Edgar Filing: CHS INC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K/A-2
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2002 OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.

COMMISSION FILE NUMBER: 0-50150

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CHS INC.
(Exact name of registrant as specified in its charter)

MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

5500 CENEX DRIVE (651) 355-6000
INVER GROVE HEIGHTS, MINNESOTA 55077 (Registrant's Telephone number,
(Address of principal executive office) including area code)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES __X__ NO _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: Not applicable

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES _____ NO __X__

State the aggregate market value of the voting stock held by non-affiliates
of the registrant: The registrant has no voting stock outstanding.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: The registrant has
no common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None.

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CHS INC.

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K amends the Registrant's Annual Report on
Form 10-K for the fiscal year ended August 31, 2002, and is being filed solely
to amend specific Items of the Annual Report for certain sales and transfers
related to the Company's Grain Marketing business segment that were not properly
eliminated for the fiscal years ended August 31, 2002, 2001 and 2000, as more
fully explained in Note 16 to the Consolidated Financial Statements. These
changes had no effect on the Company's financial condition, or changes in cash
flows, and no effect on reported gross profit or net income for the periods
stated above.

Items to be amended include Item 1, Item 6, Item 7, Item 8 and Item
15(a)(1). In addition, in connection with the filing of this Amendment and
pursuant to the rules of the Securities and Exchange Commission, the Registrant
is including with this Amendment certain currently dated certifications in Item
15(a)(3). No other changes have been made to the Annual Report. This Form
10-K/A-2 does not modify or update the disclosure contained in the Annual Report
in any way other than as required to reflect the amendments discussed above and
reflected below.

PART I.

ITEM 1. BUSINESS

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
AUGUST 31, 2002, INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE
COMPANY. IN ADDITION, THE COMPANY AND ITS REPRESENTATIVES AND AGENTS MAY FROM
TIME TO TIME MAKE OTHER WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION AND ITS REPORTS TO ITS MEMBERS AND SECURITYHOLDERS. WORDS AND
PHRASES SUCH AS "WILL LIKELY RESULT," "ARE EXPECTED TO," "WILL CONTINUE," "IS
ANTICIPATED," "ESTIMATE," "PROJECT" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE
UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE MADE.

THE COMPANY'S FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, RISKS RELATED TO THE LEVEL OF COMMODITY
PRICES, LOSS OF MEMBER BUSINESS, COMPETITION, CHANGES IN THE TAXATION OF
COOPERATIVES, COMPLIANCE WITH LAWS AND REGULATIONS, PERCEPTIONS OF FOOD QUALITY
AND SAFETY, BUSINESS INTERRUPTIONS AND CASUALTY LOSSES, ACCESS TO EQUITY
CAPITAL, CONSOLIDATION OF PRODUCERS AND CUSTOMERS, FLUCTUATIONS IN PRICES FOR
CRUDE OIL AND REFINED PETROLEUM PRODUCTS, ALTERNATIVE ENERGY SOURCES, THE
PERFORMANCE OF OUR AGRONOMY BUSINESS AND JOINT VENTURES. THESE RISKS AND
UNCERTAINTIES ARE FURTHER DESCRIBED IN EXHIBIT 99.1 TO THIS ANNUAL REPORT ON
FORM 10-K, AND OTHER RISKS OR UNCERTAINTIES MAY BE DESCRIBED FROM TIME TO TIME
IN THE COMPANY'S FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE ANY FORWARD-LOOKING
STATEMENTS TO REFLECT FUTURE EVENTS OR CIRCUMSTANCES.

THE COMPANY

Effective August 5, 2003, Cenex Harvest States Cooperatives changed its
name to CHS, Inc. CHS Inc. (CHS, Cenex Harvest States Cooperatives, CHS
Cooperatives or the Company) is one of the nation's leading integrated
agricultural companies. As a cooperative, the Company is owned by farmers and
ranchers and their local cooperatives from the Great Lakes to the Pacific
Northwest and from the Canadian border to Texas. CHS Cooperatives buys
commodities from and provides products and services to its members and other
customers. The Company provides a wide variety of products and services, from
initial agricultural inputs such as fuels, farm supplies and crop nutrients, to
agricultural outputs that include grains and oilseeds, grain and oilseed
processing and food products. A portion of the Company's operations are
conducted through equity investments and joint ventures whose operating results
are not consolidated with the Company's results; rather, a proportionate share
of the income from those entities is included as a component in the Company's
net income under the equity method of accounting. For the fiscal year ended
August 31, 2002, the Company's total revenues were $7.3 billion.

The Company's operations are organized into five business segments:
Agronomy, Energy, Country Operations, Grain Marketing and Processed Grains and
Foods. Together these business segments create vertical integration to link
producers with consumers. The first two segments, Agronomy and Energy, produce
and provide for the wholesale distribution of inputs that are essential for
crop production. The third segment, Country Operations, serves as the
Company-owned retailer of a portion of these crop inputs and also serves as the
first handler of a significant portion of the crops marketed and processed by
the Company. The fourth segment, Grain Marketing, purchases and resells grains
and oilseeds originated by the Country Operations segment, by member
cooperatives and by third parties. The fifth business segment, Processed Grains
and Foods, converts grains and oilseeds into value-added products.

Only producers of agricultural products and associations of producers of
agricultural products may be members of CHS Cooperatives. The Company's
earnings are allocated to members based on the

volume of business they do with the Company. Members receive earnings in the
form of patronage refunds in cash and patron's equities, which may be redeemed
over time.

The origins of CHS Cooperatives date back to the early 1930s with the
founding of the predecessor companies of Cenex, Inc. and Harvest States
Cooperatives. Cenex Harvest States Cooperatives, now headquartered in Inver
Grove Heights, Minnesota, emerged as the result of the merger of the two
entities in 1998.

The international sales information and segment information in Notes 2 and
11 to the financial statements are incorporated by reference into the following
business segment descriptions.

The business segment financial information presented below does not
represent the results that would have been obtained had the relevant business
segment been operated as an independent business.

AGRONOMY

OVERVIEW
Through the Agronomy business segment, the Company is engaged in the
manufacture of crop nutrients and the wholesale distribution of crop nutrients
and crop protection products. The Company conducts its agronomy operations
primarily through two investments -- a 20% cooperative ownership interest in CF
Industries, Inc. (CF Industries) and, effective January 2000, a 25% ownership
interest in Agriliance, LLC (Agriliance). CF Industries manufactures crop
nutrient products, particularly nitrogen and phosphate fertilizers, and is one
of the largest suppliers to Agriliance. Agriliance is one of North America's
largest wholesale distributors of crop nutrients, crop protection products and
other agronomy products.

There is significant seasonality in the sale of crop nutrients and crop
protection products and services, with peak activity coinciding with the
planting and input seasons.

The Company's minority ownership interests in CF Industries and Agriliance
are treated as investments, and therefore, those entities' revenues and
expenses are not reflected in the Company's operating results. Each of CF
Industries and Agriliance has its own line of financing, without recourse to
the Company.

OPERATIONS
CF INDUSTRIES. CF Industries is an interregional agricultural cooperative
involved in the manufacturing of crop nutrient products. It is one of North
America's largest producers of nitrogen and phosphate fertilizers. Through its
members, CF Industries' nitrogen and phosphate fertilizer products reach
farmers and ranchers in 48 states and two Canadian provinces. CF Industries
conducts its operations primarily from the following facilities:

o a nitrogen manufacturing and processing facility at Donaldsonville,
Louisiana;

o a phosphate mine and phosphate fertilizer plant in central Florida;
and

o a 66% ownership interest in a nitrogen fertilizer manufacturing and
processing facility in Alberta, Canada.

AGRILIANCE. Agriliance is the one of the nation's largest wholesale
distributors of crop nutrients (fertilizers) and crop protection products
(insecticides, fungicides and pesticides), accounting for an estimated 30% of
the U.S. market for crop nutrients and approximately 25% of the U.S. market for
crop protection products. As a wholesale distributor, Agriliance has warehouse,
distribution and service facilities located throughout the country. Agriliance
also owns and operates retail agricultural units in the southeastern United
States. Agriliance purchases most of its fertilizer from CF Industries and
Farmland Industries, Inc. (Farmland) and its crop protection products from
Monsanto and Sygenta.

Agriliance was formed in 2000 when CHS Cooperatives, Farmland and Land
O'Lakes, Inc. (Land O'Lakes) contributed their respective agronomy businesses
to the new company in consideration for ownership interests (25% each for CHS
and Farmland and 50% for Land O'Lakes) in the venture. CHS Cooperatives and
Farmland hold their interests in Agriliance through United Country Brands, LLC,
a jointly-owned holding company.

PRODUCTS AND SERVICES
CF Industries manufactures crop nutrient products, primarily nitrogen and
phosphate fertilizers and potash. Agriliance wholesales crop nutrient products
and crop protection products that include insecticides, fungicides, and
pesticides. Agriliance also provides field and technical services, including
soil testing, adjuvant and herbicide formulation, application and related
services.

SALES AND MARKETING; CUSTOMERS
CF Industries sells its crop nutrient products to large agricultural
cooperatives and distributors. Its largest customers are Land O'Lakes, CHS and
seven other regional cooperatives that wholesale the products to their members.
Agriliance distributes agronomy products through approximately 1,000 local
cooperatives from Ohio to the West Coast and from the Canadian border south to
Kansas. Agriliance also provides sales and services through 48 Agriliance
Service Centers and other retail outlets. Agriliance's largest customer is the
Company's Country Operations business segment. In 2002, Agriliance sold
approximately $1.4 billion of crop nutrient products and approximately $2.2
billion of crop protection and other products.

INDUSTRY; COMPETITION

CF INDUSTRIES. North American fertilizer producers operate in a highly
competitive, global industry. Commercial fertilizers are world-traded
commodities and producers compete principally on the basis of price and
service. Many of the raw materials that are used in fertilizer production, such
as natural gas, are often more expensive in the U.S. than other parts of the
world. Crop nutrient margins have historically been cyclical; large profits
generated throughout the mid-1990's attracted additional capital and expansion
and the industry now suffers from excess capacity. These factors have produced
depressed margins for North American fertilizer manufacturers over the past
several years, although recently fertilizer margins have stabilized as natural
gas prices have declined.

CF Industries competes with numerous domestic and international crop
nutrient manufacturers, including Farmland.

AGRILIANCE. The wholesale distribution of agronomy products is highly
competitive and dependent upon relationships with agricultural producers and
local cooperatives, proximity to producers and local cooperatives and
competitive pricing. Moreover, the crop protection products industry is mature
with slow growth predicted for the future, which has led distributors and
suppliers to turn to consolidation and strategic partnerships to benefit from
economies of scale and increased market share. Agriliance competes with other
large agronomy distributors, as well as other regional or local distributors
and retailers. Agriliance competes on the strength of its relationships with
the members of the Company, Farmland and Land O'Lakes, its purchasing power and
competitive pricing, and its attention to service in the field.

Major competitors of Agriliance in crop nutrient distribution include
Agrium, Growmark, United Suppliers and West Central. Major competitors of
Agriliance in crop protection products distribution include Helena, ConAgra
(UAP), Tenkoz and numerous smaller distribution companies.

SUMMARY OPERATING RESULTS
The Company accounts for its Agronomy business segment as follows:

CF INDUSTRIES. The Company's investment in CF Industries of $153 million
on August 31, 2002, is carried on the balance sheet at cost, including
allocated patronage. Since CF Industries is a cooperative, the Company
recognizes income from the investment only if it receives patronage refunds. In
recent years, CF Industries has realized operating losses and as such, it has
not issued any patronage refunds to its members. Historically, crop nutrients
manufacturing earnings have been cyclical in nature.

AGRILIANCE. At August 31, 2002 the Company's equity investment in
Agriliance was $86 million. The Company recognizes earnings from Agriliance
using the equity method of accounting, which results in the Company including
its ownership percentage of Agriliance's net earnings as equity income from
investments. The Company applies related internal expenses against those
earnings.

Summary operating results for the Agronomy business segment for the fiscal
years ended August 31, 2002, 2001 and 2000 are shown below:

2002 2001 2000
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(DOLLARS IN THOUSANDS)

Revenues:
Net sales* .................................... $808,659
Patronage dividends ........................... $ (89) $ 196 224
Other revenues ................................ 5,817
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(89) 196 814,700
Cost of goods sold ............................. 764,744
Marketing, general and administrative .......... 8,957 8,503 20,832
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Operating (losses) earnings .................... (9,046) (8,307) 29,124
Interest ....................................... (1,403) (4,529) (3,512)
Equity (income) loss from investments .......... (13,425) (7,360) 4,336
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Income before income taxes ..................... $ 5,782 $ 3,582 $ 28,300
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Total identifiable assets -- August 31 ......... $ 242,015 $230,051 $228,277
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* Net sales in 2000 reflect sales from the Company's agronomy business prior to
the time it was contributed to Agriliance. Earnings from the Company's
interest in Agriliance are shown as equity (income) loss from investments.

ENERGY

OVERVIEW
CHS Cooperatives is the nation's largest cooperative energy company, with
operations that include petroleum refining and pipelines; the supply, marketing
and distribution of refined fuels (gasoline, diesel, and other energy
products); the blending, sale and distribution of lubricants; and the wholesale
and retail supply of propane. The Energy business segment processes crude oil
into refined petroleum products at refineries in Laurel, Montana (wholly-owned)
and McPherson, Kansas (owned by an entity in which CHS has an approximate 74.5%
ownership interest) and sells those products under the Cenex brand to CHS's
member cooperatives and others through a network of approximately 1,400
independent retailers, including approximately 800 that operate Cenex/Ampride
convenience stores.

OPERATIONS
LAUREL REFINERY. The Company's Laurel, Montana refinery processes medium
and high sulfur crude oil into refined petroleum products that primarily
include gasoline, diesel, and asphalt. The Laurel refinery sources
approximately 90% of its crude oil supply from Canada, with the balance
obtained from domestic sources. Laurel has access to Canadian and northwest
Montana crude through the Company's wholly-owned Front Range Pipeline and other
common carrier pipelines. The Laurel refinery also has access to Wyoming crude
via common carrier pipelines from the south.

The Laurel facility processes approximately 55,000 barrels of crude oil
per day to produce refined products that consist of approximately 42% gasoline,
30% diesel and 28% asphalt and other residual products. Refined fuels produced
at Laurel, Montana are available via the Yellowstone Pipeline to western
Montana terminals and to Spokane and Moses Lake, Washington, south via common
carrier pipelines to Wyoming terminals and Denver, Colorado, and east via the
Company's wholly-owned Cenex Pipeline to Glendive, Montana, and Minot and
Fargo, North Dakota.

MCPHERSON REFINERY. The McPherson, Kansas refinery is owned and operated
by the National Cooperative Refinery Association (NCRA), of which the Company
owns approximately 74.5%. The McPherson refinery processes low and medium
sulfur crude oil into gasoline, diesel and other distillates, propane, and
other products. McPherson sources approximately 95% of its crude oil from
Kansas, Oklahoma, and Texas through NCRA-owned and common carrier pipelines.

The McPherson refinery processes approximately 80,000 barrels of crude oil
per day to produce refined products that consist of approximately 57% gasoline,
34% diesel and other distillates, and 9% propane and other products.
Approximately 90% of the refined fuels are shipped via NCRA's

proprietary products pipeline to its terminal in Council Bluffs, Iowa and to
other markets via common carrier pipelines. The balance of the fuels are loaded
into trucks at the refinery.

OTHER ENERGY OPERATIONS. The Company owns and operates ten propane plants
and three propane terminals, four asphalt terminals, three lubricants blending
and packaging facilities, and 36 convenience stores. The Company also owns and
leases a fleet of liquid and pressure trailers and tractors which are used to
transport refined fuels, propane and anhydrous ammonia.

PRODUCTS AND SERVICES

The Energy business segment produces and sells (primarily wholesale)
gasoline, diesel, propane, asphalt, and lubricants. It obtains the petroleum
products that it sells both from the Laurel and McPherson refineries and from
third parties.

SALES AND MARKETING; CUSTOMERS

The Company makes approximately 85% of its refined fuel sales to members,
with the balance sold to non-members. Sales are made wholesale to member
cooperatives and through a network of independent retailers that operate
convenience stores under the Cenex/Ampride tradename. The Company sold
approximately 1.3 billion gallons of gasoline and approximately 1.2 billion
gallons of diesel fuel in fiscal year 2002. The Company also wholesales auto
and farm machinery lubricants to both members and non-members. In fiscal year
2002, energy operations sold approximately 26.4 million gallons of lubricants.
The Company is one of the nation's largest propane wholesalers. In fiscal year
2002, energy operations sold approximately 0.7 billion gallons of propane. Most
of the propane sold in rural areas is for heating and agricultural consumption.
Annual sales volumes of propane vary greatly depending on weather patterns and
crop conditions.

INDUSTRY; COMPETITION

Governmental regulations and policies, particularly in the areas of
taxation, energy and the environment, have a significant impact on the
Company's energy operations segment. Like many other refineries, the Energy
business segment's refineries are currently focusing their capital spending on
reducing pollution. In particular, these refineries are currently working to
comply with the federal government's initiatives to lower the sulfur content of
gasoline and diesel. The Company currently expects that the cost of compliance,
which will be spread out over the next four years, will be approximately $340
million in total for the McPherson and Laurel refineries. It is expected that
over 80% of the costs will be incurred at the McPherson refinery.

The energy business is highly cyclical. Demand for crude oil and its
products are driven by the condition of local and worldwide economies, local
and regional weather patterns and taxation relative to other energy sources.
Most of the Company's energy product market is located in rural areas, so sales
activity tends to follow the planting and harvesting cycles. More fuel
efficient equipment, reduced crop tillage, depressed prices for crops, warm
winter weather, and government programs which encourage idle acres may all
reduce demand for the Company's energy products.

The refining and wholesale fuels business is very competitive. Among the
Company's competitors are some of the world's largest integrated petroleum
companies, which have their own crude oil supplies, distribution and marketing
systems. The Company also competes with smaller domestic refiners and marketers
in the midwestern and northwestern United States, with foreign refiners who
import products into the United States and with producers and marketers in
other industries supplying other forms of energy and fuels to consumers. Given
the commodity nature of the end products, profitability in the refining and
marketing industry depends largely on margins, as well as operating efficiency,
product mix, and costs of product distribution and transportation. The retail
gasoline market is highly competitive, with much larger competitors that have
greater brand recognition and distribution outlets throughout the country and
the world. CHS Cooperatives owned and non-owned retail outlets are located
primarily in the southern, midwestern and northwestern United States.

SUMMARY OPERATING RESULTS
Summary operating results for the Energy business segment for the fiscal
years ended August 31, 2002, 2001 and 2000 are shown below:

2002 2001 2000
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(DOLLARS IN THOUSANDS)

Revenues:
Net sales ..................................... $2,657,689 $2,781,243 $2,959,622
Patronage dividends ........................... 458 712 311
Other revenues ................................ 6,392 4,036 2,792
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2,664,539 2,785,991 2,962,725
Cost of goods sold ............................. 2,489,352 2,549,099 2,862,715
Marketing, general and administrative .......... 66,731 48,432 43,332
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Operating earnings ............................. 108,456 188,460 56,678
Interest ....................................... 16,875 25,097 27,926
Equity loss (income) from investments .......... 1,166 4,081 (856)
Minority interests ............................. 14,604 34,713 24,443
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Income before income taxes ..................... $ 75,811 $ 124,569 $ 5,165
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Total identifiable assets -- August 31 ......... $1,305,828 $1,154,036 $1,379,019
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COUNTRY OPERATIONS

OVERVIEW
The Country Operations business segment purchases wheat and other grains
from the Company's producer members and provides cooperative members and
producers with access to a full range of products and services including farm
supplies, programs for crop and livestock production, hedging and insurance
services, and agricultural operations financing. Country Operations operates at
approximately 300 locations dispersed throughout Minnesota, North Dakota, South
Dakota, Nebraska, Montana, Idaho, Washington and Oregon. Most of these
locations purchase grain from farmers and sell agronomy products, energy
products and feed to those same producers and others, although not all
locations provide every product and service.

PRODUCTS AND SERVICES
GRAIN PURCHASING. The Company is one of the largest country elevator
operators in North America. Through a majority of its elevator locations, the
Country Operations business segment purchases grain from member and non-member
producers and other elevators and grain dealers. Most of the grain purchased is
either sold through the Company's Grain Marketing business segment or used for
local feed and processing operations. In the year ended August 31, 2002, the
Company purchased approximately 280 million bushels of grain, primarily wheat
(131 million bushels), corn (77 million bushels) and soybeans (45 million
bushels). Of these bushels, 255 million were purchased from members and 239
million were sold through the Grain Marketing business segment.

FARM SUPPLIES. Country Operations manufactures and sells farm supplies,
both directly and through ownership interests in other entities. These include
seed; plant food; energy products; animal feed ingredients, supplements and
products; animal health products; and crop protection products. The Company
sells agronomy products at 160 locations, feed products at 135 locations and
energy products at 94 locations. Farm supplies are purchased through
cooperatives whenever possible.

FINANCIAL SERVICES. The Company has provided open account financing to
more than 150 CHS members that are cooperatives (Cooperative Association
Members) in the past year. These arrangements involve the discretionary
extension of credit in the form of term and seasonal loans and can also be used
as a clearing account for settlement of grain purchases and as a cash
management tool. A substantial part of the term and seasonal loans are sold to
the National Bank for Cooperatives (CoBank), with CoBank purchasing up to 90%
of any loan. The Company's borrowing arrangements with CoBank limit loan
balances outstanding under this program to not more than $150.0 million at any
one time.

Through its wholly-owned subsidiary Fin-Ag, Inc. the Company provides
seasonal cattle feeding and swine financing loans, facility financing loans and
crop production loans. It also provides consulting services to member
cooperatives. Most loans are sold to CoBank under a separate program from that
described above, under which the Company has guaranteed a portion of the loans.
The Company's exposure at August 31, 2002 was approximately $40.8 million.
Under the Company's borrowing arrangements, the maximum amount of the loans
outstanding at any one time may not exceed $125.0 million and the Company's
maximum guarantee exposure would be $48.5 million.

The Company's wholly-owned subsidiary Country Hedging, Inc., which is a
registered futures commission merchant and a clearing member of both the
Minneapolis Grain Exchange and the Kansas City Board of Trade, is a full
service commodity futures and options broker.

Ag States Agency, LLC is an independent insurance agency in which the
Company holds a majority ownership interest. It sells insurance, including
group benefits, property and casualty, and bonding programs. Its more than
1,700 customers are primarily agricultural businesses, including local
cooperatives and independent elevators, oil stations, agronomy and feed/seed
plants, implement dealers, fruit and vegetable packers/warehouses, and food
processors.

INDUSTRY; COMPETITION
Competitors for the purchase of grain include other elevators and large
grain marketing companies. Competitors for farm supply include a variety of
cooperatives, privately held and large national companies. The Company competes
primarily on the basis of price, services and patronage.

The financing operations are not significant, however, competitors for the
Company's financing operations are primarily other financial institutions. The
Company competes primarily on the basis of price, services and patronage.
Country Hedging's competitors include international brokerage firms, national
brokerage firms, regional brokerage firms (both cooperatives and
non-cooperatives) as well as local introducing brokers, with competition driven
both by price and level of service. Ag States competes with other insurance
agencies, primarily on the basis of price and services.

SUMMARY OPERATING RESULTS
Summary operating results for the Country Operations business segment for
the fiscal years ended August 31, 2002, 2001 and 2000 are shown below:

2002 2001 2000
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(DOLLARS IN THOUSANDS)

Revenues:
Net sales ..................................... $1,474,553 $1,577,268 $1,409,892
Patronage dividends ........................... 2,572 3,683 3,830
Other revenues ................................ 80,789 80,479 68,436
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1,557,914 1,661,430 1,482,158
Cost of goods sold ............................. 1,471,422 1,569,884 1,404,120
Marketing, general and administrative .......... 47,995 53,417 44,136
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Operating earnings ............................. 38,497 38,129 33,902
Interest ....................................... 13,851 15,695 12,782
Equity income from investments ................. (283) (246) (1,007)
Minority interests ............................. 786 385 103
---------- ---------- ----------
Income before income taxes ..................... $ 24,143 $ 22,295 $ 22,024
========== ========== ==========
Total identifiable assets -- August 31 ......... $ 799,711 $ 679,053 $ 660,358
========== ========== ==========

GRAIN MARKETING

OVERVIEW
CHS Cooperatives is the nation's largest cooperative marketer of grain and
oilseed, handling about 1.1 billion bushels annually. During fiscal year 2002,
the Company purchased approximately 76% of total

grain volumes from individual and member cooperatives and the Country
Operations business segment, with the balance purchased from third parties. CHS
Cooperatives arranges for the transportation of the grains either directly to
customers or to Company owned or leased grain terminals and elevators pending
delivery to domestic and foreign purchasers. The Company primarily conducts its
Grain Marketing operations directly, but does conduct some of its business
through three 50% owned joint ventures.

