PURINA MILLS LLC - 10-K Annual Report

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UNITED STATES
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, 2002
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 333-84486

PURINA MILLS, LLC
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(Exact Name of Registrant as Specified in Its Charter)

Delaware 41-2015534
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

1080 County Road F
Shoreview, Minnesota 55126
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

(651) 481-4700
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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 [X] No
[ ]

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of 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.

Purina Mills, LLC is a member-managed limited liability company. All
of our voting equity is held by our sole member, Land O'Lakes Farmland
Feed LLC. No public market for our common equity is established and it is
unlikely, in the foreseeable future, that a public market for our common
equity will develop.

Documents incorporated by reference: None.

Indicate by check mark whether the registrant is an accelerated
filer (as defined in rule 12-b-2 of the Act). Yes [ ] No [X]

INDEX

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FORWARD-LOOKING STATEMENT

The information presented 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 Operation" 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 the 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 Operation--Risk Factors" on pages 18 to 23. 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 Operation--Risk Factors" on pages 18 to 23. Because actual results
may differ, readers are cautioned not to place undue reliance on forward-looking
statements.

WEBSITE

We maintain a website on the Internet through which additional information
about Purina Mills, LLC is available. Our website address is
www.purinamills.com. Our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports of Form 8-K, press releases and earnings releases are
available on our major stakeholder's website, www.landolakesinc.com., free of
charge, as soon as practicable after they are filed with the SEC.

PART I

ITEM 1. BUSINESS.

Unless context requires otherwise, when we refer to "Purina Mills", the
"Company," "we," "us" or "our," we mean Purina Mills, LLC together with its
consolidated subsidiaries.

OVERVIEW

Purina Mills and its predecessors have been in the animal feed business
since 1894. In March 1998, Purina Mills and its subsidiaries were acquired in a
highly leveraged acquisition by Koch Agriculture Company, a wholly owned
subsidiary of Koch Industries. As a result, a significant portion of Purina
Mills' cash flow from operations was dedicated to the payment of principal and
interest on its indebtedness. Purina Mills also had ongoing programs designed to
increase feed sales to the swine industry by providing minimum price guarantees
to, or purchasing swine from, swine producers who purchased its feed. The
minimum price guarantees were set slightly below the 40 year average price for
market hogs of approximately $38 per hundred pounds (commonly known as
hundredweight). Purchase prices for swine were also based in part upon
historical market prices. However, in 1998 and 1999, the price of market hogs
decreased dramatically, reaching a low of $8 per hundredweight in December of
1998. Purina Mills was forced to make significant payments to swine producers
under its minimum price guarantee program and was also forced to purchase swine
at above market prices, generating losses of approximately $20.2 million and
$16.2 million in 1998 and 1999, respectively. In addition, during this period,
several large processors entered the hog production business and acquired their
own feed mill operations. This had a significant negative effect on animal feed
producers. From 1997 through 1999, Purina Mills' swine feed volume declined by
35%. Ultimately, Purina Mills filed for bankruptcy in October 1999. Purina Mills
emerged from bankruptcy on June 29, 2000, as an independent, publicly-owned
company.

In October 2001, Land O'Lakes Inc. ("Land O'Lakes") acquired Purina Mills,
Inc. and subsequently Purina Mills, Inc. was reorganized as a limited liability
company, renamed Purina Mills, LLC and was contributed to Land O'Lakes Farmland
Feed LLC ("Land O'Lakes Farmland Feed") as a 100% wholly-owned subsidiary. The
total

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purchase price of the Purina Mills, Inc. acquisition was $358.6 million.
Land O'Lakes financed the acquisition and refinanced outstanding indebtedness of
Land O'Lakes and Purina Mills, Inc. through a combination of secured bank
revolving credit and term debt and the issuance of $350.0 million of unsecured
senior notes due 2011. Land O'Lakes Farmland Feed and its wholly-owned domestic
subsidiaries (other than LOL Farmland Feed SPV, LLC), including Purina Mills,
LLC, have guaranteed this indebtedness and have secured that obligation with
substantially all assets.

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

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

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

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

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 to these customers 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.

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Sales, Marketing and Advertising. We employ approximately 254 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.
We advertise in recreational magazines to promote our lifestyle animal feed
products. To promote our horse feed products, we have dedicated promoters who
travel to rodeos and other horse related events. We spent $12.0 million on
advertising and promotion for the year ended December 31, 2002.

Distribution. We distribute our animal feed nationally primarily through
approximately 3,550 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 a meal form that is then mixed with
certain nutritional additives, such as vitamins, minerals, synthetic amino
acids, and in some cases, medications. The resulting products are sold in a
variety of forms, including meal, pellets, blocks and liquids. Our feed formulas
are based upon the nutrient content as determined through proprietary scientific
research. When the price of certain raw ingredients increases, we can generally
adjust our feed formulas by substituting lower-cost, alternative ingredients to
produce feeds with comparable nutritional value. By using our least-cost product
formulation system, we can determine optimal formulations that meet our
nutritional standards and maintain product quality.

We currently operate 42 feed manufacturing plants located in 23 states. Our
total feed manufacturing capacity is approximately 5.6 million tons per year
based on a three shift per day, five-day week, and individual plant capacity
ranges from 60,000 tons to 275,000 tons per year. Our capacity utilization
varies by plant and by season, with higher utilization during the first and
fourth fiscal quarters.

Potential manufacturing economies of scale are generally not sufficient in
the feed industry to offset the cost of shipping products over significant
distances, as raw ingredients make up a large percentage of the cost of finished
products and are often available locally. As a result, we operate nationally
with a network of manufacturing facilities with sufficient capacity to meet the
demands of the local markets in which the facilities are located. We regularly
review our plant capacity and factors such as trends in animal production in
specific markets and changes in transportation costs. Based on these factors,
from time to time manufacturing capacity in particular markets may be expanded,
consolidated or eliminated. In this regard, based on our evaluation of areas
where our operations could be consolidated or rationalized, we closed one plant
in 2001 and five plants in 2002 in conjunction with the merger with Land O'Lakes
Farmland Feed.

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

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 independent dealers.
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 dedicate significant
resources to developing proprietary formulas that allow us to offer our
commercial customers alternative feed formulations using lower cost ingredients.
We employ 72 people

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in various animal feed research and development functions at our two research
and development facilities. In 2002 we spent $8.4 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 independent dealers and livestock producers and
by developing and manufacturing customized products to meet their needs.

We are member managed by our sole Manager, Land O'Lakes Farmland Feed. Our
Manager has the power to do any an all acts necessary, convenient or incidental
to or for the furtherance of our business.

EMPLOYEES

At March 1, 2003, our workforce consists of approximately 2,000 Land O'Lakes
employees, which provide services under terms of the Management Services
Agreement between Land O'Lakes and Land O'Lakes Farmland Feed, approximately 13%
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.

PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY

We market our products under the highly recognized brand names Purina, Chow
and the "Checkerboard" Nine Square logo pursuant to an exclusive, perpetual,
royalty-free license from Nestle Purina PetCare Company. 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 Nestle Purina PetCare Company. The registration of these
trademarks in the United States are effective for varying periods of time, and
may be renewed periodically, provided that we comply with all applicable renewal
requirements including, where necessary, the continued use of the trademarks in
connection with similar goods. We have developed trademarks for use in
international and domestic markets and were granted a trademark for the
America's Country Store name in 1998. Our operations do not depend to any
significant extent upon any single or related group of patents.

SEASONALITY

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

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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. 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 the manufacture of animal feeds. Discovery of
significant contamination or changes in environmental regulations governing the
inclusion 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, and animal wastes. 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.

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.

As a manufacturer and distributor of 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 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 cost 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 animal feed products through a network of 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.

7

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 have management offices in Shoreview, Minnesota and St. Louis, Missouri.
We also have a research and development facility in Gray Summit, Missouri.

(1) 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.

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

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

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

(5) Includes 7 closed facilities.

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.

