Land O'Lakes,
Inc.'s defined contribution plans.

     Costs relating to the plans are allocated to the Company by Land O'Lakes,
Inc. The Company's allocated expenses relating to these plans was $2.7 million
and $2.4 million for the nine months ended September 30, 2000 and the year ended
December 31, 1999, respectively.

11.  COMMITMENTS AND CONTINGENCIES

GUARANTEES OF PRODUCER LOANS

     The Company also guarantees certain loans to large producer financed by
Land O'Lakes Finance Company. The loans totaled $17.4 million and 19.8 million
at September 30, 2000 and December 31, 1999, respectively. A reserve of $2.3
million at September 30, 2000 and December 31, 1999, respectively, is included
in the allowance for doubtful accounts. There were no writeoffs related to these
loans in either the nine months ended September 30, 2000 or the year ended
December 31, 1999.

                                       F-57
<PAGE>
                           LAND O'LAKES FEED DIVISION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GENERAL

     The Company is currently and from time to time involved in litigation and
environmental claims to the conduct of business. The damages claimed in some of
these cases, are substantial. Although the amount of liability that may result
from these matters cannot be ascertained, the Company does not currently believe
that, in the aggregate, they will result in liabilities material to the
Company's consolidated Financial condition, future results of operations or cash
flows.

12.  RELATED PARTY TRANSACTIONS

     Costs allocated to the Company by Land O'Lakes, Inc. relate to corporate
services such as legal, insurance administration, tax administration, human
resources, payroll and benefit administration, leasing, public relations, credit
and collections, accounting, and IT support. These costs totaled $4.5 million
and $7.4 million for the nine months ended September 30, 2000 and the year ended
December 31, 1999, respectively.

     Sales with unconsolidated subsidiaries of the Company totaled $37.0 million
and $29.2 million for the nine months ended September 30, 2000 and the year
ended December 31, 1999, respectively.

13.  SUBSEQUENT EVENT

     On October 1, 2000, Land O'Lakes, Inc. and Farmland Industries, Inc.
combined their feed businesses to form Land O'Lakes Farmland Feed LLC. Through
their relative contributions, Land O'Lakes, Inc. and Farmland Industries, Inc.
had ownership interests of 73.7% and 26.3%, respectively. The initial capital
contributions made by each of the members to the Company consisted primarily of
property, plant, and equipment. In October 2000, the Company purchased inventory
from the respective members. The merger was accounted for as a purchase in
accordance with APB No. 16, "Business Combinations." As such, the contributions
of Farmland Industries, Inc. have been recorded at fair value.

                                       F-58
<PAGE>

                      PURINA MILLS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                      JUNE 30, 2001 AND DECEMBER 31, 2000

<Table>
<Caption>
                                                                                DECEMBER 31, 2000
                                                                              (DERIVED FROM AUDITED
                                                              JUNE 30, 2001   FINANCIAL STATEMENTS)
                                                              -------------   ---------------------
                                                                           (UNAUDITED)
                                                                      (DOLLARS IN THOUSANDS
                                                                     EXCEPT PER SHARE DATA)
<S>                                                           <C>             <C>
                                              ASSETS
Current assets:
  Cash and cash equivalents.................................    $  8,065            $ 37,664
  Accounts receivable, less allowance for doubtful accounts
     of $7,253 on June 30, 2001 and $7,390 on December 31,
     2000...................................................      22,418              33,009
  Inventories...............................................      46,269              50,874
  Prepaid expenses, deferred and other current assets.......       8,003               7,555
  Deferred income taxes.....................................      13,787              13,787
                                                                --------            --------
          Total current assets..............................      98,542             142,889
Property, plant and equipment, net..........................     202,363             209,498
Intangible assets, net......................................      36,698              40,097
Reorganization value in excess of amounts allocable to
  identifiable assets, net..................................      91,377              97,061
Notes receivable............................................       2,114               3,485
Other assets................................................      30,852              29,227
                                                                --------            --------
          Total assets......................................    $461,946            $522,257
                                                                ========            ========
                                LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $ 30,805            $ 51,509
  Customer advance payments.................................       2,218               7,600
  Accrued expenses and interest payable.....................      24,753              26,216
  Current portion of long-term debt.........................       1,439               1,439
                                                                --------            --------
          Total current liabilities.........................      59,215              86,764
Deferred income taxes.......................................      65,747              69,656
Retirement obligations......................................      26,206              25,829
Other liabilities...........................................       4,959                 995
Long-term debt..............................................     125,110             156,125
Stockholders' equity:
  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 issued at June 30, 2001 and
     December 31, 2000......................................         100                 100
Additional paid-in capital..................................     189,949             184,900
Retained deficit............................................      (6,476)             (1,281)
Accumulated other comprehensive loss........................      (2,864)               (831)
                                                                --------            --------
          Total stockholders' equity........................     180,709             182,888
                                                                --------            --------
Total liabilities & stockholders' equity....................    $461,946            $522,257
                                                                ========            ========
</Table>

                            (See accompanying notes)
                                       F-59
<PAGE>

                      PURINA MILLS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                        POST-EMERGENCE   PRE-EMERGENCE   POST-EMERGENCE   PRE-EMERGENCE
                                        --------------   -------------   --------------   -------------
                                         THREE MONTHS    THREE MONTHS      SIX MONTHS      SIX MONTHS
                                            ENDED            ENDED           ENDED            ENDED
                                        JUNE 30, 2001    JUNE 30, 2000   JUNE 30, 2001    JUNE 30, 2000
                                        --------------   -------------   --------------   -------------
                                                                  (UNAUDITED)
                                                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                     <C>              <C>             <C>              <C>
Net sales.............................   $   199,648       $195,349       $   427,558       $414,546
Costs and expenses:
  Cost of products sold...............       158,214        156,405           340,751        329,164
  Marketing, distribution and
     advertising......................        22,901         20,690            45,648         43,196
  General and administrative..........        16,506         12,307            29,910         26,494
  Amortization of intangibles.........         4,425          6,783             8,842         13,575
  Research and development............         1,513          1,388             3,028          2,723
  Restructuring expenses..............           752         16,388               752         24,924
  Other (income) expense, net.........          (522)       (28,131)           (1,633)       (28,449)
                                         -----------       --------       -----------       --------
                                             203,789        185,830           427,298        411,627
Operating income (loss)...............        (4,141)         9,519               260          2,919
Interest expense, net.................         2,836          3,524             5,632          9,759
                                         -----------       --------       -----------       --------
Income (loss) before income taxes.....        (6,977)         5,995            (5,372)        (6,840)
Income tax expense (benefit)..........        (1,701)            --              (177)            --
                                         -----------       --------       -----------       --------
Income (loss) before extraordinary
  item and revaluation of assets and
  liabilities pursuant to the adoption
  of fresh-start reporting............        (5,276)         5,995            (5,195)        (6,840)
Extraordinary item-gain on
  extinguishment of debt, net of
  tax.................................            --        159,359                --        159,359
Revaluation of assets and liabilities
  pursuant to the adoption of
  fresh-start reporting...............            --          2,483                --          2,483
                                         -----------       --------       -----------       --------
Net income (loss).....................   $    (5,276)      $167,837       $    (5,195)      $155,002
                                         ===========       ========       ===========       ========
Basic and diluted net income (loss)
  per common share....................   $     (0.53)                     $     (0.52)
Weighted average common shares
  outstanding.........................    10,000,000                       10,000,000
</Table>