OPERATIONS
The Grain Marketing segment purchases grain directly and indirectly from
agricultural producers primarily in the Midwestern and Western United States.
The purchased grain is typically sold for future delivery at a specified
location, with the Company responsible for handling the grain and arranging for
its transportation to that location. The Company's ability to arrange efficient
transportation, including loading capabilities onto unit trains, ocean-going
vessels, and barges, is a significant part of the service it offers to its
customers. Rail, vessel, barge and truck transportation is carried out by third
parties, often under long-term freight agreements with the Company. Grain
intended for export is usually shipped by rail or barge to an export terminal,
where it is loaded onto ocean-going vessels. Grain intended for domestic use is
usually shipped by rail or truck to various locations throughout the country.

CHS owns export terminals, river terminals, and elevators involved in the
handling and transport of grain. River terminals at Kansas City, Missouri, St.
Paul, Savage, and Winona, Minnesota, and Davenport, Iowa are used to load
grains onto barges for shipment to both domestic and export customers via the
Mississippi River System. The Company's export terminal at Superior, Wisconsin
provides access to the Great Lakes and St. Lawrence Seaway, and an export
terminal at Myrtle Grove, Louisiana serves the Gulf market. In the Pacific
Northwest, the Company conducts its grain marketing operations through United
Harvest, LLC (a 50% joint venture with United Grain Corporation) and TEMCO, LLC
(a 50% joint venture with Cargill, Incorporated). United Harvest, LLC operates
grain terminals in Vancouver and Kalama, Washington. TEMCO, LLC operates a
large export terminal in Tacoma, Washington. These facilities serve the Pacific
market, as well as domestic grain customers in the Western United States. Grain
Supplier, LLC (a 50% joint venture with Commodity Specialists Company) will
begin operating an elevator facility in Friona, Texas and one in Collins,
Mississippi beginning in late fiscal year 2003 or early fiscal year 2004.

Grain Marketing purchases most of its grain during the summer and fall
harvest period. Because of the Company's geographic location and the fact that
it is further from its export facilities, grain tends to be sold later than in
other parts of the country. However, as many producers have significant on-farm
storage capacity and in light of the Company's own storage capacity, the Grain
Marketing business segment buys and ships grain throughout the year. Due to the
amount of grain purchased and held in inventory, the Grain Marketing business
segment has significant working capital needs at various times of the year. The
amount of borrowings for this purpose, and the interest rate charged on those
borrowings, directly affect the profitability of the Grain Marketing segment.

PRODUCTS AND SERVICES
The primary grains purchased by the Grain Marketing business segment for
the year ended August 31, 2002 were wheat (362 million bushels), corn (393
million bushels) and soybeans (241 million bushels). Of the total grains
purchased by the Grain Marketing segment during the year ended August 31, 2002,
571 million bushels were purchased from the Company's individual and
cooperative association members, 239 million bushel were purchased from the
Country Operations business segment and the remainder were purchased from third
parties.

SALES AND MARKETING; CUSTOMERS
Purchasers include domestic and foreign millers, maltsters, feeders,
crushers, and other processors. To a much lesser extent purchasers include
intermediaries and distributors. Grain marketing operations are not dependent
on any one customer. The Grain Marketing segment has supply relationships
calling for delivery of grain at prevailing market prices.

INDUSTRY; COMPETITION
The Grain Marketing business segment competes for both the purchase and
sale of grain. Competition is intense and margins are low. Some competitors are
integrated food producers, which may also be customers. A few major competitors
have substantially greater financial resources than the Company.

In the purchase of grain from producers, location of the delivery facility
is a prime consideration, but producers are increasingly willing to truck grain
longer distances for sale. Price is affected by the capabilities of the
facility; for example, if it is cheaper to deliver to a customer by unit train
than by truck, a facility with unit train capability provides a price
advantage. The Company believes that its relationships with individual members
serviced by local Country Operations locations and with cooperative members
gives it a broad origination capability.

The Grain Marketing business segment competes for grain sales based on
price, services and ability to provide the desired quantity and quality of
grains required. Location of facilities is a major factor in the ability to
compete. Grain marketing operations compete with numerous grain merchandisers,
including major grain merchandising companies such as Archer Daniels Midland
(ADM), Cargill, Incorporated (Cargill), ConAgra, Bunge and Louis Dreyfus, each
of which handle grain volumes of more than one billion bushels annually.

The results of the grain marketing business may be adversely affected by
relative levels of supply and demand, both domestic and international,
commodity price levels (including grain prices reporting on national markets)
and transportation costs and conditions. Supply is affected by weather
conditions, disease, insect damage, acreage planted and government regulations
and policies. Demand may be affected by foreign governments and their programs,
relationships of foreign countries with the United States, the affluence of
foreign countries, acts of war, currency exchange fluctuations and substitution
of commodities. Demand may also be affected by changes in eating habits, by
population growth, and by increased or decreased per capita consumption of some
products.

SUMMARY OPERATING RESULTS
Summary operating results for the Grain Marketing business segment for the
fiscal years ended August 31, 2002, 2001 and 2000 are shown below:

2002 2001 2000
------------- ------------- -------------
Restated(a) Restated(a) Restated(a)
(DOLLARS IN THOUSANDS)

Revenues:
Net sales ..................................... $3,281,469 $3,416,239 $3,375,616
Patronage dividends ........................... 497 840 861
Other revenues ................................ 21,902 22,964 15,440
---------- ---------- ----------
3,303,868 3,440,043 3,391,917
Cost of goods sold ............................. 3,272,985 3,416,500 3,361,672
Marketing, general and administrative .......... 22,213 22,396 21,412
---------- ---------- ----------
Operating earnings ............................. 8,670 1,147 8,833
Interest ....................................... 4,807 8,144 8,701
Equity income from investments ................. (4,257) (4,519) (6,452)
---------- ---------- ----------
Income (loss) before income taxes .............. $ 8,120 $ (2,478) $ 6,584
========== ========== ==========
Total identifiable assets -- August 31 ......... $ 481,232 $ 345,696 $ 321,813
========== ========== ==========

(a) See Note 16 in the Consolidated Financial Statements for discussion on the
matters restated.

PROCESSED GRAINS AND FOODS

OVERVIEW
The Processed Grains and Foods business segment converts raw agricultural
commodities into ingredients for finished food products or into finished
consumer food products. The Company has focused on areas that allow it to
utilize the products supplied by member producers. These areas are oilseed
processing and refining, wheat milling and foods.

OILSEED PROCESSING AND REFINING
The Company's oilseed processing operations convert soybeans into soybean
meal, soyflour, crude soyoil, refined soybean oil and associated by-products.
These operations are conducted at a facility in Mankato, Minnesota that can
crush 39 million bushels of soybeans on an annual basis, producing

approximately 940,000 short tons of soybean meal and 460 million pounds of
crude soybean oil. The same facility is able to refine approximately 1 billion
pounds of refined soybean oil annually. Another crushing facility is under
construction in Fairmont, Minnesota that will have a crushing capacity and
crude soyoil output similar to the Mankato facility. The facility in Fairmont
is anticipated to be ready for the 2003 harvest and is estimated to cost
approximately $90 million, of which approximately $23 million has been spent
through August 31, 2002.

The Company's oilseed processing and refining operations produce three
primary products: refined oils, soybean meal and soyflour. Refined oils are
used in processed foods, such as margarine, shortening, salad dressings and
baked goods and, to a lesser extent for certain industrial uses for plastics,
inks and paints. Soybean meal has a high protein content and is used for
feeding livestock. Soyflour is used in the baking industry, as a milk
replacement in animal feed and in industrial applications.

The Company's soy processing facilities are located in areas with a strong
production base of soybeans and end-user market for the meal and soyflour. The
Company purchases virtually all of its soybeans from members. The oilseed
crushing operations currently produce approximately 45% of the crude oil that
the Company refines; it purchases the balance from outside suppliers.

The Company's customers for refined oil are principally large food product
companies located throughout the United States. However, over 50% of the
customers are located in the Midwest due to lower freight costs and slightly
higher profitability. The largest customer for refined oil products is Ventura
Foods, LLC (Ventura Foods), in which the Company holds a 50% ownership interest
and with which the Company has a long-term supply agreement to supply minimum
quantities of edible soybean oils as long as the Company maintains a minimum
25.5% ownership interest and the price is comparative with other suppliers of
the product. The Company's sales to Ventura Foods were $49.8 million in fiscal
year 2002. The Company also sells soymeal to over 500 customers, primarily feed
lots and feed mills in southern Minnesota; six of these customers accounted for
approximately 61% of the soymeal sold. Land O'Lakes/Farmland Feeds, LLC
accounts for 29% of soymeal sold and Commodity Specialists Company accounts for
10% of soymeal sold. The Company sells soyflour to customers in the baking
industry both domestically and for export.

The refined soybean products industry is highly competitive. Major
industry competitors include ADM, Cargill, Ag Processing, Inc., and Bunge.
These and other competitors have acquired other processors and have expanded
existing plants, or are proposing to construct new plants, both domestically
and internationally. Price, transportation costs, services and product quality
drive competition. The Company estimates that it has a market share of
approximately 6% to 8% of the domestic refined soybean oil market and less than
3% of the domestic soybean crushing capacity.

Soybeans are a commodity and their price can fluctuate significantly
depending on production levels, demand for the refined products, and other
supply and demand factors.

WHEAT MILLING
In January 2002, the Company and Cargill formed Horizon Milling, LLC
(Horizon Milling), in which the Company owns 24% and Cargill owns the remaining
76%. Horizon Milling is the largest U.S. wheat miller. Sales of wheat and durum
by the Company to Horizon Milling during fiscal year 2002 were $114.4 million.

The Company ceased operations at its Huron, Ohio mill prior to the
formation of Horizon Milling and the Company's facility lease expired on
September 30, 2002. The Company is currently dismantling and negotiating for
the sale of the milling equipment. The Processed Grains and Foods business
segment established an impairment of approximately $6.5 million on the
equipment during the fourth quarter of fiscal year 2002.

FOODS
The Company has two primary areas of focus in the foods area: Ventura
Foods, which produces oilseed based products such as margarine and salad
dressing and which is 50% owned by the Company, and the production of Mexican
foods such as tortillas, tortilla chips and entrees.

VENTURA FOODS. Ventura Foods manufactures, packages, distributes and
markets bulk margarine, salad dressings, mayonnaise, salad oils, syrups, soup
bases and sauces, many of which utilize soybean oil as a primary ingredient.
Approximately 20% of Ventura Food's volume, based on sales revenues, comes from
products for which Ventura Foods owns the brand, and the remainder comes from
products that it produces for third parties. A variety of Ventura Food's
product formulations and processes are proprietary to it or its customers.
Ventura Foods is the largest manufacturer of margarine in the U.S. and is a
major producer of many other products.

Ventura Foods has 13 manufacturing and distribution locations across the
United States. It sources its raw materials, which consists primarily of
soybean oil, canola oil, cottonseed oil, peanut oil and various ingredients and
supplies, from various national suppliers, including the Company's oilseed
processing and refining operations. It sells the products it manufactures to
third parties as a contract manufacturer, as well as directly to retailers,
food distribution companies and large institutional food service companies.
Ventura Foods' sales are approximately 65% in foodservice and the remainder
split between retail and industrial customers who use edible oil products as
ingredients in foods they manufacture for resale.

Ventura Foods competes with a variety of large companies in the food
manufacturing industry. Some of its major competitors are ADM, Cargill, Bunge,
Unilever, ConAgra, ACH, Smuckers, Kraft, and CF Sauer.

Ventura Foods was created in 1996 and at the time was owned 40% by the
Company and 60% by Wilsey Foods, Inc., a majority owned subsidiary of Mitsui
USA, Inc. In March 2000, Wilsey Foods, Inc. sold an additional 10% interest
bringing the Company's total equity investment in Ventura Foods to 50%. The
Company accounts for the Ventura Foods investment under the equity method of
accounting.

MEXICAN FOODS. Since June 2000, the Company has acquired three regional
producers of Mexican foods. Through its Mexican foods operations, the Company
manufactures, packages and distributes tortillas, tortilla chips and prepared
frozen Mexican food products such as burritos and tamales. The Company sells
these products under a variety of local and regional brand names and also
produces private label products and co-packs for customers. The current
operational focus is on integrating these disparate operations into a single
business entity with consistent standards, systems and sales practices. The
Company is also working to develop a national brand from its predominantly
local and regional brand platforms.

The tortilla and tortilla chip industry in the United States is comprised
of a large number of small regional manufacturers and a few dominant
manufacturers. The Company estimates that its Mexican foods operation has
approximately a 1.5% share of the national tortilla market and less than a 1%
share of the national tortilla chip market. On a national basis, the primary
competitors are large chip and snack companies such as Frito Lay.

SUMMARY OPERATING RESULTS
Summary operating results for the Processed Grains and Foods business
segment for the fiscal years ended August 31, 2002, 2001 and 2000 are shown
below:

2002 2001 2000
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

Revenues:
Net sales* .................................... $ 496,084 $ 662,726 $ 584,052
Patronage dividends ........................... 260 339 100
Other revenues ................................ (1,469) (238) (10)
--------- --------- ---------
494,875 662,827 584,142
Cost of goods sold ............................. 457,538 619,184 547,234
Marketing, general and administrative .......... 36,930 44,870 21,462
--------- --------- ---------
Operating earnings (losses) .................... 407 (1,227) 15,446
Interest ....................................... 9,514 13,026 9,851
Equity income from investments ................. (41,331) (35,505) (24,367)
--------- --------- ---------
Income before income taxes ..................... $ 32,224 $ 21,252 $ 29,962
========= ========= =========
Total identifiable assets -- August 31 ......... $ 439,942 $ 430,871 $ 391,286
========= ========= =========

------------------
* The sales decline in 2002 is primarily due to the formation of Horizon
Milling. Since January 2002 the Company has accounted for the operating
results of its milling operations under the equity method of accounting.
Earnings from the Company's interest in Horizon Milling are included as part
of equity income from investments.

PRICE RISK AND HEDGING

Depending on the terms and conditions of the particular contract, the
Company incurs risks of carrying inventory, including risks related to price
changes and performance (including delivery, quality, quantity and shipment
period) whenever it enters into a commodity purchase commitment. The Company is
exposed to risk of loss in the market value of positions held, consisting of
inventory and purchase contracts at a fixed or partially fixed price in the
event market prices decrease. The Company is also exposed to risk of loss on
its fixed price or partially fixed price sales contracts in the event market
prices increase.

To reduce the price change risks associated with holding fixed price
positions, the Company generally takes opposite and offsetting positions by
entering into commodity futures contracts (either a straight futures contract
or an options futures contract) on regulated commodity futures exchanges for
grain, and regulated mercantile exchanges for refined products and crude oil.
The crude oil and most of the grain and oilseed volume handled by the Company
can be hedged. Some grains cannot be hedged because there are no futures for
certain commodities. For those commodities, risk is managed through the use of
forward sales and different pricing arrangements and to some extent
cross-commodity futures hedging. While hedging activities reduce the risk of
loss from changing market values of inventory, such activities also limit the
gain potential which otherwise could result from changes in market prices of
inventory. The Company's policy is to generally maintain hedged positions in
grain. The Company's profitability from operations is primarily derived from
margins on products sold and grain merchandised, not from hedging transactions.
Hedging arrangements do not protect against nonperformance of a contract.

When a futures contract is entered into, an initial margin deposit must be
sent to the applicable exchange or broker. The amount of the deposit is set by
the exchange and varies by commodity. If the market price of a short futures
contract increases, then an additional margin deposit (maintenance margin)
would be required. Similarly, if the price of a long futures contract
decreases, a maintenance margin deposit would be required and sent to the
applicable exchange. Subsequent price changes could require additional
maintenance margins or could result in the return of maintenance margins.

At any one time inventory and purchase contracts for delivery to the
Company may be substantial. The Company has risk management policies and
procedures that include net position limits. It is defined by commodity and
includes both trader and management limits. This policy, and computerized
procedures in grain marketing operations, triggers a review by operations
management when any trader is outside of position limits and also triggers
review by senior management of the Company if operating areas are outside of
position limits. A similar process is used in energy operations. The position
limits are reviewed at least annually with management of the Company. The
Company monitors current market conditions and may expand or reduce the
purchasing program in response to changes in those conditions. In addition,
certain purchase and sale contracts are subject to credit approvals and
appropriate terms and conditions.

EMPLOYEES

As of August 31, 2002, CHS Cooperatives had approximately 6,750 full and
part-time employees, which included approximately 550 employees of NCRA. Of
that total, approximately 2,180 were employed in the Energy segment, 2,260 in
the Country Operations segment (not including an estimated 720 seasonal and
temporary employees), 390 in the Grain Marketing segment, 970 in the Processed
Grains and Foods business segment and 230 in corporate and administrative
functions.

In addition to those employed directly by the Company, many employees work
directly for the joint ventures in which the Company has an ownership interest.
All of the employees in the Agronomy segment and a portion of the Grain
Marketing and Processed Grains and Foods segments are employed as such.

Employees in certain areas are represented by collective bargaining
agreements. Refinery workers in Laurel, Montana (233 employees), are
represented by agreements with two unions (Paper, Allied-Industrial, Chemical
and Energy Workers International Union (PACE) and Oil Basin Pipeliners Union
(OBP)), for which agreements are in place through 2006 for PACE and under
negotiation for OBP with anticipation of a successful resolution. The contracts
covering the McPherson, Kansas refinery (254 employees in the PACE union) are
also in place through 2006. There are approximately 160 employees in
transportation and lubricant plant operations that are covered by collective
bargaining agreements that expire at various times. Production workers in grain
marketing operations (143 employees) are represented by agreements with four
unions which expire at various times from 2003 through 2005. Finally, certain
production workers in Oilseed Processing and Refining operations are subject to
collective bargaining agreements with the American Federation of Grain Millers
(126 employees) and the Pipefitters' Union (2 employees). Both of these
contracts have expired and are currently being negotiated with the Company
anticipating a successful resolution.

MEMBERSHIP IN THE COMPANY AND AUTHORIZED CAPITAL

INTRODUCTION
The Company is an agricultural membership cooperative organized under
Minnesota cooperative law to do business with member and non-member patrons.
Patrons, and not the Company, are subject to income taxes on income from
patronage. The Company is subject to income taxes on non-patronage-sourced
income. See "-- Tax Treatment" below.

DISTRIBUTION OF NET INCOME; PATRONAGE DIVIDENDS
The Company is required by its organizational documents annually to
distribute net earnings derived from patronage business with members, after
payment of dividends on equity capital, to members on the basis of patronage,
except that the Board of Directors may elect to retain and add to the Company's
unallocated capital reserve an amount not to exceed 10% of the distributable
net income from patronage business. Net income from non-patronage business may
be distributed to members or added to the unallocated capital reserve, in
whatever proportions the Board of Directors deems appropriate.

These distributions, referred to as "patronage dividends," may be
distributed in cash, patrons' equities, revolving fund certificates, securities
of the Company or others or any combination designated by the Board of
Directors. Since 1998, the Board of Directors has distributed patronage
dividends in the form of 30% cash and 70% patrons' equities (see "-- Patrons'
Equities" below). The Board of Directors may change the mix in the form of the
patronage dividend in the future. In making distributions, the Board of
Directors may use any method of allocation as may, in its judgment, be
reasonable and equitable. Patronage dividends distributed during the years
ended August 31, 2002, 2001 and 2000 were $132.6 million ($40.1 million in
cash), $86.4 million ($26.1 million in cash) and $59.1 million($17.9 million in
cash), respectively.

PATRONS' EQUITIES
Patrons' equities are in the form of a bookkeeping entry and represent a
right to receive cash when redeemed by the Company. Patrons' equities form part
of the capital of the Company, do not bear interest and are not subject to
redemption upon request of a member. Patrons' equities are redeemable only at
the discretion of the Board of Directors and in accordance with the terms of a
redemption policy adopted by the Board of Directors, which may be modified at
any time without member consent. The Company's current policy is to redeem the
equities of those members who were age 61 and older on June 1, 1998 when they
reach the age of 72 and upon death. The current policy is also to redeem
equities older than 10 years held by active members on a pro-rata basis as
determined by the Board of Directors.

Redemptions of patrons' and other equities, including equity participation
units (discussed in Note 9 to the Financial Statements), during the years ended
August 31, 2002, 2001 and 2000 were $31.1 million, $33.0 million and $28.7
million, respectively.

GOVERNANCE
The Company is managed by a Board of Directors of at least 17 persons
elected by the members at the Company's annual meeting. Terms of Directors are
staggered so that no more than seven directors are elected in any year. The
Board of Directors is currently comprised of 17 directors. The articles of
incorporation and bylaws of the Company may be amended only upon approval of a
majority of the votes cast at an annual or special meeting of the members,
except for the higher vote described under "-- Certain Antitakeover Measures"
below.

MEMBERSHIP
Membership in the Company is restricted to certain producers of
agricultural products and to associations of producers of agricultural products
that are organized and operating so as to adhere to the provisions of the
Agricultural Marketing Act and the Capper-Volstead Act, as amended. The Board
of Directors may establish other qualifications for membership as it may from
time to time deem advisable.

As a membership cooperative, the Company does not have common stock. The
Company may issue equity or debt securities, on a patronage basis or otherwise,
to its members. The Company has two classes of outstanding membership.
Individual members are individuals actually engaged in the production of
agricultural products. Cooperative associations are associations of
agricultural producers, either cooperatives or other associations organized and
operated under the provisions of the Agricultural Marketing Act and the
Capper-Volstead Act.

VOTING RIGHTS
Voting rights arise by virtue of membership in the Company, not because of
ownership of any equity or debt security. Members that are cooperative
associations are entitled to vote based upon a formula that takes into account
the number of producer members of such cooperative, the equity held by the
cooperative in the Company and the average amount of business done with the
Company over the previous three years.

Members who are individuals are entitled to one vote. Individual members
may exercise their voting power directly or through a patrons' association
associated with a grain elevator, feed mill, seed plant or any other Company
facility (with certain historical exceptions) recognized by the Board of
Directors. The number of votes of patrons' associations is determined under the
same formula as cooperative association members.

The Board of Directors has proposed an amendment to the Company's bylaws
to eliminate the number of producers as a factor in determining the number of
votes of cooperative association members and patrons' associations. The
proposed amendment is expected to be voted upon at the annual members' meeting
in December 2002.

Most matters submitted to a vote of the members require the approval of a
majority of the votes cast at a meeting of the members, although the approval
of not less than two-thirds of the votes cast at a meeting is required to
approve "Change of Control" transactions, which include a merger,
consolidation, liquidation, dissolution, or the sale of all or substantially
all of the Company's assets and, in certain circumstances, a greater vote may
be required. See "Certain Antitakeover Measures" below.

DEBT AND EQUITY INSTRUMENTS
The Company may issue debt and equity instruments to its current members
and patrons, on a patronage basis or otherwise, and to persons who are neither
members nor patrons. Debt or equity issued by the Company is subject to a first
lien in favor of the Company for all indebtedness of the holder thereof to the
Company. As of August 31, 2002 the Company's outstanding capital included
patrons' equities (consisting of capital equity certificates and non-patronage
earnings certificates), 8% Preferred Stock and certain capital reserves. A best
efforts offering of 8% Preferred Stock begun in late 2001 has been suspended
after raising approximately $9.5 million in new capital.

