Land O’Lakes, Inc. is a growing, farmer-owned food and agriculture cooperative doing business in all 50 states and more than 60 countries. Today, Land O’Lakes has approximately 10,000 employees, more than 3,600 direct producer-members and 850 member-cooperatives serving more than 300,000 agricultural producers. With annual sales exceeding $14 billion, Land O’Lakes is No. 194 on the Fortune 500.

Dear Stakeholders:

In 2013, Land O’Lakes, Inc. generated over $14 billion in annual sales and $306 million in net earnings, making it the best financial performance in the history of our cooperative. This year’s annual report reflects these results and how we got there — through Performance, Capability and Value. It’s these three things that have brought us to where we are today and will propel us forward on our cooperative’s ongoing journey.

The strategic vision for Land O’Lakes is clear: deliver strong financial performance while continuing to enhance our capabilities for future growth — from agriculture to animal nutrition to the dairy case. At the same time we’ve remained vigilant about delivering the products, programs, services and returns that provide value for our members.

Christopher J. Policinski
President and Chief Executive Officer

Pete Kappelman
Chairman of the Board

Driving Performance for Our Member-Owners

Over the last seven years we have more than doubled the company’s annual sales. During this same time, annual net earnings have grown from $71 million to $306 million. This has allowed us to grow patronage, returning more than $750 million to members over this same time frame, $147 million in 2013 alone.

Highlights of 2013

2013 2012
For the Year ($ in thousands):
Net sales $14,236,449 $13,642,019
Net earnings 305,622 240,861
Allocated patronage equities 184,621 179,605
Cash returned to members 146,881 112,539
At Year End ($ in thousands):
Total assets $ 6,758,210 $ 6,356,744
Working capital 871,745 755,840
Long-term debt 1,041,088 1,071,744
Equities 1,498,552 1,210,427
Financial Measures:
Return on equity 25.6% 21.7%
Return on invested capital 12.3% 11.9%
Long-term debt-to-capital 41.0% 47.0%
Current ratio 1.22 1.21
Membership:
Member associations 856 887
Individual members 3,679 3,991

Learn more about: Current Financials

In the last year we also invested more than $400 million into future growth opportunities. Our ability to do this, while still delivering record-setting financial performance and returns, is a clear reflection of well-developed strategies executed by our businesses.

Dairy Foods generated pretax earnings of $75 million – our highest ever and a 101 percent increase over 2012. This year’s performance was driven by improved margins on milk powders and butter in Global Dairy Ingredients, along with records in sales volume and earnings in our Retail Foods and Foodservice businesses.

Net Earnings

OVER 333% GROWTH

IN NET EARNINGS OVER THE LAST 7 YEARS

Annual Sales

OVER 100% GROWTH

IN ANNUAL SALES SINCE 2006

Crop Inputs’ $218 million in pretax earnings exceeded expectations and continues the business’ exceptional performance in this important market. The ongoing success of the segment, operated through our WinField Solutions business, is a direct result of strategic decisions to focus on key business segments with strong margins, including herbicides, insecticides and fungicides; seed treatments, adjuvants, micronutrients and plant growth regulators; and corn and alfalfa seed.

Feed, operated through our Purina Animal Nutrition business, delivered $18 million in pretax earnings, a $13 million year-over-year decrease compared to 2012. Throughout 2013, Purina faced considerable pressure resulting from challenges in the Ingredients business due to trading results and unfavorable commodity markets that drove smaller margins in the Livestock and Lifestyle product lines. Despite these market pressures, Purina’s overall volumes in the Lifestyle business increased, including strong advances in the Companion Animal business.

The Layers segment, conducted through Moark, LLC, had pretax losses in 2013 of $25 million, a $14 million improvement over 2012. While the company was challenged in 2013 by supply issues and high feed prices relative to egg prices, an extensive focus on cost savings and improved operational efficiency drove the improvement in 2013. Most important, the decision was made in 2013 to explore options to divest of this business.

Summarizing the overall performance of the enterprise, 2013 represents a continuation of the successful growth story of Land O’Lakes. Since 2006 we have:

  • Doubled net sales from about $7 billion to more than $14 billion;
  • Grown net earnings from $71 million to $306 million; and
  • Strengthened patronage returns to members from $81 million to $147 million.

As a result of this growth, we’re a global, Fortune 200 member-owned cooperative that’s emerging as a leader in the increasingly competitive agribusiness and food industry.

Enhancing Our Capabilities: Becoming a Leader in Agribusiness

Success comes when preparation meets opportunity. Balancing short-term financial results with a long-term point of view, this year we made strategic investments of:

  • $235 million of capital in our facilities and acquisitions; and
  • $197 million in growth-oriented activities such as research, development, advertising and promotion.