                            (See accompanying notes)
                                       F-60
<PAGE>

                      PURINA MILLS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                              POST-EMERGENCE   PRE-EMERGENCE
                                                              --------------   -------------
                                                                SIX MONTHS      SIX MONTHS
                                                                  ENDED            ENDED
                                                              JUNE 30, 2001    JUNE 30, 2000
                                                              --------------   -------------
                                                                       (UNAUDITED)
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>              <C>
OPERATING ACTIVITIES:
  Net income (loss).........................................     $ (5,195)       $155,002
  Adjustment to reconcile net income (loss) to net cash
     provided by operating activities:
     Gain on extinguishment of debt.........................           --        (159,359)
     Gain on revaluation pursuant to fresh-start
       reporting............................................           --          (2,483)
     Depreciation and amortization..........................       22,996          28,612
     (Gain) loss on asset disposition.......................          311          (5,616)
     Provision for deferred taxes...........................       (3,909)             --
     Compensation related to stock options and stock
       appreciation rights..................................        5,909              --
     Change in working capital..............................      (12,403)         10,817
                                                                 --------        --------
  Net cash provided by operating activities.................     $  7,709        $ 26,973
INVESTING ACTIVITIES:
  Sale of property, plant and equipment.....................           84          15,757
  Purchase of property, plant and equipment.................       (7,748)         (8,642)
  Other.....................................................        1,371           3,739
                                                                 --------        --------
  Net cash provided by (used in) investing activities.......     $ (6,293)       $ 10,854
FINANCING ACTIVITIES:
  Proceeds from revolving credit facility...................           --         (87,471)
  Repayment of term loans...................................      (31,000)        (15,550)
  Capital contribution......................................           --          60,000
  Other.....................................................          (15)            251
                                                                 --------        --------
Net cash used in financing activities.......................     $(31,015)       $(42,770)
Increase (decrease) in cash and cash equivalents............      (29,599)         (4,943)
Cash and cash equivalents at beginning of period............       37,664          48,094
                                                                 --------        --------
Cash and cash equivalents at end of period..................     $  8,065        $ 43,151
                                                                 ========        ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest..................................................     $  7,237        $ 13,598
  Income taxes..............................................        1,443             173
</Table>

                            (See accompanying notes)
                                       F-61
<PAGE>

                      PURINA MILLS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

     On October 28, 1999 (the "Petition Date"), PM Holdings Corporation
("Holdings"), Purina Mills, Inc. ("Purina Mills") and certain of its
subsidiaries (the "Debtor") filed voluntary petitions for reorganization 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").
Purina Mills filed a Form 8-K on January 18, 2000 with the Securities and
Exchange Commission, which included a Plan of Reorganization (the "Plan") and a
disclosure statement. The Plan, as amended, was approved by the creditors,
confirmed by the Bankruptcy Court on April 5, 2000 and became effective on June
29, 2000 (the "Effective Date").

     The Plan provided, among other things, for the merger of Purina Mills with
and into Holdings prior to the effective date of the Plan. By operation of the
merger, Holdings succeeded to the business previously conducted by Purina Mills
and changed its name to Purina Mills, Inc. On May 19, 2000, Purina Mills merged
with and into Holdings with Holdings being the surviving corporation, renamed as
Purina Mills, Inc. (the "Company"). Subsequently, the Plan became effective and
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, 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 and income tax expense.

     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, October
30, 2000, January 30, 2001, May 11, 2001, and July 23, 2001, 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 8,662,835 shares have been distributed and the remaining 1,337,165 shares
being held in escrow by the transfer agent. Further distributions will be made
quarterly until all allowed claims have been satisfied.

     The consolidated balance sheet at June 30, 2001 and the consolidated
statements of operations and cash flows for the periods ended June 30, 2001 and
2000 are unaudited and reflect all adjustments, consisting of normal recurring
items, restructuring charges, and the adoption of "fresh-start" reporting, which
management considers necessary for a fair presentation. Operating results for
the fiscal 2001 interim period are not necessarily indicative of results to be
expected for the fiscal year ending December 31, 2001. The consolidated balance
sheet at December 31, 2000 was derived from the Company's December 31, 2000
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.

     Although the Company believes the disclosures are adequate, certain
information and disclosures normally included in notes to annual financial
statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. The accompanying
unaudited financial

                                       F-62
<PAGE>
                      PURINA MILLS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statements should be read in conjunction with the financial statements for the
year ended December 31, 2000, and the quarter ended March 31, 2001 contained in
the Financial Statements on Form 10-K and Form 10-Q, respectively.

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.

  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. Effective July 1, 2001, the Company changed its method of
inventory valuation to standard costing. This change did not have a material
effect on the Company's financial results.

  INTANGIBLE ASSETS (INCLUDING GOODWILL)

     Intangible assets represent the Company's estimate of the value of such
assets as of 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.

     Management periodically has and will continue to review the value of its
intangible assets to determine if impairment has occurred or whether changes
have occurred that would require a revision to the remaining useful life. In
making such determination, management evaluates the performance, on an
undiscounted basis, of the underlying operations or assets, which give rise to
such amount.

  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 $102.0 million as of the Effective Date. This intangible asset is
being amortized on a straight-line basis over a ten-year period.

  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 or if previously issued
options are repriced. 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 INCOME (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 during the period, so
long as the inclusion of the common equivalent shares would not be antidilutive.
Dilutive common equivalent

                                       F-63
<PAGE>
                      PURINA MILLS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares consist of shares that may be issued under stock options, calculated
under the treasury stock method. The Company has omitted net income 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.

  ADOPTION 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 No. 133. The
Company adopted these statements effective January 2001. Collectively, these
statements establish accounting and reporting standards requiring that certain
derivative instruments be recognized as assets and liabilities in the balance
sheet, and unless designated as and effective as a hedge, the change in fair
value be recognized currently in earnings. The Company utilizes interest rate
swaps to hedge its exposure to interest rate fluctuations, which are designated
as cash flow hedges. The effective portion of the change in fair value is
charged to accumulated other comprehensive income (loss) in the consolidated
balance sheet until any deferred hedging gains or losses are recorded in
earnings.

