10-Q 1 c72857e10vq.txt FORM 10-Q FOR QUARTER ENDING SEPTEMBER 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 [ ] 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 LAND O'LAKES FARMLAND FEED LLC (Exact name of Registrant as specified in its charter) DELAWARE 41-1981848 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1080 COUNTY ROAD F ARDEN HILLS, MINNESOTA 55112 (Address of principal executive offices and zip code) (651) 481-4700 (Registrant's telephone number, including area code) 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 ----- ------ TABLE OF CONTENTS

2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LAND O'LAKES FARMLAND FEED LLC CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements. 3 LAND O'LAKES FARMLAND FEED LLC CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements. 4 LAND O'LAKES FARMLAND FEED LLC CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements. 5 LAND O'LAKES FARMLAND FEED LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS IN TABLES) (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated financial statements reflect, in the opinion of the management of Land O'Lakes Farmland Feed LLC (the "Company"), all normal recurring adjustments necessary for a fair statement of the financial position and results of operations and cash flows for the interim periods. The statements are condensed and, therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the audited consolidated financial statements and footnotes for the year ended December 31, 2001 included in our Registration Statement on Form S-4, as amended. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Major provisions of these statements are as follows: all business combinations must now use the purchase method of accounting, the pooling of interests method of accounting is now prohibited; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as a part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized, but tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting. Land O'Lakes Farmland Feed LLC has adopted the provisions of SFAS 141 and certain provisions of SFAS 142 as of July 1, 2001, and the remaining provisions of SFAS 142 as of January 1, 2002. As required by SFAS 142, Land O'Lakes Farmland Feed LLC performed step one of the impairment testing of goodwill for the balances as of January 1, 2002 by June 30, 2002. The fair value of goodwill exceeded the carrying amount, therefore the second step of impairment testing is not required and no impairment has been recognized in the current year of adoption. Land O'Lakes Farmland Feed LLC will perform impairment tests annually and whenever events or circumstances occur indicating that goodwill or other intangible assets might be impaired. As of January 1, 2002, we are no longer amortizing goodwill, except for goodwill related to the acquisition of cooperatives and the formation of joint ventures. The following table presents a reconciliation of net earnings adjusted for the exclusion of amortization of goodwill no longer required to be amortized, net of income taxes:

6 2. GOODWILL AND OTHER INTANGIBLE ASSETS A summary of intangible assets follows:

The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, are as follows: Balance as of January 1, 2002................... $ 104,749 Reallocation of purchase price................ 57,866 Amortization expense.......................... (349) ------------- Balance as of September 30, 2002............... $ 162,266 =============

The reallocation of the purchase price was primarily the result of finalizing the appraisals during the third quarter ended September 30, 2002. The offsetting reduction to property, plant and equipment resulted in a $3.9 million adjustment to reduce depreciation expense, which was also recorded in the third quarter ended September 30, 2002. 3. RECEIVABLES A summary of receivables is as follows:

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 Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and Purina Mills, LLC. CoBank has been granted an interest in the receivables owned by the SPE. The transfers of the receivables from the Company to the SPE are structured as sales and, accordingly, the receivables transferred to the SPE are not reflected in the Company's consolidated balance sheet. However, Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC, and Purina Mills, LLC retain the credit risk related to the repayment of the notes receivable with the SPE, which in turn is dependent upon the credit risk of the SPE's receivables. Accordingly, the Company has retained reserves for estimated losses. The Company expects no 7 significant gains or losses from the sale of the receivables. At September 30, 2002 and December 31, 2001, there was $35.0 million and $75.8 million of SPE borrowings outstanding, respectively. The total accounts receivable sold by the Company during the three months and nine months ended September 30, 2002 were $561.5 million and $1,686.7 million, respectively. 5. INVENTORIES A summary of inventories is as follows:

6. INVESTMENTS The Company's investments are as follows:

All of the above investments are accounted for under the equity method with the exception of the unconsolidated LOLFF SPV, LLC and a portion of the investments under the caption "Other", which are accounted for under the cost method. 7. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment is as follows:

8. RESTRUCTURING AND IMPAIRMENT For the three months ended September 30, 2002, the Company recorded a $0.9 million restructuring and impairment charge of which $0.7 million was related to the write-down of certain impaired plant assets to their estimated fair value, and $0.2 million was related to employee severance and outplacement costs. The 2001 reversal of $2.4 million was for the sale of certain animal feed assets that had been written off in December 2000, and to reflect the decision to continue operating a plant previously scheduled for shutdown. 8 For the nine months ended September 30, 2002 the Company recorded restructuring and impairment charges of $5.4 million. Of this amount, $3.0 million represented severance and outplacement costs for employees and $2.4 million represented a write-down of certain impaired plant assets. $2.3 million of the charges remained accrued as of September 30, 2002. For the nine months ended September 30, 2001, the Company recorded a restructuring reversal of $4.2 million for the sale of certain assets that had been written off in December 2000, and to reflect the decision to continue to operate plants previously scheduled for shutdown. 9. GAIN ON SALE OF INTANGIBLES For the nine months ended September 30, 2002, the Company recorded a gain of $4.2 million on the sale to Potash Corporation of Saskatchewan of a customer list pertaining to the feed phosphate distribution business. 10. RELATED PARTY TRANSACTIONS In accordance with the Management Services Agreement between Land O'Lakes, Inc. and Farmland Industries, Inc. (Farmland), Land O'Lakes, Inc. charges the Company for corporate services such as legal, insurance administration, tax administration, human resources, payroll and benefit administration, leasing, public relations, credit and collections, accounting, and information technology support. These costs totaled $5.8 million and $4.8 million for the nine months ended September 30, 2002 and 2001, respectively. Payroll and benefit-related costs are paid directly by Land O'Lakes, Inc. and reimbursed by the Company. These costs totaled $78.7 million and $79.0 million for the nine months ended September 30, 2002 and 2001, respectively. As part of the acquisition of Purina Mills, Inc. on October 11, 2001, Land O'Lakes, Inc. assumed certain liabilities, including a $59.7 million deferred tax liability. The Company has established a noncurrent note payable for this liability and, as future taxes relating to the deferred tax liability are paid by Land O'Lakes, Inc., the Company will make a corresponding payment to Land O'Lakes, Inc. This note is non-interest bearing and $59.7 million was outstanding at September 30, 2002 and December 31, 2001. The Company has a $100 million revolving credit facility with Land O'Lakes, Inc. which bears interest at LIBOR plus 260 basis points. The facility terminates on October 31, 2003, and is renewable annually. The Company had a note receivable from Land O' Lakes, Inc. of $17.7 million at September 30, 2002 and a note payable to Land O' Lakes, Inc. of $29.2 million at December 31, 2001. The Company entered into a Feed Supply Agreement with Farmland whereby Farmland agreed to purchase all of its feed and ingredients, excluding grain, from the Company. Such sales are made at prices competitive with those available from other suppliers. Sales to Farmland under the agreement totaled $1.5 million and $6.1 million for the nine months ended September 30, 2002 and 2001, respectively. Sales with unconsolidated subsidiaries of the Company totaled $39.8 million and $34.1 million for the nine months ended September 30, 2002 and 2001, respectively. 11. CONSOLIDATING FINANCIAL INFORMATION Land O'Lakes, Inc. issued $350 million in senior notes which are guaranteed by Land O'Lakes, Inc. and certain of its wholly and majority owned subsidiaries, including the Company, (the "Guarantor Subsidiaries"). Such guarantees are full, unconditional and joint and several. The following supplemental financial information sets forth, on an unconsolidated basis, balance sheet, statement of operations and cash flow information for the Company, Guarantor Subsidiaries and the Company's other subsidiaries (the "Non-Guarantor Subsidiaries"). The supplemental financial information reflects the investments of the Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2002