DISTRIBUTION OF ASSETS UPON DISSOLUTION; MERGER AND CONSOLIDATION
In the event of any dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, all debts and liabilities would be paid first
according to their respective priorities. As more particularly provided in the
Company's bylaws, the remaining assets would be paid to the holders of equity
capital to the extent of their interests and any excess would be paid to
patrons on the basis of their past patronage. The bylaws provide for the
allocation among the members and nonmember patrons of the consideration
received in any merger or consolidation to which the Company is a party.

CERTAIN ANTITAKEOVER MEASURES
The governing documents may be amended upon the approval of a majority of
the votes cast at an annual or special meeting. However, if the Board of
Directors, in its sole discretion, declares that a proposed amendment to the
Company's governing documents involves or is related to a "hostile takeover,"
the amendment must be adopted by 80% of the total voting power of the members
of the Company. Further, if the Board of Directors determines that a proposed
change of control transaction involves a hostile takeover, the 80% approval
requirement applies. The term "hostile takeover" is not further defined in the
Minnesota cooperative law or the governing documents of the Company.

TAX TREATMENT
Subchapter T of the Internal Revenue Code sets forth rules for the tax
treatment of cooperatives and applies to both cooperatives exempt from taxation
under Section 521 of the Internal Revenue Code and to nonexempt corporations
operating on a cooperative basis. The Company is a nonexempt cooperative.

As a cooperative, the Company is not taxed on patronage paid to its
members either in the form of equities or cash. Consequently, such amounts are
taxed only at the patron level. However, the amounts of any allocated but
undistributed patronage earnings (called non-qualified unit retains) are
taxable to the Company when allocated. Upon redemption of any such
non-qualified unit retains, the amount is deductible to the Company and taxable
at the member level.

Income derived by the Company from non-patronage sources is not entitled
to the "single tax" benefit of Subchapter T and is taxed to the Company at
corporate income tax rates.

PART II.

ITEM 6. SELECTED FINANCIAL DATA
The selected financial information below has been derived from the
Company's consolidated financial statements for the periods indicated. The
selected consolidated financial information subsequent to August 31, 1999
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included elsewhere in this filing.

SUMMARY CONSOLIDATED FINANCIAL DATA

YEARS ENDED AUGUST 31, THREE MONTHS
------------------------------------------------------- ENDED AUGUST 31, YEAR ENDED
2002 2001 2000 1999 1998 MAY 31, 1998
------------- ------------- ------------- ------------- ------------------ -------------
Restated(a) Restated(a) Restated(a) Restated(a) Restated(a) Restated(a)
(DOLLARS IN THOUSANDS)

Income Statement Data:
Revenues:
Net sales ................... $7,156,454 $7,464,242 $8,248,413 $6,198,843 $1,498,316 $8,278,933
Patronage dividends ......... 3,885 5,977 5,494 5,876 5,111 70,387
Other revenues .............. 109,459 116,254 97,471 81,180 17,706 85,127
---------- ---------- ---------- ---------- ---------- ----------
7,269,798 7,586,473 8,351,378 6,285,899 1,521,133 8,434,447
Cost of goods sold ............ 6,937,956 7,181,433 8,051,057 6,010,796 1,442,599 8,078,351
Marketing, general and
administrative ............... 187,292 184,046 155,266 152,031 34,998 126,061
---------- ---------- ---------- ---------- ---------- ----------
Operating earnings ............ 144,550 220,994 145,055 123,072 43,536 230,035
Interest ...................... 42,455 61,436 57,566 42,438 12,311 34,620
Equity (income) loss from
investments .................. (58,133) (28,494) (28,325) (22,363) 9,142 (8,381)
Minority interests ............ 15,390 35,098 24,546 10,017 3,252 6,880
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes .... 144,838 152,954 91,268 92,980 18,831 196,916
Income taxes .................. 18,700 (25,600) 3,880 6,980 2,895 19,615
---------- ---------- ---------- ---------- ---------- ----------
Net income .................... $ 126,138 $ 178,554 $ 87,388 $ 86,000 $ 15,936 $ 177,301
========== ========== ========== ========== ========== ==========
Balance Sheet Data (at end of
period):
Working capital ............... $ 249,115 $ 305,280 $ 214,223 $ 219,045 $ 284,452 $ 235,721
Net property, plant and
equipment .................... 1,057,421 1,023,872 1,034,768 968,333 915,770 868,073
Total assets .................. 3,481,727 3,057,319 3,172,680 2,787,664 2,469,103 2,436,515
Long-term debt, including
current maturities ........... 572,124 559,997 510,500 482,666 456,840 378,408
Total equities ................ 1,289,638 1,261,153 1,164,426 1,117,636 1,065,877 1,029,973

(a) See Note 16 in the Consolidated Financial Statements for discussion on the
matters restated.

The selected financial statement information below has been derived from
the Company's five business segments, and Corporate and Other, for the fiscal
years ended August 31, 2002, 2001 and 2000. The intracompany sales between
segments were $753.3 million, $973.2 million and $889.4 million for the fiscal
years ended August 31, 2002, 2001 and 2000, respectively.

SUMMARY FINANCIAL DATA BY BUSINESS SEGMENT

AGRONOMY ENERGY
----------------------------------------- -----------------------------------------
2002 2001 2000 2002 2001 2000
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)

Revenues:
Net sales ................................. $ 808,659 $2,657,689 $2,781,243 $2,959,622
Patronage dividends ....................... $ (89) $ 196 224 458 712 311
Other revenues ............................ 5,817 6,392 4,036 2,792
---------- ---------- ---------- ---------- ---------- ----------
(89) 196 814,700 2,664,539 2,785,991 2,962,725
Cost of goods sold ......................... 764,744 2,489,352 2,549,099 2,862,715
Marketing, general and
administrative ............................ 8,957 8,503 20,832 66,731 48,432 43,332
---------- ---------- ---------- ---------- ---------- ----------
Operating (losses) earnings ................ (9,046) (8,307) 29,124 108,456 188,460 56,678
Interest ................................... (1,403) (4,529) (3,512) 16,875 25,097 27,926
Equity (income) loss from
investments ............................... (13,425) (7,360) 4,336 1,166 4,081 (856)
Minority interests ......................... 14,604 34,713 24,443
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ................. $ 5,782 $ 3,582 $ 28,300 $ 75,811 $ 124,569 $ 5,165
========== ========== ========== ========== ========== ==========
Total identifiable assets -- August 31 ..... $ 242,015 $ 230,051 $ 228,277 $1,305,828 $1,154,036 $1,379,019
========== ========== ========== ========== ========== ==========

COUNTRY OPERATIONS GRAIN MARKETING
----------------------------------------- -----------------------------------------
2002 2001 2000 2002 2001 2000
------------- ------------- ------------- ------------- ------------- -------------
Restated(a) Restated(a) Restated(a)
(DOLLARS IN THOUSANDS)

Revenues:
Net sales ................................. $1,474,553 $1,577,268 $1,409,892 $3,281,469 $3,416,239 $3,375,616
Patronage dividends ....................... 2,572 3,683 3,830 497 840 861
Other revenues ............................ 80,789 80,479 68,436 21,902 22,964 15,440
---------- ---------- ---------- ---------- ---------- ----------
1,557,914 1,661,430 1,482,158 3,303,868 3,440,043 3,391,917
Cost of goods sold ......................... 1,471,422 1,569,884 1,404,120 3,272,985 3,416,500 3,361,672
Marketing, general and
administrative ............................ 47,995 53,417 44,136 22,213 22,396 21,412
---------- ---------- ---------- ---------- ---------- ----------
Operating earnings ......................... 38,497 38,129 33,902 8,670 1,147 8,833
Interest ................................... 13,851 15,695 12,782 4,807 8,144 8,701
Equity income from investments ............. (283) (246) (1,007) (4,257) (4,519) (6,452)
Minority interests ......................... 786 385 103
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .......... $ 24,143 $ 22,295 $ 22,024 $ 8,120 $ (2,478) $ 6,584
========== ========== ========== ========== ========== ==========
Total identifiable assets -- August 31 ..... $ 799,711 $ 679,053 $ 660,358 $ 481,232 $ 345,696 $ 321,813
========== ========== ========== ========== ========== ==========

PROCESSED GRAINS AND FOODS CORPORATE AND OTHER
----------------------------------------- -----------------------------------------
2002 2001 2000 2002 2001 2000
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)

Revenues:
Net sales ................................. $ 496,084 $ 662,726 $ 584,052
Patronage dividends ....................... 260 339 100 $ 187 $ 207 $ 168
Other revenues ............................ (1,469) (238) (10) 1,845 9,013 4,996
---------- ---------- ---------- ---------- ---------- ----------
494,875 662,827 584,142 2,032 9,220 5,164
Cost of goods sold ......................... 457,538 619,184 547,234
Marketing, general and
administrative ............................ 36,930 44,870 21,462 4,466 6,428 4,092
---------- ---------- ---------- ---------- ---------- ----------
Operating earnings (losses) ................ 407 (1,227) 15,446 (2,434) 2,792 1,072
Interest ................................... 9,514 13,026 9,851 (1,189) 4,003 1,818
Equity (income) loss from
investments ............................... (41,331) (35,505) (24,367) (3) 15,055 21
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .......... $ 32,224 $ 21,252 $ 29,962 $ (1,242) $ (16,266) $ (767)
========== ========== ========== ========== ========== ==========
Total identifiable assets -- August 31 ..... $ 439,942 $ 430,871 $ 391,286 $ 212,999 $ 217,612 $ 191,927
========== ========== ========== ========== ========== ==========

(a) See Note 16 in the Consolidated Financial Statements for discussion on the
matters restated.

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

Effective August 5, 2003, Cenex Harvest States Cooperatives changed its
name to CHS Inc. CHS Inc. (CHS, Cenex Harvest States, CHS Cooperatives or the
Company) is one of the nation's leading integrated agricultural companies. As a
cooperative, the Company is owned by farmers, ranchers and their local
cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian
border to Texas. CHS Cooperatives buys commodities from, and provides products
and services to members and other customers. The Company provides a wide variety
of products and services, from initial agricultural inputs such as fuels, farm
supplies and crop nutrients, to agricultural outputs that include grains and
oilseeds, grain and oilseed processing, and food products.

The Company has five distinct business segments: Agronomy, Energy, Country
Operations, Grain Marketing and Processed Grains and Foods. Summary data for
each of these segments for the fiscal years ended August 31, 2002, 2001 and
2000 is shown on prior pages.

Many of the Company's businesses are highly seasonal. Due to this,
operating income will vary throughout the year, but overall revenues remain
fairly constant, partly because the Company does not consolidate revenues in
the Agronomy segment as explained below. Overall, the Company's income is
generally lowest during the second fiscal quarter and highest during the third
fiscal quarter. Certain business segments are subject to varying seasonal
fluctuations. For example, Agronomy and Country Operations segments experience
higher volumes and income during the spring planting season and in the fall,
which corresponds to harvest. The Grain Marketing segment, as well, is somewhat
subject to fluctuations in revenue and earnings based on producer harvests. The
Company's Energy segment generally experiences higher revenues and
profitability in certain operating areas, such as refined products, in the
summer when gasoline and diesel usage is highest. Other energy products, such
as propane, experience higher revenues and profitability during the winter
heating season.

While the Company's sales and operating income are derived from businesses
and operations which are wholly-owned and majority-owned, a portion of business
operations are conducted through companies in which the Company holds ownership
interests of 50% or less. The Company accounts for these investments primarily
using the equity method of accounting, wherein CHS Cooperatives records as
equity income from investments its proportionate share of income or loss
reported by the entity, without consolidating the revenues and expenses of the
entity in the Company's consolidated statements of operations. These
investments principally include the Company's 25% ownership in Agriliance, LLC
(Agriliance), the 50% ownership in TEMCO, LLC, the 50% ownership in United
Harvest, LLC, the 24% ownership in Horizon Milling, LLC (Horizon) and the 50%
ownership in Ventura Foods, LLC (Ventura).

RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED AUGUST 31, 2002 AND 2001

NET INCOME. Consolidated net income for the year ended August 31, 2002 was
$126.1 million compared to $178.6 million for the year ended August 31, 2001,
which represents a $52.5 million (29%) decrease. This decrease in profitability
is primarily attributable to a tax benefit of $34.2 million in the prior year
and decreased earnings in the Company's Energy segment compared to the year
ended August 31, 2001.

NET SALES. Consolidated net sales of $7.2 billion for the year ended August
31, 2002 decreased $307.8 million (4%) compared to the year ended August 31,
2001.

Energy net sales of $2.6 billion decreased $119.1 million (4%) during the
year ended August 31, 2002 compared to the year ended August 31, 2001. Sales
for the year ended August 31, 2002 and 2001 were $2,657.7 million and $2,781.2
million, respectively. The Company eliminated all intracompany sales from the
Energy segment to the Country Operations segment of $67.4 million and $71.8
million for the years ended August 31, 2002 and 2001, respectively. Prior to
December 31, 2000 the company consolidated the business activity of Cooperative
Refining LLC (CRLLC), a refining joint venture into the Energy segment. The
Company held a 58% interest in CRLLC, which was dissolved effective December
31, 2000. The decrease in Energy sales is primarily due to this dissolution.
The decrease was partially offset by an increase in refined fuel sales that
were not part of CRLLC, which consisted of a 49% increase in volume, which was
partially offset by a sales price decrease of $0.21 per gallon

compared to the year ended August 31, 2001. The average sales price of propane
decreased by $0.21 per gallon, which was partially offset by a volume increase
of 28% compared to the year ended August 31, 2001. Refined fuels and propane
volume increases were primarily a result of acquisitions, with the most
substantial acquisition taking place in November 2001, when the Company
purchased for $39.0 million, the wholesale energy business of Farmland
Industries, Inc. (Farmland), as well as all interest in Country Energy, LLC a
joint venture formerly with Farmland.

Country Operations farm supply sales of $612.5 million decreased by $51.3
million (8%) during the year ended August 31, 2002 compared to the year ended
August 31, 2001. The decrease is primarily due to a reduction in the average
retail sales price of energy products compared to the prior year.

Company-wide grain and oilseed net sales of $3.5 billion increased $29.0
million (1%) during the year ended August 31, 2002 compared to the year ended
August 31, 2001. Sales for the year ended August 31, 2002 were $3,281.4 million
and $862.0 million from Grain Marketing and Country Operations segments,
respectively. Sales for the year ended August 31, 2001 were $3,416.2 million
and $913.4 million from Grain Marketing and Country Operations segments,
respectively. The Company eliminated all intracompany sales from the Country
Operations segment to the Grain Marketing segment, of $685.4 million and $900.6
million, for the years ended August 31, 2002 and 2001, respectively. The net
increase in sales was primarily due to an increase of $0.28 (10%) per bushel in
the average sales price of all grain and oilseed marketed by the Company, which
was partially offset by a decrease in grain volume of 8% compared to the prior
year.

Processed Grains and Foods segment net sales of $495.5 million decreased
$166.4 million (25%) during the year ended August 31, 2002 compared to the year
ended August 31, 2001. Intracompany sales between segments were eliminated. The
decrease in sales is primarily due to the formation of Horizon, a wheat flour
milling and processing joint venture that was formed in January 2002. After
that date, the Company accounted for operating results of Horizon under the
equity method of accounting. The Company has a 24% interest in Horizon, and
Cargill, Incorporated (Cargill) has a 76% interest. The Company is leasing five
mills and related equipment to Horizon.

PATRONAGE DIVIDENDS. Patronage dividends received of $3.9 million
decreased $2.1 million (35%) during the year ended August 31, 2002 compared to
the year ended August 31, 2001, primarily due to reduced patronage dividends
from cooperatives.

OTHER REVENUES. Other revenues of $109.5 million decreased $6.8 million
(6%) during the year ended August 31, 2002 compared to the year ended August
31, 2001. The most significant changes were within the Energy segment, and
Corporate and Other compared to the prior year.

COST OF GOODS SOLD. Cost of goods sold of $6.9 billion decreased $243.5
million (3%) during the year ended August 31, 2002, compared to the year ended
August 31, 2001. The cost of all grains and oilseed procured by the Company
through its Grain Marketing and Country Operations segments increased 10%
compared to the year ended August 31, 2001 primarily due to a $0.27 (10%)
average cost per bushel increase, which was partially offset by a 8% decrease
in volume. This increase was partially offset by decreases in cost of goods
sold in the Processed Grains and Foods, Country Operations and Energy segments.
Processed Grains and Foods segment cost of goods sold decreased by 26% compared
to the year ended August 31, 2001, primarily due to the formation of Horizon,
as previously described. Country Operations segment farm supply cost of goods
sold decreased by 9% during the year ended August 31, 2002 compared to the
prior year primarily due to the reduced cost of energy products. The Energy
segment cost of goods sold decreased by 2% during the year ended August 31,
2002 compared to the prior year, primarily due to the dissolution of CRLLC, as
previously discussed. However, the volumes of refined fuels that were not
associated with the dissolution of CRLLC increased by 49%, which was partially
offset by an average cost decrease of $0.18 per gallon compared to the year
ended August 31, 2001. The average cost of propane decreased by $0.19 per
gallon, which was partially offset by a 28% volume increase compared to the
prior year. These volume increases were primarily the result of acquisitions.

MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses of $187.3 million for the year ended August 31, 2002
increased by $3.2 million (2%) compared to the year

ended August 31, 2001. The net increase is primarily due to additional expenses
resulting from Energy segment acquisitions, which was partially offset by
reduced expenses within the Processed Grains and Foods segment due to the
formation of Horizon described earlier.

INTEREST. Interest expense of $42.5 million for the year ended August 31,
2002 decreased by $19.0 million (31%) compared to the year ended August 31,
2001. The average level of short-term borrowings decreased 24% and the average
short-term interest rate decreased 3.6% during the year ended August 31, 2002
compared to the prior year. The net decrease in interest expense from
short-term borrowings was partially offset by an increase due to an additional
$80.0 million of long-term debt from a private placement, of which $25.0
million and $55.0 million were issued in January and March 2001, respectively.

EQUITY INCOME FROM INVESTMENTS. Equity income from investments of $58.1
million for the year ended August 31, 2002 increased by $29.6 million (104%)
compared to the year ended August 31, 2001. The increase was primarily
attributable to decreased losses from Corporate and Other technology
investments of $15.1 million that was dissolved. In addition, earnings from
Agronomy, and Processed Grains and Foods segments investments increased in
fiscal year 2002 by $6.1 million and $5.8 million, respectively compared to the
prior year.

MINORITY INTERESTS. Minority interests of $15.4 million for the year ended
August 31, 2002 decreased by $19.7 million (56%) compared to the year ended
August 31, 2001. The change in minority interests during the year ended August
31, 2002 compared to the prior year was primarily a result of less profitable
operations within the Company's majority-owned subsidiaries and the dissolution
of CRLLC. Substantially all minority interests relate to National Cooperative
Refinery Association (NCRA) an approximately 74.5% owned subsidiary.

INCOME TAXES. Income tax expense of $18.7 million for the year ended
August 31, 2002 compares to a tax benefit of $25.6 million for the year ended
August 31, 2001, resulting in effective tax rates of a 12.9% expense and a
16.7% benefit, respectively. The federal and state statutory rate applied to
nonpatronage business activity was 38.9% for the years ended August 31, 2002
and 2001. An income tax benefit of $34.2 million for the year ended August 31,
2001 resulted from a change in the tax rate applied to the Company's cumulative
temporary differences between income for financial statement purposes and
income used for tax reporting purposes. The Company's calculation of its
patronage distribution using earnings for financial statement purposes rather
than tax basis earnings prompted the rate change. The Company recorded income
tax expense of $18.7 million for the year ended August 31, 2002, which compares
to $8.6 million for the year ended August 31, 2001, exclusive of the $34.2
million benefit related to the change in patronage determination described
above. The income taxes and effective tax rate vary each year based upon
profitability and nonpatronage business activity during each of the comparable
years.

COMPARISON OF THE YEARS ENDED AUGUST 31, 2001 AND 2000

NET INCOME. The Company's consolidated net income of $178.6 million for
the year ended August 31, 2001 represents a $91.2 million (104%) increase
compared to the year ended August 31, 2000. This net increase in profitability
is primarily attributable to an increase in income from the Company's Energy
segment, which was partially offset by decreases from the Agronomy and Grain
Marketing segments, and Corporate and Other.

NET SALES. Consolidated net sales of $7.5 billion for the year ended
August 31, 2001 represent a $784.2 million (10%) decrease compared to the year
ended August 31, 2000.

The Company did not record Agronomy sales during the year ended August 31,
2001 compared to sales of $768.4 million net of intracompany elimination of
$40.3 million from the Agronomy segment to the Country Operations segment for
the year ended August 31, 2000. During 2000, the Company exchanged its agronomy
operations for an ownership interest in Agriliance, LLC, owned indirectly
through United Country Brands, LLC. As of July 31, 2000, the Company recorded
results of its 25% ownership in Agriliance, LLC on the equity method, and as
such, income or losses are reflected in equity income from investments.

Energy net sales of $2.7 billion decreased $194.5 million (7%) during the
year ended August 31, 2001 compared to the year ended August 31, 2000. Sales
for the years ended August 31, 2001 and 2000 were $2,781.2 million and $2,959.6
million, respectively. The Company eliminated all intracompany sales from the
Energy segment to the Country Operations segment of $71.8 million and $55.7
million for the years ended August 31, 2001 and 2000, respectively. The
decrease is primarily attributable to a net volume decrease compared to the
year ended August 31, 2000 due to the dissolution of CRLLC effective December
31, 2000. The Company owned 58% of CRLLC through its ownership in NCRA and
therefore consolidated CRLLC business activity up to the time of dissolution.
The decrease related to the dissolution was partially offset by an increase in
refined fuels that were not part of CRLLC of $0.12 per gallon in the average
sales price and 2% in volume compared to the year ended August 31, 2000. In
addition, propane volumes increased by 39% and the average sales price of
propane increased by $0.21 per gallon compared to the year ended August 31,
2000.

Country Operations farm supply sales of $663.9 million increased $73.0
million (12%) for the year ended August 31, 2001 compared to the year ended
August 31, 2000. The net increase is primarily attributable to average sales
price increases in agronomy and energy products and additional volumes from
acquisitions.

Company-wide grain and oilseed net sales of $3.4 billion increased $27.7
million (1%) during the year ended August 31, 2001 compared to the year ended
August 31, 2000. Sales for the year ended August 31, 2001 were $3,416.2 million
and $913.4 million from Grain Marketing and Country Operations segments,
respectively. Sales for the year ended August 31, 2000 were $3,375.6 million
and $819.0 million from Grain Marketing and Country Operations segments,
respectively. The Company eliminated all intracompany sales from the Country
Operations segment to the Grain Marketing segment of $900.6 million and $793.3
million for the years ended August 31, 2001 and 2000, respectively. This
increase in sales was primarily due to an increase of $0.03 (1%) per bushel in
the average sales price while volumes were essentially unchanged on all grain
and oilseed marketed by the Company compared to the prior year.

Processed Grains and Foods segment net sales of $661.9 million increased
$78.1 million (12%) for the year ended August 31, 2001 compared to the year
ended August 31, 2000. Intracompany sales between segments were eliminated.
This increase is primarily due to foods acquisitions, which increased sales by
$47.3 million compared to the prior year. In addition, sales of processed wheat
increased by $22.6 million compared to the prior year, primarily due to
increased volumes from the acquisition of a wheat mill in April 2000 and an
increase in the average sales price of all wheat products. Sales of processed
oilseed increased by $8.8 million primarily due to volume and price increases
compared to the prior year.

OTHER REVENUES. Other revenues of $116.3 million increased $18.8 million
(19%) for the year ended August 31, 2001 compared to the year ended August 31,
2000. The most significant increases were within the Country Operations and
Grain Marketing segments. These increases were partially offset by a prior year
gain of $7.4 million from the sale of 1.455% of the Company's economic interest
in Agriliance, LLC which was recorded in March 2000 in the Agronomy segment.

