Edgar Filing: CENEX HARVEST STATES COOPERATIVES

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER __, 2002
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CENEX HARVEST STATES COOPERATIVES
(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
INVER GROVE HEIGHTS, MINNESOTA 55077
(651) 451-5151
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)

David Kastelic
Senior Vice President and General Counsel
Cenex Harvest States Cooperatives
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 451-5151
Fax (651) 451-4554
(Name, address, including zip code, and telephone number,
including area code, of agent for service

COPIES TO:
-------------------------------------- -----------------------------------------
William B. Payne Christopher J. Voss
Dorsey & Whitney LLP John D. Kauffman
50 South Sixth Street Stoel Rives LLP
Minneapolis, Minnesota 55402 600 University Street, Suite 3600
(612) 340-2600 Seattle, Washington 98101
Fax (612) 340-8738 (206) 624-0900
Fax (206) 386-7500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
(11)(a)(1) of this Form, check the following box. [ ]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered(1) offering price per share aggregate offering price registration fee
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8% Cumulative Redeemable 2,875,000 shares $25.00 $71,875,000 $6,613
Preferred Stock
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED DECEMBER 17, 2002

[LOGO]

2,500,000 SHARES

8% CUMULATIVE REDEEMABLE PREFERRED STOCK

CENEX HARVEST STATES COOPERATIVES

$25.00 PER SHARE

We are offering 2,500,000 shares of our 8% Cumulative Redeemable
Preferred Stock. Holders of the preferred stock will be entitled to receive cash
dividends at the rate of $2.00 per share per year. Dividends will be payable
quarterly in arrears when, as and if declared on March 31, June 30, September 30
and December 31 of each year beginning March 31, 2003. Dividends payable on the
preferred stock are cumulative. The preferred stock is subject to redemption and
has the preferences described in this prospectus. The preferred stock is not
convertible into any of our other securities and is non-voting except in certain
limited circumstances.

We have applied to have our preferred stock listed on The Nasdaq
National Market under the symbol "CHSCP."

Investing in our preferred stock involves certain risks. See "Risk
Factors" beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

PER SHARE TOTAL
Public offering price(1)..................... $25.0000 $62,500,000
Underwriting discount........................ .9375 $ 2,343,750
Proceeds to CHS (before expenses)............ $24.0625 $60,156,250

(1) Plus accrued dividends from and including January 1, 2003.

The underwriters are severally underwriting the shares of preferred
stock. We have granted to the underwriters a 30-day option to purchase up to
375,000 shares of the preferred stock on the same terms and conditions as set
forth above to cover over-allotments, if any.

We expect to deliver the preferred stock on or about ___________, 2003.

--------------------------

CO-LEAD MANAGERS

D.A. DAVIDSON & CO. U.S. BANCORP PIPER JAFFRAY

--------------------------

FAHNESTOCK & CO. INC.

The date of this prospectus is ____________, 2003

TABLE OF CONTENTS

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS...................................ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................ii
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................6
USE OF PROCEEDS...............................................................11
BUSINESS......................................................................11
SELECTED CONSOLIDATED FINANCIAL DATA..........................................26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................................................28
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................39
DESCRIPTION OF THE PREFERRED STOCK............................................40
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS............................44
UNDERWRITING..................................................................46
LEGAL MATTERS.................................................................48
EXPERTS.......................................................................48
WHERE YOU CAN FIND MORE INFORMATION...........................................48
FINANCIAL STATEMENTS.........................................................F-i

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS

You should rely only on the information contained or incorporated by
reference in this prospectus. Neither we nor the underwriters have authorized
any other person to provide you with different or additional information. This
prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which it relates. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus. Updated information can be obtained as described under "Where You
Can Find More Information."

References in this prospectus, and the documents incorporated by
reference in this prospectus, to "CHS," "CHS Cooperatives," the "Company," "we,"
"our" and "us" refer to Cenex Harvest States Cooperatives, a Minnesota
cooperative, and its subsidiaries. We maintain a web site at
http://www.CHSco-ops.com. Information contained in our website does not
constitute part of this prospectus.

All references to "preferred stock" in this prospectus are to our 8%
Cumulative Redeemable Preferred Stock unless the context requires otherwise.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and the information incorporated by reference in it
contain statements that constitute forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "intend,"
"forecast," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or the negative of these terms or other comparable terminology. These
forward-looking statements are subject to risks and uncertainties that could
cause our actual results to differ materially from the forward-looking
statements. These factors include those listed under "Risk Factors" and
elsewhere in this prospectus.

We do not guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date on which they were made.

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION WE PRESENT IN GREATER DETAIL
ELSEWHERE IN THIS PROSPECTUS AND IN THE INFORMATION INCORPORATED BY REFERENCE IN
IT. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU
AND YOU SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT
COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE THOSE LISTED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

CENEX HARVEST STATES COOPERATIVES

We are one of the nation's leading integrated agricultural companies.
As a cooperative, we are owned by farmers and ranchers and their local
cooperatives located from the Great Lakes to the Pacific Northwest and from the
Canadian border to Texas. We buy commodities from and provide products and
services to our members and other customers. We provide 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. For the fiscal year
ended August 31, 2002, our total revenues were $7.8 billion.

Our 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 our 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 us. The fourth
segment, Grain Marketing, purchases and resells grains and oilseeds originated
by our 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. Our earnings are
allocated to members based on the volume of business they do with us. Members
receive earnings in the form of patronage refunds in cash and patrons' equities,
which may be redeemed over time.

A portion of our operations are conducted through equity investments
and joint ventures whose operating results are not consolidated with our
results. For those investments and ventures for which we recognize income using
the equity method of accounting, a proportionate share of the income from those
entities is included as a component in our net income.

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. Our address is 5500 Cenex Drive, Inver Grove Heights,
Minnesota 55077. Our telephone number is (651) 451-5151.

AGRONOMY

Through our Agronomy business segment, we are engaged in the
manufacture of crop nutrients and the wholesale distribution of crop nutrients
and crop protection products. We conduct our agronomy operations primarily
through two investments -- a 20% cooperative ownership interest in CF
Industries, Inc. (CF Industries) and 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. Our
minority ownership interests in CF Industries and Agriliance are treated as
investments and, therefore, those entities' revenues and expenses are not
reflected in our operating results.

ENERGY

the blending, sale and distribution of lubricants; and the wholesale and retail
supply of propane. Our Energy business segment processes crude oil into refined
petroleum products at refineries in Laurel, Montana (wholly-owned) and
McPherson, Kansas (National Cooperative Refinery Association, a cooperative in
which we have an approximate 74.5% ownership interest) and sells those products
under the Cenex brand to our member cooperatives and others through a network of
approximately 1,400 independent retailers, including approximately 800 that
operate Cenex/Ampride convenience stores.

COUNTRY OPERATIONS

Our Country Operations business segment purchases wheat and other
grains from our producer members and provides our 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.

GRAIN MARKETING

We are the nation's largest cooperative marketer of grain and oilseed,
handling about 1.1 billion bushels annually. During fiscal year 2002, we
purchased approximately 76% of our total grain volumes from individual and
member cooperatives and the Country Operations business segment, with the
balance purchased from third parties. We arrange for the transportation of the
grains either directly to customers or to our owned or leased grain terminals
and elevators pending delivery to domestic and foreign purchasers. We conduct
most of our Grain Marketing operations directly, although we do conduct some of
our business through three joint ventures in which we have a 50% ownership.

PROCESSED GRAINS AND FOODS

Our Processed Grains and Foods business segment converts raw
agricultural commodities into ingredients for finished food products or into
finished consumer food products. We have focused on areas that utilize the
products supplied by our member producers. These areas are oilseed processing
and refining, wheat milling and foods, including oilseed-based products (such as
margarine and salad dressing) and Mexican foods.

THE OFFERING

ISSUER Cenex Harvest States Cooperatives, a
Minnesota cooperative

SECURITIES OFFERED 2,500,000 Shares of 8% Cumulative
Redeemable Preferred Stock

OFFERING PRICE $25.00 per share

DIVIDENDS You will be entitled to receive cash
dividends at the rate of $2.00 per share
per year when, as and if declared by our
board of directors. Dividends are
cumulative and will be payable quarterly
in arrears on March 31, June 30, September
30 and December 31 of each year beginning
March 31, 2003.

LIQUIDATION RIGHTS In the event of our liquidation, you will
be entitled to receive $25.00 per share
plus all dividends accumulated and unpaid
on the shares to and including the date of
liquidation, subject, however, to the
rights of any of our securities that rank
senior or on a parity with the preferred
stock.