     The Company also enters into futures contracts as considered necessary to
reduce risk associated with market price fluctuations of its commodity and swine
purchases and sales. Prior to December 31, 2000, gains and losses on these
futures contracts were recognized in the same period as such inventory was sold.
The Company does not meet the documentation and designation requirements of SFAS
133 and SFAS 138 and, accordingly, these derivative instruments do not qualify
for hedge accounting. The change in fair value on futures contracts subsequent
to December 31, 2000 are offset against the change in fair value of purchase and
sales commitments with the resulting net gain or loss recognized in current
earnings. During the three month and six month periods ended June 30, 2001, the
Company recognized a $1.9 million net gain, which was recorded as a reduction of
cost of product sold.

  FUTURE APPLICATION OF ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets.  SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. SFAS 142 requires
that goodwill, the reorganization value in excess of amounts allocable to
identifiable assets, and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS 142. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The Company is required to adopt the provisions of SFAS 141 immediately,
and SFAS 142 effective January 1, 2002. The Company's existing reorganization
value in excess of amounts allocable to identifiable assets and intangible
assets will continue to be amortized prior to the adoption of SFAS 142.

     SFAS 141 requires that upon adoption of SFAS 142, the Company evaluate its
existing intangible assets and reorganization value in excess of amounts
allocable to identifiable assets, and make any necessary reclassifications in
order to conform with the new criteria in SFAS 141. Upon adoption of SFAS 142,
the Company will be required to reassess the useful lives and residual values of
all recorded intangible assets, and

                                       F-64
<PAGE>
                      PURINA MILLS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

make any necessary amortization period adjustments by March 31, 2002. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS 142 by March 31,
2002. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle.

     In connection with the transitional impairment evaluation, SFAS 142
requires the Company to assess whether there is an indication that
reorganization value in excess of amounts allocable to identifiable assets is
impaired as of the date of adoption. SFAS 142 contains extensive guidance on the
manner in which this assessment is to be performed, and requires the full
assessment be completed no later than December 31, 2002. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of earnings. Because of the
extensive effort needed to comply with adopting SFASs 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as a
cumulative effect of a change in accounting principle.

  RECLASSIFICATIONS

     Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the consolidated financial statement
presentation at June 30, 2001 and the six month period then ended.

3.  INVENTORIES

     Inventories consist of the following:

<Table>
<Caption>
                                                          JUNE 30, 2001   DECEMBER 31, 2000
                                                          -------------   -----------------
                                                                   (IN THOUSANDS)
<S>                                                       <C>             <C>
Raw materials...........................................     $30,369           $32,852
Finished goods..........................................      10,568            10,392
Animals.................................................       5,332             7,630
                                                             -------           -------
          Total.........................................     $46,269           $50,874
                                                             =======           =======
</Table>

4.  LONG-TERM DEBT

     Long-term debt consists of the following:

<Table>
<Caption>
                                                          JUNE 30, 2001   DECEMBER 31, 2000
                                                          -------------   -----------------
                                                                   (IN THOUSANDS)
<S>                                                       <C>             <C>
Term loan...............................................    $125,000          $156,000
Promissory notes........................................       1,439             1,439
Other...................................................         110               125
                                                            --------          --------
                                                             126,549           157,564
Less current portion....................................      (1,439)           (1,439)
                                                            --------          --------
          Total.........................................    $125,110          $156,125
                                                            ========          ========
</Table>

  CREDIT FACILITY

     In connection with the consummation of the Plan, Purina Mills entered into
a new credit agreement ("the Credit Agreement") which provides for secured
borrowings from a syndicate of lenders consisting of

                                       F-65
<PAGE>
                      PURINA MILLS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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. At June 30, 2001,
$9.6 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. There were no outstanding borrowings under the Revolving Credit
Facility as of June 30, 2001. 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 borrowings averaged 7.47% at June 30,
2001.

     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 three and six month periods ended June 30, 2001, the Company
voluntarily repaid $10.0 million and $31.0 million of its Term Loan,
respectively. As a result of such repayment, the outstanding balance of $125.0
million on the Term Loan is due on December 31, 2003. The Company is also
required to make mandatory repayments of the Term Loan in amounts equal to 50%
of Excess Cash Flow, as defined in the Credit Agreement. The next such payment
is scheduled to be paid March 2002, however, the Company does not anticipate any
additional payment to be due as a result of its voluntary prepayments during the
first six months of 2001. Additionally, the Company is generally required to
make mandatory repayments of amounts received on the sale of assets unless
reinvested within specific time periods. Any repayments under the Term Loan are
not available for future re-borrowings.

5.  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 June 30, 2001 the
Company had distributed 8,662,835 shares with the remaining 1,337,165 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 Effective Date were cancelled.

6.  STOCK COMPENSATION PLANS

     The Company applies APB 25 and related interpretations in accounting for
its stock options. Under the provisions of APB 25, compensation cost is measured
by the amount that the quoted market price of a company's stock exceeds the
exercise price. The measurement date for all awards is the first date on which
both the number of shares that an individual employee is entitled to receive and
the option or purchase price are known. If the measurement date occurs on the
grant date, the plan is referred to as a fixed plan, thus compensation cost is
fixed at the grant date. A plan is referred to as a variable plan when
compensation cost varies with the quoted market price of the stock at the end of
each accounting period until the measurement date.

     On June 12, 2001, the shareholders approved an amendment to the Purina
Mills, Inc. Equity Incentive Plan (the "Option Plan"). Under the terms of the
amended Option Plan, the exercise price per share for each grant to an optionee
was reduced to $12.50 per share on 50% of the option shares, $15.62 per share on
25% of the option shares and $18.75 per share on the remaining 25% of the option
shares. The approval of this amendment resulted in the Option Plan being
considered variable and thus $5.0 million of compensation expense was recognized
for the three month period ended June 30, 2001. At June 30, 2001, there were
1,000,000 options outstanding under the Option Plan.
                                       F-66
<PAGE>
                      PURINA MILLS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On June 12, 2001, the shareholders also approved the 2001 Non-Employee
Director and Key Employee Equity Incentive Plan (the "2001 Plan"). The 2001 Plan
provides that non-qualified stock options to purchase 0.5 million shares of the
Company's common stock may be granted. On June 12, 2001, each non-employee
director was granted the option to purchase 25,000 shares with an exercise price
$19.00 per share, the fair market value of the stock on the date of grant. The
options granted vest ratably over a three-year period and all options must be
granted before December 31, 2006. No compensation expense has been recognized
under this plan since there was no difference between the quoted market price of
the Company's common stock on the date of grant and the exercise price per
share. At June 30, 2001, there were 100,000 options outstanding under the 2001
Plan.

     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 277,000 SARs are
outstanding at June 30, 2001. The exercise price of all outstanding SARs is
$12.50 per share, and none of the SARs were vested at June 30, 2001.
Compensation expense of $0.9 million was recognized during the three and six
month periods ended June 30, 2001.