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.

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.

As of December 31, 2002, 100% of our equity interests were owned by Land
O'Lakes Farmland Feed, located in Shoreview, MN.

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ITEM 6. SELECTED FINANCIAL DATA.

SELECTED PURINA MILLS CONSOLIDATED HISTORICAL FINANCIAL DATA

The selected financial information below has been derived from the Purina
Mills, LLC and Purina Mills, Inc. consolidated financial statements for the
periods indicated. They should be read together with the audited consolidated
financial statements and the related notes included elsewhere 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 Operation" and our financial statements
included in this Annual Report on Form 10-K.

See accompanying Notes to Selected Financial Data of Purina Mills,
LLC and Purina Mills, Inc.

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NOTES TO SELECTED FINANCIAL DATA OF PURINA MILLS, LLC AND PURINA MILLS, INC.

(1) In the six months ended December 31, 2000 restructuring charges of $3.5
million includes advisory fees, severance and relocation costs and
compensation expense.

In the six months ended June 30, 2000 restructuring charges were $24.9
million which includes advisory fees, severance and relocation costs and
compensation expense.

In the year ended December 31, 1999 restructuring charges were $18.1
million which represents the costs incurred in connection with a business
analysis and subsequent bankruptcy filing on October 28, 1999. Non-cash
impairment charges were $181.3 million. This was made up of $19.7 million
related to the closure of five feed plants and $161.6 million related to
the impairment of intangible assets.

(2) Purina Mills had a gain on legal settlements of $7.6 million, $4.5
million, $0.3 million, and $24.4 million for the year ended December 31,
2002, for the period January 1, 2001 through October 11, 2001, for the six
months ended December 31, 2000 and the six months ended June 30, 2000,
respectively, related to litigation with vitamin product suppliers against
whom the Company alleged certain price-fixing claims.

(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges include interest on all indebtedness and one-third of rental
expense on operating leases representing that portion of rental expense
deemed to be attributable to interest. In the period January 1, 2001
through October 11, 2001, six months ended June 30, 2000, year ended
December 31, 1999, the period March 13, 1998 through December 31, 1998,
and the period January 1, 1998 to March 12, 1998 Purina Mills would have
had to have an increase in earnings or decrease in fixed charges of $13.3
million, $6.8 million, $251.8 million, $67.0 million and $15.5 million,
respectively, to bring the ratio to 1.0x.

(4) 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).

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

You should read the following discussion of financial condition and results
of operation together with the financial statements and the notes to such
statements included elsewhere in this Annual Report on Form 10-K. 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 18 to 23 of the Annual Report on Form 10-K, that
could cause actual results to differ materially from those projected.

OVERVIEW

General

We produce both commercial and lifestyle animal feed for a wide variety of
animals, including dairy cattle, beef cattle, swine, poultry, horses and other
specialty animals such as laboratory and zoo animals. Farmers and specialized
livestock producers who derive income from the sale of milk, eggs, poultry and
livestock use our commercial feed products. Customers who own animals
principally for non-commercial purposes use our lifestyle feed products. We
market animal feed products, other than dog and cat food, under the leading
brands in the industry, Purina, Chow and the "Checkerboard " Nine Square logo.

In October 2001, Land O'Lakes acquired Purina Mills, Inc. and contributed
the business to Land O'Lakes Farmland Feed. The total purchase price of Purina
Mills was $358.6 million. The acquisition added $86.9 million of goodwill and
$98.9 million of other intangible assets to the balance sheet of Land O'Lakes
Farmland Feed, which was recorded on Purina Mills' books. Land O'Lakes financed
the acquisition and refinanced outstanding indebtedness of Land O'Lakes and
Purina Mills through a combination of secured bank revolving credit and term
debt and the issuance of $350.0 million of unsecured senior notes due 2011.
Purina Mills and its wholly-owned domestic subsidiaries have guaranteed this
indebtedness and have secured that obligation with substantially all assets.

For purposes of comparison in this management's discussion and analysis, the
results of operations of Purina Mills, Inc. for the period January 1, 2001
through October 11, 2001 and of Purina Mills, LLC for the period October 12,
2001 through December 31, 2001 have been combined. Also, the Purina Mills, Inc.
six months ended June 30, 2000 pre-emergence from bankruptcy and the Purina
Mills, Inc. six months ended December 31, 2000 post-emergence from bankruptcy
have been combined.

As a result of adoption of "fresh-start" reporting, the financial
statements for periods subsequent to June 29, 2000 are prepared on a different
basis of accounting and are not comparable to the financial statements for
periods prior to June 29, 2000, primarily with respect to the amortization of
intangibles, interest expense, restructuring expense and income tax expense. To
facilitate an understanding of Purina Mills' operating performance, the
following discussion is presented on a traditional comparative basis for all
periods, with specific explanation provided for changes in results of
operations due to the effects of "fresh-start" reporting.

Consolidated and Unconsolidated Businesses

We have several business activities that are not wholly owned. The results
of the majority and wholly-owned businesses are fully consolidated. The minority
owners' share in these businesses is eliminated in the consolidated financial
statements. Most of the investments in joint ventures in which we have 50% or
less of the governance rights are accounted for under the equity method of
accounting. In 2002, losses in unconsolidated businesses were $1.2 million,
compared to losses of $0.2 million in 2001. The investment in unconsolidated
businesses as of December 31, 2002 was $5.5 million, compared to $11.1 million
as of December 31, 2001. Cash flow from our investment in unconsolidated
businesses in 2002 was $0.6 million, compared to $1.1 million in 2001.

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 an average cost basis. Our products use agricultural
commodities as inputs, in particular corn, soybean meal, and wheat midds.
Through pricing and the use of risk management tools, the results are marginally
affected by the cost of commodity

11

inputs. Industry practices in animal feed pass cost fluctuations on to the
customer in the long term, but do not protect against large sudden movements in
input costs in the short term.

We use derivative commodity instruments, primarily futures contracts, to
reduce the exposure to changes in commodity prices primarily for product inputs
such as soybean meal and corn. These contracts are not designated as hedges
under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The futures contracts are
marked to market each month and gains and losses are recognized in earnings.
Prior to 2001, we did not mark 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. In addition, we estimate losses and retain reserves for the credit
risk related to the repayment of the notes receivable with the Qualifying
Special Purpose Entity ("QSPE") (See "Off-balance sheet arrangements"). 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 that exceed estimates and negatively impact our financial
results.

Recoverability of Long-Lived Assets. Our test for goodwill impairment is a
two-step process and is performed on at least an annual basis. The first step is
a comparison of the fair value of the reporting unit (as defined) with its
carrying amount, including goodwill. If this step reflects impairment, then the
loss would be measured as the excess of recorded goodwill over its implied fair
value. Implied fair value is the excess of fair value of the reporting unit over
the fair value of all identified assets and liabilities. We assess the
recoverability of other long-lived assets at least 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 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.

Seasonality

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

Agricultural Commodity Inputs and Outputs

Many of our products use agricultural commodities as inputs, such as corn,
soybean meal, and wheat midds. Through pricing and the use of risk management
tools, our results are marginally affected by the cost of commodity inputs.
Industry practices in animal feed pass cost fluctuations on to the customer in
the long term, but do not protect against large sudden movements in input costs
in the short term.

We follow 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 is IOIC rather than net
sales. Net sales are considered a poor indicator of performance as large
fluctuations can occur from period to period due to volatility in the underlying
commodity ingredient prices.

12

We 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
that 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 margins per ton are lower, we sell substantially more tonnage because
the grain portion of complete feed makes up the majority of its weight.