COST OF GOODS SOLD. Cost of goods sold of $7.2 billion decreased $869.6
million (11%) during the year ended August 31, 2001 compared to the year ended
August 31, 2000. The decrease was primarily attributable to the impact of
recording the Company's share of its agronomy operations on the equity method
in 2001 as previously discussed, which caused a reduction in cost of goods sold
of $764.7 million compared to the year ended August 31, 2000. In addition,
during the year ended August 31, 2001 the cost of goods sold of the Energy
segment decreased by 11% primarily due to a decrease in volume as a result of
the dissolution of CRLLC. The decrease was partially offset by volume and price
increases on refined fuels purchases that were not part of CRLLC, and propane
products. The cost of all grain and oilseed procured by the Company through its
Grain Marketing and Country Operations segments increased 1% compared to the
previous year end primarily due to a $0.03 (1%) cost per bushel increase with
volumes remaining essentially unchanged. Country Operations segment farm supply
cost of goods sold increased by 14% during the year ended August 31, 2001
compared to the year ended August 31, 2000, primarily due to cost increases in
agronomy and energy products and higher volumes due to acquisitions. Cost of
goods sold within the Processed Grains and Foods segment increased by 13% due
to volume increases primarily as a result of acquisitions.

MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses of $184.0 million for the year ended August 31, 2001
increased by $28.7 million (19%) compared to the year ended August 31, 2000.
This increase is primarily due to increases in expenses within the Processed
Grains and Foods segment of $23.4 million, which is primarily due to additional
expenses of $12.9 million related to acquisitions and a loss on assets held for
disposal of $7.5 million related to the closing of a wheat mill compared to the
prior year. In addition, expenses within the Country Operations segment
increased by $9.3 million primarily due to acquisitions. These increases were
partially offset by a decrease in expenses of $12.3 million in the Agronomy
segment.

INTEREST. Interest expense of $61.4 million for the year ended August 31,
2001 increased by $3.8 million (7%) compared to the year ended August 31, 2000.
The average level of short-term borrowings increased 11% and the average
short-term interest rate decreased 0.55% during the year ended August 31, 2001
compared to the previous year. Interest expense also increased due to an
additional $80.0 million of long-term debt from a private placement of which
$25.0 million and $55.0 million were issued in January and March 2001,
respectively.

EQUITY INCOME FROM INVESTMENTS. Equity income from investments of $28.5
million for the year ended August 31, 2001 increased by $0.2 million (1%)
compared to the year ended August 31, 2000. The increase was primarily
attributable to increases in earnings from investments within the Agronomy and
Processed Grains and Foods segments of $11.7 million and $11.1 million,
respectively, during the year ended August 31, 2001 compared to the prior year.
The Company records its 25% share of its Agronomy segment investment in
Agriliance, LLC on the equity method as previously discussed. The net increase
was partially offset by losses from technology investments of $15.1 million and
decreased earnings of $4.9 million and $1.9 million from Energy and Grain
Marketing segment investments, respectively.

MINORITY INTERESTS. Minority interests of $35.1 million for the year ended
August 31, 2001 increased by $10.6 million (43%) compared to the year ended
August 31, 2000. Substantially all minority interests were related to NCRA.
This net change in minority interests was reflective of more profitable
operations within the Company's majority-owned subsidiaries during the year
ended August 31, 2001 compared to the previous year.

INCOME TAXES. An income tax benefit of $25.6 million for the year ended
August 31, 2001 compares to expense of $3.9 million for the year ended August
31, 2000 resulting in effective tax rates of 16.7% benefit and 4.3% expense,
respectively. The federal and state statutory rate applied to nonpatronage
business activity was 38.9% for the years ended August 31, 2001 and 2000. An
income tax benefit of $34.2 million for the year ended August 31, 2001 resulted
from a change in the tax rate applied to the Company's cumulative temporary
differences between income for financial statement purposes and income used for
tax reporting purposes. The Company's change in the calculation of its
patronage distribution using earnings for financial statement purposes rather
than tax basis earnings prompted the rate change. The Company recorded an
income tax expense of $8.6 million and $3.9 million for the years ended August
31, 2001 and 2000 excluding the effects of the adjustment. The income taxes and
effective tax rates vary each year based upon profitability and nonpatronage
business activity during each of the comparable years.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM OPERATIONS
Operating activities of the Company used net cash of $41.7 million during
the year ended August 31, 2002. Net income of $126.1 million and net non-cash
expenses of $62.4 million were offset by increased working capital requirements
of $230.2 million. This increase in working capital requirements is primarily
due to stronger commodity prices.

Operating activities of the Company provided net cash of $252.8 million
during the year ended August 31, 2001. Net income of $178.6 million, net
non-cash expenses of $50.5 million and decreased working capital requirements
of $23.7 million provided this net cash from operating activities.

Operating activities of the Company provided net cash of $128.4 million
during the year ended August 31, 2000. Net income of $87.4 million and net
non-cash expenses of $79.7 million were partially offset by increased working
capital requirements of $38.7 million.

CASH FLOWS FROM INVESTING ACTIVITIES
For the years ended August 31, 2002, 2001 and 2000, the net cash flows
used in the Company's investing activities totaled $141.8 million, $69.1
million and $184.9 million, respectively.

The acquisition of property, plant and equipment comprised the primary use
of cash totaling $140.2 million, $97.6 million and $153.8 million for the years
ended August 31, 2002, 2001 and 2000, respectively. For the year ended August
31, 2003 the Company expects to spend approximately $216.8 million for the
acquisition of property, plant and equipment, which includes $57.0 million of
expenditures for the construction of an oilseed processing facility in
Fairmont, Minnesota. Total expenditures related to the construction of the
facility are projected to be approximately $90.0 million, of which $22.9
million was used for construction through the year ended August 31, 2002.
Capital expenditures primarily related to the Environmental Protection Agency
low sulfur fuel regulations required by 2006, are expected to be approximately
$340 million in total for the Company's Laurel, Montana and NCRA's McPherson,
Kansas refineries over the next four years. It is expected that over 80% of the
costs will be incurred at NCRA.

Investments made during the years ended August 31, 2002, 2001 and 2000
totaled $6.2 million, $14.2 million and $35.3 million, respectively.
Investments during the year ended August 31, 2000 included the purchase of an
additional 10% interest in Ventura Foods, LLC, the Company's foods joint
venture, for $25.6 million. The Company has a 50% interest in that joint
venture.

Acquisitions of intangibles were $29.5 million, $7.3 million and $26.5
million for the years ended August 31, 2002, 2001 and 2000, respectively.
During the year ended August 31, 2002, $26.4 million of the acquisitions of
intangibles were related to the purchase of Farmland's interest in its
wholesale energy business, as previously discussed, and represents trademarks,
tradenames and non-compete agreements. During the previous two years, the
intangibles resulted primarily from the purchase of Rodriguez Festive Foods,
Inc. in fiscal 2001 and the purchase of Sparta Foods, Inc. and the wholesale
propane marketing business of Williams Energy Marketing and Trading Company in
fiscal 2000.

During the year ended August 31, 2002 the changes in notes receivable
resulted in a decrease of $22.0 million primarily from related party notes
receivables at NCRA from its minority owners, Growmark, Inc. and MFA Oil
Company. During the years ended August 31, 2001 and 2000 the changes in notes
receivable resulted in increases of $0.5 million and $0.6 million,
respectively.

Distributions to minority owners for the years ended August 31, 2002, 2001
and 2000 were $7.4 million, $19.3 million and $21.1 million, respectively, and
were primarily related to NCRA. For the years ended August 31, 2001 and 2000,
NCRA's distributions also included the distributions made by CRLLC.

Partially offsetting cash outlays in investing activities were proceeds
from the disposition of property, plant and equipment of $20.2 million, $35.3
million and $7.7 million for the years ended August 31, 2002, 2001 and 2000,
respectively. During the year ended August 31, 2002, the proceeds were
primarily from disposals of propane plants in the Energy segment and of
non-strategic agri-operations locations in the Country Operations segment.
During the year ended August 31, 2001, the proceeds were primarily from the
disposal of feed plants and other assets in the Country Operations segment.
Also partially offsetting cash usages were distributions received from joint
ventures and investments totaling $44.0 million, $31.8 million and $43.9
million for the years ended August 31, 2002, 2001 and 2000, respectively.

CASH FLOWS FROM FINANCING ACTIVITIES
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2002, the Company renewed its
364-day credit facility of $550.0 million committed. In addition to these lines
of credit, the Company has a 364-day credit facility dedicated to NCRA, with a
syndication of banks in the amount of $30.0 million committed. On August 31,
2002 and 2001, the Company had total short-term indebtedness outstanding on
these various facilities and other short-term notes payable totaling $332.5
million and $97.2 million, respectively. The increase from 2001 to 2002 is
primarily due to increases in inventories in the Grain Marketing and Energy
segments related to higher grain prices and the purchase of Farmland's
wholesale energy business, discussed previously.

In June 1998, the Company established a five-year revolving credit
facility with a syndication of banks, with $200.0 million committed. On August
31, 2002 and 2001 the Company had outstanding balances on this facility of
$75.0 million and $45.0 million, respectively. The outstanding balance on
August 31, 2002 includes $30.0 million, which was drawn during the first
quarter of the fiscal year.

The Company has financed its long-term capital needs in the past,
primarily for the acquisition of property, plant and equipment, with long-term
agreements through the banks for cooperatives. In June 1998, the Company
established a long-term credit agreement through the banks for cooperatives.
This facility committed $200.0 million of long-term borrowing capacity to the
Company, with repayments through fiscal year 2009. The amount outstanding on
this credit facility was $144.3 million and $150.9 million on August 31, 2002
and 2001, respectively. Repayments of $6.6 million were made on this facility
during each of the years ended August 31, 2002 and 2001.

Also in June 1998, the Company issued a private placement with several
insurance companies for long-term debt in the amount of $225.0 million.
Repayments will be made in equal annual installments of $37.5 million each in
the years 2008 through 2013.

In January 2001, the Company entered into a note purchase and private
shelf agreement with Prudential Insurance Company. The long-term note in the
amount of $25.0 million will be repaid in equal annual installments of
approximately $3.6 million, in the years 2005 through 2011. A subsequent note
for $55.0 million was issued in March 2001, related to the private shelf
facility. The $55.0 million note will be repaid in equal annual installments of
approximately $7.9 million, in the years 2005 through 2011.

The Company, through NCRA, had revolving term loans outstanding of $18.0
million and $21.0 million for the years ended August 31, 2002 and 2001,
respectively. Repayments of $3.0 million were made during each of the years
ended August 31, 2002 and 2001.

On August 31, 2002, the Company had total long-term debt outstanding of
$572.1 million, of which $255.0 million was bank financing, $305.0 million was
private placement proceeds and $12.1 million was industrial development revenue
bonds, capitalized leases and other notes and contracts payable. On August 31,
2001, the Company had long-term debt outstanding of $560.0 million. The
aggregate amount of long-term debt payable as of August 31, 2002 was as follows
(dollars in thousands):

2002 ............... $ 89,032
2003 ............... 15,079
2004 ............... 34,511
2005 ............... 34,938
2006 ............... 41,709
Thereafter ......... 356,855
--------
$572,124
========

During the years ended August 31, 2002, 2001 and 2000, the Company
borrowed on a long-term basis $30.0 million, $116.9 million and $49.9 million,
respectively, and during the same periods repaid long-term debt of $18.0
million, $67.4 million and $22.5 million, respectively.

On October 18, 2002 (fiscal year 2003) the Company entered into a private
placement with several insurance companies for long-term debt in the amount of
$175.0 million which was layered into two series. The first series of $115.0
million has an interest rate of 4.96% and will be repaid in equal semi-annual
installments of approximately $8.8 million during the years 2007 through 2013.
The second series of $60.0 million has an interest rate of 5.60% and will be
repaid in equal semi-annual installments of approximately $4.6 million during
fiscal years 2012 through 2018.

In accordance with the bylaws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting
patrons following the close of each fiscal year. Effective September 1, 2000,
patronage refunds are calculated based on earnings for financial statement
purposes rather than based on amounts reportable for federal income tax
purposes as had been the Company's practice prior to this date. This change was
authorized through a bylaw amendment at the Company's annual meeting on
December 1, 2000. The patronage earnings from the fiscal year ended August 31,

2001 were distributed in January 2002. The cash portion of this distribution,
deemed by the Board of Directors to be 30% was $40.1 million. During the years
ended August 31, 2001 and 2000, the Company distributed cash patronage of $26.1
million and $17.9 million, respectively.

Cash patronage for the year ended August 31, 2002, deemed by the Board of
Directors to be 30% and to be distributed in fiscal year 2003, is expected to
be approximately $27.9 million and is classified as a current liability on the
August 31, 2002 consolidated balance sheet.

The current equity redemption policy, as authorized by the Board of
Directors, allows for the redemption of capital equity certificates held by
inactive direct members and patrons and active direct members and patrons at
age 72 or death that were of age 61 or older on June 1, 1998. For active direct
members and patrons who were of age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years will be redeemed annually based on a
prorata formula where the numerator is dollars available for such purpose as
determined by the Board of Directors, and the denominator is the sum of the
patronage certificates older than 10 years held by such eligible members and
patrons. For the years ended August 31, 2002, 2001 and 2000, the Company
redeemed patronage related equities in accordance with authorization from the
Board of Directors in the amounts of $31.1 million, $18.7 million and $28.7
million, respectively. Total redemptions related to the year ended August 31,
2002, to be distributed in fiscal year 2003, are expected to be approximately
$28.6 million and are classified as a current liability on the August 31, 2002
consolidated balance sheet.

During the year ended May 31, 1997, the Company offered securities in the
form of Equity Participation Units (EPUs) in its Wheat Milling and Oilseed
Processing and Refining Defined Business Units. These EPUs gave the holder the
right and obligation to deliver to the Company a stated number of bushels in
return for a prorata share of the undiluted grain based patronage earnings of
these respective Defined Business Units. The offering resulted in the issuance
of such equity with a stated value of $13,870,000 and generated additional
capital and cash of $10,837,000, after issuance cost and conversion privileges.
Conversion privileges allowed a member to elect to use outstanding patrons'
equities for the payment of up to one-sixth the purchase price of the EPUs.
During 2001, the Company's Board of Directors adopted a resolution to issue, at
no charge, to each Defined Member of the Oilseed Processing and Refining
Defined Business Unit an additional 1/4 Equity Participation Unit (EPU) for
each EPU held, due to increased crush volume.

In August 2001, the CHS Cooperatives Board of Directors approved and
consummated a plan to end the Defined Investment Program. The Company redeemed
all of the EPUs and allocated the assets of the Oilseed Processing and Refining
and Wheat Milling Defined Business Units to the Company as provided in the
plan. Due to loss carry-forwards incurred by the Wheat Milling Defined Business
Unit the plan also provided for the cancellation of all outstanding Preferred
Capital Certificates issued to the EPU holders, totaling $0.2 million. The plan
further provided to the Oilseed Processing Defined Member EPU holders for the
redemption of all outstanding Preferred Capital Certificates issued and a 100%
cash distribution during 2002 for the patronage refunds earned for the fiscal
year ended August 31, 2001.

The Board of Directors authorized the sale and issuance of up to
50,000,000 shares of 8% Preferred Stock at a price of $1.00 per share. The
Company filed a registration statement on Form S-2 with the Securities and
Exchange Commission registering the Preferred Stock. The registration statement
was declared effective on October 31, 2001 and sales of the Preferred Stock
were $9.3 million through August 31, 2002. Expenses related to the issuance of
the Preferred Stock were $3.4 million through the same period. Sales of the
preferred shares have been suspended.

OFF BALANCE SHEET FINANCING ARRANGEMENTS

LEASE COMMITMENTS:
The Company has commitments under operating leases for various refinery,
manufacturing and transportation equipment, rail cars, vehicles and office
space. Some leases include purchase options at not less than fair market value
at the end of the leases.

Total rental expense for all operating leases, net of rail car mileage
credits received from the railroad and sublease income for the years ended
August 31, 2002, 2001 an 2000 was $30.2 million, $35.5 million and $38.0
million, respectively.

Minimum future lease payments, required under noncancellable operating
leases as of August 31, 2002, were as follows:

TOTAL
----------------------
(DOLLARS IN MILLIONS)
2003 ..................... $ 33.0
2004 ..................... 24.2
2005 ..................... 16.0
2006 ..................... 8.9
2007 ..................... 5.1
Thereafter ............... 4.8
-------
Total minimum future lease
payments ................. $ 92.0
=======

GUARANTEES:
The Company is a guarantor for lines of credit for related companies
totaling up to $86.2 million, of which $45.1 million was outstanding as of
August 31, 2002. The Company's bank covenants allow maximum guarantees of
$100.0 million. All outstanding loans with respective creditors are current as
of August 31, 2002.

DEBT:
There is no material off balance sheet debt.

CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States
of America. The preparation of these consolidated financial statements requires
the use of estimates as well as management's judgments and assumptions
regarding matters that are subjective, uncertain or involve a high degree of
complexity, all of which affect the results of operations and financial
condition for the periods presented. The Company believes that of its
significant accounting policies, the following may involve a higher degree of
estimates, judgments, and complexity.

ALLOWANCES FOR DOUBTFUL ACCOUNTS
The allowances for doubtful accounts are maintained at a level considered
appropriate by management based on analyses of credit quality for specific
accounts, historical trends of charge-offs and recoveries, and current and
projected economic and market conditions. Different assumptions, changes in
economic circumstances or the deterioration of the financial condition of the
Company's customers could result in additional provisions to the allowances for
doubtful accounts and increased bad debt expense.

INVENTORY VALUATION AND RESERVES
Grain, processed grain, oilseed and processed oilseed are stated at net
realizable values, which approximates market values. All other inventories are
stated at the lower of cost or market. The cost of certain energy inventories
(wholesale refined products, crude oil and asphalt) are determined on the
last-in, first-out (LIFO) method; all other energy inventories are valued on
the first-in, first-out (FIFO) and average cost methods. Estimates are used in
determining the net realizable value of grain and oilseed and processed grain
and oilseed inventories. These estimates include the measurement of grain in
bins and other storage facilities, which use formulas in addition to actual
measurements taken to arrive at appropriate quantity. Other determinations made
by management include quality of the inventory and estimates for freight. Grain
shrink reserves and other reserves that account for spoilage also affect
inventory valuation. If estimates regarding the valuation of inventory or the
adequacy of reserves are less favorable than management's assumptions, then
additional reserves or write-downs of inventory may be required.

DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into exchange-traded commodity futures and options
contracts to hedge its exposure to price fluctuations on energy, grain and
oilseed transactions to the extent considered

practicable for minimizing risk. The Company does not use derivatives for
speculative purposes. Futures and options contracts used for hedging are
purchased and sold through regulated commodity exchanges. Fluctuations in
inventory valuations, however, may not be completely hedged, due in part to the
absence of satisfactory hedging facilities for certain commodities and
geographical areas and in part to the Company's assessment of its exposure from
expected price fluctuations. The Company also manages its risks by entering
into fixed price purchase contracts with pre-approved producers and
establishing appropriate limits for individual suppliers. Fixed price sales
contracts are entered into with customers of acceptable creditworthiness, as
internally evaluated. The Company is exposed to loss in the event of
nonperformance by the counterparties to the contracts. However, the Company
does not anticipate nonperformance by counterparties. The fair value of futures
and options contracts are determined primarily from quotes listed on regulated
commodity exchanges. Fixed price purchase and sales contracts are with various
counterparties, and the fair values of such contracts are determined from the
market price of the underlying product.

The Company adopted Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 133, as amended, a standard
related to the accounting for derivative transactions and hedging activities,
effective September 1, 2000. Such accounting is complex, evidenced by
significant interpretations of the primary accounting standard, which continues
to evolve.

PENSION AND POSTRETIREMENT BENEFITS
Pension and other postretirement benefits costs and obligations are
dependent on assumptions used in calculating such amounts. These assumptions
include discount rates, health care cost trend rates, benefits earned, interest
cost, expected return on plan assets, mortality rates, and other factors. In
accordance with accounting principles generally accepted in the United States
of America, actual results that differ from the assumptions are accumulated and
amortized over future periods and, therefore, generally affect recognized
expense and the recorded obligation in future periods. While management
believes that the assumptions used are appropriate, differences in actual
experience or changes in assumptions may affect the Company's pension and other
postretirement obligations and future expense.

DEFERRED TAX ASSETS
The Company assesses whether a valuation allowance is necessary to reduce
its deferred tax assets to the amount that it believes is more likely than not
to be realized. While the Company has considered future taxable income as well
as other factors in assessing the need for the valuation allowance, in the
event that the Company were to determine that it would not be able to realize
all or part of its net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such determination
was made.

LONG-LIVED ASSETS
Depreciation and amortization of the Company's property, plant and
equipment is provided on the straight-line method by charges to operations at
rates based upon the expected useful lives of individual or groups of assets.
Economic circumstances or other factors may cause management's estimates of
expected useful lives to differ from actual.

All long-lived assets, including property plant and equipment, goodwill,
investments in unconsolidated affiliates and other identifiable intangibles,
are evaluated for impairment on the basis of undiscounted cash flows at least
annually for goodwill, and whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impaired asset
is written down to its estimated fair market value based on the best
information available. Estimated fair market value is generally measured by
discounting estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows and may differ from actual.

ENVIRONMENTAL LIABILITIES
Liabilities related to remediation of contaminated properties are
recognized when the related costs are considered probable and can be reasonably
estimated. Estimates of these costs are based on current available facts,
existing technology, undiscounted site-specific costs and currently enacted
laws and regulations. Recoveries, if any, are recorded in the period in which
recovery is considered probable. It is

often difficult to estimate the cost of environmental compliance, remediation
and potential claims given the uncertainties regarding the interpretation and
enforcement of applicable environmental laws and regulations, the extent of
environmental contamination and the existence of alternate cleanup methods. All
liabilities are monitored and adjusted as new facts or changes in law or
technology occur and management believes adequate provisions have been made for
environmental liabilities. Changes in facts or circumstances may have an
adverse impact on the Company's financial results.

EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company believes that inflation and foreign currency fluctuations have
not had a significant effect on its operations.

RECENT ACCOUNTING PRONOUNCEMENTS
Effective September 1, 2001 the Company adopted the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". The adoption
of this pronouncement did not have a material impact on the Company's
consolidated financial statements.

The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The adoption of this
statement does not have a material affect on the Company.

The FASB also issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
retains and expands upon the fundamental provisions of existing guidance
related to the recognition and measurement of the impairment of long-lived
assets to be held and used and the measurement of long-lived assets to be
disposed of by sale. Generally, the provisions of SFAS No. 144 are effective
for financial statements issued for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years. The adoption of this
statement does not have a material affect on the Company.

The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities". This statement addresses financial accounting and
reporting for costs associated with an exit activity that does not involve an
entity newly acquired in a business combination or with a disposal activity
covered by SFAS No. 144. The costs addressed in SFAS No. 146 include, but are
not limited to, termination benefits, costs to terminate a contract that is not
a capital lease and costs to consolidate facilities or relocate employees. SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8 is hereby amended to replace the Company's financial statements for
the years ended August 31, 2002, 2001 and 2000. The Company's financial
statements which are included in this Form 10-K/A-2 following the signatures,
are hereby incorporated by reference in this Item 8.

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS FILED ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS

The following financial statements and the Reports of Independent
Accountants are filed as part of this Form 10-K/A-2.

PAGE NO.
--------
CENEX HARVEST STATES COOPERATIVES
Consolidated Balance Sheets as of August 31, 2002 and 2001 ...... F-1
Consolidated Statements of Operations for the years ended
August 31, 2002, 2001 and 2000 ................................ F-2
Consolidated Statements of Equities and Comprehensive Income
for the years ended August 31, 2002, 2001 and 2000 ............ F-4
Consolidated Statements of Cash Flows for the years ended
August 31, 2002, 2001 and 2000 ................................ F-6
Notes to Consolidated Financial Statements ...................... F-7
Report of Independent Accountants ............................... F-27

VENTURA FOODS, LLC, A NON-CONSOLIDATED 50% OWNED EQUITY INVESTMENT
Independent Auditors' Report F-28
Consolidated Balance Sheets as of March 31, 2003 and 2002 F-29
Consolidated Statements of Income for the years ended
March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000 F-30
Consolidated Statements of Members' Capital for the years ended
March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000 F-31
Consolidated Statements of Cash Flows for the years ended
March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000 F-32
Notes to Consolidated Financial Statements for the years ended
March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000 F-33

(a)(2) FINANCIAL STATEMENT SCHEDULES

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

(a)(3) EXHIBITS
Item 15(a)(3) is amended to add the following exhibits:

23.3 Independent Auditors' Consent
23.4 Independent Auditors' Consent
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

CHS Inc.