7.  OTHER COMPREHENSIVE INCOME

     In accordance with the provisions of SFAS No. 133, the Company recorded a
deferred hedging loss on designated cash flow hedges of $2.1 million, net of
$1.3 million tax, to accumulated other comprehensive income (loss) during the
six month period ended June 30, 2001.

8.  ADDITIONAL MATTERS

     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.

     On June 17, 2001, Purina Mills entered into a definitive merger agreement
with Land O'Lakes, Inc. and certain of its affiliates providing for the merger
of Purina Mills with and into an indirect subsidiary of Land O'Lakes, Inc. A
special meeting of Purina Mills stockholders to consider the adoption of the
merger agreement and the merger pursuant thereto is scheduled to be held on
September 5, 2001. Stockholders as of the record date of July 30, 2001 are
entitled to vote at the special meeting. The proxy statement relating to the
special meeting was mailed to Purina Mills stockholders on or about August 6,
2001.

                                       F-67
<PAGE>

                          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, and the year ended December 31, 1999. 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 and the year ended December
31, 1999, 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.

                                          /s/ KPMG LLP

St. Louis, Missouri
February 13, 2001

                                       F-68
<PAGE>

                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

SEE NOTE 1

<Table>
<Caption>
                                                              POST-EMERGENCE   PRE-EMERGENCE
                                                              --------------   -------------
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                   2000            1999
                                                              --------------   -------------
                                                                  (DOLLARS IN THOUSANDS,
                                                                  EXCEPT SHARE AMOUNTS)
<S>                                                           <C>              <C>
ASSETS
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
                                                                 ========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY
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
                                                                 ========        =========
</Table>

                            See accompanying notes.
                                       F-69
<PAGE>

                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

SEE NOTE 1

<Table>
<Caption>
                                                          POST-EMERGENCE            PRE-EMERGENCE
                                                         ----------------   -----------------------------
                                                            SIX MONTHS       SIX MONTHS
                                                              ENDED            ENDED         YEAR ENDED
                                                           DECEMBER 31,       JUNE 30,      DECEMBER 31,
                                                               2000             2000            1999
                                                         ----------------   ------------   --------------
                                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S>                                                      <C>                <C>            <C>
Net sales..............................................     $   425,259       $414,546       $  881,936
Costs and expenses:
  Cost of products sold................................         335,951        329,164          706,888
  Marketing, distribution and advertising..............          43,567         43,196           91,477
  General and administrative...........................          22,604         26,494           65,455
  Amortization of intangibles..........................           8,828         13,575           15,126
  Research and development.............................           2,985          2,723            5,978
  Provision for plant closings.........................              --             --           19,665
  Provision for intangible asset impairment............              --             --          161,593
  Provision for loss on guarantees.....................              --             --               --
  Restructuring and reorganization expenses............           3,534         24,924           18,102
  Other (income) expense, net..........................          (1,727)       (28,449)             743
                                                            -----------       --------       ----------
                                                                415,742        411,627        1,085,027
Operating income (loss)................................           9,517          2,919         (203,091)
Interest expense -- net................................           7,027          9,759           48,698
                                                            -----------       --------       ----------
Income (loss) before income taxes, extraordinary item
  and revaluation gain.................................           2,490         (6,840)        (251,789)
Provision (benefit) for income taxes...................           2,971             --           29,004
                                                            -----------       --------       ----------
Loss before extraordinary item and revaluation gain....            (481)        (6,840)        (280,793)
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)
                                                            ===========       ========       ==========
Basic and diluted net loss per common share............     $     (0.05)
Weighted average common shares outstanding.............      10,000,000
</Table>

                            See accompanying notes.
                                       F-70
<PAGE>

                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

SEE NOTE 1

<Table>
<Caption>
                                                         ACCUMULATED
                                           ADDITIONAL       OTHER
                                  COMMON    PAID-IN     COMPREHENSIVE   RETAINED    COMPREHENSIVE
                                  STOCK     CAPITAL         LOSS         DEFICIT        LOSS          TOTAL
                                  ------   ----------   -------------   ---------   -------------   ---------
                                                            (DOLLARS IN THOUSANDS)
<S>                               <C>      <C>          <C>             <C>         <C>             <C>
PRE-EMERGENCE
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 elimination of
     deficit....................     (1)    (169,499)        1,346        168,154                          --
  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
                                   ====    =========       =======      =========     =========     =========
</Table>

                            See accompanying notes.
                                       F-71
<PAGE>

                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

SEE NOTE 1

<Table>
<Caption>
                                                              POST-EMERGENCE           PRE-EMERGENCE
                                                              --------------   ------------------------------
                                                                SIX MONTHS     SIX MONTHS
                                                                  ENDED          ENDED
                                                               DECEMBER 31,     JUNE 30,       YEAR ENDED
                                                                   2000           2000      DECEMBER 31, 1999
                                                              --------------   ----------   -----------------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                                           <C>              <C>          <C>
OPERATING ACTIVITIES:
  Net income (loss).........................................    $    (481)     $ 155,002        $(280,793)
  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
    (Gain) loss on disposal of property, plant and
      equipment.............................................          (63)        (2,657)           1,326
    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...           --             --               --
    Provision for deferred income taxes.....................        2,945             --           27,761
  Net changes in operating assets and liabilities:
    Accounts receivable.....................................       (6,818)        12,626            5,288
    Inventories.............................................         (344)         8,339            2,993
    Prepaid expenses and other assets.......................        2,170         (4,946)          (5,369)
    Accounts payable and other liabilities..................        8,860         (8,161)         (10,252)
                                                                ---------      ---------        ---------
  Net cash provided by (used in) operating activities.......    $  27,727      $  26,973        $ (31,988)
INVESTING ACTIVITIES:
  Proceeds from sale of property, plant and equipment.......          364         15,757            1,571
  Purchase of property, plant and equipment.................      (16,915)        (8,642)         (20,980)
  Net change in notes receivable............................          923          3,739           (3,889)
                                                                ---------      ---------        ---------
  Net cash provided by (used in) investing activities.......    $ (15,628)     $  10,854        $ (23,298)
FINANCING ACTIVITIES:
  Proceeds (repayment) of pre-emergence term loan...........    $      --      $(190,550)       $  (5,475)
  Repayment of pre-merger term loans, subordinated notes,
    discount debentures and other debt......................           --             --               --
  Capital contribution......................................           --         60,000               --
  Proceeds (repayment) of revolving credit facility.........           --        (87,471)          67,471
  Proceeds (repayment) of post-emergence term loans.........      (19,000)       175,000               --
  Issuance of promissory notes..............................        1,439             --               --
  Payment of financing costs................................           --             --               --
  Other.....................................................          (25)           251              (62)
                                                                ---------      ---------        ---------
  Net cash provided by (used in) financing activities.......    $ (17,586)     $ (42,770)       $  61,934
                                                                ---------      ---------        ---------
Increase (decrease) in cash and cash equivalents............       (5,487)        (4,943)           6,648
Cash and cash equivalents at beginning of period............       43,151         48,094           41,446
                                                                ---------      ---------        ---------
Cash and cash equivalents at end of period..................    $  37,664      $  43,151        $  48,094
                                                                =========      =========        =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid (refunded) during the period for:
    Interest................................................    $   7,655      $  13,598        $  39,152
    Income taxes............................................          765            173              484
  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
                                                                =========      =========        =========
</Table>

                            See accompanying notes.
                                       F-72
<PAGE>

                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

  (A) 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:

<Table>
<Caption>
                                                               (IN MILLIONS)
                                                               -------------
<S>                                                            <C>
Sources of funds:
  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:
  Purchase price for equity of Holdings.....................      $258.7
  Repayment of existing indebtedness........................       385.5
  Fees and expenses.........................................        25.4
                                                                  ------
          Total.............................................      $669.6
                                                                  ======
</Table>

     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.