As dairy production has shifted from the Upper Midwest to the western United
States, we have seen a change in our feed product mix, with lower sales of
complete feed and increased sales of simple blends. Complete feed is
manufactured feed which meets the complete nutritional requirements of the
animal, whereas a simple blend is a blending of unprocessed commodities to which
the producer then adds vitamins to supply the animal's nutritional needs. This
change in product mix is a result of differences in industry practices. Dairy
producers in the western United States tend to purchase feed components and mix
them at the farm location rather than purchasing a complete feed product
delivered to the farm. Producers will purchase grain blends and concentrated
premixes from separate suppliers. This shift is reflected in increased sales of
simple blends in our Western feed region and increases in our subsidiaries that
manufacture premixes in the Western area. In addition, the increase in vertical
integration of swine and poultry producers has resulted in increased sales of
lower-margin feed products.

RESULTS OF OPERATIONS

- ----------

(1) Results attributable to the period after Land O'Lakes, Inc. purchased the
Company on October 11, 2001.

(2) Results attributable to the period before Land O'Lakes, Inc. purchased the
Company on October 11, 2001.

13

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

NET SALES

Net sales increased $20.4 million, or 2.3%, to $889.7 million in 2002 as
compared to net sales of $869.3 million in 2001. Overall volume was 3.8 million
tons in 2002, representing a 3.3% decline from the prior year.

Beef cattle feed volume, which is comprised of grass cattle and commercial
feedlot feed volumes, decreased 9.3% from 2001. The grass cattle segment
experienced lower volume due to much warmer and drier weather in the winter and
spring of 2002. This resulted in more days on grass and less need to supplement
the cattle. Cattle feed volumes were impacted by the drought which continued in
Colorado, Nebraska, South Dakota and Wyoming. Our commercial feedlot business
continues to be under stress from ongoing losses that resulted in the industry
losing significant equity in 2002 as consolidation continues. The lack of
feedlot cattle business profitability resulted in fewer cattle fed and
consequently, lower total feedlot volume in 2002 as compared to 2001.

Dairy feed volume increased 2.2% in 2002 as compared to 2001 due to
increased sales to large commercial herds in the West and Southwest which more
than offset declines in the Southeast markets.

Hog feed volume decreased 13.9% from the prior year due to below breakeven
swine markets for producers and the loss of three major accounts. Liquidation of
smaller producer accounts also contributed to the lower hog feed volumes. To
counter the hog feed volume decrease, we implemented a swine direct strategy in
2002 with sales focus on large direct prospects and launched new swine products.
We sold other large accounts on vitamin premixes and starters; however, the
volume was not enough to offset the overall decrease in Purina swine volume
compared to 2001.

Horse feed volume increased 10.4% over the prior year as a result of
continued market share growth. Aggressive product marketing, including
educational efforts with horse veterinarians, continues to increase horse sales
volume. Enhanced research and development helped to expedite new product
development.

Poultry feed volume decreased 54.1% from the 2001 year, due primarily to
continued poor economic conditions and the loss of a major account in 2002.

Feed volumes in our specialty and other businesses increased 14.1% over the
prior year. Our zoo, aquaculture, lab, outdoor animal, goat and Show Chow feed
volumes continued to grow while our family livestock and branded family flock
and rabbit businesses were relatively flat. Our PMI Nutrition business, the dog
and cat food business in our channel, continues to grow in both the super
premium pet foods and the economy pet foods.

COST OF SALES

Cost of sales increased $21.7 million, or 3.0%, from $719.6 million in 2001
to $741.3 million in 2002. This was primarily due to a $24.3 million increase in
ingredient costs. Manufacturing and distribution expenses decreased $2.6 million
from the prior year primarily as a result of lower energy costs due to a milder
winter and plant closures.

GROSS PROFIT

Gross profit was $148.3 million in 2002, a decrease of 1.0% from 2001.
Average IOIC (revenues less ingredient costs) per ton was $74.96 for the current
year compared to $73.49 for the prior year.

SELLING, GENERAL AND ADMINISTRATION EXPENSE

Selling, general and administration expense decreased $39.2 million, or
26.5%, to $108.6 million in 2002, compared to $147.8 million in 2001. Expenses
in 2001 included $1.0 million of costs related to a settlement of a product
claim and $11.3 million of costs related to stock-based compensation expenses
which were not recurring in 2002. Additionally, 2001 included $11.3 million of
additional intangible amortization expense over such amount for 2002 as a result
of the revaluation of assets at the time of their acquisition by Land O'Lakes.
Other selling, general and administration expense decreased $15.6 million in
2002, primarily as a result of reduced personnel costs achieved through the
integration plan with Land O'Lakes Farmland Feed.

As part of the merger with Land O'Lakes Farmland Feed in October, 2001, the
Company no longer records certain selling, general and administrative expenses.
The costs include corporate and other overhead costs which are paid for and
expensed by Land O'Lakes Farmland Feed.

14

GAIN ON LEGAL SETTLEMENTS

Gain on legal settlements increased $3.1 million to $7.6 million in 2002,
compared to $4.5 million in 2001, due to proceeds received in settlement of
vitamin claims.

INTEREST EXPENSE

As a result of the October 11, 2001 acquisition, all of our outstanding
debt, exclusive of intercompany borrowings, was eliminated. Thus, in 2002 we
incurred no interest expense, but rather received interest income of $1.2
million primarily due to the sale of receivables. In 2001, we incurred interest
expense of $13.3 million on outstanding debt.

INCOME TAX EXPENSE

Since we are now a limited liability company, we do not incur any income tax
expense at the company level. In contrast, in 2001 we recorded a tax expense of
$0.9 million on our earnings before taxes, after the elimination of
non-deductible amortization on certain intangibles.

NET EARNINGS

Net earnings increased $55.2 million to net earnings of $47.3 million in
2002, compared to a net loss of $7.9 million in 2001. Lower gross profit was
more than offset by lower selling, general and administration expense, lower
interest expense and the elimination of income tax expense.

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

NET SALES

Net Sales increased by $29.5 million, or 3.5%, to $869.3 million in 2001, as
compared to net sales of $839.8 million in 2000. An increase of commodity prices
contributed to the increase in sales. Overall volume was 3.9 million tons for
the year 2001, representing a decrease of 1.9% from the prior year.

Beef cattle volume in 2001 decreased 2.1% from 2000. Dairy cattle tons
decreased 5.9% in 2001 as compared to 2000. Industry consolidation was a
contributing factor to the decrease. Hog volume in 2001 remained fairly constant
with 2000, decreasing 1.1%. Horse feed volume in 2001 increased 4.9% over 2000.
There was continued success in growing our horse volume and increasing our
market share in this business. Specialty and other volume remained flat in 2001.
Poultry volume slightly decreased 1.3% in 2001 as compared to the prior year.

COST OF SALES

Cost of sales increased $36.9 million or 5.4% from $682.7 million in 2000 to
$719.6 million in 2001. This was primarily due to a $31.9 million increase in
ingredient costs in 2001. Manufacturing and distribution expenses increased $5.0
million in 2001 from the prior year, due primarily to higher energy costs.

GROSS PROFIT

Gross profit was $149.7 million in 2001, a decrease of 4.7% from 2000.
Average IOIC (revenues less ingredient costs) per ton was $73.49 in 2001, as
compared to $72.69 in 2000.

SELLING, GENERAL AND ADMINISTRATION EXPENSE

Selling, general and administration expense increased $6.7 million, or 4.7%,
to $147.8 million in 2001, compared to $141.1 million in 2000. Expenses in 2000
included a gain of $3.3 million on the sale of our headquarters building.
Expenses in 2001 included $11.3 million of costs relating to stock-based
compensation

15

compared to $0 in 2000. Additionally, 2001 included $7.7 million of decreased
intangible amortization expense as compared to 2000. Other selling, general and
administration expense decreased $0.2 million in 2001 compared to 2000.

GAIN ON LEGAL SETTLEMENTS

Gain on legal settlements decreased $20.2 million to $4.5 million in 2001,
compared to $24.7 million in 2000, due to proceeds received in settlement of
vitamin claims.

RESTRUCTURING AND IMPAIRMENT CHARGES

Restructuring and impairment charges of $28.4 million in 2000 include $12.4
million in advisory and financing fees incurred in connection with the
bankruptcy cases, in addition, $7.0 million was incurred for service fees,
severance and moving costs, and $9.0 million for compensation expense.