By: /s/ JOHN SCHMITZ Date: November 14, 2003
------------------------------- -----------------
John Schmitz
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2002 AND 2001

2002 2001
------------- -------------
(DOLLARS IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 108,192 $ 113,458
Receivables ................................................ 741,578 686,140
Inventories ................................................ 759,663 510,443
Other current assets ....................................... 140,944 60,995
---------- ----------
Total current assets ..................................... 1,750,377 1,371,036
Investments ................................................. 496,607 467,953
Property, plant and equipment ............................... 1,057,421 1,023,872
Other assets ................................................ 177,322 194,458
---------- ----------
TOTAL ASSETS ............................................. $3,481,727 $3,057,319
========== ==========
LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 332,514 $ 97,195
Current portion of long-term debt .......................... 89,032 17,754
Customer credit balances ................................... 26,461 38,486
Customer advance payments .................................. 169,123 109,135
Checks and drafts outstanding .............................. 84,251 87,808
Accounts payable ........................................... 517,667 495,198
Accrued expenses ........................................... 225,704 148,026
Patronage dividends and equity retirements payable ......... 56,510 72,154
---------- ----------
Total current liabilities ................................ 1,501,262 1,065,756
Long-term debt .............................................. 483,092 542,243
Other liabilities ........................................... 118,280 99,906
Minority interests in subsidiaries .......................... 89,455 88,261
Commitments and contingencies
Equities .................................................... 1,289,638 1,261,153
---------- ----------
TOTAL LIABILITIES AND EQUITIES ........................... $3,481,727 $3,057,319
========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-1

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31,

2002 2001 2000
------------- ------------- -------------
Restated Restated Restated
(Note 16) (Note 16) (Note 16)
(DOLLARS IN THOUSANDS)

REVENUES:
Net sales .................................... $7,156,454 $7,464,242 $8,248,413
Patronage dividends .......................... 3,885 5,977 5,494
Other revenues ............................... 109,459 116,254 97,471
---------- ---------- ----------
7,269,798 7,586,473 8,351,378
Cost of goods sold ............................ 6,937,956 7,181,433 8,051,057
Marketing, general and administrative ......... 187,292 184,046 155,266
---------- ---------- ----------
Operating earnings ............................ 144,550 220,994 145,055
Interest ...................................... 42,455 61,436 57,566
Equity income from investments ................ (58,133) (28,494) (28,325)
Minority interests ............................ 15,390 35,098 24,546
---------- ---------- ----------
INCOME BEFORE INCOME TAXES .................... 144,838 152,954 91,268
INCOME TAXES .................................. 18,700 (25,600) 3,880
---------- ---------- ----------
NET INCOME .................................... $ 126,138 $ 178,554 $ 87,388
========== ========== ==========
DISTRIBUTION OF NET INCOME:
Patronage refunds ............................ $ 92,900 $ 128,900 $ 87,400
Unallocated capital reserve .................. 33,238 49,654 (12)
---------- ---------- ----------
Net income ................................. $ 126,138 $ 178,554 $ 87,388
========== ========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-2

(This page has been left blank intentionally.)

F-3

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000

CAPITAL NONPATRONAGE WHEAT
EQUITY EQUITY PREFERRED MILLING
CERTIFICATES CERTIFICATES STOCK EPUS
-------------- -------------- ----------- ----------
(DOLLARS IN THOUSANDS)

BALANCES, SEPTEMBER 1, 1999 ................................. $ 912,294 $28,785 $ 9,258
Patronage and equity retirement determination .............. 25,750
Patronage distribution ..................................... 41,182
Equities retired ........................................... (28,615) (82)
Equities issued ............................................ 7,921
Other, net ................................................. (178) (194) (12)
Comprehensive income:
Net income ................................................
Other comprehensive loss ..................................
Total comprehensive income .................................
Patronage dividends and equity retirements payable ......... (17,474)
---------- ------- --------
BALANCES, AUGUST 31, 2000 ................................... 940,880 28,509 9,246
Patronage and equity retirement determination .............. 17,474
Patronage distribution ..................................... 60,304
Equities retired ........................................... (18,662) (74)
Equities issued ............................................ 5,481
Equity Participation Units issued ..........................
Equity Participation Units redeemed ........................ (9,066)
Other, net ................................................. (120) (277) (180)
Comprehensive income:
Net income ................................................
Other comprehensive income ................................
Total comprehensive income .................................
Patronage dividends and equity retirements payable ......... (33,484)
---------- ------- --------
BALANCES, AUGUST 31, 2001 ................................... 971,873 28,158 --
Patronage and equity retirement determination .............. 33,484
Patronage distribution ..................................... 92,484
Equities retired ........................................... (31,099) (46)
Equities issued ............................................ 2,600
Preferred stock issued, net ................................ $9,325
Preferred stock dividends ..................................
Other, net ................................................. (106) (339)
Comprehensive income:
Net income ................................................
Other comprehensive loss ..................................
Total comprehensive income .................................
Patronage dividends and equity retirements payable ......... (28,640)
---------- ------- ------ --------
BALANCES, AUGUST 31, 2002 ................................... $1,040,596 $27,773 $9,325 $ --
========== ======= ====== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-4

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000

OILSEED PROCESSING UNALLOCATED ACCUMULATED OTHER ALLOCATED
& REFINING PATRONAGE CAPITAL COMPREHENSIVE CAPITAL TOTAL
EPUS REFUNDS RESERVE INCOME (LOSS) RESERVE EQUITIES
-------------------- ------------- ------------- ------------------- ---------- -------------
(DOLLARS IN THOUSANDS)

$ 4,188 $ 40,250 $115,883 $ (1,170) $8,148 $1,117,636
17,250 43,000
(57,500) (1,588) (17,906)
(28,697)
7,921
(6) 453 (28) 35

87,400 (12) 87,388
(1,257) (1,257)
----------
86,131
----------
(26,220) (43,694)
--------- ---------- -------- --------- ------ ----------
4,182 61,180 114,736 (2,427) 8,120 1,164,426
26,220 43,694
(87,400) 967 (26,129)
(18,736)
5,481
1,045 (1,045) --
(5,227) (14,293)
445 (70) (202)

128,900 49,654 178,554
512 512
----------
179,066
----------
(38,670) (72,154)
--------- ---------- -------- --------- ------ ----------
-- 90,230 164,757 (1,915) 8,050 1,261,153
38,670 72,154
(128,900) (3,666) (40,082)
(31,145)
2,600
(3,428) 5,897
(240) (240)
100 (345)

92,900 33,238 126,138
(49,982) (49,982)
----------
76,156
----------
(27,870) (56,510)
--------- ---------- -------- --------- ------ ----------
$ -- $ 65,030 $190,761 $ (51,897) $8,050 $1,289,638
========= ========== ======== ========= ====== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-5

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,

2002 2001 2000
------------- ------------- ------------
(DOLLARS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 126,138 $ 178,554 $ 87,388
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ..................................... 103,986 109,180 92,699
Noncash net income from equity investments ........................ (58,133) (28,494) (28,325)
Minority interests ................................................ 15,390 35,098 24,546
Noncash portion of patronage dividends received ................... (2,327) (3,896) (6,825)
(Gain) loss on sale of property, plant and equipment .............. (6,418) (13,941) 1,167
Deferred tax expense (benefit) .................................... 4,400 (46,625) (467)
Other, net ........................................................ 5,467 (801) (3,130)
Changes in operating assets and liabilities:
Receivables ...................................................... (32,881) 147,641 (229,067)
Inventories ...................................................... (259,209) 37,543 1,717
Other current assets and other assets ............................ (88,941) (24,129) (7,041)
Customer credit balances ......................................... (12,025) 1,707 (8,191)
Customer advance payments ........................................ 59,988 (22,800) 4,180
Accounts payable and accrued expenses ............................ 93,802 (129,258) 202,980
Other liabilities ................................................ 9,079 13,050 (3,244)
---------- ---------- ----------
Net cash (used in) provided by operating activities ............. (41,684) 252,829 128,387
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ....................... (140,169) (97,610) (153,796)
Proceeds from disposition of property, plant and equipment ......... 20,205 35,263 7,655
Investments ........................................................ (6,211) (14,247) (35,297)
Equity investments redeemed ........................................ 37,689 30,104 41,250
Investments redeemed ............................................... 6,310 1,672 2,638
Changes in notes receivable ........................................ (22,031) 533 600
Acquisitions of intangibles ........................................ (29,501) (7,328) (26,513)
Distribution to minority owners .................................... (7,413) (19,256) (21,089)
Other investing activities, net .................................... (685) 1,775 (339)
---------- ---------- ----------
Net cash used in investing activities ........................... (141,806) (69,094) (184,891)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ........................................... 235,319 (120,731) 20,940
Long-term debt borrowings .......................................... 30,000 116,861 49,914
Principal payments on long-term debt ............................... (17,968) (67,364) (22,502)
Changes in checks and drafts outstanding ........................... (3,557) 3,722 35,481
Proceeds from sale of preferred stock, net of expenses ............. 5,897
Preferred stock dividends paid ..................................... (240)
Retirements of equity .............................................. (31,145) (18,736) (28,697)
Equity Participation Units redeemed ................................ (14,293)
Cash patronage dividends paid ...................................... (40,082) (26,129) (17,906)
---------- ---------- ----------
Net cash provided by (used in) financing activities ............. 178,224 (126,670) 37,230
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ................................................... (5,266) 57,065 (19,274)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .......................................................... 113,458 56,393 75,667
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 108,192 $ 113,458 $ 56,393
========== ========== ==========

The accompanying notes are an integral part of the consolidated financial
statements.

F-6

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION -- Effective August 5, 2003, Cenex Harvest States Cooperatives
changed its name to CHS, Inc. CHS, Inc. (CHS, Cenex Harvest States, CHS
Cooperatives or the Company) is an agricultural cooperative organized for the
mutual benefit of its members. Members of the cooperative are located throughout
the United States. In addition to grain marketing, wheat milling, oilseed
processing and refining and foods, the Company provides its patrons with energy
and agronomy products as well as other farm supplies. Sales are both domestic
and international.

Effective September 1, 2000, the Company's Board of Directors approved a
resolution providing for the computation of patronage distributions based on
earnings for financial statement purposes rather than federal income tax basis
earnings. On December 1, 2000, this resolution was ratified by the Company's
members, the by-laws were amended and beginning with fiscal year 2001 patronage
distributions have been calculated based on financial statement earnings. The
by-laws further provide that an amount of up to 10% of the distributable annual
net savings from patronage sources be added to the unallocated capital reserve
as determined by the Board of Directors.

CONSOLIDATION -- The consolidated financial statements include the
accounts of CHS Cooperatives and all of its wholly-owned and majority-owned
subsidiaries and limited liability companies, including National Cooperative
Refinery Association (NCRA). The effects of all significant intercompany
transactions have been eliminated.

On September 1, 1999, NCRA and Farmland Industries, Inc. (Farmland) formed
Cooperative Refining, LLC (CRLLC), which was established to operate and manage
the refineries and related pipelines and terminals of NCRA and Farmland. On
December 31, 2000, NCRA and Farmland signed an Agreement of Dissolution and
dissolved CRLLC.

During 2000, the Company entered into a series of transactions, the result
of which was the exchange of its agronomy operations, consisting primarily of
its interests in and ownership of the Cenex/Land O'Lakes Agronomy Company and
Agro Distribution, LLC and related entities for a 25% equity ownership interest
in Agriliance, LLC (Agriliance). Agriliance is a distributor of crop nutrients,
crop protection products and other agronomy inputs and services formerly owned
by the Company, Land O'Lakes, Inc. (Land O'Lakes) and Farmland. The company
accounts for the Agriliance investment under the equity method.

During 2002 and 2001, the Company had various other acquisitions, which
have been accounted for using the purchase method of accounting. Operating
results of the acquisitions are included in the consolidated financial
statements since the respective acquisition dates. The respective purchase
prices were allocated to the assets and liabilities acquired based upon the
estimated fair values. The excess purchase price over the estimated fair values
of the net assets acquired has been reported as identifiable intangible assets
and goodwill.

CASH EQUIVALENTS -- Cash equivalents include short-term highly liquid
investments with original maturities of three months or less at date of
acquisition.

INVENTORIES -- Grain, processed grain, oilseed and processed oilseed are
stated at net realizable values which approximates market values. All other
inventories are stated at the lower of cost or market. The cost of certain
energy inventories (wholesale refined products, crude oil and asphalt) is
determined on the last-in, first-out (LIFO) method; all other energy
inventories are valued on the first-in, first-out (FIFO) and average cost
methods.

DERIVATIVE FINANCIAL INSTRUMENTS -- The Company enters into
exchange-traded commodity futures and options contracts to hedge its exposure
to price fluctuations on energy, grain and oilseed transactions to the extent
considered practicable for minimizing risk. Futures and options contracts used
for hedging are purchased and sold through regulated commodity exchanges.
Fluctuations in inventory valuations, however, may not be completely hedged,
due in part to the absence of satisfactory hedging facilities for certain
commodities and geographical areas and in part to the Company's assessment of
its

F-7

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

exposure from expected price fluctuations. The Company also manages its risks
by entering into fixed price purchase contracts with preapproved producers and
establishing appropriate limits for individual suppliers. Fixed price sales
contracts are entered into with customers of acceptable creditworthiness, as
internally evaluated. The Company is exposed to loss in the event of
nonperformance by the counterparties to the contracts. However, the Company
does not anticipate nonperformance by counterparties.

Commodity trading in futures and options contracts is a natural extension
of cash market trading. The commodity futures and options markets have
underlying principles of increased liquidity and longer trading periods than
the cash market, and hedging is one method of reducing exposure to price
fluctuations. The Company's use of the derivative instruments described above
reduces the effects of price volatility, thereby protecting against adverse
short-term price movements while somewhat limiting the benefits of short-term
price movements. Changes in market value of the derivative instruments
described above are recognized in the consolidated statements of operations in
the period such changes occur. The fair value of futures and options contracts
are determined primarily from quotes listed on regulated commodity exchanges.
Fixed price purchase and sales contracts are with various counterparties, and
the fair values of such contracts are determined from the market price of the
underlying product. At August 31, 2002, the Company's derivative assets and
liabilities were $53.8 million and $67.9 million, respectively.

COMMODITY PRICE RISK. The Company utilizes futures and options contracts
offered through regulated commodity exchanges to reduce risk. The Company is
exposed to risk of loss in the market value of inventories and fixed or
partially fixed purchase and sale contracts. So as to reduce that risk, the
Company generally takes opposite and offsetting positions using future
contracts or options. Certain commodities cannot be hedged with futures or
options contracts because such contracts are not offered for these commodities
by regulated commodity exchanges. Inventories and purchase contracts for those
commodities are hedged with forward sales contracts, to the extent practical,
so as to arrive at a net commodity position within the formal position limits
set by the Company and deemed prudent for each of those commodities.
Commodities for which future contracts and options are available are also
typically hedged first in this manner, with futures and options used to hedge
within position limits that portion not covered by forward contracts. These
futures and options contracts and forward purchase and sales contracts used to
hedge against price level change risks are effective economic hedges of
specified risks, but they are not designated as and accounted for as hedging
instruments for accounting purposes.

Unrealized gains and losses on futures contracts and options used as
economic hedges of grain and oilseed inventories and fixed price contracts are
recognized in cost of goods sold for financial reporting. Inventories and fixed
price contracts are marked to market so that gains or losses on the derivative
contracts are offset by gains or losses on inventories and fixed price
contracts during the same accounting period.

Through August 31, 2000, unrealized gains and losses on futures contracts
and options used to hedge energy inventories and fixed price contracts were
deferred until such future contracts and options were closed. Effective
September 1, 2000, those gains and losses are recognized as a component of net
income for financial reporting. The inventories hedged with these derivatives
are valued at lower of cost or market, and effective September 1, 2000, the
fixed price contracts are marked to market. Some derivatives related to propane
in the Energy segment meet the normal purchase and sales exemption, and thus
are not required to be marked to fair value.

A 10% adverse change in market prices would not materially affect the
Company's results of operations, financial position or liquidity, since the
Company's operations have effective economic hedging requirements as a general
business practice.

F-8

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTEREST RATE RISK. The Company manages interest expense using a mix of
fixed and floating rate debt. These debt instruments are carried at amounts
approximating estimated fair value. Short-term debt used to finance inventories
and receivables is represented by notes payable within thirty days or less so
that the blended interest rate to the Company for all such notes approximates
current market rates. Long-term debt used to finance non-current assets carries
various fixed interest rates and is payable at various dates as to minimize the
effect of market interest rate changes. The effective interest rate to the
Company on fixed rate debt outstanding on August 31, 2002 was approximately
6.4%; a 10% adverse change in market rates would not materially affect the
Company's results of operations, financial position or liquidity.

In August 2002, the Company entered into interest rate swap instruments
related to private placement debt issued on October 18, 2002. These derivative
instruments are designated and effective as cash flow hedges for accounting
purposes, and the changes in the fair values of these instruments are recorded
as a component of other comprehensive income. The Company expects to record
operating losses through interest expense of $0.8 million during the year ended
August 31, 2003 related to these derivative instruments.

FOREIGN CURRENCY RISK. The Company conducts essentially all of its
business in U.S. dollars and had minimal risk regarding foreign currency
fluctuations on August 31, 2002. Foreign currency fluctuations do, however,
impact the ability of foreign buyers to purchase U.S. agricultural products and
the competitiveness of U.S. agricultural products compared to the same products
offered by alternative sources of world supply.

The Company adopted Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 133, as amended, related to the
accounting for derivative transactions and hedging activities, effective
September 1, 2000. The effect of the adoption did not have a material effect on
the Company's earnings or financial position.

INVESTMENTS -- Investments in other cooperatives are stated at cost, plus
patronage dividends received in the form of capital stock and other equities.
Patronage dividends are recorded at the time qualified written notices of
allocation are received. Joint ventures and other investments, in which the
Company has significant ownership and influence, but not control, are accounted
for in the consolidated financial statements under the equity method of
accounting. Investments in other debt and equity securities are considered
available for sale financial instruments and are stated at market value, with
unrealized amounts included as a component of accumulated other comprehensive
income (loss).

PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided on the straight-line method by charges to operations
at rates based upon the expected useful lives of individual or groups of assets
(primarily 15 to 40 years for land improvements and buildings and 3 to 20 years
for machinery, equipment, office and other). The cost and related accumulated
depreciation and amortization of assets sold or otherwise disposed of are
removed from the related accounts and resulting gains or losses are reflected
in operations. Expenditures for maintenance and repairs and minor renewals are
expensed, while costs of major renewals and betterments are capitalized.

The Company periodically reviews property, plant and equipment and other
long-lived assets in order to assess recoverability based on projected income
and related cash flows on an undiscounted basis. Should the sum of the expected
future net cash flows be less than the carrying value, an impairment loss would
be recognized. An impairment loss would be measured by the amount by which the
carrying value of the asset exceeds the fair value of the asset.

GOODWILL AND OTHER INTANGIBLE ASSETS -- Effective September 1, 2001 the
Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other

F-9

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible Assets." This statement discontinued the amortization of goodwill
and indefinite-lived intangible assets, subject to periodic impairment testing.
At August 31, 2001, goodwill (net of accumulated amortization) prior to the
adoption of SFAS No. 142, was $29.2 million and was included as a component of
other assets. The effect of adopting the new standard will reduce goodwill
amortization expense by approximately $2.0 million annually. The Company has
completed its transitional impairment testing and no changes to the carrying
value of goodwill and other intangible assets were required as a result of the
adoption of SFAS No. 142. Subsequent impairment testing will take place
annually as well as when a triggering event indicating impairment may have
occurred. In addition, the classification of the intangible assets was
reviewed, along with the remaining useful lives of intangibles being amortized,
and no changes were required.

The Company's net income, net of taxes, of retroactive application of the
discontinuance of the amortization of goodwill as if SFAS No. 142 had been in
effect during the years ended August 31, 2001 and 2000 would have been $181.1
million and $88.5 million, respectively. For the years ended August 31, 2001
and 2000, discontinued amortization expense of goodwill included in other
assets would have been $1.9 million and $0.8 million, respectively, and
included in equity investments would have been $0.7 million and $0.3 million,
respectively.

REVENUE RECOGNITION -- Grain and oilseed sales are recorded at time of
settlement. All other sales are recognized upon shipment and transfer of title
to customers. Amounts billed to a customer in a sale transaction related to
shipping and handling are included in sales. Country Operations segment
services revenue and rebates are included in other revenues.

ENVIRONMENTAL EXPENDITURES -- Liabilities related to remediation of
contaminated properties are recognized when the related costs are considered
probable and can be reasonably estimated. Estimates of these costs are based on
current available facts, existing technology, undiscounted site-specific costs
and currently enacted laws and regulations. Recoveries, if any, are recorded in
the period in which recovery is considered probable. Liabilities are monitored
and adjusted as new facts or changes in law or technology occur. Environmental
expenditures are capitalized when such costs provide future economic benefits.

INCOME TAXES -- The Company is a nonexempt agricultural cooperative and
files a consolidated federal income tax return with its 80% or more owned
subsidiaries. The Company is subject to tax on income from nonpatronage sources
and undistributed patronage-sourced income. Deferred income taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
federal and state income tax purposes, at each year end, based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.

In October 2001, members of NCRA ratified a resolution to compute
patronage distributions based on earnings for financial statement purposes
rather than amounts reportable for federal income tax purposes, and beginning
with the year ended August 31, 2002, NCRA's patronage distributions have been
calculated based on financial statement earnings.

COMPREHENSIVE INCOME -- The Company accounts for comprehensive income
(defined as the change in equity of a business enterprise during a period from
sources other than those resulting from investments by owners and distribution
to owners) in accordance with Financial Accounting Standards Board (FASB) SFAS
No. 130, "Reporting Comprehensive Income." At August 31, 2002, comprehensive
income for the Company primarily includes net income and the effects of minimum
pension liability adjustments. Total comprehensive income is reflected in the
consolidated statements of equities and comprehensive income.

F-10

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

RECENT ACCOUNTING PRONOUNCEMENTS -- The FASB issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The adoption of this statement does not have a material
affect on the Company.

The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." This statement addresses financial accounting and
reporting for costs associated with an exit activity that does not involve an
entity newly acquired in a business combination or with a disposal activity
covered by SFAS No. 144. The costs addressed in SFAS No. 146 include, but are
not limited to, termination benefits, costs to terminate a contract that is not
a capital lease and costs to consolidate facilities or relocate employees. SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002.

RECLASSIFICATIONS -- Certain amounts in the 2001 financial statements have
been reclassified to conform with the current year's presentation. These
reclassifications had no effect on previously reported net income, equities and
comprehensive income, or cash flows.

2. RECEIVABLES

Receivables as of August 31, 2002 and 2001 are as follows:

2002 2001
----------- -----------
(DOLLARS IN THOUSANDS)

Trade ......................................... $717,888 $682,593
Other ......................................... 49,846 28,864
-------- --------
767,734 711,457
Less allowances for doubtful accounts ......... 26,156 25,317
-------- --------
$741,578 $686,140
======== ========

F-11

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. RECEIVABLES (CONTINUED)

All international sales are denominated in U.S. dollars. International
sales for the years ended August 31, 2002, 2001 and 2000 are as follows:

2002 2001 2000
--------- --------- ---------
(DOLLARS IN MILLIONS)

Africa ................ $ 135 $ 138 $ 191
Asia .................. 407 403 552
Europe ................ 282 255 304
North America ......... 298 317 324
South America ......... 100 101 119
------ ------ ------
$1,222 $1,214 $1,490
====== ====== ======

3. INVENTORIES

Inventories as of August 31, 2002 and 2001 are as follows:

2002 2001
----------- -----------
(DOLLARS IN THOUSANDS)

Grain and oilseed ................... $393,095 $237,498
Energy .............................. 229,981 163,710
Feed and farm supplies .............. 91,138 76,570
Processed grain and oilseed ......... 36,264 28,648
Other ............................... 9,185 4,017
-------- --------
$759,663 $510,443
======== ========

As of August 31, 2002, the Company valued approximately 26% of
inventories, primarily related to energy, using the lower of cost, determined
on the LIFO method, or market (28% as of August 31, 2001). If the FIFO method
of accounting for these inventories had been used, inventories would have been
higher than the reported amount by $40.5 million and $34.0 million at August
31, 2002 and 2001, respectively.