RANK With respect to the payment of dividends
and the distribution of assets in the
event of our liquidation, dissolution or
winding up, the preferred stock will rank
prior to the following:

o any patronage refund;

o any other class or series of our
capital stock designated by our
board of directors as junior to the
preferred stock; and

o our common stock, if any.

Shares of any class or series of our
capital stock that are not junior to the
preferred stock, including our existing 8%
Preferred Stock, will rank on a parity
with the preferred stock.

REDEMPTION AT OUR OPTION We may not redeem the preferred stock
prior to February 1, 2008. On or after
that date we may, at our option, redeem
the preferred stock, in whole or from
time to time in part, for cash at a price
of $25.00 per share plus all dividends
accumulated and unpaid on that share to
and including the date of redemption.

REDEMPTION AT THE HOLDER'S OPTION In the event of a change in control
initiated by our board of directors, you
will have the right, for a period of 90
days from the date of the change in
control, to require us to repurchase your
shares of preferred stock at a price of
$25.00 per share plus all dividends
accumulated and unpaid on that share to
and including the date of redemption.
"Change in control" is defined in
"Description of the Preferred Stock -
Redemption at the Holder's Option."

NO EXCHANGE OR CONVERSION RIGHTS, The preferred stock is not exchangeable
NO SINKING FUND for or convertible into shares of any
other shares of our capital stock or any
other securities or property. The
preferred stock is not subject to the
operation of any purchase,
retirement or sinking fund.

VOTING RIGHTS You will not have voting rights except as
required by applicable law; provided that
the affirmative vote of two-thirds of the
outstanding preferred stock will be
required to approve:

o any amendment to our articles of
incorporation or the resolutions
establishing the terms of the
preferred stock if the amendment
adversely affects the rights or
preferences of the preferred stock;
and

o the creation of any class or series
of equity securities having rights
senior to the preferred stock as to
the payment of dividends or
distribution of assets upon the
liquidation, dissolution or winding
up of CHS.

Nasdaq LISTING We have applied to have the preferred
stock listed on The Nasdaq National Market
under the symbol "CHSCP."

USE OF PROCEEDS We intend to use the net proceeds from
this offering to repay short-term
indebtedness.

RISK FACTORS See "Risk Factors" and the other
information in this prospectus for a
discussion of factors that you should
consider carefully before deciding to
purchase the preferred stock.

SUMMARY CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below has been derived from
our consolidated financial statements for the periods indicated below. The
selected audited consolidated financial data for the three years ended
August 31, 2002, should be read in conjunction with our consolidated financial
statements and notes to them included elsewhere in this prospectus.

YEARS ENDED AUGUST 31, THREE
------------------------------------------------------------- MONTHS YEAR
ENDED ENDED
AUGUST 31, MAY 31,
2002 2001 2000 1999 1998(1) 1998
-------------- -------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT FOR RATIOS)

Income Statement Data:
Revenues:
Net sales................... $ 7,731,867 $ 7,753,012 $ 8,497,850 $ 6,381,334 $ 1,531,124 $ 8,410,030
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
------------ ------------- ------------- ------------- ------------- -------------
7,845,211 7,875,243 8,600,815 6,468,390 1,553,941 8,565,544
Cost of goods sold.......... 7,513,369 7,470,203 8,300,494 6,193,287 1,475,407 8,209,448
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
Ratio of earnings to fixed
charges and preferred
dividends(2) 3.4x 3.4x 2.6x 2.5x 2.4x 4.4x

(1) Reflects our change in fiscal year end from May 31 to August 31.

(2) For purposes of computing the ratio of earnings to fixed charges and
preferred dividends, earnings consist of earnings before income taxes on
consolidated operations, distributed income from equity investees and fixed
charges. Fixed charges consist of interest expense and one-third of rental
expense, considered representative of that portion of rental expense estimated
to be attributable to interest.

RISK FACTORS

BEFORE INVESTING IN OUR PREFERRED STOCK, YOU SHOULD BE AWARE THAT DOING
SO INVOLVES RISKS, INCLUDING THOSE DESCRIBED BELOW. THE VALUE OF YOUR INVESTMENT
MAY DECLINE AND YOU COULD LOSE YOUR ENTIRE INVESTMENT. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS AS WELL AS THE OTHER INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE DECIDING TO BUY OUR
PREFERRED STOCK.

RISKS RELATED TO OUR OPERATIONS

OUR REVENUES AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY
CHANGES IN COMMODITY PRICES. Our revenues and earnings are affected by market
prices for commodities such as crude oil, natural gas, grain, oilseeds, and
flour. Commodity prices generally are affected by a wide range of factors beyond
our control, including the weather, disease, insect damage, drought, the
availability and adequacy of supply, government regulation and policies, and
general political and economic conditions. Increases in market prices for
commodities that we purchase without a corresponding increase in the prices of
our products or our sales volume or a decrease in our other operating expenses
could reduce our revenues and net income. We are also exposed to fluctuating
commodity prices as the result of our inventories of commodities, typically
grain and crude oil, and purchase and sale contracts at fixed or partially fixed
prices. At any time, our inventory levels and unfulfilled fixed or partially
fixed price contract obligations may be substantial.

OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED IF OUR MEMBERS WERE
TO DO BUSINESS WITH OTHERS RATHER THAN WITH US. We do not have an exclusive
relationship with our members and our members are not obligated to supply us
with their products or purchase products from us. Our members often have a
variety of distribution outlets and product sources available to them. If our
members were to sell their products to other purchasers or purchase products
from other sellers, our revenues would decline and our results of operations
could be adversely affected.

WE PARTICIPATE IN HIGHLY COMPETITIVE BUSINESS MARKETS IN WHICH WE MAY
NOT BE ABLE TO CONTINUE TO COMPETE SUCCESSFULLY. We operate in several highly
competitive business segments. Competitive factors include price, service level,
proximity to markets, product quality and marketing. In some of our business
segments, such as Energy, we compete with companies that are larger, better
known and have greater marketing, financial, personnel and other resources. Our
competitors may succeed in developing new or enhanced products that are better
than ours, and may be more successful in marketing and selling their products
than we are with ours. As a result, we may not be able to continue to compete
successfully with our competitors.

CHANGES IN FEDERAL INCOME TAX LAWS OR IN OUR TAX STATUS COULD INCREASE
OUR TAX LIABILITY AND REDUCE OUR NET INCOME. Current federal income tax laws,
regulations and interpretations regarding the taxation of cooperatives, which
allow us to exclude income generated through business with or for a member
(patronage income) from our taxable income, could be changed. If this occurred,
or if in the future we were not eligible to be taxed as a cooperative, our tax
liability would significantly increase and our net income significantly
decrease.

WE INCUR SIGNIFICANT COSTS IN COMPLYING WITH APPLICABLE LAWS AND
REGULATIONS. Any failure to make the capital investments necessary to comply
with these laws and regulations could expose us to financial liability. We are
subject to numerous federal, state and local provisions regulating our business
and operations. We incur and expect to incur significant capital and operating
expenses to comply with these laws and regulations, but may be unable to pass on
those expenses to customers without experiencing volume and margin losses. For
example, in the next four years, we anticipate spending approximately $340
million in total at our McPherson, Kansas and our Laurel, Montana refineries on
upgrading the facilities, largely to comply with regulations requiring the
reduction of sulfur levels in refined petroleum products. It is expected that
over 80% of the costs will be incurred at the McPherson refinery.

We establish reserves for the future cost of meeting known compliance
obligations, such as remediation of identified environmental issues. However,
these reserves may prove inadequate to meet our actual liability. Moreover,
amended, new or more stringent requirements, stricter interpretations of
existing requirements or the future discovery of currently unknown compliance
issues may require us to make material expenditures or subject us to liabilities
that we currently do not anticipate.

Our failure to comply with applicable laws and regulations could
subject us to administrative penalties and injunctive relief, civil remedies
including fines and injunctions, and recalls of our products. We cannot predict
what impact, if any, future laws or regulations may have on our potential
business and operations.

ENVIRONMENTAL LIABILITIES COULD ADVERSELY AFFECT OUR RESULTS AND
FINANCIAL CONDITION. Many of our current and former facilities have been in
operation for many years and, over that time, we and other operators of those
facilities have generated, used, stored and disposed of substances or wastes
that are or might be considered hazardous under applicable environmental laws,
including chemicals and fuels stored in underground and above-ground tanks. Any
past or future actions in violation of those environmental laws could subject us
to administrative penalties, fines and injunctions. Moreover, future or unknown
past releases of hazardous substances could subject us to private lawsuits
claiming damages and to adverse publicity.