INTEREST EXPENSE

Interest expense in 2001 decreased $3.5 million from $16.8 million in 2000
to $13.3 million in 2001, due primarily to debt reduction in the first nine
months of 2001. As a result of the October 11, 2001 acquisition, all outstanding
debt, exclusive of intercompany borrowings, was eliminated, and we recorded
interest income of $0.1 million in the fourth quarter of 2001.

INCOME TAXES

Income tax expense decreased $2.1 million in 2001 as compared to 2000.

NET EARNINGS

Net earnings decreased $0.6 million to a net loss of $7.9 million in 2001,
compared to a net loss of $7.3 million in 2000.

LIQUIDITY AND CAPITAL RESOURCES

We rely on cash from operations, borrowings from Land O'Lakes Farmland Feed,
and the sale of accounts receivable as the main sources of financing working
capital requirements, additions to property, plant and equipment and
acquisitions and joint ventures. Other sources of funding consist of leasing
arrangements and the sale of non-strategic assets. There were no long-term debts
at December 31, 2002. The only long-term debt at December 31, 2001 was a $58.8
million note payable to Land O'Lakes Farmland Feed.

Net cash provided by operating activities was $40.2 million for the year
ended December 31, 2002 and $36.4 million for the year ended December 31, 2001.
For the year ended December 31, 2002, net cash from operating activities
increased $3.8 million over 2001. This increase was due primarily to increased
earnings in the year 2002 offset by decreases in current assets and liabilities.

Net cash flows used by investing activities was $6.8 million for the year
ended December 31, 2002. Net cash flows used by investing activities was $20.7
million for the year ended December 31, 2001. For the year ended December 31,
2002, net cash used by investing activities decreased $13.9 million over 2001.
The decrease was primarily due to reduced purchases of equipment at our
facilities.

Net cash used by financing activities was $41.1 million for the year ended
December 31, 2002 compared to net cash used by financing activities of $39.0
million for the year ended December 31, 2001. For the year ended December 31,
2002, net cash used by financing activities increased by $2.1 million over 2001.
This increase was primarily due to the note payable to Land O'Lakes Farmland
Feed, LLC.

16

At December 31, 2002, we had $6.7 million in cash and short term
investments. We operate with a relatively low working capital level because a
majority of our sales are made on terms whereby customers receive a 3% discount
if payment is received immediately upon shipment of feed products, and raw
ingredients are normally purchased just prior to manufacturing and shipment. We
expect that capital expenditures in 2003 will be approximately $20 million.

A borrowing arrangement has been established between the Company and Land
O'Lakes Farmland Feed for the purpose of financing our working capital.
Borrowings under the arrangement bear no interest.

OFF-BALANCE SHEET ARRANGEMENTS

Land O'Lakes, Land O'Lakes Farmland Feed and Purina Mills 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,
these entities 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 Purina Mills. 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 upon advance rate;
and notes, equal to the unadvanced present value of the receivables. Purina
Mills 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, Purina Mills has
retained reserves for estimated losses. As of December 31, 2002, no amount was
drawn under the revolving receivables securitization by Purina Mills.

In addition, we lease various equipment and real properties under long-term
operating leases. Total consolidated rental expense was $5.8 million for the
year ended December 31, 2002; $6.5 million for the year ended December 31, 2001
and $7.5 million for the year ended December 31, 2000. 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.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

At December 31, 2002, we had certain contractual obligations, which require
us to make payments as follows:

PAYMENTS DUE BY PERIOD (AS OF DECEMBER 31, 2002)

We have certain commitments which may require the following payments to be made:

AMOUNTS OF CONTINGENT OBLIGATIONS (1)
EXPIRATION BY PERIOD (AS OF DECEMBER 31, 2002)

(1) See "Off-balance Sheet Arrangements" for information concerning our
receivables securitization.

17

(2) Term Loan A and Term Loan B Facilities are subject to certain mandatory
prepayment obligations in certain events.

We expect that our total capital expenditures will be approximately $20
million in 2003. Of such amount, we currently estimate that a minimum range of
$6 million to $7 million of ongoing maintenance capital expenditures is required
each year.

We expect that funds from operations and available borrowings under our
borrowing arrangement with Land O'Lakes Farmland Feed and receivables
securitization facility will provide sufficient working capital to operate our
business, to make expected capital expenditures and to meet foreseeable
liquidity requirements.

RECENT ACCOUNTING PRONOUNCEMENTS

We adopted the remaining provisions of SFAS 142, "Goodwill and Other
Intangible Assets," on January 1, 2002. Under SFAS 142, goodwill and other
intangible assets that have indefinite lives are no longer amortized except for
goodwill related to the formation of joint ventures, but rather will be tested
for impairment at least annually in accordance with the provisions of the
standard.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. Under existing
accounting literature, certain costs for exit activities were recognized at the
date a company committed to an exit plan. The provisions of the standard are
effective for exit or disposal activities initiated after December 31, 2002. The
standard is generally expected to delay recognition of certain exit related
costs.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirement for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("The Interpretation"). The
Interpretation requires that upon issuance of certain guarantees, the guarantor
must recognize a liability for the fair value of the obligation it assumes under
that guarantee. The Interpretation also requires additional disclosures by a
guarantor in its interim and annual financial statements about the obligations
associated with guarantees issued. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002, and have been included in Note 12 on page F-13. The recognition and
measurement provisions are effective on a prospective basis to guarantees issued
or modified after December 31, 2002.

RISK FACTORS

CHANGES IN CONSUMER PREFERENCES COULD DECREASE OUR REVENUES AND CASH FLOW.

We are subject to the risks of changing consumer preferences, which may
result from a general economic downturn and nutritional and health-related
concerns. Any shift in consumer preferences away from our products could
decrease our revenues and cash flow and impair our ability to operate our
business.

Our business relies on the sale of feed products to consumers who own
animals for recreational purposes or hobbies. The impact of an extended economic
downturn in the United States economy could cause some of these owners either to
sell their animals or to seek alternative, less expensive products.

COMPETITION IN THE INDUSTRY MAY REDUCE OUR SALES AND MARGINS.

Our business operates in a highly competitive environment. In addition, we
compete with companies that have substantial capital resources, research and
development staffs, facilities, diversity of product lines and brand
recognition. Increased competition as to any of our products could result in
reduced prices which would reduce our sales and margins.

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.

18

AN OVERSUPPLY OF FOOD PROTEINS IN THE UNITED STATES MARKET COULD CONTINUE TO
REDUCE OUR NET SALES AND CASH FLOWS.

Our animal feed segment supplies feed to farmers and specialized livestock
producers for use in their commercial production of livestock. When the price
that these producers receive for their livestock declines as a result of an
oversupply of food proteins (such as beef cattle, swine and chicken) in the
market, such producers may decide to lower their production levels or to seek
alternative, lower margin products, resulting in lower net sales and cash flows
for us.

CHANGES IN OUR DISTRIBUTION CHANNELS COULD DECREASE OUR REVENUES AND CASH FLOW.

We sell our products through various distribution channels. Increased
turnover in any of these channels could result in a loss of distribution access
to certain markets, resulting in lower sales and cash flows.

OUR OPERATING RESULTS FLUCTUATE BY SEASON AND ARE AFFECTED BY EXTREME WEATHER
CONDITIONS.

Our operating results are affected by seasonal fluctuations of our sales and
operating profits. Our 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.

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. 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.

LAND O'LAKES INABILITY TO SERVICE ITS INDEBTEDNESS COULD REQUIRE SIGNIFICANT
CASH PAYMENTS, INCLUDING THE FORECLOSED VALUE OF SUBSTANTIALLY ALL OF OUR
ASSETS, TO FULLY SATISFY OUR GUARANTEE OF THAT INDEBTEDNESS.