4. INVESTMENTS

Investments as of August 31, 2002 and 2001 are as follows:

2002 2001
-------- --------
(DOLLARS IN THOUSANDS)
Cooperatives:
CF Industries, Inc. ............................. $152,996 $152,996
National Bank for Cooperatives (CoBank) ......... 30,069 33,080
Ag Processing, Inc. ............................. 25,797 24,967
Land O'Lakes, Inc. .............................. 26,232 24,604
Joint ventures:
Ventura Foods, LLC .............................. 108,981 101,089
United Country Brands, LLC ...................... 86,175 74,457
Tacoma Export Marketing Company ................. 8,414 11,638
Other ............................................ 57,943 45,122
-------- --------
$496,607 $467,953
======== ========

F-12

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS (CONTINUED)

In March 2000, the Company purchased an additional 10% interest in Ventura
Foods, LLC, its consumer products and packaging joint venture, for $25.6
million, of which $13.8 million was goodwill. The Company has a 50% interest in
this joint venture. The following provides summarized information for Ventura
Foods, LLC, balance sheets as of August 31, 2002 and 2001 and statements of
operations for the twelve months ended August 31, 2002, 2001 and 2000:

2002 2001
----------- -----------
(DOLLARS IN THOUSANDS)
Current assets .................. $171,084 $159,062
Non-current assets .............. 231,045 221,000
Current liabilities ............. 133,230 114,883
Non-current liabilities ......... 90,819 104,144

2002 2001 2000
------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Net sales ............ $1,013,475 $925,962 $896,941
Gross profit ......... 181,217 161,405 143,394
Net income ........... 75,368 71,148 55,115

Effective January 1, 2000, CHS Cooperatives, Farmland and Land O'Lakes
created Agriliance, a distributor of crop nutrients, crop protection products
and other agronomy inputs and services. At formation, Agriliance managed the
agronomy marketing operations of CHS Cooperatives, Farmland and Land O'Lakes,
with the Company exchanging the right to use its agronomy operations for
26.455% of the results of the jointly managed operations.

In March 2000, the Company sold 1.455% of its economic interest in
Agriliance to Land O'Lakes, resulting in a gain of $7.4 million. On July 31,
2000, the Company exchanged its ownership interest in the Cenex/Land O'Lakes
Agronomy Company and in Agro Distribution, LLC, with a total investment of
$64.7 million, for a 25% equity interest in Agriliance. Agriliance ownership
also includes Farmland (25%) and Land O'Lakes (50%). The interests of the
Company and Farmland are held through equal ownership in United Country Brands,
LLC, a joint venture holding company whose sole operations consist of the
ownership of a 50% interest in Agriliance. Equity in the joint venture was
recorded at historical carrying value of its ownership in Cenex/Land O'Lakes
Agronomy Company and Agro Distribution, LLC and no gain or loss was recorded on
the exchange. In July 2000, Agriliance secured its own financing, which is
without recourse to the Company. Also in July 2000, Agriliance purchased the
net working capital related to agronomy operations from each of its member
owners, consisting primarily of trade accounts receivable and inventories, net
of accounts payable.

The following provide summarized information for Agriliance balance sheets
as of August 31, 2002 and 2001 and statements of operations for the years ended
August 31, 2002 and 2001:

2002 2001
----------- -----------
(DOLLARS IN THOUSANDS)
Current assets .................. $922,958 $956,496
Non-current assets .............. 134,247 158,107
Current liabilities ............. 700,903 802,341
Non-current liabilities ......... 107,960 110,964

F-13

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS (CONTINUED)

2002 2001
------------- -------------
(DOLLARS IN THOUSANDS)
Net sales ........................ $3,625,849 $4,072,248
Earnings from operations ......... 57,604 50,423
Net income ....................... 47,044 25,053

The Company's contribution of its equity interest in Agriliance occurred
on July 31, 2000, and as such, net sales, gross profits and net income for the
one month ended August 31, 2000 have been excluded from the above summarized
information of statements of operations, as they were not material.

Disclosure of the fair value of financial instruments to which the Company
is a party includes estimates and assumptions which may be subjective in nature
and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Financial instruments are carried at
amounts that approximate estimated fair value. Investments in cooperatives and
joint ventures have no quoted market prices and, as such, it is not practicable
to estimate their fair value.

Various agreements with other owners of investee companies and a
majority-owned subsidiary set out parameters whereby CHS Cooperatives may buy
and sell additional interests in those companies, upon the occurrence of
certain events, at fair values determinable as set forth in the specific
agreements.

5. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment as of August 31, 2002 and 2001
is as follows:

2002 2001
------------ ------------
(DOLLARS IN THOUSANDS)

Land and land improvements ............................. $ 63,045 $ 55,092
Buildings .............................................. 371,107 348,081
Machinery and equipment ................................ 1,470,475 1,434,598
Office and other ....................................... 62,144 56,740
Construction in progress ............................... 71,540 38,723
---------- ----------
2,038,311 1,933,234
Less accumulated depreciation and amortization ......... 980,890 909,362
---------- ----------
$1,057,421 $1,023,872
========== ==========

In January 2002, the Company formed a limited liability company (LLC) with
Cargill, Incorporated to engage in wheat flour milling and processing. The
Company holds a 24% interest in the entity, which is known as Horizon Milling,
LLC (Horizon). The Company is leasing its wheat milling facilities and related
equipment to Horizon under operating lease agreements. The book value of the
leased milling assets at August 31, 2002 was $104.9 million, net of accumulated
depreciation of $25.3 million.

For the years ended August 31, 2002, 2001 and 2000, the Company
capitalized interest of $2.1 million, $1.2 million and $2.7 million,
respectively, related to long-term construction projects.

F-14

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. OTHER ASSETS

Other assets as of August 31, 2002 and 2001 are as follows:

2002 2001
---------- ----------
(DOLLARS IN THOUSANDS)

Goodwill ............................................................. $ 27,926 $ 29,153
Non-compete covenants, less accumulated amortization of $2,896 and
$1,329, respectively ................................................ 11,204 1,765
Customer lists, less accumulated amortization of $3,511 and $1,946,
respectively ........................................................ 8,447 8,095
Other intangible assets, less accumulated amortization of $2,462 and
$1,513, respectively ................................................ 15,795 239
Prepaid pension and other benefit assets ............................. 54,230 100,727
Deferred tax asset ................................................... 50,544 44,316
Notes receivable ..................................................... 4,822 5,629
Other ................................................................ 4,354 4,534
-------- --------
$177,322 $194,458
======== ========

Intangible assets subject to amortization are amortized on a straight-line
basis over the number of years that approximate their respective useful lives
(ranging from 2 to 15 years). The straight-line method of amortization reflects
an appropriate allocation of the cost of the intangible assets to earnings in
proportion to the amount of economic benefit obtained by the Company in each
reporting period. Amortization expense for the year ended August 31, 2002 was
$4.2 million. The estimated amortization expense related to intangible assets
subject to amortization for the next five years will approximate $4.0 million
annually.

Through Country Energy, LLC, formerly a joint venture with Farmland, the
Company marketed refined petroleum products including gasoline, diesel fuel,
propane and lubricants under the Cenex brand. On November 30, 2001, the Company
purchased the wholesale energy business of Farmland, as well as all interest in
Country Energy, LLC. Based on estimated fair values, $26.4 million of the
purchase price was allocated to intangible assets, primarily trademarks,
tradenames and non-compete agreements. The intangible assets have a
weighted-average life of approximately 12 years. The Company also entered into
an exclusive two-year supply agreement to purchase, at prevailing market
prices, all of the refined fuels production from Farmland's Coffeyville, Kansas
facility.

F-15

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt as of August 31, 2002 and 2001 consisted
of the following:

INTEREST RATES
AT AUGUST 31,
2002 2002 2001
------------------- ----------- -----------
(DOLLARS IN THOUSANDS)

Notes payable (a)(g) .............................. 2.32% to 2.78% $332,514 $ 97,195
======== ========
Long-term debt:
Revolving term loans from cooperative and
other banks, payable in installments through
2009, when the balance is due (b)(c)(g) ......... 2.16% to 13.00% $254,962 $236,611
Private placement, payable in equal
installments beginning in 2008 through
2013 (d)(g) ..................................... 6.81% 225,000 225,000
Private placement, payable in equal
installments beginning in 2005 through
2011 (e)(g) ..................................... 7.43% to 7.90% 80,000 80,000
Industrial Revenue Bonds, payable in
installments through 2011 (f) ................... 5.23% to 12.97% 7,444 12,806
Other notes and contracts ........................ 4.00% to 14.00% 4,718 5,580
-------- --------
Total long-term debt ............................. 572,124 559,997
Less current portion ............................. 89,032 17,754
-------- --------
Long-term portion ................................ $483,092 $542,243
======== ========

Weighted average interest rates at August 31:

2002 2001
---------- ----------
Short-term debt .......... 2.58% 4.18%
Long-term debt ........... 6.38% 6.91%

------------------
(a) The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. The Company has a 364-day credit
facility of $550.0 million, all of which is committed, and of which $332.0
million was outstanding on August 31, 2002. In addition to this short-term
line of credit, the Company has a 364-day credit facility dedicated to
NCRA with a syndication of banks in the amount of $30.0 million, all of
which is committed, with no amounts outstanding on August 31, 2002. Other
miscellaneous notes payable totaled $0.5 million at August 31, 2002.

(b) The Company established a $200.0 million five-year revolving credit
facility with a syndication of banks. On August 31, 2002, the Company had
an outstanding balance of $75.0 million.

(c) The Company established a long-term credit agreement which committed $200.0
million of long-term borrowing capacity to the Company through May 31,
1999, of which $164.0 million was drawn before the expiration date of that
commitment. On August 31, 2002, $144.3 million was outstanding. NCRA term
loans of $18.0 million are collateralized by NCRA's investment in CoBank.

(d) The Company entered into a private placement with several insurance
companies for long-term debt in the amount of $225.0 million.

(e) In January 2001, the Company entered into a note purchase and private shelf
agreement with Prudential Insurance Company. A long-term note was issued
for $25.0 million. A subsequent note for $55.0 million was issued in March
2001, related to the private shelf facility.

F-16

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

(f) Industrial Revenue Bonds in the amount of $2.7 million are collateralized
by property, plant and equipment, primarily energy refinery equipment,
with a cost of approximately $152.0 million, less accumulated depreciation
of approximately $115.2 million on August 31, 2002.

(g) Restrictive covenants under various agreements have requirements for
maintenance of minimum working capital levels and other financial ratios.

The fair value of long-term debt approximates book value as of August 31,
2002 and 2001.

The aggregate amount of long-term debt payable as of August 31, 2002 is as
follows (dollars in thousands):

2003 ............... $ 89,032
2004 ............... 15,079
2005 ............... 34,511
2006 ............... 34,938
2007 ............... 41,709
Thereafter ......... 356,855
--------
$572,124
========

On October 18, 2002, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of $175.0 million,
which was layered into two series. The first series of $115.0 million has an
interest rate of 4.96% and will be repaid in equal semi-annual installments of
approximately $8.8 million during the years 2007 through 2013. The second
series of $60.0 million has an interest rate of 5.60% and will be repaid in
equal semi-annual installments of approximately $4.6 million during fiscal
years 2012 through 2018. The proceeds were used to pay down the Company's
short-term debt.

8. INCOME TAXES

As a result of the Company's by-law changes during 2001, and the by-law
changes of its majority-owned subsidiary (NCRA) in 2002, to distribute
patronage based on financial statement earnings (see Note 1), the statutory
rate applied to the cumulative differences between financial statement earnings
and tax basis earnings, has been changed. In connection with this change the
Company recorded a deferred tax benefit of $10.9 million as of August 31, 2002
and $34.2 million as of August 31, 2001. The $10.9 million deferred tax benefit
recorded as a result of the change in patronage distribution by NCRA as of
August 31, 2002 has been offset by a $10.9 million NCRA valuation allowance. An
additional $6.2 million of deferred tax benefit generated by NCRA was also
offset by a valuation allowance.

The provision for income taxes for the years ended August 31, 2002, 2001
and 2000 is as follows:

2002 2001 2000
------------ ------------ ---------
(DOLLARS IN THOUSANDS)
Current ..................... $ 14,300 $ 21,025 $4,347
Deferred .................... (12,700) (49,025) (467)
Valuation allowance ......... 17,100 2,400
--------- --------- ------
Income taxes ................ $ 18,700 $ (25,600) $3,880
========= ========= ======

F-17

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)

The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of August 31, 2002 and 2001
is as follows:

2002 2001
------------ ----------
(DOLLARS IN THOUSANDS)

Deferred tax assets:
Accrued expenses and valuation reserves ...................... $ 49,236 $ 42,704
Postretirement health care and deferred compensation ......... 32,671 24,842
Property, plant and equipment ................................ 11,532 9,570
Alternative minimum tax credit and patronage loss
carryforward ................................................ 6,993 4,540
Other ........................................................ 12,439 12,885
--------- --------
Total deferred tax assets ................................... 112,871 94,541
--------- --------
Deferred tax liabilities:
Pension, including minimum liability ......................... 2,635 9,536
Equity method investments .................................... 20,482 27,893
Other ........................................................ 730 1,314
--------- --------
Total deferred tax liabilities ................................ 23,847 38,743
--------- --------
Deferred tax assets valuation reserve ......................... (19,466) (2,400)
--------- --------
Net deferred tax asset ........................................ $ 69,558 $ 53,398
========= ========

As of August 31, 2002, net deferred tax assets of $19.0 million and $50.5
million are included in current assets and other assets, respectively ($9.1
million and $44.3 million, respectively, as of August 31, 2001). At August 31,
2002, NCRA recognized a valuation allowance for the entire tax benefit
associated with its net deferred tax assets, as it is considered more likely
than not, based on the weight of available information, that the future tax
benefits related to these items will not be realized. At August 31, 2002,
NCRA's net deferred tax assets of approximately $19.5 million were comprised of
deferred tax assets of $23.4 million and deferred tax liabilities of $3.9
million. Deferred tax assets are comprised of basis differences related to
inventories, investments, lease obligations, accrued liabilities and certain
federal and state tax credits. NCRA files a separate tax return and, as such,
these items must be assessed independently of the Company's deferred tax assets
when determining recoverability. At August 31, 2001, NCRA also recorded a
valuation allowance of $2.4 million to account for uncertainties regarding the
recoverability of certain state tax credits.

The reconciliation of the statutory federal income tax rate to the
effective tax rate for the years ended August 31, 2002, 2001 and 2000 is as
follows:

2002 2001 2000
---------- ------------ ----------

Statutory federal income tax rate ............................ 35.0% 35.0% 35.0%
State and local income taxes, net of federal income
tax benefit ................................................. 3.9 3.9 3.9
Patronage earnings ........................................... (25.0) (32.8) (37.3)
Tax effect of changes in deferred patronage .................. 4.4
Change in patronage determination ............................ (7.5) (22.4)
Export activities at rates other than the
U.S. statutory rate ......................................... (1.9)
Deferred tax asset valuation allowance ....................... 11.8 1.6
Rate changes on deferred tax assets and liabilities .......... (2.5)
Other ........................................................ (3.4) (2.0) 0.8
----- ----- -----
Effective tax rate ........................................... 12.9% (16.7)% 4.3%
===== ===== =====

F-18

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)

The principal differences between financial statement income and taxable
income for the years ended August 31, 2002, 2001 and 2000 are as follows:

2002 2001 2000
----------- ------------- ------------
(DOLLARS IN THOUSANDS)

Income before income taxes ................... $ 144,838 $ 152,954 $ 91,268
Financial reporting/tax differences: .........
Environmental reserves ...................... 1,939 4,453 (728)
Oil and gas activities, net ................. 1,540 (22,230) 2,600
Energy inventory market reserves ............ (933) (2,441) (19)
Pension and compensation .................... (21,491) 8,981
Investments in other entities ............... 1,898 26,495
Export activities ........................... (7,141)
Other, net .................................. (2,291) 10,038 3,255
Patronage refund provisions ................. (92,900) (128,900) (87,400)
--------- ---------- ---------
Taxable income ............................... $ 25,459 $ 49,350 $ 8,976
========= ========== =========

9. EQUITIES

In accordance with the by-laws and by action of the Board of Directors,
annual net savings from patronage sources are distributed to consenting patrons
following the close of each year, and are based on amounts using financial
statement earnings. The cash portion of the patronage distribution is
determined annually by the Board of Directors, with the balance issued in the
form of capital equity certificates.

Annual net savings from sources other than patronage may be added to the
unallocated capital reserve or, upon action by the Board of Directors,
allocated to members in the form of nonpatronage equity certificates.

Inactive direct members and patrons and active direct members and patrons
age 61 and older on June 1, 1998 are eligible for redemption of their capital
equity certificates at age 72 or death. For other active direct members and
patrons and member cooperatives, equities will be redeemed annually as
determined by the Board of Directors.

On May 31, 1997, the Company completed an offering for the sale of Equity
Participation Units (EPUs) in its Wheat Milling Defined Business Unit and its
Oilseed Processing and Refining Defined Business Unit to qualified subscribers.
Qualified subscribers were identified as Defined Members or representatives of
Defined Members who were persons or associations of producers actually engaged
in the production of agricultural products. Subscribers were allowed to
purchase a portion of their EPUs by exchanging existing patronage certificates.
The purchasers of EPUs had the right and obligation to deliver annually the
number of bushels of wheat or soybeans equal to the number of units held. Unit
holders participated in the net patronage-sourced income from operations of the
applicable Defined Business Unit as patronage refunds. Retirements of patrons'
equities attributable to EPUs, were at the discretion of the Board of
Directors, and it was the Board's goal to retire such equity on a revolving
basis seven years after declaration.

During 2001, the Company's Board of Directors adopted a resolution to
issue, at no charge, to each Defined Member of the Oilseed Processing and
Refining Defined Business Unit an additional 1/4 EPU, for each EPU held, due to
increased crush volume.

In August 2001, the CHS Cooperatives Board of Directors approved and
consummated a plan to end the Defined Investment Program. The Company redeemed
all of the EPUs and allocated the assets

F-19

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. EQUITIES (CONTINUED)

of the Oilseed Processing and Refining and Wheat Milling Defined Business Units
to the Company as provided in the plan. The amounts redeemed to the Oilseed
Processing and Refining and Wheat Milling Defined Member EPU holders were $5.2
million and $9.1 million, respectively. Due to loss carry-forwards incurred by
the Wheat Milling Defined Business Unit, the plan also provided for the
cancellation of all outstanding Preferred Capital Certificates issued to the
Wheat Milling EPU holders, totaling $0.2 million. The plan further provided to
the Oilseed Processing and Refining Defined Member EPU holders for the
redemption of all outstanding Preferred Capital Certificates issued of $0.2
million and a 100% cash distribution during 2002 for the patronage refunds
earned for the fiscal year ended August 31, 2001.

The Board of Directors has authorized the sale and issuance of up to
50,000,000 shares of 8% Preferred Stock at a price of $1.00 per share. The
Company filed a registration statement on Form S-2 with the Securities and
Exchange Commission registering the Preferred Stock. The registration statement
was declared effective on October 31, 2001 and sales of the Preferred Stock
were $9.3 million (9,325,374 shares) through August 31, 2002. Cash dividends
are paid at a rate of 8% per annum per share and are fully cumulative. There is
no sinking fund requirement and the Company may redeem all or any portion of
the preferred stock upon 30 days written notice at $1.00 per share. Expenses
related to the issuance of the Preferred Stock were $3.4 million through the
year ended August 31, 2002 and have been included as a component of unallocated
capital reserve.

10. EMPLOYEE BENEFIT PLANS

The Company has various pension and other defined benefit and defined
contribution plans, in which substantially all employees may participate.

Financial information on changes in benefit obligation and plan assets
funded and balance sheet status as of August 31, 2002 and 2001 is as follows:

PENSION BENEFITS OTHER BENEFITS
------------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)

Change in benefit obligation:
Benefit obligation at beginning of period ......... $ 253,564 $ 258,059 $ 22,667 $ 21,439
Service cost ...................................... 10,443 8,506 557 566
Interest cost ..................................... 18,559 18,487 1,586 1,569
Plan participants contributions ................... 189
Plan amendments ................................... 2,383 6 (1,005)
Transfers ......................................... 3,677 (2,387)
Actuarial loss (gain) ............................. 2,764 (2,842) 1,716 1,902
Assumption change ................................. 2,534 638
Settlements ....................................... 643
Benefits paid ..................................... (22,979) (29,442) (2,438) (1,804)
--------- --------- -------- --------
Benefit obligation at end of period ............... $ 268,411 $ 253,564 $ 24,915 $ 22,667
========= ========= ======== ========

F-20

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

PENSION BENEFITS OTHER BENEFITS
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)

Change in plan assets:
Fair value of plan assets at beginning of period ..... $ 230,121 $ 266,896
Actual loss on plan assets ........................... (14,810) (16,206)
Company contributions ................................ 5,554 11,669 $ 2,249 $ 1,804
Participants contributions ........................... 189
Net transfers ........................................ 3,677 (2,796)
Benefits paid ........................................ (22,979) (29,442) (2,438) (1,804)
--------- --------- --------- ---------
Fair value of plan assets at end of period ........... $ 201,563 $ 230,121 $ -- $ --
========= ========= ========= =========
Funded status ........................................ $ (66,848) $ (23,443) $ (24,915) $ (22,667)
Employer contributions after measurement date 31,394 1,262 269 264
Unrecognized actuarial loss (gain) ................... 85,082 47,368 (3,505) (6,363)
Unrecognized transition (asset) obligation ........... (708) 10,197 11,133
Unrecognized prior service cost ...................... 10,569 9,639 (1,336) (1,534)
--------- --------- --------- ---------
Prepaid benefit cost (accrued) ....................... $ 60,197 $ 34,118 $ (19,290) $ (19,167)
========= ========= ========= =========
Amounts recognized on balance sheets
consist of:
Prepaid benefit cost ................................. $ 43,918
Accrued benefit liability ............................ $ (23,837) (12,214) $ (19,290) $ (19,167)
Intangible asset ..................................... 7,995 1,055
Minority interests ................................... 6,195
Accumulated other comprehensive loss ................. 69,844 1,359
--------- --------- --------- ---------
Net amounts recognized ............................... $ 60,197 $ 34,118 $ (19,290) $ (19,167)
========= ========= ========= =========

For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the year ended August 31,
2002. The rate was assumed to decrease gradually to 6.0% for 2004 and remain at
that level thereafter. Components of net periodic benefit costs for the years
ended August 31, 2002, 2001 and 2000 are as follows:

PENSION BENEFITS OTHER BENEFITS
------------------------------------------ -----------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ------------ ---------- ---------- ---------
(DOLLARS IN THOUSANDS)

Components of net periodic
benefit cost:
Service cost ............................... $ 10,443 $ 8,506 $ 8,777 $ 557 $ 566 $ 657
Interest cost .............................. 18,559 18,487 18,058 1,586 1,569 1,470
Expected return on assets .................. (21,386) (22,855) (20,485)
Prior service cost amortization ............ 1,314 1,193 1,182 (197) (131) (77)
Actuarial loss (gain) amortization ......... 1,387 375 (530) (505) (538) (604)
Transition amount amortization ............. (708) (861) (1,120) 936 936 936
Other ...................................... (22)
--------- --------- --------- ------ ------ ------
Net periodic benefit cost .................. $ 9,609 $ 4,845 $ 5,882 $2,377 $2,380 $2,382
========= ========= ========= ====== ====== ======
Weighted-average assumptions:
Discount rate .............................. 7.10% 7.30% 7.50% 7.10% 7.30% 7.50%
Expected return on plan assets ............. 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase .............. 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%

F-21

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

The aggregate projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were as follows as of August 31, 2002 and
2001:

2002 2001
----------- ----------
(DOLLARS IN THOUSANDS)
Projected benefit obligation ........... $268,411 $23,247
Accumulated benefit obligation ......... 256,795 18,599
Fair value of plan assets .............. 201,563 6,385

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in
the assumed health care cost trend rates would have the following effects:

1% POINT 1% POINT
INCREASE DECREASE
---------- -----------
(DOLLARS IN THOUSANDS)

Effect on total of service and interest cost components ......... $ 177 $ (202)
Effect on postretirement benefit obligation ..................... 1,435 (1,210)

The Company provides defined life insurance and health care benefits for
certain retired employees. The plan is contributory based on years of service
and family status, with retiree contributions adjusted annually.