ACTUAL OR PERCEIVED QUALITY, SAFETY OR HEALTH RISKS ASSOCIATED WITH OUR
PRODUCTS COULD SUBJECT US TO LIABILITY AND DAMAGE OUR BUSINESS AND REPUTATION.
If any of our food products became adulterated or misbranded, we would need to
recall those items and could experience product liability claims if consumers
were injured as a result. A widespread product recall or a significant product
liability judgment could cause our products to be unavailable for a period of
time or a loss of consumer confidence in our products. Even if a product
liability claim is unsuccessful or is not fully pursued, the negative publicity
surrounding any assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential customers and our
corporate and brand image. Moreover, claims or liabilities of this sort might
not be covered by our insurance or by any rights of indemnity or contribution
that we may have against others. In addition, general public perceptions
regarding the quality, safety or health risks associated with particular food
products, such as the concern in some quarters regarding genetically modified
crops, could reduce demand and prices for some of the products associated with
our businesses. To the extent that consumer preferences evolve away from
products that our members or we produce for health or other reasons, such as the
growing demand for organic food products, and we are unable to develop products
that satisfy new consumer preferences, there will be a decreased demand for our
products.

OUR OPERATIONS ARE SUBJECT TO BUSINESS INTERRUPTIONS AND CASUALTY
LOSSES; WE DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY
HARMED BY UNEXPECTED LIABILITIES. Our operations are subject to business
interruptions due to unanticipated events such as explosions, fires, pipeline
interruptions, transportation delays, equipment failures, crude oil or refined
product spills, inclement weather or labor disputes. For example:

o our oil refineries and other facilities are potential targets
for terrorist attacks that could halt or discontinue
production;

o our inability to negotiate acceptable contracts with unionized
workers in our operations could result in strikes or work
stoppages; and

o the significant inventories that we carry could be damaged or
destroyed by catastrophic events, extreme weather conditions
or contamination.

We maintain insurance against many, but not all, potential losses or liabilities
arising from these operating hazards, but uninsured losses or losses above our
coverage limits are possible. Uninsured losses and liabilities arising from
operating hazards could have a material adverse effect on our financial position
or results of operations.

OUR COOPERATIVE STRUCTURE LIMITS OUR ABILITY TO ACCESS EQUITY CAPITAL.
As a cooperative, we may not sell common equity in our company. In addition,
existing laws and our articles of incorporation and bylaws contain limitations
on dividends of 8% of any preferred stock that we may issue. These limitations
restrict our ability to raise equity capital and may adversely affect our
ability to compete with enterprises that do not face similar restrictions.

CONSOLIDATION AMONG THE PRODUCERS OF PRODUCTS WE PURCHASE AND CUSTOMERS
FOR PRODUCTS WE SELL COULD ADVERSELY AFFECT OUR REVENUES AND OPERATING RESULTS.
Consolidation has occurred among the producers of products we purchase,
including crude oil and grain. Consolidation could increase the price of these
products and allow suppliers to negotiate pricing and other contract terms that
are less favorable to us. Consolidation also may

increase the competition among consumers of these products to enter into supply
relationships with a smaller number of producers.

Consolidation among purchasers of our products and in wholesale and
retail distribution channels has resulted in a smaller customer base for our
products and intensified the competition for these customers. For example,
ongoing consolidation among distributors and brokers of food products and food
retailers has altered the buying patterns of these businesses, as they have
increasingly elected to work with product suppliers who can meet their needs
nationwide rather than just regionally or locally. If these distributors,
brokers, and retailers elect not to purchase our products, our sales volumes,
revenues, and profitability could be significantly reduced.

FLUCTUATIONS IN PRICES FOR CRUDE OIL AND REFINED FUEL PRODUCTS MAY
ADVERSELY AFFECT OUR EARNINGS. Prices for crude oil and for gasoline, diesel
fuel, and other refined petroleum products fluctuate widely. The profitability
of our energy operations depends largely on the margin between the cost of crude
oil that we refine and the selling prices that we obtain for our refined
products. Factors influencing these prices, many of which are beyond our
control, include:

o levels of worldwide and domestic supplies;

o capacities of domestic and foreign refineries;

o the ability of the members of OPEC to agree to and maintain
oil price and production controls, and the price and level of
foreign imports generally;

o political instability or armed conflict in oil-producing
regions;

o the level of consumer demand;

o the price and availability of alternative fuels;

o the availability of pipeline capacity; and

o domestic and foreign governmental regulations and taxes.

The long-term effects of these and other conditions on the prices of
crude oil and refined petroleum products are uncertain and ever-changing.
Accordingly, we expect our margins on and the profitability of our energy
business to fluctuate, possibly significantly, over time.

IF OUR CUSTOMERS CHOSE ALTERNATIVES TO OUR REFINED PETROLEUM PRODUCTS
OUR REVENUES AND PROFITS MAY DECLINE. Numerous alternative energy sources
currently are being developed that could serve as alternatives to our gasoline,
diesel fuel and other refined petroleum products. If any of these alternative
products become more economically viable or preferable to our products for
environmental or other reasons, demand for our energy products would decline.
Demand for our gasoline, diesel fuel and other refined petroleum products also
could be adversely affected by increased fuel efficiencies.

OUR AGRONOMY BUSINESS IS DEPRESSED AND COULD CONTINUE TO UNDERPERFORM
IN THE FUTURE. Demand for agronomy products in general has been adversely
affected in recent years by drought and poor weather conditions, depressed grain
prices, idle acreage and development of insect and disease-resistant crops.
These factors could cause our agronomy marketing and distribution venture to be
unable to operate at profitable margins. In addition, these and other factors,
including fluctuations in the price of natural gas and other raw materials, an
increase in recent years in domestic and foreign production of fertilizer and
intense competition within the industry, in particular from lower-cost foreign
producers, have created particular pressure on producers of fertilizers. As a
result, CF Industries, Inc. a fertilizer manufacturer in which we hold a
minority cooperative interest, has suffered losses in recent years as it has
incurred increased prices for raw materials but has been unable to pass those
increased costs on to its customers.

TECHNOLOGICAL IMPROVEMENTS IN AGRICULTURE COULD DECREASE THE DEMAND FOR
OUR AGRONOMY PRODUCTS. Improved technological advances in agriculture could
decrease the demand for crop nutrients, and other crop input products and
services. Genetically engineered seeds that resist disease and insects or meet
certain nutritional requirements could affect the demand for crop nutrients and
crop protection products, as well as the demand for fuel to operate application
equipment.

WE OPERATE SOME OF OUR BUSINESS THROUGH JOINT VENTURES IN WHICH OUR
RIGHTS TO CONTROL BUSINESS DECISIONS ARE LIMITED. Several parts of our business,
including in particular our agronomy business and portions of our grain
marketing, wheat milling and foods businesses, are operated through joint
ventures with unaffiliated third parties. Operating a business through a joint
venture means that we have less control over business decisions than we have in
our wholly-owned businesses. In particular, we generally cannot act on major
business initiatives in our joint ventures without the consent of the other
party or parties in that venture.

RISKS RELATED TO THIS OFFERING AND THE PREFERRED STOCK

THE INITIAL PUBLIC OFFERING PRICE FOR THE PREFERRED STOCK MAY NOT BE
REPRESENTATIVE OF MARKET PRICES AFTER THIS OFFERING. The initial public offering
price of our preferred stock has been determined through negotiations between
the representatives of the underwriters and us and may not be representative of
market prices after this offering. As a result, you may be unable to receive
that price if you resell the preferred stock.

THERE MAY NOT BE ANY SECONDARY TRADING MARKET FOR THE PREFERRED STOCK,
WHICH MAY LIMIT YOUR ABILITY TO RESELL YOUR SHARES. The preferred stock is a new
issue of securities with no established trading market and we cannot assure you
that a secondary trading market for the preferred stock will ever develop or, if
one develops, that it will be maintained or provide any significant liquidity.
The representatives of the underwriters have advised us that they intend to make
a market in the preferred stock. However, they are not obligated to do so and
may discontinue any market-making activity at any time without notice. As a
result of these and other factors, if you decide to sell your preferred stock
there may be either no or only a limited number of potential buyers. This, in
turn, may affect the price you receive for your preferred stock or your ability
to sell your preferred stock at all.