                                       F-73
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                               (IN MILLIONS)
                                                               -------------
<S>                                                            <C>
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
                                                                  =======
</Table>

  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

                                       F-74
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<S>                                                            <C>
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
                                                               ========
</Table>

     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.

                                       F-75
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 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
                                                ENDED             ENDED          YEAR 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>

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.

                                       F-76
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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:

<Table>
<S>                                                            <C>
Buildings and improvements..................................   15 to 30 years
Machinery and equipment.....................................    5 to 15 years
Office furniture and equipment..............................    3 to 15 years
</Table>

  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.

 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.

                                       F-77
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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 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 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

                                       F-78
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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.

                                       F-79
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  INVENTORIES

     Inventories consist of the following:

<Table>
<Caption>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2000      1999
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Raw materials...............................................  $32,852   $37,577
Finished goods..............................................   10,392    11,411
Animals.....................................................    7,630     9,881
                                                              -------   -------
          Total.............................................  $50,874   $58,869
                                                              =======   =======
</Table>

4.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
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
                                                              ========   ========
</Table>

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

                                       F-80
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  INTANGIBLE ASSETS

     Intangible assets consist of the following:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               2000       1999
                                                              -------   ---------
                                                                (IN THOUSANDS)
<S>                                                           <C>       <C>
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
                                                              =======   =========
</Table>

     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, 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:

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                   2000           1999
                                                              ---------------   --------
                                                                    (IN THOUSANDS)
<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>

                                       F-81
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                   2000           1999
                                                              ---------------   --------
                                                                    (IN THOUSANDS)
<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 pre-petition 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 its
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
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.

                                       F-82
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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 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
                                       F-83
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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

<Table>
<Caption>
                                                                        WEIGHTED AVERAGE
                                                             OPTIONS     EXERCISE 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 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, 1999.

                                       F-84
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

10.  INCOME TAXES

     The components of the provision for income taxes are as follows:

<Table>
<Caption>
                                                      POST-
                                                    EMERGENCE           PRE-EMERGENCE
                                                   ------------   -------------------------
                                                    SIX MONTHS    SIX MONTHS
                                                      ENDED         ENDED       YEAR ENDED
                                                   DECEMBER 31,    JUNE 30,    DECEMBER 31,
                                                       2000          2000          1999
                                                   ------------   ----------   ------------
                                                                (IN THOUSANDS)
<S>                                                <C>            <C>          <C>
  Federal........................................     $   --        $  --        $    35
  State..........................................         26           --          1,208
DEFERRED:
  Federal........................................      1,970           --         31,535
  State..........................................        975           --         (3,774)
                                                      ------        -----        -------
                                                      $2,971        $  --        $29,004
                                                      ======        =====        =======
</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:

<Table>
<Caption>
                                                 POST-EMERGENCE         PRE-EMERGENCE
                                                 --------------   -------------------------
                                                   SIX MONTHS     SIX MONTHS
                                                     ENDED          ENDED       YEAR ENDED
                                                  DECEMBER 31,     JUNE 30,    DECEMBER 31,
                                                      2000           2000          1999
                                                 --------------   ----------   ------------
                                                               (IN THOUSANDS)
<S>                                              <C>              <C>          <C>
Income taxes (benefit) at statutory rate.......      $  872        $(2,394)      $(88,126)
State income taxes, net of federal benefit.....         651             --         (1,668)
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
Meals and entertainment disallowance...........         105            105            137
Research tax credit............................          --             --            (26)
Life insurance expense, net....................        (342)          (387)          (567)
Other, net.....................................        (398)            --             68
                                                     ------        -------       --------
                                                     $2,971        $    --       $ 29,004
                                                     ======        =======       ========
</Table>

                                       F-85
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 as follows:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------    -------
                                                                (IN THOUSANDS)
<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.

                                       F-86
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  EMPLOYEE BENEFIT PLANS

     The Company sponsors a defined contribution 401(k) plan which 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.

     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 which 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.

                                       F-87
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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:

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS)
<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>

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000      1999      1998
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
  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

                                       F-88
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS)
<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)
                                                               ========     ========
</Table>

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                             ------------------------
                                                              2000     1999     1998
                                                             ------   ------   ------
<S>                                                          <C>      <C>      <C>
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>

     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.

                                       F-89
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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.

     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

                                       F-90
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$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.

                                       F-91
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 and
$3.1 million for the six month periods ended December 31, 2000 and June 30,
2000, the year ended December 31, 1999 and the period March 13, 1998 to December
31, 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:

<Table>
<Caption>
                                                                 OPERATING
                                                                   LEASES
                                                               --------------
                                                               (IN THOUSANDS)
<S>                                                            <C>
2001........................................................      $ 6,332
2002........................................................        4,090
2003........................................................        2,351
2004........................................................        1,797
2005........................................................        1,741
Thereafter..................................................        3,078
                                                                  -------
          Total minimum lease payments......................      $19,389
                                                                  =======
</Table>

  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.

                                       F-92
<PAGE>
                               PURINA MILLS, INC.
                       (FORMERLY PM HOLDINGS CORPORATION)
                                AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15.  ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

<Table>
<Caption>
                                                           PROVISION
                                                            CHARGED     WRITE-OFFS
                                               BEGINNING   (CREDITED)      LESS      ENDING
                                                BALANCE    TO EXPENSE   RECOVERIES   BALANCE
                                               ---------   ----------   ----------   -------
                                                              (IN THOUSANDS)
<S>                                            <C>         <C>          <C>          <C>
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.

