Land O'Lakes, Inc. Annual Report 2001



Jim D. Fife Chairman of the Board	John E. Gherty President and Chief Executive Officer

A significant economic downturn, ongoing volatility in agricultural markets, dramatic peaks in energy costs and growing concern regarding food safety issues were part of the 2001 business environment. Despite these many challenges, Land O'Lakes achieved positive performance and continued our significant progress toward building a farmer-owned organization with the size, scale and level of performance necessary to compete and win in the 21st century.

Over the past five years, Land O'Lakes has transformed itself, in a very strategic way, from a strong regional company to a national, farmer-owned organization with necessary competitive size and scale in key businesses. As is often the case, even with very focused growth, we faced unexpected challenges and some of our strategies did not immediately meet our expectations. Yet, as we look to 2002, we can be encouraged and enthusiastic about our future...and confident about the foundation we have laid for ongoing success and growth.

The Land O'Lakes Board and management detailed an important element in that foundation in the fall of 2000, with the development of five basic beliefs regarding what it will take for our system to succeed in the 21st century economic environment. We have shared these beliefs openly with members and employees, and would like to review them briefly:

We must continue to grow to have the size and scale necessary to compete effectively, long-term, on behalf of our owners.
Resources are finite, and our growth must be consistent with the proactive management of our portfolio.
Generating industry-competitive financial results is critical to success.
Exceptional people will be essential to our success.
The breadth of the Land O'Lakes system must be leveraged where it creates competitive advantage.

As a farmer- and local cooperative-owned organization, we recognize the unique challenges we face in pursuing these beliefs. For example, cooperatives have a more limited access to capital than many of our private and publicly held competitors. At the same time, focused, profitable growth remains essential to our success long-term. And, we have taken the initiative in pursuing strategic growth.

Growing Success in Feed

In 2001, the single most important event for our system was the acquisition of Purina Mills. Strategically, this initiative helped us expand geographically, provided our system a strong position in the high-potential companion feeds market and offered significant opportunity to enhance operating efficiency and increase returns to members. As with any growth-focused acquisition, the real challenge is in obtaining potential synergies and delivering on the promise of increased shareholder value. The potential and promise of the Purina Mills acquisition are significant, and we are committed to delivering more than $50 million in synergies by the end of 2002.

Gaining Momentum in Seed

Recent years have seen significant growth in Seed, driven by aggressive marketing and key acquisitions. Going forward, we anticipate continued, strategic growth, as we focus on moving from the nation's number-four farm seed company to a top-two position. This growth will be focused on ensuring we can deliver the very best in seed genetics and traits to members, growing the strength of our CROPLAN GENETICS^® brand, and building the market share and profitability of member cooperatives.

In addition, Seed continued to enhance our system's ability to serve producer needs by growing effective partnerships with Land O'Lakes Farmland Feed, Agriliance and CHS Cooperatives.

Delivering on our Promise in Agronomy

We also experienced dramatic system growth in Agronomy, with the formation of Agriliance in January 2000. During the past year, this developing organization faced some significant challenges in relation to information services, organizational structure and the impact of volatile natural gas prices on production costs and crop nutrient usage. In mid-2001, we moved to singular, very-focused leadership; took the initiative in resolving our information system issues; and further intensified our focus on customer service and local cooperative profitability. As we move into 2002, there is renewed energy, focus and momentum in our agronomy business. We are passionate in our commitment to effectively leverage our number-one market position into improved service and enhanced earnings for members.

Growing Brand Strength in Dairy Foods

Dairy Foods achieved very positive results in 2001...driven by effective marketing, enhanced operating efficiency, improved inventory control and risk management, and a strong commitment to customer- and market-focus. The real excitement, however, was in our effort to reinvigorate the LAND O LAKES^® brand and its value as a platform for future growth.

We spent a good portion of the year evaluating our brand...documenting its existing strengths, and determining how best to further separate ourselves from the competition in the eyes of the consumer. On the basis of these extensive studies, we are refining the LAND O LAKES brand in a way that builds on our long-standing reputation for purity, quality and freshness and responds to the consumers' documented desire to "rediscover a simpler, less complicated, back-to-basics lifestyle, anchored in simpler foods."

In the spring of 2002, we will launch an aggressive public relations, marketing and advertising campaign to position LAND O LAKES as the leader in fresh, pure and natural products that make "Simple Goodness Living" possible. This effort will include a redesigned logo, bearing the tagline "Where Simple Goodness Begins," as well as new and streamlined product-line packaging. We will also be working to bring the LAND O LAKES brand to new geographies and new products...with emphasis on growing our Value-Added business. We are dedicated to unlocking and growing the value of our brand.

Leadership Expectations

As we look to 2002 and beyond, we have developed ambitious expectations for our system and our leadership. In fact, we recently articulated four very straightforward leadership expectations.

First—Act with integrity. We expect Land O'Lakes leaders to live Our Values, and to communicate in a direct, trustworthy and honest manner. In an environment in which partnerships and partnering are so vital to success, we will act in a way that earns the trust of team members, customers, business partners, system leaders and our owners.

Second—Deliver results. Our leaders are accountable for delivering industry-competitive results...for translating our increased size and scale into improved performance and enhanced value for customers and members. We will be skilled in intensifying our business focus, gaining permission for necessary change, and responding to market trends, economic conditions and emerging opportunity in collapsed time frames.

Third—Mobilize talent. Our leaders are charged with attracting, energizing and inspiring the very best people. We will maintain a culture that promotes team-building and teamwork, facilitates personal and professional development, and encourages meaningful feedback. And, our organization will demonstrate the ability to make timely, accurate judgements regarding our human resources.

Fourth—Shape the future. Our leaders must have an in-depth understanding of the marketplace, the competitive environment and our cooperative heritage and principles...and must develop strategies that advance system success in this environment. We will make the tough decisions necessary to compete and win, encourage innovative and prudent risk-taking, honor our cooperative principles and never lose sight of our Vision..."To be one of the best food and agricultural companies in the world."

If we meet these expectations, we will achieve our goal of building a farmer-owned organization with the size, scale and level of performance necessary to compete and win in the 21st century.