WE CANNOT ASSURE YOU THAT THE PREFERRED STOCK, IF LISTED ON THE Nasdaq
NATIONAL MARKET, WILL CONTINUE TO QUALIFY FOR LISTING. Although we have applied
to have the preferred stock listed on The Nasdaq National Market, we cannot
assure you that if it is listed, it will continue to qualify for listing. For
example, we may be unable to satisfy the requirements regarding "independent"
directors as now or subsequently in effect. If our preferred stock were
delisted, the liquidity of the market for the preferred stock could be reduced,
possibly significantly.

IF YOU ARE ABLE TO RESELL YOUR PREFERRED STOCK, MANY FACTORS MAY AFFECT
THE PRICE YOU RECEIVE, WHICH MAY BE LOWER THAN YOU BELIEVE TO BE APPROPRIATE.
Many factors could affect the market price of our preferred stock, including:

o the risks relating to our business and the industries in which
we operate described elsewhere in this "Risk Factors" section
and elsewhere in this prospectus;

o our operating and financial performance;

o the level, direction and volatility of interest rates;

o general market, political and economic conditions;

o changes in market valuations of other integrated agricultural
companies;

o the market for securities similar to the preferred stock;

o additional issuances of preferred stock by us; and

o sales of preferred stock by a few stockholders or even a
single significant stockholder.

In addition, the U.S. stock markets have experienced price and volume volatility
that has affected many companies' stock prices, often for reasons unrelated to
the operating performance of those companies. Fluctuations such as these also
may affect the market price of our preferred stock. As a result of these
factors, you may only be able to sell your preferred stock at prices below those
you believe to be appropriate. We cannot predict at what price the preferred
stock will trade, and that price may be less than its initial public offering
price or liquidation value at any time.

ISSUANCES OF SUBSTANTIAL AMOUNTS OF PREFERRED STOCK COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR PREFERRED STOCK. From time to time in the future
we expect to issue shares of preferred stock to our members in redemption of a
portion of their patrons' equities or other equity securities and may do so as
frequently as annually. We expect these shares to be freely tradeable upon
issuance to our members, and some or all members who receive preferred stock may
seek to sell their shares in the public market. We also expect to issue shares
of preferred stock in exchange for the shares of our outstanding 8% preferred
stock. Furthermore, from time to time we may sell additional shares of preferred
stock to the public. We cannot predict whether future issuances or sales of our
preferred stock or the availability of our preferred stock for sale will
adversely affect the market price for our preferred stock or our ability to
raise capital by offering equity securities.

THE TERMS OF THE PREFERRED STOCK ARE FIXED AND CHANGES IN MARKET
CONDITIONS, INCLUDING MARKET INTEREST RATES, MAY DECREASE THE MARKET PRICE FOR
THE PREFERRED STOCK. The terms of the preferred stock, such as the 8% dividend
rate, the amount of the liquidation preference and the redemption terms, are
fixed and will not change, even if market conditions with respect to these terms
fluctuate. This may mean that you could obtain a higher return from an
investment in other securities. It also means that an increase in market
interest rates is likely to decrease the market price for the preferred stock.

YOU WILL HAVE LIMITED VOTING RIGHTS. As a holder of the preferred
stock, you will be entitled to vote only on actions that would amend, alter or
repeal our articles of incorporation or the resolutions establishing the
preferred stock if the amendment, alteration or repeal would adversely affect
the rights or preferences of the preferred stock or that would create a series
of senior equity securities. You will not have the right to vote on actions
customarily subject to shareholder vote or approval, including the election of
directors, the approval of significant transactions, and other amendments to our
articles of incorporation that would not adversely affect the rights and
preferences of the preferred stock.

PAYMENT OF DIVIDENDS ON THE PREFERRED STOCK IS NOT GUARANTEED. Although
dividends on the preferred stock accumulate, our board of directors must approve
the actual payment of those dividends. Our board of directors can elect at any
time or from time to time, and for an indefinite duration, not to pay the
accumulated dividends. Our board of directors could do so for any reason,
including the following:

o unanticipated cash requirements;

o the need to make payments on our indebtedness;

o concluding that the payment of dividends would cause us to
breach the terms of any agreement, such as financial ratio
covenants; or

o determining that the payment of dividends would violate
applicable law regarding unlawful distributions to
shareholders.

WE CAN REDEEM THE PREFERRED STOCK AT OUR DISCRETION. We have the option
of redeeming your shares at any time on or after February 1, 2008 for $25.00 per
share plus any accumulated and unpaid dividends.

THE AMOUNT OF YOUR LIQUIDATION PREFERENCE OR REDEMPTION PAYMENT IS
FIXED. The payment due upon a liquidation or redemption is fixed at $25.00 per
share plus accumulated and unpaid dividends. If we have value remaining after
payment of this amount, you will have no right to participate in that value. If
the market price for our preferred stock is greater than the redemption price,
you will have no right to receive the market price from us on a redemption.

YOUR LIQUIDATION RIGHTS WILL BE SUBORDINATE TO THOSE OF HOLDERS OF OUR
INDEBTEDNESS AND OF ANY SENIOR EQUITY SECURITIES WE HAVE ISSUED OR MAY ISSUE IN
THE FUTURE AND MAY BE SUBJECT TO THE EQUAL RIGHTS OF OTHER EQUITY SECURITIES.
There are no restrictions in the terms of the preferred stock on our ability to
incur indebtedness. We can also, with the consent of two-thirds of the
outstanding preferred stock, issue preferred equity securities that are senior
with respect to liquidation payments to the preferred stock. If we were to
liquidate our business, we would be required to repay all of our outstanding
indebtedness and to satisfy the liquidation preferences of any senior equity
securities that we may issue in the future before we could make any
distributions to holders of our preferred stock. We could have insufficient cash
available to do so, in which case you would not receive any payment on the
amounts due you. Moreover, there are no restrictions on our ability to issue
preferred equity securities that rank on a parity with the preferred stock as to
liquidation preferences and any amounts remaining after the payment of senior
securities would be split equally among all holders of those securities, which
might result in your receiving less than the full amount due you.

USE OF PROCEEDS

We expect the net proceeds of this offering to be approximately $___
million, after deducting underwriting discounts and other expenses. We intend to
use the net proceeds from this offering to repay short-term indebtedness under a
$550 million 364-day credit facility with a syndication of banks, of which
$245.5 million was outstanding on November 30, 2002, having an average interest
rate of 2.52%.

BUSINESS

We are one of the nation's leading integrated agricultural companies.
As a cooperative, we are owned by farmers and ranchers and their local
cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian
border to Texas. We buy commodities from and provide products and services to
our members and other customers. We provide 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 our operations are conducted
through equity investments and joint ventures whose operating results are not
consolidated with our results; rather, a proportionate share of the income from
those entities is included as a component in our net income under the equity
method of accounting. For the fiscal year ended August 31, 2002, our total
revenues were $7.8 billion.

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

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.

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

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. and its crop protection products from Monsanto and
Sygenta.

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

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 our
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 our members, members of 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

We account for our Agronomy business segment as follows:

CF INDUSTRIES. Our 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, we recognize income from the
investment only if we receive 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 our investment in Agriliance was $86
million. We recognize earnings from Agriliance using the equity method of
accounting, which results in including our ownership percentage of Agriliance's
net earnings as equity income from investments. We apply 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
-------------- ----------- ------------
(DOLLARS IN THOUSANDS)

Revenues:
Net sales*................................... $ 808,659
Patronage dividends.......................... $ (89) $ 196 224
Other revenues............................... 5,817
-------------- ----------- ------------
Total revenues.................................. (89) 196 814,700
Cost of goods sold.............................. 764,744
Marketing, general and administrative........... 8,957 8,503 20,832
-------------- ----------- ------------
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
-------------- ----------- ------------
Income before income taxes...................... $ 5,782 $ 3,582 $ 28,300
============== =========== ============

Total identifiable assets - August 31........... $ 242,015 $ 230,051 $ 228,277
============== =========== ============

* Net sales in 2000 reflect sales from our agronomy business prior to the time
it was contributed to Agriliance. Earnings from our interest in Agriliance are
shown as equity (income) loss from investments.