10 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

11 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

12 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

13 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001

14 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001

15 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

16 LAND O'LAKES FARMLAND FEED LLC SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussions of financial condition and results of operations Land O'Lakes Farmland Feed LLC together with the financial statements and the notes to such statements included elsewhere in this Form 10-Q. This discussion contains forward-looking statements based on current expectations, assumptions, estimates and projections of management Land O'Lakes Farmland Feed. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described in the "Risk Factors" section and elsewhere in this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements. OVERVIEW General Land O'Lakes Farmland Feed LLC produces both commercial and lifestyle 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 Land O'Lakes Farmland Feed LLC's commercial feed products. Customers who own animals principally for non-commercial purposes use Land O'Lakes Farmland Feed LLC's lifestyle feed products. Land O'Lakes Farmland Feed LLC markets animal feed products under the Land O'Lakes Farmland Feed label. Through its wholly-owned subsidiary Purina Mills, Inc., Land O'Lakes Farmland Feed LLC also markets animal feed, other than dog and cat food, under the leading brands in the industry, Purina, Chow and the "Checkerboard" Nine Square Logo. Land O'Lakes Farmland Feed LLC was formed in October 2000 through the combination of the feed businesses of Land O'Lakes, Inc. and Farmland Industries Inc. Based on their relative contributions, Land O'Lakes, Inc. and Farmland Industries, Inc. had ownership interests of 69.2% and 30.8%, respectively, at the time of formation. Subsequent to the formation, the ownership interests were changed to 73.7% and 26.3%, respectively, due to additional capital contribution by Land O'Lakes, Inc. as well as an adjustment to the initial revenue stream contribution. In October 2001, Land O'Lakes acquired Purina Mills, Inc. and contributed the business to Land O'Lakes Farmland Feed LLC in consideration of an increase in Land O'Lakes, Inc.'s ownership interest from 73.7% to 92%. The total purchase price of the Purina Mills, Inc. acquisition 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 LLC. Land O'Lakes, Inc. financed the acquisition and refinanced outstanding indebtedness of Land O'Lakes, Inc. 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 LLC and its wholly-owned domestic subsidiaries (other than LOL Farmland Feed SPV, LLC) have guaranteed this indebtedness and have secured that obligation with substantially all assets. By the end of 2002, Land O'Lakes Farmland Feed LLC expects to have implemented programs that would enable it to generate recurring annual cost savings of approximately $50 million as a result of the acquisition, relative to costs that would have been incurred separately. In 2002, we expect to generate approximately $25 million in savings, which are expected to be partially offset by plant closing, severance, employee relocation and information technology integration costs of approximately $20 million. The table under "Results of Operations" reflects the relative contribution of selected results of operations of Land O'Lakes Farmland Feed LLC and Purina Mills, LLC for the periods presented. Consolidated and Unconsolidated Businesses Land O'Lakes Farmland Feed LLC has numerous 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 Land O'Lakes Farmland Feed LLC has 50% or less of the governance rights are accounted for under the equity method of accounting. In the third quarter of 2002, unconsolidated businesses contributed earnings of $0.6 million to Land O'Lakes Farmland Feed LLC, compared to earnings of $0.4 million in the third quarter of 2001. For the nine months ended September 30, 2002, earnings in unconsolidated businesses were $0.8 million compared to $1.2 million for the nine months ended September 30, 2001. The investment in unconsolidated businesses as of September 30, 2002 was $31.1 million, compared to $31.5 million as of December 31, 2001. Cash flow from investment in unconsolidated businesses in the third quarter of 2002 was $0.9 million, compared to $1.2 million in the third quarter of 2001. Cash flow from investment in unconsolidated businesses for the first nine months of 2002 was $2.0 million, compared to $1.7 million for the first nine months of 2001. 18 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 the 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 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." Accordingly, since the adoption of SFAS No. 133, effective January 1, 2001, the futures contracts are marked to market each month and unrealized 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 the allowance for doubtful accounts based on an analysis of specific accounts, an analysis of historical trends, payment and write-off histories, current sales levels and the state of the economy. Our credit risks are continually reviewed and management believes that adequate provisions have been made for doubtful accounts. However, unexpected changes in the financial strength of customers or changes in the state of the economy could negatively impact the financial results. Recoverability of Long-Lived Assets. We assess the recoverability of goodwill and other long-lived assets annually or whenever events or changes in circumstances indicate that expected future undiscounted cash flows might not be sufficient to support the carrying amount of an asset. We deem an asset to be impaired if a forecast of 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. Merchandising Activities Land O'Lakes Farmland Feed LLC, in addition to selling its own products, buys, sells or brokers for a fee, soybean meal and other feed ingredients under its ingredient merchandising program. Land O'Lakes Farmland Feed LLC markets these ingredients to local member cooperatives and to other feed manufacturers, which use them to produce feed. Although this activity generates substantial revenues, it is a very low-margin business. However, we benefit from increased purchasing efficiencies, resulting in lower prices for feed manufacturing inputs. For the three months ended September 30, 2002, ingredient merchandising generated net sales of $124.6 million, or 21.0% of net sales, and a gross profit of $3.2 million, or 4.4% of total gross profit. For the nine months ended September 30, 2002, ingredient merchandising generated net sales of $362.6 million, or 20.4% of net sales, and gross profit of $9.8 million, or 4.6% of total gross profit. Seasonality The feed business is seasonal, with a higher percentage of the feed volume sold, and earnings 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, but 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. 19 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 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 underlying commodity ingredient prices. We enter into forward looking contracts to supply feed, which currently represent approximately 20% of the feed output. When we enter into these contracts, we also generally enter into forward input supply contracts to "lock in" 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 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 effect on 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 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. Historically, Purina Mills, Inc. reported results of its swine business together with its feed business. Accordingly, the swine business which we acquired from Purina Mills, Inc. in October 2001 is reported within our results for the three and nine months ended September 30, 2002. For the nine months ended September 30, 2002, the Purina Mills, LLC swine business generated a loss of $2.5 million compared to a gain of $0.5 million for the nine months ended September 30, 2001. 20 RESULTS OF OPERATIONS