Along with all of our wholly-owned subsidiaries, we jointly and severally
guarantee the performance and full and punctual payment of Land O'Lakes
indebtedness and have secured that obligation with a security interest in
substantially all of our assets. In the event that Land O'Lakes is unable to
fully and punctually service its indebtedness, Land O'Lakes creditors would look
to us for complete satisfaction of the indebtedness. To the extent that we do
not have sufficient cash available to fully satisfy our guarantee, Land O'Lakes
creditors could force us to sell substantially all of our assets and forfeit all
of the resulting proceeds.

The covenants governing Land O'Lakes indebtedness may impose operating and
other restrictions on us that will affect and may limit or prohibit, among other
things, our ability to incur additional debt and sell or otherwise dispose of
our assets.

INCREASED ENERGY AND GAS COSTS COULD INCREASE OUR EXPENSES AND REDUCE OUR
PROFITABILITY.

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.

19

OUTBREAKS OF DISEASE CAN REDUCE OUR NET SALES AND OPERATING MARGINS.

The productivity and profitability of our businesses depend on animal 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 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 Newcastle disease, which could lead to the
destruction of poultry flocks. Because Newcastle disease is highly contagious
and destructive, any outbreak of Newcastle disease could result in the
widespread destruction of infected flocks. If this happens, we could experience
a decreased demand for our poultry feed which could reduce our sales and
operating margins.

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 potentially all infected livestock. Our operations
could suffer as a result of decreased demand for feed products. In addition, we
may be prevented from selling or transporting hogs.

CHANGES IN THE MARKET PRICES OF THE AGRICULTURAL COMMODITIES THAT WE USE AS
INPUTS AS WELL AS THE PRODUCTS WE MARKET MAY CAUSE OUR OPERATING PROFIT TO
DECREASE.

Many of our products use agricultural commodities as inputs or constitute
agricultural commodity outputs. Consequently, increased cost of commodity inputs
and decreased market price of commodity outputs may reduce our operating profit.

We follow 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 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 increased expense could reduce our profitability.

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,
consumer demand and oversupply of proteins. In December 1998, the price of hogs
hit its lowest point in nearly forty years, 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. During 1999
through 2002 a large portion of these losses were attributable to contract
provisions which guarantee swine producers certain minimum prices for feeder
pigs. Although we do not intend to renew or extend these contracts, we may
continue to incur losses under these contracts until the last ones expire in
2005.

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.

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

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

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

o non-competition 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

20

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.

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.

As a manufacturer of animal feed products, we are subject to the Federal
Food, Drug and Cosmetic Act and regulations issued there under by the Food and
Drug Administration ("FDA"). Several states also have laws that protect feed
distributors or restrict the ability of corporations to engage in farming
activities. These regulations may require us to alter or restrict our operations
or cause us to incur additional costs in order to comply with the regulations.

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

We rely on patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our intellectual
property. We have invested substantial resources promoting and developing our
trademarked brands and establishing their reputation as high-quality products.
Any infringement or misappropriation of our intellectual property could damage
its value and could limit our ability to compete. 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 license the trademarks Purina, Chow and the "Checkerboard" Nine Square
logo under a perpetual, royalty-free license from Nestle Purina PetCare Company.
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, we 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.

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.

Our 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.

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 animal feed products involves the risk of injury to those
animals as well as human consumers of those animals. Such hazards could result
from:

o tampering by unauthorized third parties;

21

o product contamination (such as listeria, E. coli. and salmonella) or
spoilage;

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

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

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

Some of the products we sell are produced for us by third parties, or
contain inputs manufactured by third parties, and such third parties may not
have adequate quality control standards to assure that such products are not
adulterated, misbranded, contaminated or otherwise defective. 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.

Consumption of our products may cause serious health-related illnesses and
we may 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. Such claims or
liabilities may not 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. In the past, we have voluntarily recalled certain of our
products in response to reported or suspected contamination. If we determine to
recall any of our products, we may face material consumer claims.

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

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 may have been contaminated,
and we may be required to make material expenditures to investigate, control and
remediate such contamination.

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.

STRIKES OR WORK STOPPAGES BY OUR UNIONIZED WORKERS COULD DISRUPT OUR BUSINESS.

At March 1, 2003, approximately 13% 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 non-unionized operations were to become
unionized, we could experience a significant disruption of our operations or
higher ongoing labor costs.

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, the operation of our business would be disrupted and we may not be
able to replace their skills and leadership in a timely manner to

22

continue our operations as currently anticipated. We operate generally without
employment agreements with, or key person life insurance on the lives of, our
key personnel.

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 Result of Operation-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 the 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 futures
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.

The notional or contractual amount of futures contracts provides an
indication of the extent of our involvement in such instruments for the dates
and the periods provided below, but does not represent exposure to market risk
or future cash requirements under certain of these instruments. A summary of our
futures contracts follows:

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.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and notes thereto required pursuant to this Item 8
begin immediately after the certifications of this annual report on Form 10-K.

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

None.

PART III

ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT.

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

Unless otherwise indicated, each officer has been in his or her current
profession for at least the past five years.

Robert DeGregorio, President of the Company since October 2001 and
President of Land O'Lakes Farmland Feed since 2000. 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.

Daniel Knutson, Senior Vice President and Chief Financial Officer of Land
O'Lakes and Land O'Lakes Farmland Feed since 2000. Mr. Knutson began his career
at Land O'Lakes in 1978. Mr. Knutson has been the Senior Vice President
and Chief Financial Officer of the Company since October 2001. He received his
BS Degree in Accounting in 1977 and MBA with emphasis in Finance in 1991, both
from Mankato State University, and has earned his CPA and CMA certifications.

Duane Halverson, Executive Vice President and Chief Operating Officer of
Land O'Lakes 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, and now heads up
Land O'Lakes Ag Services businesses, which include animal feed, crop seed and
swine operations. Mr. Halverson also performs policy making functions for
Purina Mills.

James Wahrenbrock, Vice President, Planning and Business Development of
Land O'Lakes 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 Land O'Lakes. He joined Land O'Lakes in
1976. Mr. Wahrenbrock also performs policy making functions for Purina Mills.

John E. Gherty, President and Chief Executive Officer of Land O'Lakes 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 of Land O'Lakes. He was appointed to his present position in 1989.
Mr. Gherty also performs policy making functions for Purina Mills.

24

Dr. David Hettinga, Vice President of Research, Technology and Engineering
since 1989. Dr. Hettinga joined Land O'Lakes in 1983. He obtained a M.S. in Food
Science from Purdue University, and a Ph.D. in Food Microbiology from Iowa State
University.

Robert Terry, President and Chief Executive Officer of Farmland Industries
since May, 2002. Mr. Terry is a 13-year Farmland Industries veteran who most
recently served as Farmland executive vice president, general counsel and
corporate secretary. Mr. Terry joined Farmland in 1989 and has been a member of
Farmland Senior Management for nine years. Prior to joining Farmland, Terry
practiced law with Spencer Fane Britt & Browne. He holds a Bachelor of Science
degree in accounting and business and a Juris Doctorate from the University of
Missouri. Farm Industries initiated Chapter 11 bankruptcy proceedings on
May 31, 2002.

Steve Rhodes, Executive Vice President and Chief Financial Officer of
Farmland Industries since May, 2002. Mr. Rhodes has been with Farmland and the
cooperative system since 1979, most recently serving as Farmland Industries Vice
President and Controller. Mr. Rhodes earned a bachelor's degree in accounting
from Northwest Missouri State University, Maryville, Missouri, and a master's
degree in business administration from Rockhurst College, Kansas City, Missouri.

Mike Doyle, Vice President and Controller of Land O'Lakes Farmland Feed
since December, 2001. Mr. Doyle began his career at Land O'Lakes in the
internal audit department in 1995.

Dan McGowan, Vice President of Manufacturing and Logistics of Land O'Lakes
Farmland Feed since December, 2001. Mr. McGowan joined Land O'Lakes in January,
1999 when Land O'Lakes acquired CountryMark. Mr. McGowan worked at CountryMark
since October, 1994.