ENERGY

OVERVIEW

We are 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. Our 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 we have an approximate 74.5%
ownership interest) and sells those products under the Cenex brand to our 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. Our 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 our
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 our
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 we
own 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. We own and operate ten propane plants and
three propane terminals, four asphalt terminals, three lubricants blending and
packaging facilities, and 36 convenience stores. We also own and lease 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

We make approximately 85% of our 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 trade name. We sold approximately 1.3 billion gallons of
gasoline and approximately 1.2 billion gallons of diesel fuel in fiscal year
2002. We also wholesale 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. We are 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 our 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. We
currently expect 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 our
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
our 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 our
energy products.

The refining and wholesale fuels business is very competitive. Among
our competitors are some of the world's largest integrated petroleum companies,
which have their own crude oil supplies, distribution and marketing systems. We
also compete 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. Our
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
--------------- ----------- ------------
(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
------------- ------------ ------------
Total revenues.................................... 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
------------- ------------ ------------
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
------------- ------------ ------------
Income before income taxes........................ $ 75,811 $ 124,569 $ 5,165
============= ============ ============

Total identifiable assets - August 31............. $ 1,305,828 $ 1,154,036 $ 1,379,019
============= ============ ============

COUNTRY OPERATIONS

OVERVIEW

PRODUCTS AND SERVICES

GRAIN PURCHASING. We are one of the largest country elevator operators
in North America. Through a majority of our 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 our Grain Marketing business segment or used for local feed and
processing operations. In the year ended August 31, 2002, we 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. We sell 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. We have provided open account financing to more
than 150 of our 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. Our
borrowing arrangements with CoBank limit loan balances outstanding under this
program to not more than $150.0 million at any one time.

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

Our 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 we
hold 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. We compete primarily
on the basis of price, services and patronage.

The financing operations are not significant, however, competitors for
our financing operations are primarily other financial institutions. We compete
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
--------------- ----------- ------------
(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
------------- ------------ ------------
Total revenues............................................. 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
------------- ------------ ------------
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

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. We are responsible for handling the grain and arranging for its
transportation to that location. Our ability to arrange efficient
transportation, including loading capabilities onto unit trains, ocean-going
vessels, and barges, is a significant part of the service we offer to our
customers. Rail, vessel, barge and truck transportation is carried out by third
parties, often under long-term freight agreements with us. 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.

We own 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. Our 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, we
conduct our 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 Suppliers, 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 our geographic location and the fact that it is
further from our 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 our 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 our individual and cooperative
association members, 239 million bushels 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 we do.

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. We believe that our relationships with individual members serviced by
local Country Operations locations and with cooperative members give us 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 handles 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
--------------- ------------ ------------
(DOLLARS IN THOUSANDS)

Revenues:
Net sales............................... $ 3,787,322 $ 3,514,314 $ 3,453,807
Patronage dividends..................... 497 840 861
Other revenues.......................... 21,902 22,964 15,440
--------------- ------------- ------------
Total revenues............................. 3,809,721 3,538,118 3,470,108
Cost of goods sold......................... 3,778,838 3,514,575 3,439,863
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
=============== ============= ============

PROCESSED GRAINS AND FOODS

OVERVIEW

Our Processed Grains and Foods business segment converts raw
agricultural commodities into ingredients for finished food products or into
finished consumer food products. We have focused on areas that utilize the
products supplied by member producers. These areas are oilseed processing and
refining, wheat milling and foods.

OILSEED PROCESSING AND REFINING

Our 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.

Our 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.

Our soy processing facilities are located in areas with a strong
production base of soybeans and end-user market for the meal and soyflour. We
purchase virtually all of our soybeans from members. The oilseed crushing
operations currently produce approximately 45% of the crude oil that we refine;
we purchase the balance from outside suppliers.

Our 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 we hold a 50% ownership interest and with
which we have a long-term supply agreement to supply minimum quantities of
edible soybean oils as long as we maintain a minimum 25.5% ownership interest
and the price is comparative with other suppliers of the product. Our sales to
Ventura Foods were $49.8 million in fiscal year 2002. We also sell 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. We sell 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. We estimate that we have 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, we formed Horizon Milling, LLC with Cargill. We own
24% of Horizon Milling and Cargill owns the remaining 76%. Horizon Milling is
the largest U.S. wheat miller. Our sales of wheat and durum to Horizon Milling
during fiscal year 2002 were $114.4 million.

We ceased operations at our Huron, Ohio mill prior to the formation of
Horizon Milling and our facility lease expired on September 30, 2002. We are
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

We have two primary areas of focus in the foods area: Ventura Foods,
which produces oilseed based products such as margarine and salad dressing and
of which we own 50%, 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 our 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 we owned 40% and
Wilsey Foods, Inc., a majority owned subsidiary of Mitsui USA, Inc, owned 60%.
In March 2000, Wilsey Foods, Inc. sold to us an additional 10% interest bringing
our total equity investment in Ventura Foods to 50%. We account for the Ventura
Foods investment under the equity method of accounting.

MEXICAN FOODS. Since June 2000, we have acquired three regional
producers of Mexican foods. Through our Mexican foods operations, we
manufacture, package and distribute tortillas, tortilla chips and prepared
frozen Mexican food products such as burritos and tamales. We sell 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. We are also working to
develop a national brand from our 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. We estimate that our 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)
-------------- ----------- ------------
Total revenues............................... 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 contribution of our wheat
milling business to Horizon Milling in January 2002. Since January 2002 earnings
or losses from our interest in Horizon Milling are shown as equity income from
investments.

PRICE RISK AND HEDGING

Depending on the terms and conditions of the particular contract, we
incur risks of carrying inventory, including risks related to price changes and
performance (including delivery, quality, quantity and shipment period) whenever
we enter into a commodity purchase commitment. We are 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. We are also exposed to risk of loss on our 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
commitments, we generally take 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 us 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. Our policy is
to generally maintain hedged positions in grain. Our 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.

EMPLOYEES

As of August 31, 2002, we 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 us, many employees work
directly for the joint ventures in which we have 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. We anticipate a successful resolution.

MEMBERSHIP AND AUTHORIZED CAPITAL

INTRODUCTION

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

DISTRIBUTION OF NET INCOME; PATRONAGE DIVIDENDS

We are required by our 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
our board of directors may elect to retain and add to our unallocated capital
reserve an amount not to exceed 10% of the distributable net income from
patronage business.

These distributions, referred to as "patronage dividends," may be
distributed in cash, patrons' equities, revolving fund certificates, securities
of CHS or others or any combination designated by our board of directors. Since
1998, our board of directors has distributed patronage dividends in the form of
30% cash and 70% patrons' equities (see "-- Patrons' Equities" below). Our board
of directors may change the mix in the form of the patronage dividends in the
future. In making distributions, our 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 book entry and represent a right
to receive cash when redeemed by us. Patrons' equities form part of our capital,
do not bear interest and are not subject to redemption upon request of a member.
Patrons' equities are redeemable only at the discretion of our board of
directors and in accordance with the terms of a redemption policy adopted by our
board of directors, which may be modified at any time without member consent.
Our 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 our board of directors.

Redemptions of patrons' and other equities, including equity
participation units, during the years ended August 31, 2002, 2001 and 2000 were
$31.1 million, $33.0 million and $28.7 million, respectively.

GOVERNANCE

We are managed by a board of directors of at least 17 persons elected
by our members at our annual meeting. Terms of directors are staggered so that
no more than seven directors are elected in any year. Our board of directors is
currently comprised of 17 directors. Our articles of incorporation and bylaws
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

Our membership 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. Our board of directors
may establish other qualifications for membership as it may from time to time
deem advisable. As a membership cooperative, we do not require our members to
purchase capital stock. We may issue equity or debt securities, on a patronage
basis or otherwise, to our members, but unless authorized in our bylaws or by
our board of directors, such securities are not entitled to any voting,
membership or other rights to participate in our affairs and are not
transferable without the prior consent of our board of directors. We have two
classes of outstanding membership. Individual members are individuals or
entities actually engaged in the production of agricultural products, including
both natural persons and any legal entity owned or controlled by individual
farmers or their families, such as joint ventures, corporations, partnerships,
limited liability companies and other entities. 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 CHS, 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 equity held by the cooperative in CHS and the average amount of business
done with us 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
CHS facility (with certain historical exceptions) recognized by our board of
directors. The number of votes of patrons' associations is determined under the
same formula as cooperative association members.

In December 2002, our members approved an amendment to our bylaws that
eliminated the number of producers as a factor in determining the number of
votes of cooperative association members and patrons' associations.