                                       F-93
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Agriliance, LLC:

     We have audited the accompanying consolidated balance sheet of Agriliance,
LLC and subsidiaries as of August 31, 2001, and the related consolidated
statements of operations, cash flows and members' equity for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

     We conducted our audit 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 audit provides 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 Agriliance,
LLC and subsidiaries as of August 31, 2001, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

                                          /s/ KPMG LLP

November 29, 2001

                                       F-94
<PAGE>

                                AGRILIANCE, LLC

                           CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
                                                                 AUGUST 31,
                                                                    2001
                                                              ----------------
                                                              ($ IN THOUSANDS)
<S>                                                           <C>
                                    ASSETS
Current assets:
  Trade receivables, net of allowance for bad debts of
     $14,002................................................     $  275,322
  Rebates receivable........................................        118,976
  Other receivables.........................................         42,338
  Inventories...............................................        489,726
  Vendor prepayments........................................         23,650
  Prepaid expenses..........................................          3,564
                                                                 ----------
          Total current assets..............................        953,576
Property, plant and equipment:
  Land and land improvements................................         19,159
  Buildings.................................................         65,837
  Machinery and equipment...................................         99,255
  Construction in progress..................................          2,351
                                                                 ----------
     Total property, plant and equipment....................        186,602
  Less accumulated depreciation.............................        (51,922)
                                                                 ----------
     Net property, plant and equipment......................        134,680
Other assets................................................         23,427
                                                                 ----------
          Total assets......................................     $1,111,683
                                                                 ==========
                        LIABILITIES & MEMBERS' EQUITY
Current liabilities:
  Cash overdraft............................................     $   32,727
  Short-term debt...........................................         87,000
  Current portion of long-term debt.........................         15,000
  Accounts payable..........................................        507,686
  Customer prepayments......................................         47,361
  Accrued expenses..........................................         70,017
  Payable to Land O'Lakes, Inc. ............................         11,730
  Payable to CHS Cooperatives...............................          9,412
  Payable to Farmland Industries, Inc. .....................         40,523
  Other current liabilities.................................          9,787
                                                                 ----------
          Total current liabilities.........................        831,243
Long-term debt..............................................        100,000
Other noncurrent liabilities................................         10,964
Members' equity:
  Contributed capital.......................................        159,089
  Retained earnings.........................................         10,387
                                                                 ----------
                                                                    169,476
                                                                 ----------
Total liabilities & members' equity.........................     $1,111,683
                                                                 ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-95
<PAGE>

                                AGRILIANCE, LLC

                      CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
                                                                  YEAR-ENDED
                                                               AUGUST 31, 2001
                                                               ----------------
                                                               ($ IN THOUSANDS)
<S>                                                            <C>
Net sales...................................................      $4,072,248
Cost of sales...............................................       3,696,350
                                                                  ----------
          Gross profit......................................         375,898
Selling, general, and administrative expense................         310,655
Asset impairment charge.....................................          14,820
                                                                  ----------
          Earnings from operations..........................          50,423
Interest expense, net.......................................          28,462
Gain on sale of assets......................................          (3,092)
                                                                  ----------
          Net earnings......................................      $   25,053
                                                                  ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-96
<PAGE>

                                AGRILIANCE, LLC

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                                  YEAR ENDED
                                                               AUGUST 31, 2001
                                                               ----------------
                                                               ($ IN THOUSANDS)
<S>                                                            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings..............................................      $  25,053
  Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Depreciation and amortization..........................         38,319
     Gain on disposal of property, plant and equipment......         (3,092)
     Asset impairment charge................................         14,820
     Increase in other non-current assets...................         (3,288)
     Increase in other non-current liabilities..............            113
  Changes in current assets and liabilities:
     Trade receivables......................................        188,198
     Receivables/payables from related parties..............         43,174
     Rebates receivable.....................................        (12,160)
     Other receivables......................................          4,986
     Inventories............................................         87,482
     Vendor prepayments.....................................         82,757
     Accounts payable.......................................       (276,001)
     Accrued expenses.......................................         10,383
     Other current assets and liabilities...................        (68,706)
                                                                  ---------
  Net cash provided by operating activities.................        132,038
                                                                  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant and equipment................        (23,870)
  Proceeds from sale of property, plant and equipment.......         22,044
                                                                  ---------
  Net cash used by investing activities.....................         (1,826)
                                                                  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from (payments on) short-term debt...............        (88,000)
  Payments on long-term debt................................        (35,000)
  Increase (decrease) in cash overdraft.....................         (7,212)
                                                                  ---------
  Net cash used by financing activities.....................       (130,212)
                                                                  ---------
  Net change in cash and cash equivalents...................             --
Cash and cash equivalents at beginning of period............             --
                                                                  ---------
Cash and cash equivalents at end of period..................      $      --
                                                                  =========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-97
<PAGE>

                                AGRILIANCE, LLC

                   CONSOLIDATED STATEMENT OF MEMBERS' EQUITY

<Table>
<Caption>
                                                               FOR THE YEAR ENDED AUGUST 31, 2001
                                                              ------------------------------------
                                                                                           TOTAL
                                                              CONTRIBUTED    RETAINED    MEMBERS'
                                                                CAPITAL      EARNINGS     EQUITY
                                                              ------------   ---------   ---------
                                                                        ($ IN THOUSANDS)
<S>                                                           <C>            <C>         <C>
BALANCE AT AUGUST 31, 2000..................................    $159,089     $  4,344    $163,433
Net earnings................................................          --       25,053      25,053
Distributions payable to members............................          --      (19,010)    (19,010)
                                                                --------     --------    --------
BALANCE AT AUGUST 31, 2001..................................    $159,089     $ 10,387    $169,476
                                                                ========     ========    ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-98
<PAGE>

                                AGRILIANCE, LLC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  A. ORGANIZATION

     Agriliance, LLC ("Agriliance" or "the Company") was established on January
1, 2000. Agriliance consists of the agronomy marketing operations of three major
food marketing and agricultural supply cooperatives: Land O'Lakes, Inc. (50%
ownership); CHS Cooperatives (25% ownership); and Farmland Industries, Inc. (25%
ownership) (the "members").

     For the period from January 1, 2000 to July 29, 2000 (the date at which the
Company established its own financing facilities), the Company's earnings were
allocated to the members under an interim profit sharing agreement. Profits and
losses of the Company subsequent to July 29, 2000 are allocated to members in
proportion to their percentage ownership interests. The liability of each member
is limited to each member's respective capital account balance.

     The initial capital contributions made by the members to the Company
consisted primarily of property, plant and equipment from all the members, and
the entire operations of Agro Distribution LLC from Land O'Lakes, Inc. and CHS
Cooperatives. All contributions have been valued at the net book values of the
members. In addition, on July 29, 2000, the Company purchased its working
capital from the respective members.

  B. STATEMENT PRESENTATION

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, with intercompany transactions eliminated.

  C. REVENUE RECOGNITION

     Revenue is recognized as it is earned, which generally occurs when
fertilizer, chemical, and agricultural products are delivered or services are
provided.

  D. INCOME TAXES

     The Company's taxable operations pass directly to the joint venture owners
under the LLC organization. As a result, no provision for income taxes is
provided in the accompanying consolidated statement of operations.

  E. INVENTORIES

     Inventories are stated primarily at the lower of cost or market. Cost is
determined on a first-in, first-out or average-cost basis.

  F. REBATES RECEIVABLE

     Rebates receivable have been accrued based on contractual agreements
combined with current sales and market data.