Jack Madill, Vice President of Swine Sales and Marketing of Land O'Lakes
Farmland Feed since August, 2000 when Land O'Lakes feed division merged with
Farmland Industries feed division. Mr. Madill had worked at Farmland Industries
since 1983.

John Swanson, Vice President of Income Optimization, Land O'Lakes Farmland
Feed since December, 2001. Mr. Swanson began his career at Land O'Lakes in 1971
in the Land O'Lakes feed division.

ITEM 11. EXECUTIVE COMPENSATION.

The following table shows, for the chief executive officer of Purina Mills
and each of our four other most highly compensated executive officers,
information concerning compensation earned for services in all capacities during
the year ended December 31, 2002.

SUMMARY COMPENSATION TABLE

(1) Compensation to all these individuals is paid by Land O'Lakes, and includes
amounts earned for such individuals' service to each of Land O'Lakes, Land
O'Lakes Farmland Feed and Purina Mills. Land O'Lakes is reimbursed by Land
O'Lakes Farmland Feed for such officers' services pursuant to the Management
Services Agreement dated September 1, 2000 between Land O'Lakes and Land
O'Lakes Farmland Feed further described below. These individuals are
executive officers of Land O'Lakes and also perform policy making functions
for Land O'Lakes Farmland Feed and Purina Mills.

(2) The amounts shown in the table for 2002 reflect life insurance premiums paid
by Land O'Lakes in the amount of $8,600 for Mr. Gherty, $8,400 for Mr.
Halverson, $3,800 for Mr. DeGregorio, $3,900 for Mr. Knutson and $7,975 for
Mr. Hettinga. 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:

25

OPTION/SAR GRANTS IN LAST FISCAL YEAR

(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) Mr. Halverson and Mr. DeGregorio were granted 1,250 and 2,500 options,
respectively, contingent upon meeting certain performance measures related
to the integration of Purina Mills into Land O'Lakes Farmland Feed. The
table currently assumes that the performance measures will be met. In the
event that the performance measures are not met, the entries for Mr.
Halverson and Mr. DeGregorio would be adjusted accordingly.

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 Purina Mills during the fiscal
year ended December 31, 2002 and any value of their unexercised options as of
December 31, 2001. The named executive officers did not exercise options in
2002. Purina Mills has not issued any stock appreciation rights to the named
executive officers.

(1) Value is based on a Unit value of $27.69, which was the value of the Units
on December 31, 2002, minus the purchase price.

26

PURINA MILLS EMPLOYEES SAVINGS AND SUPPLEMENTAL RETIREMENT PLAN

The Purina Mills 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 Purina Mills
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 100% of the first 6%
of pre-tax and or after-tax contributions made by employees.

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% 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 6% 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 are achieved, excess awards may be granted. These awards
also vary based on the participant's position, between 79-102% 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

27

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.

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 $95,000 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 base compensation
and 100% of variable pay. The default distribution is monthly installments over
a five year 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.

28

LAND O'LAKES EMPLOYEE RETIREMENT PLAN

PENSION PLAN TABLE

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 above. 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 above.

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, 2003, Mr. Gherty was credited with 32 years of service, Mr.
Halverson was credited with 32 years of service, Mr. DeGregorio was credited
with 21 years of service, Mr. Knutson was credited with 25 years of service and
Mr. Hettinga was credited with 19 years of service.

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

As of December 31, 2002, 100% of our equity interests were owned by Land
O'Lakes Farmland Feed, located in Shoreview, MN.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

A borrowing arrangement has been established between the Company and Land
O'Lakes Farmland Feed for the purpose of financing our working capital.
Borrowings under the arrangement with Land O'Lakes Farmland Feed bear no
interest.

As of January 1, 2003 Purina Mills employees became Land O'Lakes employees
and were leased to Farmland Feed LLC in accordance with the Management Services
Agreement between Land O'Lakes, Inc. and Land O'Lakes Farmland Feed.

29

PART IV

ITEM 14. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures.

The Company's Chief Executive Officer and Chief Financial Officer evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in rule 13a-14(c) under the Exchange Act) as of a date
(the "Evaluation Date") within 90 days prior to the filing date of this annual
report on Form 10-K. Based upon their evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective in timely alerting them to the
material information relating to us (or our consolidated subsidiaries) required
to be included in our periodic SEC filings.

(b) Changes in internal controls.

There were no significant changes made in our internal controls during the
period covered by this report or in other factors that could significantly
affect these controls subsequent to the date of their evaluation and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.

ITEM 15. 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:

(b) REPORTS ON FORM 8-K

No reports were filed on Form 8-K during the quarter ended
December 31, 2002.

30

4.2 First Amendment dated November 6, 2001 to the Credit
Agreement dated October 11, 2001.(3)

4.3 Second Amendment dated February 15, 2002 to the Credit
Agreement dated October 11, 2001.(3)

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.(3)

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.(3)

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.(3)

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.(3)

4.8 Form of Old Note (included in Exhibit 4.5).(3)

4.9 Form of New Note (included in Exhibit 4.5).(3)

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.(3)

10.2 First Amendment dated November 6, 2001 to the Amended and
Restated Five-Year Credit Agreement dated October 11, 2001.(3)

10.3 Second Amendment dated February 15, 2002 to the Amended and
Restated Five-Year Credit Agreement dated October 11, 2001.(3)

10.4 Joint Venture Agreement by and between Farmland Industries,
Inc. and Land O'Lakes, Inc. dated as of July 18, 2000.(3)

10.5 License Agreement among Ralston Purina Company, Purina
Mills, Inc. and BP Nutrition Limited dated as of October 1,
1986.(4)

10.6 License Agreement between Land O'Lakes, Inc. and Land
O'Lakes Farmland Feed LLC dated September 25, 2000.(5)

10.7 Certification of Formation of Land O'Lakes Farmland Feed LLC
dated August 11, 2000.(6)

10.8 Limited Liability Company Agreement of LOL FF LLC.(7)

10.9 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.(8)

10.10 Management Services Agreement, dated September 1, 2000, by
and between Land O'Lakes and Land O'Lakes Farmland Feed LLC.(9)

10.11 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.(10)

10.12 Receivables Purchase Agreement dated as of December 18,
2001, among Land O'Lakes Farmland Feed LLC, LOL Farmland
Feed SPV, LLC, and CoBank, ACB.(11)

10.13 Executive Annual Variable Compensation Plan of Land O'Lakes.(12)#

10.14 Land O'Lakes Long Term Incentive Plan.(13)#

10.15 Land O'Lakes Non-Qualified Deferred Compensation Plan.(14)#

10.16 Land O'Lakes Non-Qualified Executive Excess Benefit Plan
(IRS Limits).(15)#

10.17 Land O'Lakes Non-Qualified Executive Excess Benefit Plan
(1989 Formula).(16)#

10.18 Land O'Lakes Non-Qualified Executive Excess Benefit Savings
Plan.(17)#

10.19 Amended Land O'Lakes Long Term Incentive Plan.(18)*

12.0 Statement regarding the computation of ratios*

21 Subsidiaries of registrant*

99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

(1) Incorporated by reference to exhibit 3.60 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002. (Registration No.
333-84486).

31

(2) Incorporated by reference to exhibit 3.61 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002. (Registration No.
333-84486).

(3) Incorporated by reference to the identical exhibit to the Land O'Lakes,
Inc. Registration Statement on Form S-4 filed March 18, 2002 (Registration
No. 333-84486).