Dividends Paid to Members

$147 million

returned in 2013
More than

$750 million

returned since 2006

These strategic internal and external business decisions have prepared us to further extend our farm-to-market capabilities. One example is our recent acquisition of Geosys, a global technology firm that provides satellite imaging and insights to agribusiness. As the role of technology and “Big Data” in precision agriculture increases, Geosys’ integration into the Land O’Lakes family allows us to give farmers the tools they need to turn data into decisions and improve their on-farm productivity. It also allows Geosys to tap into the capabilities of the entire Land O’Lakes enterprise as it serves and grows its global customer base.

While strategic acquisitions have played an important role in our growth, we’ve also enhanced our capabilities by reinvesting in our core businesses, most recently at the Purina Animal Nutrition Center in Gray Summit, MO, where we just celebrated the grand reopening following an extensive renovation. The renovation included expansions to the swine, dairy, equine, cattle, poultry and small animal facilities and a complete remodel of the Conference Center. This investment further strengthens the Purina brand by increasing our ability to develop cutting-edge animal care and feed. The improved facility will also drive business growth by leveraging the Nutrition Center’s already stellar track record, where almost 70 percent of customers who visit either enter into new business or expand their current business with Purina, and providing space to host twice as many dealers and producers for demonstrations and training opportunities.

As we’ve added to our capabilities, we’ve also explored new platforms that expand our market access and maximize the value of member production. Recognizing an untapped segment of the dairy case, we acquired Kozy Shack in July of 2012 to serve as a foundation for our expansion into dairy-based snacks. Upon the acquisition, we leveraged the insights we’ve gained over our more than 90 years in the dairy industry and led a comprehensive quality review to make Kozy Shack’s already highly-regarded product portfolio even stronger. These efforts proved successful, as Kozy Shack was a key contributor to Dairy Foods’ strong 2013 in the brand’s first full year as part of Land O’Lakes.

Delivering Additional Value

As a member-owned cooperative, we must provide value beyond financial returns. We do this in the form of value-added products and services that help our members’ businesses succeed and promote system-wide growth. In 2013, we delivered:

  • A dedicated field staff committed to helping enhance on-farm productivity and profitability;
  • Cutting-edge, Big Data technology that delivered insights and analytics to help maximize growers’ yield potential;
  • Sales training, strategic asset management and HR resources to help member co-ops succeed in the marketplace; and
  • Risk management insights to help our dairy members make better decisions regarding on-farm profitability.
We’re participating in one of the greatest growth industries of our era — an industry driven by a growing global population, an emerging middle class and an increased demand for food.

We also pass along a significant tax benefit to members through Section 199 of the Internal Revenue Code. Since 2008, the year this policy went into effect, Land O’Lakes has returned $680 million in Section 199 deductions to our member-owners. In 2013 the potential benefit totaled $104 million to dairy members and $23 million to ag members.

We also deliver value to our members by keeping a pulse on emerging legislative issues and industry trends that impact agriculture and our entire cooperative system.

By combining the size and scale of our organization with the grassroots advocacy inherent to our cooperative system, we are able to help inform discussions in the political arena. Land O’Lakes members and employees participated in four legislative “fly-ins” on Capitol Hill last year.

These advocacy efforts, along with the global footprint of our organization, have provided Land O’Lakes, Inc. with a respected voice on key legislative issues. This was evident during the Farm Bill deliberation process, where we became a valued resource for a number of legislators. Beyond specific Farm Bill discussions, we continue to develop and strengthen valuable communication channels through which we can advocate on behalf of our members and the industry as whole on a variety of topics.

Many customers and consumers have begun asking about our sustainability programs, which often influence purchasing decisions. To stay ahead of this trend, we took initiative with industry organizations to develop and implement high-impact programs that meet customer expectations in a manner that respects the individual choices of our member-owners. For example, building on our ongoing leadership in the area of animal care through the National Milk Producers Federation’s FARM® program, we launched a new Farm Smart™ tool on 30 member farms in 2013, with a plan for a more extensive rollout in the coming year. This pilot program, developed by the Innovation Center for U.S. Dairy, creates an environmental profile that includes producers’ greenhouse gas footprints.

Performance, Capability, Value: Our Road Ahead

We’re participating in one of the greatest growth industries of our era — an industry driven by a growing global population, an emerging middle class and an increased demand for food. Over the last few years we’ve substantially strengthened our ability to compete in the domestic marketplace and we will continue to do so in the years ahead. However, much of the growth in the agribusiness / food industry will be in emerging markets around the world. To better respond to this opportunity, we must increase our attention on international investment opportunities, especially in China, Africa and Latin America.

Moving forward, we have clear and aggressive goals that align with the great opportunities and challenges in food and agriculture around the world. We have a solid track record of success and will continue driving strong performance while enhancing our capabilities for future growth and delivering added value to our member-owners, including products and services to help meet business objectives; tools and insights that enable better decisions regarding on-farm profitability; and advocacy efforts that benefit our businesses and the agriculture and food industries.

Christopher J. Policinski
President and Chief Executive Officer

Pete Kappelman
Chairman of the Board