Most matters submitted to a vote of our members require the approval of
a majority of the votes cast at a meeting of our members, although the approval
of not less than two-thirds of the votes cast at a meeting is required to
approve a merger, consolidation, liquidation, dissolution, or the sale of all or
substantially all of our assets.

DEBT AND EQUITY INSTRUMENTS

We may issue debt and equity instruments to our current members and
patrons, on a patronage basis or otherwise, and to persons who are neither
members nor patrons, but unless authorized in our bylaws or by our board of
directors, such equities are not entitled to any voting, membership or other
rights to participate in our affairs and are not transferable without the prior
consent of our board of directors. In addition, debt or equity issued by us is
subject to a first lien in favor of us for all indebtedness of the holder
thereof to us. As of August 31, 2002, our 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 our dissolution, liquidation or winding, whether
voluntary or involuntary, all debts and liabilities would be paid first
according to their respective priorities. As more particularly provided in our
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. Our bylaws provide for the allocation among the
members and nonmember patrons of the consideration received in any merger or
consolidation to which we are a party.

CERTAIN ANTITAKEOVER MEASURES

Our governing documents may be amended upon the approval of a majority
of the votes cast at an annual or special meeting. However, if our board of
directors, in its sole discretion, declares that a proposed amendment to our
governing documents involves or is related to a "hostile takeover," the
amendment must be adopted by 80% of the total voting power of our members. The
term "hostile takeover" is not further defined in the Minnesota cooperative law
or our governing documents.

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. We are a nonexempt cooperative.

As a cooperative, we are not taxed on patronage paid to our 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 us when allocated. Upon redemption of any such non-qualified unit retains,
the amount is deductible to us and taxable at the member level.

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

SELECTED CONSOLIDATED FINANCIAL DATA

------------------

(1) Reflects our change in fiscal year end from May 31 to August 31.

(2) For purposes of computing the ratio of earnings to fixed charges and
preferred dividends, earnings consist of earnings before income taxes
on consolidated operations, distributed income from equity investees
and fixed charges. Fixed charges consist of interest expense and
one-third of rental expense, considered representative of that portion
of rental expense estimated to be attributable to interest.

The selected financial statement information below has been derived
from our five business segments, and Corporate and Other, for the fiscal years
ended August 31, 2002, 2001 and 2000. The intracompany sales between segments
were $683.8 million, $782.5 million and $718.2 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
------------ ------------- ------------- ------------- ------------- -------------
Total revenues................. (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 - $ 242,015 $ 230,051 $ 228,277 $ 1,305,828 $ 1,154,036 $ 1,379,019
August 31...................... ============ ============= ============= ============= ============= =============

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

Revenues:
Net sales................... $ 1,474,553 $ 1,577,268 $ 1,409,892 $ 3,787,322 $ 3,514,314 $ 3,453,807
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
------------ ------------- ------------- ------------- ------------- -------------
Total revenues................. 1,557,914 1,661,430 1,482,158 3,809,721 3,538,118 3,470,108
Cost of goods sold............. 1,471,422 1,569,884 1,404,120 3,778,838 3,514,575 3,439,863
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 $ 24,143 $ 22,295 $ 22,024 $ 8,120 $ (2,478) $ 6,584
taxes....................... =========== ============ ============ ============ ============ ============
Total identifiable assets - $ 799,711 $ 679,053 $ 660,358 $ 481,232 $ 345,696 $ 321,813
August 31...................... =========== ============ ============ ============ ============ ============

--------------------------------------------- --------------------------------------------
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
------------ ------------- ------------- ------------- ------------- -------------
Total revenues................. 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 $ 32,224 $ 21,252 $ 29,962 $ (1,242) $ (16,266) $ (767)
taxes.......................... ============= ============= ============= ============= ============= =============
Total identifiable assets - $ 439,942 $ 430,871 $ 391,286 $ 212,999 $ 217,612 $ 191,927
August 31...................... ============= ============= ============= ============= ============= =============

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are one of the nation's leading integrated agricultural companies.
As a cooperative, we are owned by farmers, ranchers and their local cooperatives
from the Great Lakes to the Pacific Northwest and from the Canadian border to
Texas. We buy commodities from, and provide products and services to members and
other customers. We provide 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.

We have 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 our businesses are highly seasonal. Due to this, operating
income will vary throughout the year, but overall revenues remain fairly
constant, partly because we do not consolidate revenues in the Agronomy segment
as explained below. Overall, our 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. Our 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 our 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 we hold ownership interests
of 50% or less. We account for these investments primarily using the equity
method of accounting, wherein we record as equity income from investments our
proportionate share of income or loss reported by the entity, without
consolidating the revenues and expenses of the entity in our consolidated
statements of operations. These investments principally include our 25%
ownership in Agriliance, LLC (Agriliance), our 50% ownership in TEMCO, LLC, our
50% ownership in United Harvest, LLC, our 24% ownership in Horizon Milling, LLC
(Horizon) and our 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 our Energy segment compared to the year
ended August 31, 2001.

NET SALES. Consolidated net sales of $7.7 billion for the year ended
August 31, 2002 decreased $21.1 million 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. We 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 we consolidated the business activity of Cooperative Refining LLC (CRLLC),
a refining joint venture into the Energy segment. We 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 we 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 $4.0 billion increased
$315.7 million (8%) during the year ended August 31, 2002 compared to the year
ended August 31, 2001. Sales for the year ended August 31, 2002 were $3,787.3
million and $862.0 million from Grain Marketing and Country Operations segments,
respectively. Sales for the year ended August 31, 2001 were $3,514.3 million and
$913.4 million from Grain Marketing and Country Operations segments,
respectively. We eliminated all intracompany sales from the Country Operations
segment to the Grain Marketing segment, of $615.8 million and $709.9 million,
for the years ended August 31, 2002 and 2001, respectively. The net increase in
sales was primarily due to an increase of $0.60 (20%) per bushel in the average
sales price of all grain and oilseed marketed by us, which was partially offset
by a decrease in grain volume of 9% 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, we accounted for operating results of Horizon under the
equity method of accounting. We have a 24% interest in Horizon, and Cargill,
Incorporated (Cargill) has a 76% interest. We are 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 $7.5 billion increased $43.2
million (1%) during the year ended August 31, 2002, compared to the year ended
August 31, 2001. The cost of all grains and oilseed procured by us through our
Grain Marketing and Country Operations segments increased 9% compared to the
year ended August 31, 2001 primarily due to a $0.59 (20%) average cost per
bushel increase, which was partially offset by a 9% 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 21 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 were 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 our 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 our cumulative temporary
differences between income for financial statement purposes and income used for
tax reporting purposes. Our calculation of our patronage distribution using
earnings for financial statement purposes rather than tax basis earnings
prompted the rate change. We 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. Our 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 our 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 $7.8 billion for the year ended
August 31, 2001 represent a $744.8 million (9%) decrease compared to the year
ended August 31, 2000.

We 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, we exchanged our agronomy operations for an
ownership interest in Agriliance, LLC, owned indirectly through United Country
Brands, LLC. As of July 31, 2000, we recorded results of our 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. We 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. We
owned 58% of CRLLC through our 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 $3.7 billion increased
$67.0 million (2%) during the year ended August 31, 2001 compared to the year
ended August 31, 2000. Sales for the year ended August 31, 2001 were $3,514.3
million and $913.4 million from Grain Marketing and Country Operations segments,
respectively. Sales for the year ended August 31, 2000 were $3,453.8 million and
$819.0 million from Grain Marketing and Country Operations segments,
respectively. We eliminated all intracompany sales from the Country Operations
segment to the Grain Marketing segment of $709.9 million and $622.0 million for
the years ended August 31, 2001 and 2000, respectively. This increase in sales
was primarily due to an increase of $0.06 (2%) per bushel in the average sales
price while volumes were essentially unchanged on all grain and oilseed marketed
by us 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 our economic
interest in Agriliance, LLC which was recorded in March 2000 in the Agronomy
segment.

COST OF GOODS SOLD. Cost of goods sold of $7.5 billion decreased $830.3
million (10%) 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 our share of our 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 us through our Grain Marketing and
Country Operations segments increased 2% compared to the previous year end
primarily due to a $0.06 (2%) 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.
We record our 25% share of our 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 our 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 our cumulative temporary differences
between income for financial statement purposes and income used for tax
reporting purposes. Our change in the calculation of our patronage distribution
using earnings for financial statement purposes rather than tax basis earnings
prompted the rate change. We 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

Our operating activities 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.

Our operating activities 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.