(4) Incorporated by reference to exhibit 10.9 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(5) Incorporated by reference to exhibit 10.10 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(6) Incorporated by reference to exhibit 10.28 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486)

(7) Incorporated by reference to exhibit 10.29 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486)

(8) Incorporated by reference to exhibit 10.13 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(9) Incorporated by reference to exhibit 10.14 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(10) Incorporated by reference to exhibit 10.17 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(11) Incorporated by reference to exhibit 10.18 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(12) Incorporated by reference to exhibit 10.19 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(13) Incorporated by reference to exhibit 10.20 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(14) Incorporated by reference to exhibit 10.21 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(15) Incorporated by reference to exhibit 10.22 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(16) Incorporated by reference to exhibit 10.23 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(17) Incorporated by reference to exhibit 10.24 to the Land O'Lakes, Inc.
Registration Statement on Form S-4 filed March 18, 2002 (Registration No.
333-84486).

(18) Incorporated by reference to exhibit 10.27 to the Land O'Lakes, Inc. Form
10-K for the annual period ended December 31, 2002, filed on March 27,
2003.

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

* Filed electronically herewith

32

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 27, 2003.

PURINA MILLS, LLC

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 27, 2003.

/s/ Robert DeGregorio President and Manager
- --------------------- (Principal Executive Officer)
Robert DeGregorio

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

/s/ Duane Halverson Manager, Land O'Lakes Farmland Feed LLC
- ---------------------
Duane Halverson

/s/ James Wahrenbrock Manager, Land O'Lakes Farmland Feed LLC
- ---------------------
James Wahrenbrock

/s/ Robert Terry Manager, Land O'Lakes Farmland Feed LLC
- ---------------------
Robert Terry

/s/ Steve Rhodes Manager, Land O'Lakes Farmland Feed LLC
- ---------------------
Steve Rhodes

33

CERTIFICATIONS

I, Robert DeGregorio, certify that:

I have reviewed this annual report on Form 10-K of Purina Mills, LLC;

Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the annual report;

The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;

The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

By /s/ Robert DeGregorio
---------------------
Robert DeGregorio
President and Manager

34

I, Daniel Knutson, certify that:

I have reviewed this annual report on Form 10-K of Purina Mills, LLC;

Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the annual report;

The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;

The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

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

35

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT

No annual report to security holders covering the registrant's last fiscal year
and no proxy statement, form of proxy or other proxy soliciting material with
respect to any annual or other meeting of security holders has been or will be
sent to security holders.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report of KPMG LLP.............................................................. F-2

Financial Statements for the years ended December 31, 2002 and 2001
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001............................. F-3

Consolidated Statements of Operations for the year ended
December 31, 2002, for the period October 12, 2001 though December 31, 2001, for
the period January 1, 2001 through October 11, 2001, for the six months ended
December 31, 2000 and the six months ended June 30, 2000............................................. F-4

Consolidated Statements of Cash Flows for the year ended
December 31, 2002, for the period October 12, 2001 though December 31, 2001, for
the period January 1, 2001 through October 11, 2001, for the six months ended
December 31, 2000 and the six months ended June 30, 2000............................................. F-5

Consolidated Statements of Equities for the year ended
December 31, 2002, for the period October 12, 2001 though December 31, 2001, for
the period January 1, 2001 through October 11, 2001, for the six months ended
December 31, 2000 and the six months ended June 30, 2000............................................ F-6

Notes to Consolidated Financial Statements............................................................ F-7

F-1

INDEPENDENT AUDITORS' REPORT
The Board of Managers
Purina Mills, LLC:

We have audited the accompanying consolidated balance sheets of Purina
Mills, LLC and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, cash flows and equities for the year
ended December 31, 2002, for the period October 12, 2001 through December 31,
2001, for the period January 1, 2001 through October 11, 2001, for the six
months ended December 31, 2000 and for the six months ended June 30, 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 Purina
Mills, LLC and subsidiaries as of December 31, 2002 and 2001, and the results of
their operations and their cash flows for the year ended December 31, 2002, for
the period October 12, 2001 through December 31, 2001, for the period January 1,
2001 through October 11, 2001, for the six months ended December 31, 2000 and
for the six months ended June 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.

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

As discussed in Note 1 to the consolidated financial statements, in 2002,
the Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." 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 Activities," as amended
by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities"; Statement No. 141, "Business Combinations"; certain
provisions of Statement No. 142, "Goodwill and Other Intangible Assets," as
required for goodwill and intangible assets resulting from business combinations
consummated after June 30, 2001; and Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."

/s/ KPMG LLP

Minneapolis, Minnesota
January 30, 2003

F-2

PURINA MILLS, LLC

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements

F-3

PURINA MILLS, LLC (FORMERLY PURINA MILLS, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements

F-4

PURINA MILLS, LLC (FORMERLY PURINA MILLS, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements

F-5

PURINA MILLS, LLC (FORMERLY PURINA MILLS, INC.)

CONSOLIDATED STATEMENTS OF EQUITIES

See accompanying notes to consolidated financial statements.

F-6

PURINA MILLS, LLC (FORMERLY PURINA MILLS, INC.)

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

1. ORGANIZATION

ORGANIZATION

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 of funds
required to consummate the Merger included $350 million of Senior Subordinated
Notes ("Notes").

Faced with 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").

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

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

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

The adjustments to reflect the consummation of the Plan, including the
gain on extinguishment of debt related to pre-petition liabilities and the
adjustment to record assets and liabilities at their fair values (including the

F-7

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 are held in escrow by the
transfer agent. Further distributions were made quarterly until all allowed
claims have been satisfied.

From January 1, 2000 through December 31, 2000, the Company incurred
$28.4 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):

On October 11, 2001, pursuant to an Agreement and Plan of Merger, LOL
Holdings III, Inc., an indirect wholly-owned subsidiary of Land O'Lakes, Inc.
was merged into Purina Mills, Inc. ("PMI"), with PMI being the surviving
corporation. As a result of the merger, LOL Holdings II, Inc., a wholly-owned
subsidiary of Land O'Lakes, Inc. owned 100% of PMI. Subsequently, PMI was
reorganized as a limited liability company, renamed Purina Mills, LLC ("Purina
Mills") and LOL Holdings II, Inc. contributed the business to Land O'Lakes
Farmland Feed LLC. Upon the formation of Purina Mills, LLC, provisions for
income taxes were no longer recorded since the taxable operations pass directly
to the owner.

The merger has been accounted for as a purchase transaction in accordance
with Statement of Financial Accounting Standards No. 141 ("SFAS 141") and,
accordingly, the consolidated financial statements for periods subsequent to
October 11, 2001 reflect the purchase price, including transaction costs,
allocated to tangible and intangible assets acquired and liabilities assumed,
based on their estimated fair value as of October 11, 2001. The consolidated
financial statements for periods prior to October 11, 2001 have been prepared on
the predecessor cost basis of Purina Mills, LLC.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. Certain
reclassifications have been made to the 2001 and 2000 consolidated financial
statements to conform to the 2002 presentation.

F-8

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 an 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". The futures contracts are marked to market each month and gains and
losses are recognized in earnings.

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.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price over the fair value of
acquired businesses. Upon adoption of the remaining provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, the Company no
longer amortizes goodwill. See Note 8 for pro forma effects of adopting this
standard.

Other intangible assets consist primarily of trademarks, patents, and
agreements not to compete. Certain trademarks are no longer amortized because
they have indefinite lives. The remaining other intangible assets are amortized
using the straight-line method over the estimated useful lives, ranging from 3
to 12 years.

RECOVERABILITY OF LONG-LIVED ASSETS

The test for goodwill impairment is a two-step process, and is performed on
at least an annual basis. The first step is a comparison of the fair value of
the reporting unit (as defined) with its carrying amount, including goodwill. If
this step reflects impairment, then the loss would be measured as the excess of
recorded goodwill over its implied fair value. Implied fair value is the excess
of fair value of the reporting unit over the fair value of all identified assets
and liabilities. The Company assesses the recoverability of other long-lived
assets annually or whenever events or changes in circumstance 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

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.

F-9

ADVERTISING AND PROMOTION COSTS

Advertising costs are expensed as incurred. Advertising costs were $12.0
million, $2.5 million, $8.2 million, $5.6 million and $5.2 million for the year
ended December 31, 2002, for the period October 12, 2001 through December 31,
2001, for the period January 1, 2001 through October 11, 2001, for the six
months ended December 31, 2000 and the six months ended June 30, 2000,
respectively.