  G.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Depreciation is provided
over the estimated useful lives (10 to 20 years for land improvements and
buildings, and 3 to 5 years for machinery and equipment) of the respective
assets in accordance with the straight-line method. The Company assesses the
recoverability of long-lived assets whenever events or changes in circumstances
indicate that expected future undiscounted cash flows may not be sufficient to
support the carrying amount of an asset. The Company deems an asset to be

                                       F-99
<PAGE>
                                AGRILIANCE, LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impaired if a forecast of undiscounted future operating cash flows is less than
its carrying amount. If an asset is determined to be impaired, the loss is
measured as the amount by which the carrying value of the asset exceeds its fair
value.

  H.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of the fair value
of all financial instruments to which the Company is a party. All financial
instruments are carried at amounts that approximate estimated fair value.

  I.  ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

2.  SHORT-TERM DEBT

     The Company has a $257 million revolving credit agreement with Chase
Manhattan, which expires November 30, 2001, and is expected to be extended to
November 29, 2002. Short-term debt is secured by the Company's inventory and the
accounts receivable of its wholly owned subsidiary, Agro Distribution. At August
31, 2001, $87 million was outstanding. Interest on borrowings under this
revolving credit agreement was charged at 6.50% (Prime + .50%) at August 31,
2001.

3.  LONG-TERM DEBT

     The Company has a $150 million long-term credit agreement with Chase
Manhattan, which expires June 28, 2004. Long-term debt is secured by the
Company's inventory and the accounts receivable of its wholly owned subsidiary,
Agro Distribution. At August 31, 2001 $115 million was outstanding. Interest on
borrowings under this long-term credit agreement was charged at 4.96% (LIBOR
+1.25%) at August 31, 2001.

     Future maturities of long-term debt are as follows:

<Table>
<Caption>
YEAR ENDING
AUGUST 31,
-----------                                                    ($ IN THOUSANDS)
<S>                                                            <C>
2002........................................................       $15,000
2003........................................................            --
2004........................................................       100,000
</Table>

     The loan agreement includes certain restrictive financial covenants. At
August 31, 2001, the Company was in compliance with these covenants.

     Interest paid on short-term and long-term debt for the year ended August
31, 2001 totaled $31.5 million.

4.  RECEIVABLES PURCHASE FACILITY

     The Company has established a $200 million receivables purchase facility
with CoBank. A wholly owned subsidiary, Agriliance SPV, Inc., has been
established to purchase the receivables from Agriliance and transfer them to
CoBank. Such transactions are structured as sales and, accordingly, the
receivables transferred to CoBank are not reflected in the consolidated balance
sheet. At August 31, 2001, $200 million

                                      F-100
<PAGE>
                                AGRILIANCE, LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was outstanding under this facility. The total accounts receivable sold during
the year ended August 31, 2001 was $3,317 million.

5.  PENSION AND OTHER POSTRETIREMENT PLANS

<Table>
<Caption>
                                                                AS OF AND FOR
                                                                THE YEAR ENDED
                                                               AUGUST 31, 2001
                                                               ----------------
                                                               ($ IN THOUSANDS)
<S>                                                            <C>
Pension benefits:
  Total plan assets at fair value...........................       $ 43,352
  Total projected benefit obligation........................        (46,854)
                                                                   --------
          Funded status.....................................       $ (3,502)
                                                                   ========
Accrued pension cost recognized in the consolidated balance
  sheet.....................................................       $    400
Benefits cost...............................................          3,778
Employer contribution.......................................          2,013
Benefits paid...............................................            974
Discount rate...............................................           7.25%
Expected return on plan assets..............................           9.50%
Rate of compensation increase...............................           4.50%
</Table>

     In addition to the defined benefit retirement plans, the Company has a
supplemental executive retirement plan, which is an unfunded defined benefit
plan. The actuarial present value of the projected benefit obligation totaled
$1,932,000 at August 31, 2001.

     The Company also provides certain health care benefits for retired
employees.

<Table>
<Caption>
                                                               AS OF AND FOR
                                                               THE YEAR ENDED
                                                              AUGUST 31, 2001
                                                              ----------------
                                                              ($ IN THOUSANDS)
<S>                                                           <C>
Other postretirement benefits:
  Total plan assets at fair value...........................      $    --
  Total projected benefit of obligations....................       (5,379)
                                                                  -------
          Funded status.....................................      $(5,379)
                                                                  =======
Accrued benefit cost recognized in the consolidated balance
  sheet.....................................................      $(3,491)
Benefits cost...............................................          555
Benefits paid...............................................          140
Discount rate...............................................         7.25%
</Table>

     For measurement purposes, a 6.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed.

                                      F-101
<PAGE>
                                AGRILIANCE, LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  RELATED PARTY TRANSACTIONS

     Land O'Lakes, Inc., CHS Cooperatives, and Farmland Industries, Inc. charged
the Company for accounting, legal, risk management, building, advertising, and
certain employee benefit and other employee-related expenses. Total purchased
services were:

<Table>
<Caption>
                                                                  YEAR ENDED
                                                               AUGUST 31, 2001
                                                               ----------------
                                                               ($ IN THOUSANDS)
<S>                                                            <C>
Land O'Lakes, Inc. .........................................        $8,091
CHS Cooperatives............................................         3,903
Farmland Industries, Inc. ..................................         1,520
</Table>

     The Company made the following sales to related parties:

<Table>
<Caption>
                                                                  YEAR ENDED
                                                               AUGUST 31, 2001
                                                               ----------------
                                                               ($ IN THOUSANDS)
<S>                                                            <C>
Land O'Lakes, Inc. .........................................       $  2,102
CHS Cooperatives............................................        139,188
Farmland Industries, Inc. ..................................          8,128
</Table>

     During the year ended August 31, 2001, the Company made product purchases
from Farmland Industries, Inc. totaling $697,916,000.

     In addition, during the year ended August 31, 2001, the Company made
product purchases from CF Industries, Inc. (Land O'Lakes, Inc. and CHS
Cooperatives hold a combined 54.5% interest in CF Industries, Inc.) totaling
$609,245,000.

7.  LEASE COMMITMENTS

     The future minimum lease commitments under noncancellable operating leases
are as follows:

<Table>
<Caption>
YEAR ENDING
AUGUST 31,
-----------                                                    ($ IN THOUSANDS)
<S>                                                            <C>
2002........................................................        $7,289
2003........................................................         5,092
2004........................................................         2,364
2005........................................................           580
2006 and thereafter.........................................           193
</Table>

     Rent expense for the year ended August 31, 2001 was $21,409,000.

8.  ASSET IMPAIRMENT CHARGE

     During the year ended August 31, 2001, as a result of difficult economic
conditions, an impairment charge of $14,820,000 was recorded to write down
certain retail facility assets of Agro Distribution LLC to their estimated fair
value.