21 THREE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 NET SALES Net sales for the three months ended September 30, 2002 increased $187.6 million, or 46.1%, to $594.4 million, compared to net sales of $406.8 million for the three months ended September 30, 2001. The acquisition of Purina Mills contributed $205.5 million in incremental sales. This increase was partially offset by declines in Land O'Lakes Farmland Feed branded sales. Sales in our animal health products decreased $3.8 million as a result of a realigned marketing arrangement with a large vendor whereby the vendor sells product directly to our customer in exchange for a margin-based fee. Swine feed sales in our Land O'Lakes Farmland Feed branded products decreased $6.0 million as a result of decreased volumes and depressed market prices for hog producers, caused, in part, by excess food proteins (such as beef, cattle, swine and chickens) in the United States market. Sales increased $2.8 million in our Land O'Lakes Farmland Feed branded lifestyle product lines reflecting a later start to the beginning of the aquaculture feeding season in 2002 compared to 2001. Sales of Land O'Lakes Farmland Feed branded beef feeds decreased $1.6 million, primarily due to the economic effect of drought conditions in the Central United States and excess food proteins in the United States market. Sales of bulk phosphates decreased $5.2 million due to the sale of this business to a third party. Sales in our dairy feeds area increased $1.8 million, driven by strong sales of simple blends in our Western feed division. These increased sales are the result of more cows moving to the western United States. Sales from ingredient merchandising decreased $2.9 million, from $127.5 million during the three months ended September 30, 2001 to $124.6 million for the three months ended September 30, 2002. COST OF SALES Cost of sales for the three months ended September 30, 2002 increased $147.9 million, or 39.5%, to $522.4 million, compared to $374.5 million for the three months ended September 30, 2001. The acquisition of Purina Mills added $168.4 million in cost of sales for the three months ended September 30, 2002. This increase was slightly offset by a decrease in Land O'Lakes Farmland Feed LLC branded product lines. Our animal health products decreased $3.5 million driven by a realigned marketing arrangement whereby we no longer record cost of sales dollars, but rather a margin-based fee. Land O'Lakes Farmland Feed branded lifestyle cost of sales increased $2.3 million as a result of a later start to the beginning to the aquaculture feeding season in 2002 compared to the 2001. Land O'Lakes Farmland Feed branded swine cost of sales decreased by $5.0 million due to decreased volume caused, in part, by a protein glut in the United States. Land O'Lakes Farmland Feed LLC branded beef feeds cost of sales decreased $0.7 million, due to slower sales as a result of weak economic conditions caused by drought in the Plains states and depressed market prices as there continues to be excess protein sources in the marketplace. Cost of sales of bulk phosphates decreased $4.7 million as we sold this business during the first quarter of 2002. Cost of sales in our dairy feed area increased $0.9 million, primarily as a result of strong sales in our Western feed division. Cost reductions from the integration efforts related to Purina Mills reduced our cost of sales by $1.7 million. Cost of sales as a percent of sales decreased 4.2 percentage points, from 92.1% in the third quarter of 2001 to 87.9% in the same period of 2002. The decrease was due primarily to higher margins on certain Purina Mills products, which carry a comparatively higher margin than our traditional product lines. Cost of sales also decreased due to cost reductions in our purchasing, manufacturing and distribution area as a result of the integration of the Purina Mills, LLC operations. Cost of sales decreased $2.9 million as a result of the decrease in ingredient merchandising sales. An unrealized hedging loss in the third quarter of 2002 related to corn and soybean meal futures contracts increased cost of sales by $1.6 million, compared to a loss of $0.1 million in the third quarter of 2001. IOIC as a percent of cost of sales increased to 25.6% in the third quarter of 2002 from 16.2% in the same period of 2001 due to the change in product mix and strong performance in our higher margin areas of milk replacer and concentrated feed items. SELLING, GENERAL AND ADMINISTRATION EXPENSE Selling, general and administration expense for the three months ended September 30, 2002 increased $35.6 million, or 143.5%, to $60.4 million, compared to $24.8 million for the three months ended September 30, 2001. Selling, general and administration expense as a percent of sales increased 4.1 percentage points from 6.1% for the three months ended September 30, 2001 to 10.2% for the three months ended September 30, 2002. The majority of this increase was related to the acquisition of Purina Mills, Inc., which contributed $27.5 million in increased selling, general and administration expense. In addition, in the third quarter of 2002, we incurred one-time integration costs of $5.0 million with none in the same period in 2001. RESTRUCTURING AND IMPAIRMENT CHARGES Land O'Lakes Farmland Feed LLC recorded a $0.9 million restructuring and impairment charge for the three months ended September 30, 2002, of which $0.7 million was related to the write-down of certain impaired plant assets to their estimated fair value, and $0.2 million was related to employee severance and outplacement costs for employees at various locations. The 2001 reversal of $2.4 million was to reflect the decision to continue operating a plant previously scheduled for shutdown. 22 We anticipate restructuring and impairment charges of approximately $7 million in 2002 related to the integration of Purina Mills, LLC into Land O'Lakes Farmland Feed LLC. INTEREST (INCOME) EXPENSE Interest (income) expense in the third quarter of 2002 was ($0.7) million compared to $1.5 million in the same period of 2001. Since the formation of Land O'Lakes Farmland Feed LLC, interest is charged based on actual borrowings. In the first quarter of 2001, Land O'Lakes Farmland Feed had a current note payable to Land O'Lakes, Inc. of $29.2 million. After the securitization of the feed, seed, and swine accounts receivable, cash was generated to pay off this note and provide cash to Land O' Lakes, Inc. EQUITY IN EARNINGS OF AFFILIATED COMPANIES In the third quarter of 2002, equity in earnings of affiliated companies was $0.6 million compared to $0.4 million in the third quarter of 2001. MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES In the third quarter of 2002, we recorded minority interest in earnings of majority-owned subsidiaries of $0.2 million compared to $0.5 million in the third quarter of 2001. INCOME TAXES Upon the formation of Land O'Lakes Farmland Feed LLC on October 1, 2000, provisions for income taxes were no longer recorded since the taxable operations pass directly to the joint venture owners. Prior to the formation, income taxes were allocated to Land O'Lakes Feed Division on the basis of its taxable income and included in the Land O'Lakes, Inc. tax return. NET EARNINGS Net earnings increased $3.6 million to $11.8 million in the third quarter of 2002, compared to $8.2 million in the third quarter of 2001. NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 NET SALES Net sales for the nine months ended September 30, 2002 increased $571.2 million, or 47.5%, to $1,774.5 million, compared to net sales of $1,203.3 million for the nine months ended September 30, 2001. The acquisition of Purina Mills, Inc. contributed $620.3 million in incremental sales. This increase was partially offset by declines in Land O'Lakes Farmland Feed LLC branded sales. Sales in our animal health products decreased $14.0 million as a result of a realigned marketing arrangement with a large vendor whereby we no longer record sales dollars, but rather a margin-based fee. Sales in our Land O'Lakes Farmland Feed branded swine products decreased $13.0 million as a result of decreased volumes and depressed market prices for hogs, caused, in part, by excess food proteins in the United States market. Sales of Land O'Lakes Farmland Feed LLC branded beef feeds decreased $8.4 million, primarily due to the effect of warmer than average winter weather and excess food proteins in the United States market. Sales also decreased $2.5 million in our Land O'Lakes Farmland Feed LLC branded lifestyle product lines, reflecting a delayed start to the aquaculture feeding season and slower sales in our pet food area earlier in the year as we launched a new product line. Sales of bulk phosphates decreased $13.5 million due to the sale of this business to a third party. Sales in our dairy feeds area increased $6.1 million, driven by strong sales of simple blends in our Western region. We also experienced an increase of $3.5 million in our animal milk products as a result of strong volumes. Finally, sales from ingredient merchandising decreased $3.9 million from $366.5 million for the nine months ended September 30, 2001 to $362.6 million for the nine months ended September 30, 2002. COST OF SALES Cost of sales for the nine months ended September 30, 2002 increased $455.0 million, or 41.2%, to $1,559.3 million, compared to $1,104.3 million for the nine months