RESEARCH AND DEVELOPMENT

Expenditures for research and development are charged to expense in the
year incurred. Total research and development expenses for the year ended
December 31, 2002, for the period October 12, 2001 through December 31, 2001,
for the period January 1, 2001 through October 11, 2001, for the six months
ended December 31, 2000 and the six months ended June 30, 2000 were $8.4
million, $2.3 million, $6.1 million, $3.8 million and $3.4 million,
respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted the remaining provisions of SFAS 142, "Goodwill and
Other Intangible Assets," on January 1, 2002. Under SFAS 142, goodwill and other
intangible assets that have indefinite lives are no longer amortized except for
goodwill related to the formation of joint ventures, but rather will be tested
for impairment at least annually in accordance with the provisions of the
standard. See Note 8 for additional information on the adoption of SFAS 142.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. Under existing
accounting literature, certain costs for exit activities were recognized at the
date a company committed to an exit plan. The provisions of the standard are
effective for exit or disposal activities initiated after December 31, 2002. The
standard is generally expected to delay recognition of certain exit related
costs.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others ("The Interpretation"). The
Interpretation requires that upon issuance of certain guarantees, the guarantor
must recognize a liability for the fair value of the obligation it assumes under
that guarantee. The Interpretation also requires additional disclosures by a
guarantor in its interim and annual financial statements about the obligations
associated with guarantees issued. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002, and have been included in Note 12 on page F-13. The recognition and
measurement provisions are effective on a prospective basis to guarantees issued
or modified after December 31, 2002.

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.

3. RECEIVABLES

A summary of receivables at December 31 is as follows:

F-10

4. 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 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, the Company retains 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, 2002, no amounts were outstanding under
this facility and $100.0 million remained available. The total accounts
receivable sold by the Company during 2002 and 2001 were $942.8 million and $0.0
million, respectively.

5. INVENTORIES

A summary of inventories at December 31 is as follows:

6. INVESTMENTS

The Company's investments at December 31 are as follows:

7. PROPERTY, PLANT AND EQUIPMENT

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

F-11

8. GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL The Company adopted the remaining provisions of SFAS No. 142 on January
1, 2002. Had SFAS No. 142 been effective January 1, 2000, net earnings for 2001
and 2000 would have been reported as follows:

The changes in the carrying amount of goodwill for the year ended December 31,
2002, are as follows:

Balance as of January 1, 2002 .............. $ 86,872
Reallocation of purchase price ........... 18,330
-----------
Balance as of December 31, 2002 ........... $ 105,202
===========

The reallocation of the purchase price was primarily the result of
finalizing the appraisals related to the merger with LOL Holdings III, Inc.

OTHER INTANGIBLE ASSETS A summary of other intangible assets at December 31 is
as follows:

Amortization expense for the year ended December 31, 2002, the period
October 12, 2001 through December 31, 2001, and the period January 1, 2001
through October 11, 2001 was $3.3 million, $1.0 million, and $5.0 million,
respectively. The estimated amortization expense related to other intangible
assets subject to amortization for the next five years will approximate $1.7
million annually. The weighted-average life of the intangible assets subject to
amortization is approximately 13 years.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table provides information on the notional amount and fair
value of financial instruments, including derivative financial instruments. The
carrying value of financial instruments classified as current assets and current
liabilities, such as cash and short-term investments, receivables, accounts
payable, notes and short-term obligations, approximate fair value due to the
short-term maturity of the instruments.

The Company enters into futures and options contract derivatives to reduce
risk on the market value of inventory and fixed or partially fixed purchase and
sale contracts. The notional or contractual amount of derivatives provides an
indication of the extent of the Company's involvement in such instruments at
that time, but does not represent exposure to market risk or future cash
requirements under certain of these instruments.

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10. PENSION AND OTHER POSTRETIREMENT PLANS

The Company participates in the Land O'Lakes defined benefit pension plan,
which in 2002 covered employees whose employment was governed by the terms of a
collective bargaining agreement. 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.

Costs relating to the plan were allocated to the Company by Land O'Lakes in
2002. The Company's expenses relating to these plans was $0.2 million, $0.1
million and ($0.1) million for the years ended December 31, 2002, 2001 and 2000,
respectively.

The Company also has a discretionary capital accumulation plan (CAP), which
is an unfunded, defined benefit plan. The projected benefit obligation and the
accumulated benefit obligation of the unfunded plan were $26.8 million and $24.9
million at December 31, 2002 and 2001, respectively. The accrued discretionary
CAP liability was $26.8 million and $24.9 million at December 31, 2002 and 2001,
respectively. The expense for this plan was $1.7 million for 2002, $1.7 million
for 2001 and $1.7 million for 2000.

11. GAIN ON LEGAL SETTLEMENTS

The Company recognized a gain on legal settlements of $7.6 million, $4.5
million, $0.3 million, and $24.4 million for the year ended December 31, 2002,
for the period January 1, 2001 through October 11, 2001, for the six months
ended December 31, 2000 and for the six months ended June 30, 2000,
respectively, related to the litigation with vitamin product suppliers against
whom the Company alleged certain price-fixing claims. The $6.0 million legal
settlement receivable recorded as of December 31, 2002 was collected on January
17, 2003.

12. COMMITMENTS AND CONTINGENCIES

Total rental expense was $5.8 million, $1.4 million, $5.1 million, $4.2
million, and $3.3 million for the year ended December 31, 2002, for the period
October 12, 2001 through December 31, 2001 for the period January 1, 2001
through October 11, 2001, for the six months ended December 31, 2000 and the six
months ended June 30, 2000, respectively. The minimum annual lease payments for
the next five years and thereafter are as follows:

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.

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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 the
Company and certain of its domestic wholly owned subsidiaries.

This guarantee is a general unsecured obligation, ranks equally in right of
payment with all existing and future senior indebtedness of Land O'Lakes, is
senior in right of payment to all existing and future subordinated obligations
of Land O'Lakes, and is effectively subordinated to any secured indebtedness of
Land O'Lakes and its subsidiaries, including Purina Mills, to the extent of the
value of the assets securing such indebtedness. The maximum potential amount of
future payments that the Company would be required to make is $350 million as of
December 31, 2002. Currently, the Company does not record a liability regarding
the guarantee. The Company has no recourse provision that would enable it to
recover amounts paid under the guarantee from Land O'Lakes or any other parties.

The notes are not 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:

In November 2001, Land O'Lakes 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 the
Company and certain of its wholly owned subsidiaries. The maximum potential
payment related to this guarantee is $520 million as of December 31, 2002. The
Company does not currently record a liability related to the guarantee of the
Term Loans, and the Company has no recourse provisions that would enable it to
recover from Land O'Lakes or any other party.

GUARANTEES OF PRODUCER LOANS

The company also guarantees certain loans to producers and dealers financed
by third party lenders. The loans totaled $2.4 million and $5.1 million at
December 31, 2002 and 2001, respectively. Reserves for these guarantees of $.5
million and $1.5 million at December 31, 2002 and 2001, respectively, are
included in the balance sheet. There were insignificant write-offs related to
these loans in 2002 and 2001. The maximum potential payment related to these
guarantees is $1.0 million. The company does not currently record a liability
related to the guarantees of these producer and dealer loans financed by third
party lenders. The company has no recourse against the producer or dealer to
partially off-set the potential liability.

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

As part of the merger with Land O'Lakes Farmland Feed in October, 2001, the
Company no longer records certain selling, general and administrative expenses.
The costs include corporate and other overhead costs which are paid for and
expensed by Land O'Lakes Farmland Feed.

A borrowing arrangement has been established between the Company and Land
O'Lakes Farmland Feed for the purpose of financing our working capital.
Borrowings under the arrangement with Land O'Lakes Farmland Feed bear no
interest.

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14. ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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