The Company has other contributory defined contribution plans covering
substantially all employees. Total contributions by the Company to these plans
were $11.0 million, $6.1 million and $4.6 million, for the years ended August
31, 2002, 2001 and 2000, respectively.

11. SEGMENT REPORTING

The Company manages five business segments, which are based on products
and services, and are Agronomy, Energy, Country Operations, Grain Marketing,
and Processed Grains and Foods. Reconciling Amounts represent the elimination
of sales between segments. Due to cost allocations and intersegment activity,
management does not represent that these segments, if operated independently,
would report the income before income taxes and other financial information as
presented.

Segment information for the years ended August 31, 2002, 2001 and 2000 is
as follows:

PROCESSED CORPORATE
COUNTRY GRAIN GRAINS AND AND RECONCILING
AGRONOMY ENERGY OPERATIONS MARKETING FOODS OTHER AMOUNTS TOTAL
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Restated Restated Restated
(Note 16) (Note 16) (Note 16)
(DOLLARS IN THOUSANDS)

For the year ended
August 31, 2002:
Net sales ................ $2,657,689 $1,474,553 $3,281,469 $ 496,084 $ (753,341) $7,156,454
Patronage dividends ...... $ (89) 458 2,572 497 260 $ 187 3,885
Other revenues ........... 6,392 80,789 21,902 (1,469) 1,845 109,459
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(89) 2,664,539 1,557,914 3,303,868 494,875 2,032 (753,341) 7,269,798
Cost of goods sold ....... 2,489,352 1,471,422 3,272,985 457,538 (753,341) 6,937,956
Marketing, general and
administrative .......... 8,957 66,731 47,995 22,213 36,930 4,466 187,292
Interest ................. (1,403) 16,875 13,851 4,807 9,514 (1,189) 42,455
Equity (income) loss from
investments ............. (13,425) 1,166 (283) (4,257) (41,331) (3) (58,133)
Minority interests ....... 14,604 786 15,390
---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes ............ $ 5,782 $ 75,811 $ 24,143 $ 8,120 $ 32,224 $ (1,242) $ -- $ 144,838
========== =========== ========== ========== ========== ========== ========== ==========

F-22

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SEGMENT REPORTING (CONTINUED)

PROCESSED CORPORATE
COUNTRY GRAIN GRAINS AND AND RECONCILING
AGRONOMY ENERGY OPERATIONS MARKETING FOODS OTHER AMOUNTS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Restated Restated Restated
(Note 16) (Note 16) (Note 16)
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)

For the year ended
August 31, 2002:
Goodwill ................ $ 4,059 $ 262 $ 23,605 $ 27,926
========== ========== ========== ==========
Capital expenditures .... $ 54,576 $ 34,305 $ 14,851 $ 35,144 $ 1,293 $ 140,169
========== ========== ========== ========== ========== ==========
Depreciation and
amortization ........... $ 1,247 $ 58,701 $ 21,214 $ 6,235 $ 13,436 $ 3,153 $ 103,986
========== ========== ========== ========== ========== ========== ==========
Total identifiable assets
at August 31, 2002 ..... $ 242,015 $1,305,828 $ 799,711 $ 481,232 $ 439,942 $ 212,999 $3,481,727
========== ========== ========== ========== ========== ========== ==========
For the year ended
August 31, 2001:
Net sales ............... $2,781,243 $1,577,268 $3,416,239 $ 662,726 $ (973,234) $7,464,242
Patronage dividends ..... $ 196 712 3,683 840 339 $ 207 5,977
Other revenues .......... 4,036 80,479 22,964 (238) 9,013 116,254
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
196 2,785,991 1,661,430 3,440,043 662,827 9,220 (973,234) 7,586,473
Cost of goods sold ...... 2,549,099 1,569,884 3,416,500 619,184 (973,234) 7,181,433
Marketing, general and
administrative ......... 8,503 48,432 53,417 22,396 44,870 6,428 184,046
Interest ................ (4,529) 25,097 15,695 8,144 13,026 4,003 61,436
Equity (income) loss from
investments ............ (7,360) 4,081 (246) (4,519) (35,505) 15,055 (28,494)
Minority interests ...... 34,713 385 35,098
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) before
income taxes ........... $ 3,582 $ 124,569 $ 22,295 $ (2,478) $ 21,252 $ (16,266) $ -- $ 152,954
========== ========== ========== ========== ========== ========== =========== ==========
Goodwill ................ $ 5,175 $ 373 $ 23,605 $ 29,153
========== ========== ========== ==========
Capital expenditures .... $ 38,984 $ 32,448 $ 3,715 $ 20,485 $ 1,978 $ 97,610
========== ========== ========== ========== ========== ==========
Depreciation and
amortization ........... $ 1,250 $ 55,343 $ 21,738 $ 4,917 $ 22,304 $ 3,628 $ 109,180
========== ========== ========== ========== ========== ========== ==========
Total identifiable assets
at August 31, 2001 ..... $ 230,051 $1,154,036 $ 679,053 $ 345,696 $ 430,871 $ 217,612 $3,057,319
========== ========== ========== ========== ========== ========== ==========
For the year ended
August 31, 2000:
Net sales ............... $ 808,659 $2,959,622 $1,409,892 $3,375,616 $ 584,052 $ (889,428) $8,248,413
Patronage dividends ..... 224 311 3,830 861 100 $ 168 5,494
Other revenues .......... 5,817 2,792 68,436 15,440 (10) 4,996 97,471
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
814,700 2,962,725 1,482,158 3,391,917 584,142 5,164 (889,428) 8,351,378
Cost of goods sold ...... 764,744 2,862,715 1,404,120 3,361,672 547,234 (889,428) 8,051,057
Marketing, general and
administrative ......... 20,832 43,332 44,136 21,412 21,462 4,092 155,266
Interest ................ (3,512) 27,926 12,782 8,701 9,851 1,818 57,566
Equity loss (income) from
investments ............ 4,336 (856) (1,007) (6,452) (24,367) 21 (28,325)
Minority interests ...... 24,443 103 24,546
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) before
income taxes ........... $ 28,300 $ 5,165 $ 22,024 $ 6,584 $ 29,962 $ (767) $ -- $ 91,268
========== ========== ========== ========== ========== ========== =========== ==========
Capital expenditures .... $ 65,017 $ 38,514 $ 12,096 $ 36,494 $ 1,675 $ 153,796
========== ========== ========== ========== ========== ==========
Depreciation and
amortization ........... $ 106 $ 52,017 $ 21,717 $ 3,803 $ 11,440 $ 3,616 $ 92,699
========== ========== ========== ========== ========== ========== ==========

12. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL -- The Company is required to comply with various
environmental laws and regulations incidental to its normal business
operations. In order to meet its compliance requirements, the Company
establishes reserves for the future costs of remediation of identified issues,
which are

F-23

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)

included in cost of goods sold in the consolidated statements of operations.
Additional costs for matters, which may be identified in the future, cannot be
presently determined. The resolution of any such matters may have an impact on
the Company's consolidated financial results for a particular reporting period;
however, management believes any such matters will not have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.

In connection with certain refinery upgrades and enhancements that are
necessary in order to comply with existing environmental regulations, the
Company expects to incur additional capital expenditures of approximately $340
million in relation to these projects over the next four years, primarily at
the NCRA refinery. The Company anticipates funding these projects with a
combination of cash flows from operations and additional indebtedness.

OTHER LITIGATION AND CLAIMS -- The Company is involved as a defendant in
various lawsuits, claims and disputes which are in the normal course of the
Company's business. The resolution of any such matters may have an impact on
the Company's consolidated financial results for a particular reporting period;
however, management believes any resulting liability will not have a material
adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.

GRAIN STORAGE -- As of August 31, 2002 and 2001, the Company stored grain
and processed grain products for third parties totaling $148.0 million and
$177.0 million, respectively. Such stored commodities and products are not the
property of the Company and therefore are not included in the Company's
inventories.

GUARANTEES -- The Company is a guarantor for lines of credit for related
companies totaling up to $86.2 million, of which $45.1 million was outstanding
as of August 31, 2002. All outstanding loans with respective creditors are
current as of August 31, 2002.

LEASE COMMITMENTS -- The Company leases approximately 1,700 rail cars with
remaining lease terms of one to 10 years. In addition, the Company has
commitments under other operating leases for various refinery, manufacturing
and transportation equipment, vehicles and office space. Some leases include
purchase options at not less than fair market value at the end of the leases.

Total rental expense for all operating leases, net of rail car mileage
credits received from the railroad and sublease income was $30.2 million, $35.5
million and $38.0 million for the years ended August 31, 2002, 2001 and 2000,
respectively. Mileage credits and sublease income were $9.5 million, $11.0
million and $10.6 million for the years ended August 31, 2002, 2001 and 2000,
respectively.

Minimum future lease payments, required under noncancellable operating
leases as of August 31, 2002, are as follows:

EQUIPMENT
RAIL CARS VEHICLES AND OTHER TOTAL
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)

2003 ........................................ $ 9,100 $ 9,436 $14,417 $32,953
2004 ........................................ 7,091 6,992 10,116 24,199
2005 ........................................ 5,525 5,183 5,286 15,994
2006 ........................................ 2,018 3,321 3,561 8,900
2007 ........................................ 1,042 1,657 2,433 5,132
Thereafter .................................. 4,025 255 515 4,795
------- ------- ------- -------
Total minimum future lease payments ......... $28,801 $26,844 $36,328 $91,973
======= ======= ======= =======

F-24

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION

Additional information concerning supplemental disclosures of cash flow
activities for the years ended August 31, 2002, 2001 and 2000 is as follows:

2002 2001 2000
------------ ------------ ------------
(DOLLARS IN THOUSANDS)

Net cash paid during the period for:
Interest ......................................... $ 44,231 $ 63,034 $ 57,062
Income taxes ..................................... 27,965 11,709 3,785
Other significant noncash transactions:
(Distributions)/contributions of inventories of
minority interests .............................. (54,399) 54,399
Capital equity certificates issued in exchange for
elevator properties ............................. 1,842 5,481 7,921
Equity Participation Units issued ................ 1,045
Accrual of patronage dividends and equity
retirements payable ............................. (56,510) (72,154) (43,694)
Other comprehensive (loss) income ................ (49,982) 512 (1,257)

14. RELATED PARTIES TRANSACTIONS

As of August 31, 2002, the Company had related party transactions, which
consisted of sales of $550.0 million, purchases of $502.4 million, receivables
of $21.2 million and payables of $18.3 million with its equity investees. These
related party transactions were primarily with Agriliance, CF Industries, Inc.,
Horizon Milling, Tacoma Export Marketing Company and Ventura Foods, LLC.

15. COMPREHENSIVE INCOME

The components of comprehensive income for the years ended August 31,
2002, 2001 and 2000 are as follows:

2002 2001 2000
----------- ----------- ----------
(DOLLARS IN THOUSANDS)

Net income .............................................. $ 126,138 $178,554 $ 87,388
Additional minimum pension liability, net of taxes ..... (48,797) (15) 153
Financial instruments, net of taxes .................... (548) 527 (1,410)
Cash flow hedges, net of taxes ......................... (637)
--------- -------- --------
Comprehensive income .................................... $ 76,156 $179,066 $ 86,131
========= ======== ========

The components of accumulated other comprehensive loss as of August 31,
2002 and 2001 are as follows:

2002 2001
---------- ---------
(DOLLARS IN THOUSANDS)

Additional minimum pension liability, net of taxes ......... $50,051 $1,254
Financial instruments, net of taxes ........................ 1,209 661
Cash flow hedges, net of taxes ............................. 637
------- ------
Accumulated other comprehensive loss ....................... $51,897 $1,915
======= ======

F-25

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. NET SALES AND COST OF GOODS SOLD RESTATEMENT:

Recently the Company determined that certain sales and transfers within the
Grain Marketing segment and between the Grain Marketing segment and the
Processed Grains and Foods segment, were not appropriately eliminated. The
appropriate changes have been made to the consolidated statements of operations
and segment reporting (see Note 11). These changes had no effect on the
Company's financial condition or changes in cash flows, and no effect on
reported gross profit or net income for the periods stated.

----------- -----------
As Reported As Restated
----------- -----------

Grain Marketing Net Sales
2002 3,787,322 3,281,469
2001 3,514,314 3,416,239
2000 3,453,807 3,375,616

Grain Marketing Cost of Goods Sold
2002 3,778,838 3,272,985
2001 3,514,575 3,416,500
2000 3,439,863 3,361,672

Reconciling Amounts - Net Sales & Cost of Goods Sold
2002 (683,781) (753,341)
2001 (782,539) (973,234)
2000 (718,182) (889,428)

Net Sales
2002 7,731,867 7,156,454
2001 7,753,012 7,464,242
2000 8,497,850 8,248,413

Cost of Goods Sold
2002 7,513,369 6,937,956
2001 7,470,203 7,181,433
2000 8,300,494 8,051,057

F-26

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Members and Patrons of
Cenex Harvest States Cooperatives:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of equities and comprehensive income and
of cash flows, after the restatement described in Note 16, present fairly, in
all material respects, the financial position of Cenex Harvest States
Cooperatives and subsidiaries as of August 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 16 to the consolidated financial statements, the Company
has restated its Consolidated Statements of Operations for the years ended
August 31, 2002, 2001 and 2000.

October 18, 2002, except for Notes 11 and 16,
which are as of October 31, 2003
Minneapolis, Minnesota

F-27

INDEPENDENT AUDITORS' REPORT

Members Committee
Ventura Foods, LLC

We have audited the accompanying consolidated balance sheets of Ventura
Foods, LLC and subsidiary (the "Company") as of March 31, 2003 and 2002 and the
related consolidated statements of income, members' capital and cash flows for
the years ended March 31, 2003 and 2002, the three months ended March 31, 2001
and the year ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Ventura Foods, LLC and
subsidiary as of March 31, 2003 and 2002 and the results of their operations and
their cash flows for the years ended March 31, 2003 and 2002, the three months
ended March 31, 2001 and the year ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, GOODWILL
AND OTHER INTANGIBLE ASSETS, effective April 1, 2002.

/s/ Deloitte & Touche LLP

Los Angeles, California
June 16, 2003

F-28

VENTURA FOODS, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2003 AND 2002

2003 2002
------------ ------------

ASSETS (NOTE 4)
CURRENT ASSETS:
Cash and cash equivalents (Note 2) .................................... $ 2,800,000 $ 9,300,000
Trade receivables--net of allowance for doubtful accounts
of $1,909,000 and $1,543,000 at 2003 and 2002, respectively (Notes
2, 4 and 5) ......................................................... 64,313,000 57,139,000
Inventories (Notes 2, 4 and 5) ........................................ 92,366,000 62,799,000
Prepaid expenses and other current assets ............................. 5,922,000 2,283,000
Due from Wilsey Foods, Inc. (Note 5) .................................. 309,000
Derivative contract asset (Notes 2 and 5) ............................. 18,703,000 13,298,000
------------ ------------
Total current assets ................................................ 184,413,000 144,819,000
------------ ------------
PROPERTY (Notes 2 and 4):
Land, buildings and improvements ...................................... 102,768,000 98,840,000
Machinery and equipment ............................................... 139,264,000 129,133,000
Construction-in-progress .............................................. 6,905,000 6,489,000
Other property ........................................................ 10,798,000 10,494,000
------------ ------------
Total ............................................................... 259,735,000 244,956,000
Less accumulated depreciation and amortization .......................... 106,914,000 95,052,000
------------ ------------
Property--net ......................................................... 152,821,000 149,904,000
GOODWILL--Net of amortization of $18,087,000 at 2003 and 2002
(Notes 2, 3 and 8) .................................................... 43,156,000 43,156,000
TRADEMARKS--Net of amortization of $8,526,000 and $8,685,000
at 2003 and 2002 (Notes 2 and 8) ...................................... 19,318,000 19,577,000

DEFERRED COMPENSATION PLAN TRUST (Note 6) ............................... 13,574,000 14,240,000

OTHER ASSETS--Net of amortization of $3,520,000 and $4,310,000
at 2003 and 2002 (Notes 2 and 8) ...................................... 4,673,000 5,293,000
------------ ------------
TOTAL ................................................................... $417,955,000 $376,989,000
============ ============
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable (Note 5) ............................................. $ 58,395,000 $ 52,045,000
Accrued liabilities (Note 5) .......................................... 36,984,000 25,784,000
Dividends payable ..................................................... 5,748,000 9,550,000
Bank lines of credit (Note 4) ......................................... 20,500,000 8,000,000
Current portion of long-term debt (Note 4) ............................ 74,228,000 12,758,000
Current portion of long-term liability--Wilsey Foods, Inc. (Note 1) ... 491,000
Derivative contract liability (Notes 2 and 5) ......................... 12,162,000 4,120,000
------------ ------------
Total current liabilities ........................................... 208,017,000 112,748,000
LONG-TERM DEBT (Note 4) ................................................. 22,950,000 97,178,000
DEFERRED COMPENSATION OBLIGATIONS (Note 6) .............................. 20,496,000 16,347,000
------------ ------------
Total liabilities ................................................... 251,463,000 226,273,000
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
MEMBERS' CAPITAL ........................................................ 166,492,000 150,716,000
------------ ------------
TOTAL ................................................................... $417,955,000 $376,989,000
============ ============

See notes to consolidated financial statements.

F-29

VENTURA FOODS, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2003 AND 2002, THE THREE MONTHS ENDED MARCH 31, 2001
AND THE YEAR ENDED DECEMBER 31, 2000

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31,
2003 2002 2001 2000
-------------- -------------- -------------- --------------

NET SALES (Notes 2 and 5) ............. $1,096,425,000 $ 965,521,000 $ 215,158,000 $ 889,775,000
COST OF GOODS SOLD (Notes 2 and 5) .... 912,702,000 791,061,000 177,492,000 743,291,000
-------------- -------------- -------------- --------------
GROSS PROFIT .......................... 183,723,000 174,460,000 37,666,000 146,484,000
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Selling, general and administrative
(Notes 2 and 5) ................... 105,424,000 91,827,000 20,092,000 77,878,000
Amortization of intangibles
(Notes 2 and 8) ................... 223,000 6,227,000 1,581,000 6,431,000
-------------- -------------- -------------- --------------
Total operating expenses .......... 105,647,000 98,054,000 21,673,000 84,309,000
-------------- -------------- -------------- --------------
OPERATING INCOME ...................... 78,076,000 76,406,000 15,993,000 62,175,000
INTEREST EXPENSE--Net (Note 4) ........ 6,785,000 7,474,000 2,071,000 9,585,000
OTHER EXPENSE (INCOME) (Note 7) ....... 733,000 (1,554,000) (446,000) (4,916,000)
-------------- -------------- -------------- --------------
NET INCOME ............................ $ 70,558,000 $ 70,486,000 $ 14,368,000 $ 57,506,000
============== ============== ============== ==============

See notes to consolidated financial statements.

F-30

VENTURA FOODS, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
YEARS ENDED MARCH 31, 2003 AND 2002, THE THREE MONTHS ENDED MARCH 31, 2001
AND THE YEAR ENDED DECEMBER 31, 2000

CENEX
HARVEST
WILSEY STATES
FOODS, INC. COOPERATIVES TOTAL
------------- ------------- -------------

BALANCE, JANUARY 1, 2000 ........ $ 67,315,000 $ 44,877,000 $ 112,192,000
Net income .................... 30,593,000 26,913,000 57,506,000
Transfer of interest (Note 1) . (11,775,000) 11,775,000
Dividends ..................... (23,288,000) (20,720,000) (44,008,000)
------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 ...... 62,845,000 62,845,000 125,690,000
Net income .................... 7,184,000 7,184,000 14,368,000
Dividends ..................... (4,157,000) (4,157,000) (8,314,000)
------------- ------------- -------------
BALANCE, MARCH 31, 2001 ......... 65,872,000 65,872,000 131,744,000
Net income .................... 35,243,000 35,243,000 70,486,000
Dividends ..................... (25,757,000) (25,757,000) (51,514,000)
------------- ------------- -------------
BALANCE, MARCH 31, 2002 ......... 75,358,000 75,358,000 150,716,000
Net income .................... 35,279,000 35,279,000 70,558,000
Dividends ..................... (27,391,000) (27,391,000) (54,782,000)
------------- ------------- -------------
BALANCE, MARCH 31, 2003 ......... $ 83,246,000 $ 83,246,000 $ 166,492,000
============= ============= =============

See notes to consolidated financial statements.

F-31

VENTURA FOODS, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2003 AND 2002, THE THREE MONTHS ENDED MARCH 31, 2001
AND THE YEAR ENDED DECEMBER 31, 2000

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31,
2003 2002 2001 2000
------------ ------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 70,558,000 $ 70,486,000 $ 14,368,000 $ 57,506,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ................. 12,416,000 12,186,000 2,833,000 10,829,000
Amortization of intangibles ................... 223,000 6,227,000 1,581,000 6,431,000
Deferred rent ................................. 515,000
Loss (gain) on disposal of assets ............. 872,000 324,000 128,000 (139,000)
Derivative contract asset ..................... 2,637,000 (1,803,000) (7,375,000)
Changes in operating assets and liabilities:
Trade receivables ........................... (7,174,000) (771,000) 980,000 (359,000)
Inventories ................................. (29,567,000) 3,881,000 5,089,000 (3,246,000)
Prepaid expenses and other current assets ... (3,639,000) (793,000) 330,000 234,000
Accounts payable ............................ 6,350,000 (4,491,000) (2,943,000) (4,654,000)
Accrued liabilities ......................... 10,685,000 2,893,000 (2,540,000) 2,499,000
Deferred compensation obligations ........... 4,815,000 4,866,000 (1,767,000) 6,747,000
Due from/to affiliates ...................... (309,000) 47,000 1,000 293,000
------------ ------------ ------------ ------------

Net cash provided by operating activities . 68,382,000 93,052,000 10,685,000 76,141,000
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property .......................... (16,062,000) (13,268,000) (4,869,000) (13,037,000)
Proceeds from sale of assets ..................... 1,845,000 69,000 23,000 1,021,000
Acquisitions--net of cash acquired (Note 3) ...... (5,312,000)
Acquisition of trademarks ........................ (47,000)
Investment in rabbi trust ........................ (13,976,000)
Other assets ..................................... (1,332,000) (48,000) 67,000 (201,000)
------------ ------------ ------------ ------------
Net cash used in investing activities ...... (15,549,000) (27,223,000) (4,779,000) (17,576,000)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ...................... (12,758,000) (12,603,000) (554,000) (12,417,000)
Net borrowings from (payments on) line of credit . 12,500,000 3,000,000 5,000,000 (15,000,000)
Payment to Wilsey Foods, Inc. (Note 1) ........... (491,000) (487,000) (487,000)
Dividends paid ................................... (58,584,000) (60,589,000) (38,539,000)
------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities (59,333,000) (70,679,000) 3,959,000 (65,956,000)
------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ................................ (6,500,000) (4,850,000) 9,865,000 (7,391,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..... 9,300,000 14,150,000 4,285,000 11,676,000
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........... $ 2,800,000 $ 9,300,000 $ 14,150,000 $ 4,285,000
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the
period for interest ............................. $ 7,183,000 $ 8,129,000 $ 653,054 $ 10,181,000
============ ============ ============ ============

See notes to consolidated financial statements

F-32

VENTURA FOODS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003 AND 2002, THE THREE MONTHS ENDED
MARCH 31, 2001 AND THE YEAR ENDED DECEMBER 31, 2000

1. GENERAL MATTERS

Ventura Foods, LLC and its subsidiary (the "Company") is a processor
and distributor of edible oils used in food preparation and a packager of food
products. The Company sells its products to national and regional restaurant
chains, food wholesalers and retail chains.