ended September 30, 2001. The acquisition of Purina Mills, Inc. added $510.5 million in cost of sales for the nine months ended September 30, 2002. This increase was slightly offset by a decrease in Land O'Lakes Farmland Feed branded product lines. Animal health products decreased $13.6 million driven by a realigned marketing arrangement whereby we no 23 longer record cost of sales dollars, but rather a margin-based fee. Land O'Lakes Farmland Feed LLC branded lifestyle cost of sales declined $4.3 million as result of improved risk management in our aquaculture area and lower sales in our pet food as we launched a new product line. Land O'Lakes Farmland Feed LLC branded beef feeds cost of sales decreased $4.9 million, due to slower sales as a result of warm winter weather. Land O'Lakes Farmland Feed LLC branded swine feed cost of sales decreased by $7.7 million. Cost of sales of bulk phosphates decreased $12.1 million as we sold this business during the first quarter of 2002. Cost of sales in our Animal Milk Products area increased $0.9 million primarily due to increased volumes. Cost of sales for our dairy feed increased $7.4 million, primarily as a result of strong sales in our Western region. Cost reductions from the integration efforts related to Purina Mills, LLC reduced our cost of sales by $5.0 million. Cost of sales as a percent of net sales decreased 3.9 percentage points, from 91.8% in the first nine months of 2001 to 87.9% in the same period of 2002. The decrease was due primarily to higher margins on certain Purina Mills, LLC products, which carry a comparatively higher margin than our traditional product lines, stronger margins in our aquaculture area and strong sales in our milk replacer areas. Cost of sales decreased $3.7 million as a result of the decline in ingredient merchandising sales. An unrealized hedging gain in the first nine months of 2002 related to corn and soybean meal futures contracts decreased cost of sales by $2.3 million, compared to an increase from an unrealized hedging loss of $1.3 million in the first nine months of 2001. IOIC as a percent of cost of sales increased to 25.7% in the first nine months of 2002 from 17.5% in the same period of 2001 due to the change in product mix and the change in unrealized hedging gains and losses as noted above. SELLING, GENERAL AND ADMINISTRATION EXPENSE Selling, general and administration expense for the nine months ended September 30, 2002 increased $103.9 million, or 134.4%, to $181.2 million, compared to $77.3 million for the nine months ended September 30, 2001. Selling, general and administration expense as a percent of sales increased 3.8 percentage points from 6.4% for the nine months ended September 30, 2001 to 10.2% for the nine months ended September 30, 2002. The majority of this increase was related to the acquisition of Purina Mills, Inc., which contributed $85.0 million in increased selling, general and administration expense. In addition, in the first nine months of 2002, we incurred one-time integration costs of $15.0 million with none in the same period in 2001. We also incurred an additional $1.7 million of bad debt expense in the first nine months of 2002. RESTRUCTURING AND IMPAIRMENT CHARGES For the nine months ended September 30, 2002, Land O'Lakes Farmland Feed LLC recorded a $5.4 million restructuring and impairment charge, of which $2.4 million was related to the write-down of certain impaired plant assets to their estimated fair value, and $3.0 million was related to employee severance and outplacement costs for 136 employees at the Ft. Dodge, IA office facility and other plant facilities. The 2001 reversal of $4.2 million was for the sale of certain animal feed assets that had been written off in December 2000 and to reflect the decision to continue operating a plant previously scheduled for shutdown. We anticipate restructuring and impairment charges of approximately $7 million in 2002 related to the integration of Purina Mills, LLC into Land O'Lakes Farmland Feed LLC. INTEREST (INCOME) EXPENSE Interest (income) expense for the nine months ended September 30, 2002 was ($2.1) million compared to $4.9 million in the same period of 2001. Since the formation of Land O'Lakes Farmland Feed LLC, interest is charged based on actual borrowings. In the first quarter of 2001, Land O'Lakes Farmland Feed LLC had a current note payable to Land O'Lakes, Inc. in the amount of $29.2 million. After the securitization of the feed, seed, and swine accounts receivable, cash was generated to pay off this note and provide cash to Land O' Lakes, Inc. EQUITY IN EARNINGS OF AFFILIATED COMPANIES For the nine months ended September 30, 2002, equity in earnings of affiliated companies was $0.8 million compared to $1.2 million for the same period of 2001. MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES In each of the nine months ended September 30, 2002 and September 30, 2001, Land O'Lakes Farmland Feed LLC recorded minority interest in earnings of majority-owned subsidiaries of $0.7 million. 24 INCOME TAXES Upon the formation of Land O'Lakes Farmland Feed LLC on October 1, 2000, provisions for income taxes were no longer recorded since the taxable operations pass directly to the joint venture owners. Prior to the formation, income taxes were allocated to Land O'Lakes Feed Division on the basis of its taxable income and included in the Land O'Lakes, Inc. tax return. NET EARNINGS Net earnings for the nine months ended September 30, 2002 were $35.0 million compared to $21.4 million for the nine months ended September 30, 2001. LIQUIDITY AND CAPITAL RESOURCES Land O'Lakes Farmland Feed LLC relies on cash from operations, borrowings from Land O'Lakes, Inc., 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. Land O'Lakes Farmland Feed LLC had a noncurrent note payable to Land O'Lakes, Inc. of $59.7 million at September 30, 2002 and December 31, 2001. Net cash provided by operating activities of $52.4 million in the nine months ended September 30, 2002 was $61.3 million more than the net cash used by operating activities of $8.9 million for the nine months ended September 30, 2001. This increase in cash from operations was primarily due to an increase in net earnings, and improved working capital due to accounts receivable and accrued expenses, partially offset by accounts payable. Net cash used in investing activities was $6.6 million in the nine months ended September 30, 2002 as compared with $9.4 million in the nine months ended September 30, 2001. This cash flow improvement in 2002 compared to 2001 was primarily the result of higher proceeds from the sale of property, plant and equipment. Net cash used in financing activities was $48.9 million for the nine months ended September 30, 2002, compared to net cash provided of $18.3 million in the same period of 2001. Payments on notes payable to Land O' Lakes, Inc. in the nine months ended September 30, 2002 and 2001 were $386.9 million and $263.9 million, respectively. Borrowings from Land O' Lakes, Inc. increased from $280.6 million in the nine months ended September 30, 2001 to $340.0 million in the nine months ended September 30, 2002. A revolving credit facility has been established between Land O'Lakes, Inc. and Land O'Lakes Farmland Feed LLC for the purpose of financing working capital at Land O'Lakes Farmland Feed LLC. Borrowings under the revolving credit facility with Land O'Lakes, Inc. bear interest at 260 basis points over LIBOR. The revolving credit facility with Land O'Lakes, Inc. terminates on October 31, 2003, and is renewable annually. OFF-BALANCE SHEET ARRANGEMENTS Land O'Lakes, Inc., Land O'Lakes Farmland Feed LLC and Purina Mills, LLC 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 LLC. This subsidiary is a qualifying special purpose entity (QSPE) under applicable accounting rules. The QSPE was established for the limited purpose of purchasing and obtaining financing for these receivables. The transfers of the receivables to the QSPE are structured as sales and, in accordance with applicable accounting rules, these receivables are not reflected in the consolidated balance sheets of Land O'Lakes Farmland Feed LLC or Land O'Lakes, Inc. The QSPE purchases the receivables with a combination of cash initially received from CoBank, equal to the present value of eligible receivables times the agreed advance rate; and notes, equal to the unadvanced present value of the receivables. Land O'Lakes Farmland Feed LLC 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, Land O'Lakes Farmland Feed LLC has retained reserves for estimated losses. As of September 30, 2002, $35.0 million was drawn against this facility with $65.0 million available. In addition, Land O'Lakes Farmland Feed LLC leases various equipment and real properties under long-term operating leases. Total consolidated rental expense for the nine months ended September 30, 2002 and 2001 was $9.1 million and $3.4 million, respectively. The majority of this increase was due to the addition of Purina Mills, LLC operations. Most of the leases require payment of operating expenses applicable to the leased assets. Land O'Lakes Farmland Feed LLC expects that in the normal course of business, most leases that expire will be renewed or replaced by other leases. 25 CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS At September 30, 2002, Land O'Lakes Farmland Feed LLC had certain contractual obligations that require the following payments:

Land O'Lakes Farmland Feed LLC has certain commitments which may require the following payments to be made:

(1) See "Off-Balance Sheet Arrangements" for information concerning our receivables securitization. (2) These obligations are subject to mandatory prepayment in certain events. Land O'Lakes Farmland Feed LLC expects that total capital expenditures will be approximately $30 million in 2002 and approximately $44 million in 2003. Of such amounts, Land O'Lakes Farmland Feed LLC currently estimates that a minimum range of $16 million to $18 million of ongoing maintenance capital expenditures is required each year. Land O'Lakes Farmland Feed LLC expects that funds from operations and available borrowings under its revolving credit line from Land O'Lakes, Inc. and receivables securitization facility will provide sufficient working capital to operate the business, to make expected capital expenditures and to meet foreseeable liquidity requirements. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Major provisions of these statements are as follows: all business combinations must now use the purchase method of accounting, the pooling of interests method of accounting is now prohibited; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as a part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized, but tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting. Land O'Lakes Farmland Feed LLC has adopted the provisions of SFAS 141 and certain provisions of SFAS 142 as of July 1, 2001, and the remaining provisions of SFAS 142 as of January 1, 2002. As required by SFAS 142, Land O'Lakes Farmland Feed LLC performed step one of the impairment testing of goodwill for the balances as of January 1, 2002 by June 30, 2002. The fair value of goodwill exceeded the carrying amount, therefore the second step of impairment testing is not required and no impairment has been recognized in the current year of adoption. Land O'Lakes Farmland Feed LLC will perform impairment tests annually and whenever events or circumstances occur indicating that goodwill or other intangible assets might be impaired. As of January 1, 2002, we are no longer amortizing goodwill, except for goodwill related to the acquisition of cooperatives and the formation of joint ventures. 26 The following table presents a reconciliation of net earnings adjusted for the exclusion of amortization of goodwill no longer required to be amortized, net of income taxes:

FORWARD LOOKING STATEMENTS This Form 10-Q for the nine months ended September 30, 2002 includes "forward-looking statements" within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "could," "should," "seeks," "pro forma," "as adjusted," "anticipates," "intends," or other variations thereof, including their use in the negative, or by discussions of strategies, plans or intentions. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking 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 below. Because actual results may differ, readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such forward-looking statements or to update the reasons that actual results could differ materially from those anticipated in such forward-looking statements. 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. AN OVERSUPPLY OF FOOD PROTEINS IN THE U.S. 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. 27 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 revenues 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 first and fourth 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. 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. 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 foot-and-mouth disease, which could lead to a massive destruction of cloven-hoofed animals such as dairy cattle, beef cattle, swine, sheep and goats and significantly reduce the demand for meat products. Because foot-and-mouth disease is highly contagious and destructive to susceptible livestock, any outbreak of foot-and-mouth disease could result in the widespread destruction of all potentially infected livestock. Our 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 DAIRY AND 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. 28 We have ownership interests in swine. In recent years, the market for hogs and wholesale pork has been the subject of extreme market fluctuations as a result of a number of factors, including industry expansion, processor capacity and consumer demand. In December 1998, the price of hogs hit its lowest point in nearly forty years, resulting in the price we received for a finished hog being substantially less than the cost to produce the hog. The prices for weanling and feeder pigs also decreased dramatically. As a result, in the fiscal years ended December 31, 2000 and 1999, we experienced operating losses in the swine production business; a large portion of which were attributable to our contracts, which guarantee swine producers certain minimum prices for market hogs and 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 2004. 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: - restrictions on our ability to transfer our ownership interest in the joint venture; - no right to receive distributions without the unanimous consent of the members of the joint venture; and - 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 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. WE MAY NOT SUCCESSFULLY IMPLEMENT THE STRATEGIES RELATING TO OUR RECENT ACQUISITIONS OR ACHIEVE THE ANTICIPATED BENEFITS FROM THESE ACQUISITIONS. In addition to the acquisition of Purina Mills, we have added more than 20 joint ventures and acquisitions over the past five years. However, Purina Mills represents our largest acquisition to date. The integration and consolidation of Purina Mills as well as the other acquisitions into our business require substantial management, financial and other resources. Such integration involves a number of significant risks, including: - unforeseen liabilities; - unanticipated problems with the quality of the assets of the acquired businesses; - loss of customers; - personnel turnover; - loss of relationships with suppliers or service providers; and - diversion of management's attention from other aspects of our business. The effects of these risks and our inability to integrate and manage Purina Mills and the other acquired businesses successfully or to achieve a substantial portion of the anticipated cost savings from these acquisitions in the timeframe we anticipate, could have a material adverse effect on our business, financial condition or results of operations. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, EXPOSING US TO POTENTIAL CLAIMS AND COMPLIANCE COSTS THAT COULD ADVERSELY AFFECT OUR BUSINESS. We are subject to Federal, state and local laws and regulations relating to the manufacturing, labeling, packaging, health and safety, sanitation, quality control, fair trade practices, and other aspects of our business. In addition, zoning, construction and operating permits are required from governmental agencies which focus on issues such as land use, environmental protection, waste 29 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 thereunder 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, could limit our ability to compete, could damage our reputation and decrease our trademarks' value. 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. Purina Mills, LLC, our wholly owned subsidiary, licenses 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, Purina Mills may be unable to stop such infringement or cause them to do so. Any such infringement of the licensed trademarks, or of similar trademarks of Nestle Purina PetCare Company, could result in a dilution in the value of the licensed trademarks. OUR BRAND NAMES COULD BE CONFUSED WITH NAMES OF OTHER COMPANIES WHO, BY THEIR ACT OR OMISSION, COULD ADVERSELY AFFECT THE VALUE OF OUR BRAND NAMES. Purina Mills, LLC's 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 Purina Mills, LLC sells 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 Purina Mills, LLC's 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 animals as well as to humans who consume those animals. Such hazards could result from: - tampering by unauthorized third parties; - product contamination (such as listeria, E. coli. and salmonella) or spoilage; - the presence of foreign objects, substances, chemicals, and other agents; - residues introduced during the growing, storage, handling or transportation phases; or - improperly formulated products which either do not contain the proper mixture of ingredients or which otherwise do not have the proper attributes. 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. 30 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 incur 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 September 30, 2002, approximately 11% 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 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 3. 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 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Factors Affecting Comparability -- Agricultural Commodity Inputs and Outputs." To manage the potential negative impact of price fluctuations, we engage in various hedging and other risk management activities. As part of our trading activity, we utilize futures and option contracts offered through regulated commodity exchanges to reduce risk on the market value of our inventories and our fixed or partially fixed purchase and sale contracts. We do not utilize hedging instruments for speculative purposes. Certain commodities cannot be hedged with futures or option contracts because such contracts are not offered for these commodities by regulated commodity exchanges. Inventories and purchase contracts for those commodities are hedged with forward 31 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:

INTEREST RATE RISK Land O'Lakes Farmland Feed LLC is exposed to changes in interest rates. Interest rate changes generally impact the amount of interest payments and, therefore, future earnings and cash flows, assuming other factors are held constant. Holding other variables constant, including levels of indebtedness, a one-percentage point increase in interest rates would have an estimated negative impact on pretax earnings and cash flows for the next year of approximately $0.6 million. INFLATION RISK Inflation is not expected to have a significant impact on our business, financial condition or results of operations. We generally have been able to offset the impact of inflation through a combination of productivity improvements and price increases. 32 ITEM 4. 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 quarterly report on Form 10-Q. 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. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS

(1) Incorporated by reference to exhibit 3.28 to the Land O'Lakes, Inc. Registration Statement on Form S-4 filed March 18, 2002. (Registration No. 333-84486). (2) Incorporated by reference to exhibit 3.29 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 Land O'Lakes, Inc. Registration Statement on Form S-4 filed March 18, 2002 (Registration No. 333-84486). (b) REPORTS ON FORM 8-K There were no reports filed on Form 8-K for Land O'Lakes Farmland Feed LLC for the three months ended September 30, 2002. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Arden Hills, State of Minnesota, on the 14th day of November, 2002. LAND O'LAKES FARMLAND FEED LLC By /s/ DANIEL KNUTSON --------------------------------- Daniel Knutson Chief Financial Officer (Principal Financial and Accounting Officer) 35 CERTIFICATIONS I, Robert DeGregorio, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Land O'Lakes Farmland Feed LLC; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. 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: a) 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 quarterly report is being prepared; b) 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. 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): a) 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 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly 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: November 14, 2002 By /s/ Robert DeGregorio ---------------------------------------- Robert DeGregorio President and Manager 36 I, Daniel Knutson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Land O'Lakes Farmland Feed LLC; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. 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: a) 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 quarterly report is being prepared; b) 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. 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): a) 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 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly 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: November 14, 2002 By /s/ Daniel Knutson ----------------------------- Daniel Knutson Senior Vice President and Chief Financial Officer 37

LAND O LAKES FARMLAND FEED LLC 10-Q