9.  CONTINGENCIES

  A. ENVIRONMENTAL

     The Company is required to comply with various environmental laws and
regulations incident to its normal business operations. The Company has reserved
for future costs of remediation of identified issues.

                                      F-102
<PAGE>
                                AGRILIANCE, LLC

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additional costs for losses which may be identified in the future cannot be
presently determined; however, management does not believe any such issues would
materially affect the financial position of the Company.

  B. GENERAL

     Certain claims and lawsuits have been filed in the ordinary course of
business. It is management's opinion that settlement of all litigation would not
require payment of an amount which would be material to the financial position
of the Company.

                                      F-103
<PAGE>
                            EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                     DESCRIPTION
--------------------------------------------------------------------------------
<S>               <C>
      3.1         Restated Articles of Incorporation of Land O'Lakes, Inc., as
                  amended, August 1998. (1)

      3.2         By-Laws of Land O'Lakes Inc., as amended, December 2000. (1)

      4.1         Credit Agreement among Land O'Lakes, Inc., the Lenders party
                  thereto and The Chase Manhattan Bank, dated as of October 11,
                  2001. (1)

      4.2         First Amendment dated November 6, 2001 to the Credit Agreement
                  dated October 11, 2001. (1)

      4.3         Second Amendment dated February 15, 2002 to the Credit
                  Agreement dated October 11, 2001. (1)

      4.4         Guarantee and Collateral Agreement among Land O'Lakes, Inc.
                  and certain of its subsidiaries and The Chase Manhattan Bank,
                  dated as of October 11, 2001. (1)

      4.5         Indenture dated as of November 14, 2001, among Land O'Lakes,
                  Inc. and certain of its subsidiaries, and U.S. Bank, including
                  Form of 8 3/4% Senior Notes due 2011 and Form of 8 3/4% Senior
                  Notes due 2011. (1)

      4.6         Registration Rights Agreement dated November 14, 2001 by and
                  among Land O'Lakes, Inc. and certain of its subsidiaries, J.P.
                  Morgan Securities Inc., SPP Capital Partners, LLC, SunTrust
                  Robinson Capital Markets, Inc., Tokyo-Mitsubishi International
                  plc and U.S. Bancorp Piper Jaffray, Inc. (1)

      4.7         Purchase Agreement by and between Land O'Lakes, Inc., and
                  certain of its subsidiaries, J.P. Morgan Securities Inc., SPP
                  Capital Partners, LLC, SunTrust Robinson Capital Markets,
                  Inc., Tokyo-Mitsubishi International plc and U.S. Bancorp
                  Piper Jaffray, Inc., dated as of November 8, 2001. (1)

      4.8         Form of Old Note (included in Exhibit 4.5). (1)

      4.9         Form of New Note (included in Exhibit 4.5). (1)

      10.1        Amended and Restated Five Year Credit Agreement dated as of
                  October 11, 2001 among Land O'Lakes, Inc., The Chase Manhattan
                  Bank, CoBank, ACB, and the Lenders party thereto. (1)

      10.2        First Amendment dated November 6, 2001 to the Amended and
                  Restated Five-Year Credit Agreement dated October 11, 2001.
                  (1)

      10.3        Second Amendment dated February 15, 2002 to the Amended and
                  Restated Five-Year Credit Agreement dated October 11, 2001.
                  (1)

      10.4        Joint Venture Agreement by and between Farmland Industries,
                  Inc. and Land O'Lakes, Inc. dated as of July 18, 2000. (1)

      10.5        Operating Agreement of Agriliance LLC among United Country
                  Brands, LLC, Cenex Harvest States Cooperatives, Farmland
                  Industries, Inc. and Land O'Lakes, Inc. dated as of January 4,
                  2000. (1)

      10.6        Joint Venture Agreement among Cenex Harvest States
                  Cooperatives, Farmland Industries, Inc. and Land O'Lakes Inc.
                  dated as of January 1, 2000. (1)

      10.7        Operating Lease between Arden Hills Associates and Land
                  O'Lakes, Inc. dated as of May 31, 1980. (1)

      10.8        Ground Lease between Land O'Lakes, Inc. and Arden Hills
                  Associates dated as of May 31, 1980. (1)

      10.9        License Agreement among Ralston Purina Company, Purina Mills,
                  Inc. and BP Nutrition Limited dated as of October 1, 1986. (1)

      10.10       License Agreement between Land O'Lakes, Inc. and Land O'Lakes
                  Farmland Feed LLC dated September 25, 2000. (1)

      10.11       Trademark License Agreement by and between Land O'Lakes, Inc.
                  and Dean Foods dated as of July 10, 2000. (1)

      10.12       Asset Purchase Agreement between Land O'Lakes, Inc. and Dean
                  Foods dated as of May 30, 2000. (1)

      10.13       Agreement and Plan of Merger, dated as of June 17, 2001, by
                  and among Purina Mills, Inc., Land O'Lakes, Inc., LOL Holdings
                  II, Inc. and LOL Holdings III, Inc. (1)

      10.14       Management Services Agreement, dated September 1, 2000, by and
                  between Land O'Lakes and Land O'Lakes Farmland Feed LLC. (1)

      #10.15      Employment Agreement between John Prince and Land O'Lakes,
                  Inc. dated August 19, 1998. (1)

      #10.16      Amendment dated February 4, 2002 to Employment Agreement
                  between John Prince and Land O'Lakes, Inc. (1)

      10.17       Purchase and Sale Agreement dated as of December 18, 2001,
                  among Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC,
                  Purina Mills, LLC and LOL Farmland Feed SPV, LLC. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT                     DESCRIPTION
--------------------------------------------------------------------------------
<S>               <C>
      10.18       Receivables Purchase Agreement dated as of December 18, 2001,
                  among Land O'Lakes Farmland Feed LLC, LOL Farmland Feed SPV,
                  LLC, and CoBank, ACB. (1)

      #10.19      Executive Annual Variable Compensation Plan of Land O'Lakes.
                  (1)

      #10.20      Land O'Lakes Long Term Incentive Plan. (1)

      #10.21      Land O'Lakes Non-Qualified Deferred Compensation Plan. (1)

      #10.22      Land O'Lakes Non-Qualified Executive Excess Benefit Plan (IRS
                  Limits). (1)

      #10.23      Land O'Lakes Non-Qualified Executive Excess Benefit Plan (1989
                  Formula). (1)

      #10.24      Land O'Lakes Non-Qualified Executive Excess Benefit Savings
                  Plan. (1)

      #10.25      California Cooperative Value Incentive Plan of Land O'Lakes. *

      21          Subsidiaries of the Registrant (1)


(1)   Incorporated by reference to the identical exhibit to the Registrant's
      Registration Statement on Form S-4 filed March 18, 2002.

#     Management contract, compensatory plan or arrangement required to be filed
      as an exhibit to this Form 10-K.

*     Filed electronically herewith
</TABLE>