Our operating activities 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 our 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 we expect 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 $340.0 million in
total for our 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, our foods joint venture, for $25.6 million. We
have 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 our 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

We finance our working capital needs through short-term lines of credit
with a syndication of banks. In May 2002, we renewed our 364-day credit facility
of $550.0 million committed. In addition to these lines of credit, we have 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, we 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, we established a five-year revolving credit facility with
a syndication of banks, with $200.0 million committed. On August 31, 2002 and
2001 we 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.

We have financed our 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, we established a long-term
credit agreement through the banks for cooperatives. This facility committed
$200.0 million of long-term borrowing capacity to us, 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, we 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, we 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.

We, 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, we 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, we
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, we 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) we 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 our bylaws and by action of our 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 our
practice prior to this date. This change was authorized through a bylaw
amendment at our 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 our board of directors to be 30% was
$40.1 million. During the years ended August 31, 2001 and 2000, we distributed
cash patronage of $26.1 million and $17.9 million, respectively.

Cash patronage for the year ended August 31, 2002, deemed by our 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 our 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
pro rata formula where the numerator is dollars available for such purpose as
determined by our 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, we redeemed
patronage related equities in accordance with authorization from our 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, we offered securities in the form
of Equity Participation Units (EPUs) in our Wheat Milling and Oilseed Processing
and Refining Defined Business Units. These EPUs gave the holder the right and
obligation to deliver to us a stated number of bushels in return for a pro rata
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, our
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 our board of directors approved and consummated a
plan to end the Defined Investment Program. We redeemed all of the EPUs and
allocated the assets of the Oilseed Processing and Refining and Wheat Milling
Defined Business Units to us 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.

Our 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. We 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

We have 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

We are 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. Our 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

Our consolidated financial statements 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. We believe that of our 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 our 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

We enter into exchange-traded commodity futures and options contracts
to hedge our exposure to price fluctuations on energy, grain and oilseed
transactions to the extent considered practicable for minimizing risk. We do 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 our assessment of our exposure
from expected price fluctuations. We also manage our 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. We are exposed to loss in the event of nonperformance by the
counterparties to the contracts. However, we do 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.

We 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.

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 our pension and other postretirement
obligations and future expense.

DEFERRED TAX ASSETS

We assess whether a valuation allowance is necessary to reduce our
deferred tax assets to the amount that it believes is more likely than not to be
realized. While we have considered future taxable income as well as other
factors in assessing the need for the valuation allowance, in the event that we
were to determine that it would not be able to realize all or part of our 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 our 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 our 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 our financial
results.

EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS

We believe that inflation and foreign currency fluctuations have not
had a significant effect on our operations.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective September 1, 2001 we 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 our 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 us.

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 us.

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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

We utilize futures and options contracts offered through regulated
commodity exchanges to reduce risk. We are exposed to risk of loss in the market
value of inventories and fixed or partially fixed purchase and sales contracts.
So as to reduce that risk, we generally take opposite and offsetting positions
using futures 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 us and
deemed prudent for each of those commodities. Commodities for which futures
contracts and options are available are also typically hedged first in this
manner, with futures and options used to hedge within position limits that
portion not covered by forward contracts. These futures and options contracts
and forward purchase and sales cash 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 priced
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 futures 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 our
results of operations, financial position or liquidity, since our operations
have effective economic hedging requirements as a general business practice.

INTEREST RATE RISK

We manage 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 us 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 us on fixed rate debt
outstanding on August 31, 2002 was approximately 6.4%; a 10% adverse change in
market rates would not materially affect our results of operations, financial
position or liquidity.

In August 2002, we entered into interest rate swap instruments related
to private placement debt issued on October 18, 2002 in order to protect against
a potential increase in interest rates. In fact, interest rates declined between
the dates of the interest swaps and the closing of the borrowing transaction.
These derivative instruments are designated and effective as cash flow hedges
for accounting purposes and the changes in fair values of these instruments are
recorded as a component of other comprehensive income. We expect to record
additional interest expense of $0.8 million during the year ended August 31,
2003 related to these derivative instruments as an offset to the lower interest
rates actually obtained on the debt instruments.

FOREIGN CURRENCY RISK

We conduct essentially all of our business in U.S. dollars and had
essentially no 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.

DESCRIPTION OF THE PREFERRED STOCK

The following section describes the general terms and provisions of the
preferred stock being offered by this prospectus. This summary is not complete
in all respects and is qualified in its entirety by reference to our restated
articles of incorporation, as amended, and the resolution of our board of
directors establishing the preferred stock.

GENERAL

The shares of preferred stock are shares of a series of preferred
equity securities created by our board of directors. Subject to the restrictions
noted below under "Limitations and Restrictions on Future Issuances," there is
no limit on the number of shares in the series and shares may be issued from
time to time. Our board of directors has expressly authorized the initial sale
and subsequent transfer of the shares of preferred stock in accordance with our
articles of incorporation.

The shares of preferred stock will be fully paid and nonassessable when
issued.

RANK

The preferred stock will have priority as to the payment of dividends
and the distribution of assets over:

o any patronage refund (as that term is used in our bylaws),
whether or not represented by a certificate;

o any other class or series of our capital stock designated by
our board of directors as junior to the preferred stock; and

o our common stock, if any.

Shares of any class or series of our capital stock that are not junior to the
preferred stock, including our existing class of preferred stock entitled "8%
Preferred Stock," will rank equally with the preferred stock as to the payment
of dividends and the distribution of assets.

DIVIDENDS

Holders of the preferred stock are entitled to receive quarterly
dividends when, as and if declared by our board of directors out of funds
legally available for that purpose at the rate of $2.00 per share per year.
Dividends will be payable on March 31, June 30, September 30 and December 31 of
each year (each a "payment date") beginning March 31, 2003, except that if a
payment date is a Saturday, Sunday or legal holiday, the dividend will be
payable without interest on the next day that is not a Saturday, Sunday or legal
holiday. Dividends on the preferred stock are fully cumulative and will
accumulate without interest from and including the latest of January 1, 2003 or
the day immediately following the most recent date as to which dividends have
been paid. Dividends are computed on the basis of a 360-day year of twelve
30-day months. Each payment of dividends will include dividends to and including
the date on which paid.

Dividends will be paid to holders of record as they appear on our books
five business days prior to the relevant payment date. We may, in our sole
discretion, pay dividends by any one or more of the following means:

o check mailed to the address of the record holder as it appears
on our books;

o electronic transfer in accordance with instructions provided
by the record holder; or

o any other means mutually agreed between us and the record
holder.

We may not make any distribution to the holders of any security that
ranks junior to the preferred stock unless and until all accumulated and unpaid
dividends on the preferred stock and on any other class or series of our capital
stock that ranks equally with the preferred stock, including the full dividend
for the then-current dividend period have been paid or declared and set apart
for payment. For these purposes, a "distribution" does not include any
distribution made in connection with a liquidation, dissolution or winding up,
which will be governed by the provisions summarized under "Liquidation
Preference" below.

LIQUIDATION PREFERENCE

In a liquidation, dissolution or winding up of CHS, whether voluntary
or involuntary, the holders of the preferred stock will be entitled to receive
out of our available assets $25.00 per share plus all dividends accumulated and
unpaid on that share, whether or not declared, to and including the date of
distribution. This distribution to the holders of the preferred stock will be
made before any payment is made or assets distributed to the holders of any
security that ranks junior to the preferred stock but after the payment of the
liquidation preference of any of our securities that rank senior to the
preferred stock. Any distribution to the holders of the preferred stock will be
made ratably among the holders of the preferred stock and any other of our
capital stock which ranks on a parity as to liquidation rights with the
preferred stock in proportion to the respective preferential amounts to which
each is entitled. After payment in full of the liquidation preference of the
shares of preferred stock, the holders of the preferred stock will not
participate further in the distribution of our assets.

Neither a consolidation or merger with another entity nor a sale or
transfer of all or part of our assets for cash, securities or other property
will constitute a liquidation, dissolution or winding up if, following the
transaction, the preferred stock remains outstanding as duly authorized stock of
us or any successor entity.

REDEMPTION

AT OUR OPTION

From and after February 1, 2008 we may, at our option, redeem at any
time all, or from time to time any portion, of the preferred stock. An optional
redemption will be at a price of $25.00 per share plus all dividends accumulated
and unpaid on that share, whether or not declared, to and including the date
fixed for redemption. If we redeem less than all of the then outstanding shares
of preferred stock, we will designate the shares to be redeemed either by lot or
in any other manner that our board of directors may determine or may effect the
redemption pro rata. However, we may not redeem less than all of the then
outstanding shares of preferred stock until all dividends accumulated and unpaid
on all then outstanding shares of preferred stock have been paid for all past
dividend periods.