The Company was formed pursuant to a Joint Venture Agreement (the
"Agreement") dated August 30, 1996 between Wilsey Foods, Inc. ("Wilsey") and
Cenex Harvest States Cooperatives ("CHS") whereby substantially all the assets
and liabilities of Wilsey and Holsum Foods (a division of CHS) were transferred
and assigned, with certain exclusions, to the Company. Wilsey is a
majority-owned subsidiary of Mitsui & Co., Ltd. From the period of inception
through March 31, 2000, Wilsey and CHS owned 60% and 40%, respectively, of the
Company. On March 31, 2000, Wilsey sold a 10% interest in the Company to CHS.
Accordingly, Wilsey and CHS each own 50% of the Company.

At the formation date, a liability equal to the net deferred income tax
liability of Wilsey at August 30, 1996 was assumed by the Company and was
included in long-term liability--Wilsey Foods, Inc. The amount was payable in
five equal annual installments of $487,000 plus a final installment of $491,000.
The final installment of $491,000 was paid during fiscal 2003.

2. ACCOUNTING POLICIES

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION--The consolidated
financial statements include the accounts of Ventura Foods, LLC and its
100%-owned subsidiary, Ventura Jets, Inc. All material intercompany transactions
have been eliminated.

FISCAL YEAR END--During 2001, the Company changed its fiscal year end
to March 31. Prior to such change, the Company's fiscal year end had been
December 31.

CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.

INVENTORIES--Inventories consist of the following at March 31:

2003 2002
----------- -----------
Bulk oil ................................... $38,751,000 $17,654,000
Finished goods ............................. 34,119,000 27,696,000
Ingredients and supplies ................... 19,496,000 17,449,000
----------- -----------
Total ...................................... $92,366,000 $62,799,000
=========== ===========

Inventories are accounted for at the lower of cost or market, using the
first-in, first-out method. Cost for inventories produced or modified by the
Company through a manufacturing process includes fixed and variable production
costs and raw materials costs, and in-bound freight costs. Cost for inventories
purchased for resale includes the cost of the product and freight and handling
costs incurred to place the product at the Company's point of sale.

DERIVATIVE FINANCIAL INSTRUMENTS--The Company's use of derivative
financial instruments is limited to forwards, futures and certain other delivery
contracts as discussed below. The Company enters into these contracts to limit
its exposure to price volatility of various food oils that are critical to its
processing and distribution activities. It is the Company's policy to remain
substantially hedged with respect to edible oil product price risk; derivative
contracts are used to maintain this hedged position. Forward purchase and sales
contracts with established market participants as well as exchange traded
futures contracts are entered into in amounts necessary to protect against price
changes on raw materials needed for the Company's food oil processing and
distribution activities. The Company also enters into purchase and sales
commitments with major suppliers and customers at a specified premium or
discount

F-33

from a future market price ("Basis Contracts"). Additionally, the Company's
policies do not permit speculative trading of such contracts. All of these
qualify as derivatives under Statement of Financial Accounting Standards
("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
and are stated at market value. Changes in market value are recognized in the
consolidated statements of income, through cost of sales, in the periods such
changes occur. The adoption of SFAS No. 133 on January 1, 2001 did not have a
significant impact on the Company's results of operations, as the Company
historically recorded its financial instruments at market value. Prior to the
adoption of SFAS No. 133, the market value of futures contracts, Basis
Contracts, and forward purchase and sales contracts were recorded as a component
of inventory. Beginning with the adoption of SFAS No. 133, the market value of
these contracts is now recorded separately on the consolidated balance sheets as
derivative contract assets or liabilities. These contracts have maturities of
less than one year.

The following summarizes the Company's various derivative contracts
outstanding at March 31, 2003 and 2002 (pounds and dollars in thousands)

NET
UNREALIZED
FORWARD CONTRACTS AND COMMITMENTS POUNDS GAIN (LOSS)
--------------------------------- --------- -----------

MARCH 31, 2003
Forward purchases ..................... 334,100 $ 11,060
Forward sales ......................... 433,300 (6,208)
Basis purchase ........................ 259,800 857
Basis sales ........................... 17,500 (126)
Futures contracts ..................... 146,000 958
--------- -----------
1,190,700 $ 6,541
========= ===========
MARCH 31, 2002
Forward purchases ..................... 490,500 $ 7,873
Forward sales ......................... 454,100 (1,117)
Basis purchase ........................ 390,300 2,304
Basis sales ........................... 62,600 (303)
Futures contracts ..................... 96,100 421
--------- -----------
1,493,600 $ 9,178
========= ===========

The fair value of futures contracts is determined from quotes listed on
the Chicago Board of Trade or other market makers. Forward purchase and sales
contracts are with various counterparties, and the fair values of such
contracts, are determined from the market price of the underlying product.

The Company is exposed to loss in the event of nonperformance by the
other parties to the contracts. However, the Company does not anticipate
nonperformance by counterparties.

PROPERTY AND DEPRECIATION--Property is stated at cost. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the assets, as follows:

Buildings ......................................................... 40 years
Leasehold improvements ............................................ 3-19 years
Machinery and equipment ........................................... 10-25 years
Other property .................................................... 3-20 years

FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company estimates the fair
value of financial instruments using the following methods and assumptions:

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE--The carrying amounts
approximate fair value due to the short maturities of these
instruments.

LINES OF CREDIT--The carrying amounts approximate fair value,
as the interest rates are based upon variable reference rates.

LONG-TERM DEBT--The fair value of long-term fixed rate debt is
estimated based upon prevailing market interest rates available to the
Company. The Company estimates the fair value on the $25,573,000 6.55%
fixed rate debt as of March 31, 2003 to be $27,804,000.

F-34

FUTURES CONTRACTS--The fair value of futures contracts (used for
hedging purposes) is determined from quotes listed principally on the Chicago
Board of Trade.

CONCENTRATION OF CREDIT RISK--During the years ended March 31, 2003 and
2002, the three months ended March 31, 2001 and the year ended December 31,
2000, net sales to one customer were 23%, 22%, 22% and 21% of total net sales,
respectively. This customer represents approximately 23% and 19% of trade
receivables at March 31, 2003 and 2002, respectively. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
potential credit losses.

The Company maintains cash deposits with various financial
institutions. The Company periodically evaluates the credit standing of these
financial institutions and has not sustained any credit losses relating to such
balances.

MARKETABLE SECURITIES--The Company's marketable securities comprise
equity securities that have been classified as trading securities. The equity
securities are carried at fair market value based upon quoted market prices.
Unrealized gains and losses on equity securities are recognized in net income
and totaled $666,000 and $(264,000) for the years ended March 31, 2003 and 2002,
respectively (see Note 6).

GOODWILL AND TRADEMARKS--The Company adopted SFAS No. 142, GoODWILL AND
OTHER INTANGIBLE ASSETS, effective April 1, 2002, the first day of its 2003
fiscal year. As a result, goodwill and indefinite life intangible assets
("trademarks") are no longer amortized, but reviewed for impairment annually, or
more frequently if certain impairment indicators arise. See Note 8 for the
effect of adopting SFAS No. 142.

Other identifiable intangible assets consist of patents, deferred
financing costs and other assets, which are amortized using the straight-line
method over 5 to 15 years.

IMPAIRMENT OF LONG-LIVED ASSETS--Long-lived assets, including
identifiable intangibles, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, future cash flows
expected to result from the use of the asset and its eventual disposition are
estimated. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recorded under the discounted future cash flow method.

ADVERTISING COSTS--The Company expenses advertising costs in the period
incurred. For the years ended March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000, the Company incurred
advertising expenses of approximately $9,039,000, $7,100,000, $1,300,000 and
$6,100,000, respectively.

INCOME TAXES--The Company is a limited liability company and has no
liability for federal and state income taxes. Income is taxed to the members
based on their allocated share of taxable income or loss. However, certain
states tax the income of limited liability companies. The Company's liability
for such state income taxes is not significant.

REVENUE RECOGNITION--The Company is a processor and distributor of
edible oils used in food preparation and a packager of food products. Revenue is
recognized upon transfer of title to the customer, which occurs generally upon
shipment. In certain instances, title is transferred upon receipt by the
customer, at which time the Company records revenue. Amounts billed to the
customer as part of a sales transaction related to shipping and handling are
included in sales. Revenue is recorded net of discounts, rebates and certain
sales incentives.

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

RECLASSIFICATIONS--Certain reclassifications have been made to the
prior periods' financial statements to conform to the 2003 presentation.

F-35

RECENT ACCOUNTING PRONOUNCEMENTS--In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. As required, the Company will apply the
provisions of SFAS No. 143 prospectively to retirements of tangible long-lived
assets, if any, initiated for fiscal years beginning after June 15, 2002.

In July 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, REPORTING THE RESULTS
OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS. This
statement retains the requirements of SFAS No. 121 to (a) recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value of the asset, and
establishes a single accounting model, based on the framework established in
SFAS No. 121, for long-lived assets to be disposed of by sale. The adoption of
SFAS No. 144 did not have a material impact on the Company's consolidated
financial statements.

In November 2001, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 01-09, ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A CUSTOMER OR
RESELLER OF THE VENDOR'S PRODUCTS, which addresses the accounting for
consideration given by a vendor or a reseller of the vendor's products. This new
guidance requires companies to report certain consideration given by a vendor to
a customer as a reduction in revenues rather than as marketing expense. This
consensus was required to be adopted no later than the first quarter of 2002,
and upon adoption, companies were required to retroactively reclassify such
amounts in previously issued financial statements to comply with the income
statement classification requirements of the consensus. The Company adopted the
provisions of EITF Issue No. 01-09 during fiscal 2003. The effect of the
adoption of EITF Issue No. 01-09 was a reduction in both revenues and selling,
general and administrative expenses of $690,000, $207,000, $29,000 and $267,000
for the years ended March 31, 2003 and 2002, the three months ended March 31,
2001 and the year ended December 31, 2000, respectively.

In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-03, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE
TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN
COSTS INCURRED IN RESTRUCTURING). This statement requires that the fair value of
an initial liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred as opposed to when the entity commits
to an exit plan, thereby eliminating the definition and requirements for
recognition of exit costs. The provisions of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. As required,
the Company will apply the provisions of SFAS No. 146 prospectively to exit or
disposal activities, if any, initiated after December 31, 2002.

In September 2002, the EITF issued EITF Issue No. 02-16, ACCOUNTING BY
A CUSTOMER (INCLUDING A RESELLER) FOR CERTAIN CONSIDERATION RECEIVED FROM A
VENDOR, which addresses the accounting for consideration received by the
reseller of the vendor's products. This new guidance provides that the
consideration represents a reimbursement of costs incurred by the customer to
sell the vendor's products and is generally presumed to be a reduction of the
cost of the vendor's products and, therefore, should be characterized as a
reduction of cost of sales in the customers' income statement. The Company
adopted EITF Issue No. 02-16 during fiscal 2003. The effect of the adoption of
EITF Issue No. 02-16 was a reduction in cost of goods sold and other income of
$2,987,000, $1,628,000, $256,000 and $991,000 for the years ended March 31, 2003
and 2002, the three months ended March 31, 2001 and the year ended December 31,
2000, respectively.

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS.

F-36

FIN 45 elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees. FIN 45 also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. FIN 45 specifically
identifies certain obligations that are excluded from the provisions related to
recognizing a liability at inception; however, these guarantees are subject to
the disclosure requirements of FIN 45. The initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure requirements are effective
for all annual periods ending after December 15, 2002. The adoption of FIN 45
did not have a material impact on the Company's consolidated financial
statements.

On April 30, 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT
133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the
Derivatives Implementation Group ("DIG") process that effectively required
amendments to SFAS No. 133, and decisions made in connection with other FASB
projects dealing with financial instruments and in connection with
implementation issues raised in relation to the application of the definition of
a derivative and characteristics of a derivative that contains financing
components. In addition, it clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The Company is
currently assessing, but has not yet determined, the impact this statement will
have on its consolidated financial statements.

3. ACQUISITIONS

During the year ended December 31, 2000, the Company acquired
substantially all the assets and liabilities of Sona and Hollen for $5,740,000.
Sona and Hollen was a portion packing company located in Los Alamitos,
California. The acquisition has been accounted for as a purchase, and
accordingly, the purchase price has been allocated based on the estimated fair
values of the assets acquired. The excess of the purchase price over the fair
value of the assets acquired, approximately $4,276,000, was recorded as
goodwill. Prior to the adoption of SFAS No. 142 on April 1, 2002, goodwill had
been amortized using a 15-year life (see Note 8).

The following is a summary of the assets acquired at estimated fair
market value:

Inventories ...................................................... $ 637,000
Prepaid expenses and other assets ................................ 208,000
Property and equipment ........................................... 600,000
Trademark ........................................................ 19,000
Goodwill ......................................................... 4,276,000
----------
Net assets of business acquired .................................. $5,740,000
==========

4. LINES OF CREDIT AND LONG-TERM DEBT

LINES OF CREDIT--At March 31, 2003, the Company had a revolving
line-of-credit agreement with a banking group to provide for borrowings of up to
an aggregate of $72,000,000. Outstanding borrowings at March 31, 2003 and 2002
were $20,500,000 and $8,000,000, respectively. The applicable interest rates are
based, at the option of the Company, at a London Interbank Offered Rate
("LIBOR") or a term federal funds rate ("TFFR") option. The weighted-average
interest rate at March 31, 2003 and 2002 was 1.72% and 2.24%, respectively. The
lines of credit mature at varying dates between November 2003 and February 2004.

LONG-TERM DEBT--At March 31, 2003 and 2002, balances outstanding on
term loans with a banking group were $71,605,000 and $81,905,000, respectively.
The interest rate applicable to these term loans is based, at the option of the
Company, at a TFFR-based, LIBOR-based or a fixed rate option. The
weighted-average interest rate on such borrowings at March 31, 2003 and 2002 was
6.53% and 6.59%, respectively. The term loans with the banking group mature on
December 23, 2003.

F-37

At March 31, 2003 and 2002, balances outstanding on a term loan with a
bank were $25,573,000 and $28,031,000, respectively. The agreement requires
quarterly principal and interest payments of $1,058,000. The interest rate on
this term loan is fixed at 6.55%. The term loan with the bank matures in October
2011.

The term loans are collateralized by substantially all property,
equipment and intellectual property rights, and the lines of credit are
collateralized by substantially all trade receivables and inventories of the
Company. The lines of credit and term loan agreements contain various covenants,
including compliance with tangible net worth (as defined) and other financial
ratios, restrictions on the payment of dividends, and restrictions on the
incurrence of additional debt.

Annual maturities of long-term debt at March 31, 2003 are as follows:

2004 ............................................................ $74,228,000
2005 ............................................................ 2,799,000
2006 ............................................................ 2,987,000
2007 ............................................................ 3,187,000
2008 ............................................................ 3,401,000
Thereafter ...................................................... 10,576,000
-----------
Total ........................................................... 97,178,000
Less current portion ............................................ 74,228,000
-----------
Long-term debt .................................................. $22,950,000
===========

5. TRANSACTIONS WITH AFFILIATES

At March 31, 2003, the Company had a receivable balance of $309,000 due
from Wilsey for reimbursement of expenses paid by the Company on behalf of
Wilsey.

Included in accounts payable at March 31, 2003 and 2002 were $8,035,000
and $5,976,000, respectively, payable to CHS for purchases of oil. Purchases
from CHS for the years ended March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000 were $66,682,000,
$47,745,000, $8,575,000 and $48,916,000, respectively. Sales to CHS for the
years ended March 31, 2003 and 2002, the three months ended March 31, 2001 and
the year ended December 31, 2000 totaled $1,056,000, $883,000, $109,000 and
$950,000, respectively.

Included in accounts payable at March 31, 2003 and 2002 were $790,000
and $817,000, respectively, payable to Mitsui USA for the Company's
participation in Mitsui USA's insurance plans. During the years ended March 31,
2003 and 2002, the three months ended March 31, 2001 and the year ended December
31, 2000, the Company recorded expenses of $9,402,000, $8,487,000, $1,380,000
and $5,049,000, respectively, in connection with its participation in such
plans.

Included in trade receivables at March 31, 2003 and 2002 were $123,000
and $69,000, respectively, of receivables from Mitsui USA for product sales.
Sales to Mitsui USA for the years ended March 31, 2003 and 2002, the three
months ended March 31, 2001 and the year ended December 31, 2000 totaled
$1,423,000, $1,406,000, $341,000 and $1,569,000, respectively.

Forward purchase contracts as of March 31, 2003 included commitments
for purchases of 86,964,000 pounds of oil from CHS. The Company recognized gains
(losses) of $1,081,000, $934,000, $1,788,000 and $(363,000) on such related
party commitments for the years ended March 31, 2003 and 2002, the three months
ended March 31, 2001 and the year ended December 31, 2000, respectively.

6. EMPLOYEE BENEFIT PLANS

The Company has long-term incentive arrangements for certain key
executives. Benefits under the initial plan were based on earnings over a
three-to-five year period (as defined) from January 1, 1997 through December 31,
2001. An amount equal to the obligation incurred under the plan was contributed
to a rabbi trust that would be available to general creditors in the event of
bankruptcy. The trust holds investments primarily in marketable securities that
are recorded at market value (classified as trading securities). The assets in
the trust are to be distributed to the employees upon retirement. The liability

F-38

under the arrangements was $13,574,000 and $14,240,000 as of March 31, 2003 and
2002, respectively, and is included in deferred compensation obligation in the
accompanying consolidated balance sheets.

On January 1, 2002, the Company established new long-term incentive
arrangements with certain key executives. Under these arrangements, the amount
of additional compensation is based on the attainment of cumulative income-based
or equity-based targets over a two- to three-year period. At the end of the
defined periods, amounts earned by individual executives will be contributed to
a rabbi trust, unless representatives of Wilsey and CHS elect to pay such
amounts directly to the respective key executives. At March 31, 2003 and 2002, a
liability for the plan of $4,702,000 and $439,000, respectively, is classified
as long-term deferred compensation obligation in the accompanying consolidated
balance sheets.

For the years ended March 31, 2003 and 2002, the three months ended
March 31, 2001 and the year ended December 31, 2000, the Company recognized
compensation expense under the long-term incentive arrangements of $4,264,000,
$5,658,000, $750,000 and $5,889,000, respectively.

The Company has a combined 401(k) and defined contribution
profit-sharing plan (the "Plan") covering substantially all employees not
covered by collective bargaining agreements. Under the Plan, employees can make
annual voluntary contributions not to exceed the lesser of an amount equal to
15% of their compensation or limits established by the Internal Revenue Code.
The Company is required, by the Plan, to make certain matching contributions of
up to 4% of each participant's salary and may make discretionary profit-sharing
contributions. The Company also established a 401(k) defined contribution plan
covering employees under certain collective bargaining agreements. Under this
plan, employees can make annual voluntary contributions of up to 15% of their
compensation. Expense for the years ended March 31, 2003 and 2002, the three
months ended March 31, 2001 and the year ended December 31, 2000 was $6,484,000,
$5,855,000, $1,343,000 and $5,139,000, respectively. Certain of the Company's
union employees are participants in multi-employer plans. Payments to
multi-employer pension plans are negotiated in various collective bargaining
agreements and aggregated $2,367,000, $1,162,000, $416,000 and $1,641,000 for
the years ended March 31, 2003 and 2002, the three months ended March 31, 2001
and the year ended December 31, 2000, respectively. The actuarial present value
of accumulated plan benefits and net assets available for benefits to union
employees under these multi-employer pension plans is not available, as the
Company does not administer these plans.

Effective January 1, 1999, the Company established a Supplemental
Executive Retirement Plan for certain of its employees. The projected benefit
obligation as of March 31, 2003 and 2002 was $2,955,000 and $2,049,000,
respectively. A liability of $2,220,000 and $1,668,000 as of March 31, 2003 and
2002, respectively, is included in long-term deferred compensation obligation in
the accompanying consolidated balance sheets. The plan is unfunded. During the
years ended March 31, 2003 and 2002, the three months ended March 31, 2001 and
the year ended December 31, 2000, the Company recorded an expense related to the
plan of $552,000, $111,000, $420,000 and $379,000, respectively.

The assumptions used in the measurement of the Company's benefit
obligation are as follows:

MARCH 31 DECEMBER 31
---------------------- -----------

2003 2002 2001 2000
---- ---- ---- ----

Discount rate .......................... 6.0% 7.0% 7.0% 7.0%
Rate of compensation increase .......... 3.0% 3.0% 3.0% 3.0%

The Company accrues the actuarially determined amount necessary to fund
the participants' benefits in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.

F-39

7. COMMITMENTS AND CONTINGENCIES

Future minimum annual payments under noncancelable operating leases
with lease terms in excess of one year at March 31, 2003 are as follows:

2004 ........................................................... $ 7,263,000
2005 ........................................................... 7,431,000
2006 ........................................................... 5,792,000
2007 ........................................................... 4,217,000
2008 ........................................................... 3,659,000
Thereafter ..................................................... 16,217,000
-------------
Total .......................................................... $ 44,579,000
=============

Under the lease agreements, the Company is obligated to pay certain
property taxes, insurance and maintenance costs. Certain leases contain renewal
and purchase options. Rental expense for the years ended March 31, 2003 and
2002, the three months ended March 31, 2001 and the year ended December 31, 2000
under operating leases totaled $7,138,000, $5,671,000, $1,476,000 and
$5,205,000, respectively.

During the year ended December 31, 2000, the Company received a payment
of approximately $2,400,000 in connection with the settlement of a class action
lawsuit. This amount has been recorded as a component of other income in the
accompanying consolidated statement of income.

The Company is involved from time to time in routine legal matters
incidental to its business. The Company believes that the resolution of such
matters will not have a material adverse effect on the Company's business,
financial condition or results of operations.

8. GOODWILL

In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, and
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These statements, among other
things, eliminate the pooling-of-interests method of accounting for business
combinations as of June 30, 2001, eliminate the amortization of goodwill and
indefinite life intangible assets for all fiscal years beginning after December
15, 2001, and require that goodwill and indefinite life intangible assets be
reviewed annually for impairment, or more frequently if impairment indicators
arise. The Company adopted SFAS Nos. 141 and 142 with respect to new goodwill as
of July 1, 2001 and adopted SFAS No. 142 with respect to existing goodwill and
indefinite life intangible assets as of April 1, 2002, the first day of its 2003
fiscal year. The adoption of SFAS No. 141 did not impact the Company's financial
condition or results of operations. Upon the adoption of SFAS No. 142, the
Company ceased amortizing existing goodwill and trademarks.

The Company completed the transitional test of goodwill and trademarks
during 2003. Based on the result of the test, the Company determined that there
was no impairment of goodwill and trademarks as of April 1, 2002. Pursuant to
SFAS No. 142, goodwill and trademarks will be tested for impairment at least
annually and more frequently if an event occurs which indicates that goodwill or
trademarks may be impaired. During 2003, the Company abandoned the use of
certain trademarks with a net book value of $100,000.

A reconciliation of net income to the amount adjusted for the exclusion
of goodwill and trademarks amortization follows for the years ended March 31,
2003 and 2002, the three months ended March 31, 2001 and the year ended December
31, 2000:

MARCH 31 DECEMBER 31
----------------------------------------- ------------
2003 2002 2001 2000
----------- ----------- ----------- -----------

Reported net income .... $70,558,000 $70,486,000 $14,368,000 $57,506,000
Add:
Goodwill amortization .. -- 3,972,000 1,036,000 4,001,000
Trademark amortization . -- 1,853,000 421,000 1,684,000
----------- ----------- ----------- -----------
Adjusted net income .... $70,558,000 $76,311,000 $15,825,000 $63,191,000
=========== =========== =========== ===========

Amortization expense for other intangible assets subject to
amortization was $223,000, $402,000, $124,000 and $746,000 for the years ended
March 31, 2003 and 2002, the three months ended March 31,

F-40

2001 and the year ended December 31, 2000, respectively. Estimated annual
amortization for each of the years in the five-year period ending March 31, 2008
is $180,000.

9. QUARTERLY INFORMATION (UNAUDITED)

As discussed in Note 2, the Company changed its fiscal year end to
March 31. Audited financial information for the three months ended March 31,
2001 has been included herein. For comparison purposes, selected unaudited
financial information for the three months ended March 31, 2000 is as follows:

Sales ............................................... $211,815,000
Cost of goods sold .................................. 172,818,000
Net income .......................................... 17,123,000
Total assets ........................................ 362,382,000
Total liabilities ................................... 231,789,000
Members' capital .................................... 130,593,000

F-41