AT THE HOLDER'S OPTION

If at any time there has been a change in control (as defined below),
each record holder of shares of the preferred stock will have the right, for a
period of 90 days from the date of the change in control, to require us to
redeem all or any portion of the shares of preferred stock owned by that record
holder. Not later than 130 days after the date of the change in control (or, if
that date is a Saturday, Sunday or legal holiday, the next day that is not a
Saturday, Sunday or legal holiday) we will redeem all shares the record holder
has elected to have redeemed in a written notice delivered to us on or prior to
the 90th day after the change in control. The redemption price will be $25.00
per share plus all dividends accumulated and unpaid on that share, whether or
not declared, to and including the date fixed for redemption.

A "change in control" will have occurred if, in connection with a
merger or consolidation that has been approved by our board of directors (prior
to submitting the merger or consolidation to our members for approval), whether
or not we are the surviving entity, those persons who were members of our board
of directors on January 1, 2003, together with those persons who became members
of our board of directors after that date at our annual meeting, have ceased to
constitute a majority of our board of directors. Under

the Minnesota cooperative statute, our members could initiate a merger or
consolidation without the approval of our board of directors; a member - iniated
merger or consolidation would not meet this definition and thus would not
trigger a redemption right.

MECHANICS OF REDEMPTION

Not less than 30 days prior to any redemption date pursuant to the
exercise of our optional redemption right, we will give written notice to the
holders of record of the shares of preferred stock to be redeemed. This notice
will specify:

o the redemption date;

o the redemption price;

o the number of shares of preferred stock held by the record
holder that are subject to redemption;

o the time, place and manner in which the holder should
surrender the certificate or certificates, if any,
representing the shares of preferred stock to be redeemed,
including the steps that a holder should take with respect to
any certificates which have been lost, stolen or destroyed or
to any uncertificated shares; and

o that from and after the redemption date, dividends will cease
to accumulate on the shares and the shares will no longer be
deemed outstanding.

On or after the redemption date, once a holder surrenders the certificate or
certificates representing the shares of preferred stock called for redemption in
the manner provided in the redemption notice or takes the appropriate steps with
respect to lost, stolen or destroyed certificates or uncertificated shares, the
holder will be entitled to receive payment of the redemption price. If fewer
than all of the shares of preferred stock represented by a surrendered
certificate or certificates are redeemed, we will issue a new certificate
representing the unredeemed shares.

EFFECT OF REDEMPTION

From and after the redemption date, if funds necessary for the
redemption are and have been irrevocably deposited or set aside, then:

o dividends will cease to accumulate with respect to the shares
of preferred stock called for redemption;

o the shares will no longer be deemed outstanding;

o the holders of the shares will cease to be shareholders; and

o all rights with respect to the shares of preferred stock will
terminate except the right of the holders to receive the
redemption price, without interest.

PURCHASES

We may at any time and from time to time in compliance with applicable
law purchase shares of preferred stock on the open market, pursuant to a tender
offer or otherwise, at whatever price or prices and other terms we determine. We
may not make any purchases at a time when there are accumulated but unpaid
dividends for past dividend periods.

VOTING

Except as described below, the holders of the preferred stock will have
only those voting rights that are required by applicable law. As a result, the
holders of the preferred stock will have very limited voting rights and, among
other things, will not have any right to vote for the election of directors.

Unless the preferred stock is redeemed pursuant to its terms, the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of the preferred stock, voting separately as a class, will be required

o for any amendment, alteration or repeal, whether by merger or
consolidation or otherwise, of our articles of incorporation
or the resolutions establishing the terms of the preferred
stock, if the amendment, alteration or repeal adversely
affects the rights or preferences of the preferred stock; and

o to establish, by board resolution or otherwise, any class or
series of our equity securities having rights senior to the
preferred stock as to the payment of dividends or distribution
of assets upon the liquidation, dissolution or winding up of
CHS, whether voluntary or involuntary.

The creation and issuance of any other class of our securities ranking on a
parity with or junior to the preferred stock, including an increase in the
authorized number of shares of any such securities, will not be deemed to
adversely affect the rights or preferences of the preferred stock.

Our board of director's ability to authorize, without shareholder
approval, the issuance of additional classes or series of preferred stock with
conversion and other rights may adversely affect you as a holder of preferred
stock or the rights of holders of any series of preferred stock that may be
outstanding.

LIMITATIONS AND RESTRICTIONS ON FUTURE ISSUANCES

We may not offer to issue additional shares of preferred stock in
exchange for or in redemption of outstanding patrons' equities or other equity
securities held by our members more than one time per calendar year. If, in
connection with an offer of this type, any member would receive more than 0.25%
of the number of shares of preferred stock outstanding at the end of the prior
calendar year, that member will instead be entitled to receive the shares in
quarterly installments as nearly equal as possible. After December 31, 2003, in
any calendar year, we may not issue additional shares of preferred stock in
exchange for or in redemption of outstanding patrons' equities or other equity
securities held by our members in excess of

o for issuances during the years 2004, 2005 and 2006, 20% of the
number of shares of preferred stock outstanding at the end of
the prior calendar year or 400,000 shares, whichever is
greater; and

o for issuances during any calendar year after the year 2006,
25% of the number of shares of preferred stock outstanding at
the end of the prior calendar year or 400,000 shares,
whichever is greater.

We may not issue additional shares of preferred stock in exchange for or in
redemption of outstanding patrons' equities owned by an estate of one of our
former individual members or in redemption of outstanding patrons' equities
owned by individual members who have reached age 72, pursuant to our current
policy.

We have also agreed with the underwriters to limit issuances of
additional shares of preferred stock during 2003. See "Underwriting."

NO EXCHANGE OR CONVERSION RIGHTS; NO SINKING FUND

Shares of the preferred stock are not exchangeable or convertible into
other class or series of our capital stock or other securities or property. The
preferred stock is not subject to the operation of a purchase, retirement or
sinking fund.

CERTAIN CHARTER PROVISIONS

For a description of some of the provisions of our articles of
incorporation that might have an effect of delaying, deferring or preventing a
change in control of us, see "Business - Membership and Authorized Capital -
Certain Antitakeover Measures."

NO PREEMPTIVE RIGHTS

Holders of the preferred stock will have no preemptive right to acquire
shares of any class or series of our capital stock.

MARKET FOR THE PREFERRED STOCK

The preferred stock is a new issue of securities with no established
trading market. Although we have applied to list the preferred stock on The
Nasdaq National Market under the symbol "CHSCP," we cannot assure you that a
secondary trading market for the preferred stock will ever develop or, if one
develops, that it will be maintained or provide any significant liquidity. As a
result, if you decide to sell your preferred stock there may be either no or
only a limited number of potential buyers. This, in turn, may affect the price
you receive for your preferred stock or your ability to sell your preferred
stock at all. We cannot predict at what price the preferred stock will trade,
and that price may be less than its initial public offering price or liquidation
value at any time.

TRANSFER AGENT AND REGISTRAR

Wells Fargo Bank Minnesota, National Association will serve as transfer
agent and registrar with respect to the preferred stock.

CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes the material federal income tax
consequences of the purchase, ownership, redemption and disposition of the
preferred stock. This summary is based upon the provisions of the Internal
Revenue Code (Code), the final temporary and proposed regulations promulgated
thereunder and administrative rulings and judicial decisions now in effect, all
of which are subject to change (possibly with retroactive effect). This summary
addresses only the tax consequences of the purchase, ownership, redemption and
disposition of the preferred stock by a person who is a U.S. holder. You are a
U.S. holder if you are:

o an individual who is a citizen or resident of the U.S.;

o a corporation (or any entity treated as a corporation for U.S.
federal income tax purposes) organized under the laws of the
U.S. or any political subdivision of the U.S.;

o an estate if its income is subject to U.S. federal income tax
regardless of its source; or

o a trust if a U.S. court can exercise primary supervision over
the trust's administration and one or more U.S. persons are
authorized to control all substantial decisions of the trust.

This summary assumes that you will hold your shares of preferred stock
as a capital asset within the meaning of Section 1221 of the Code. The summary
also assumes that all dividends will be paid as they accrue and that, if the
preferred stock is redeemed, there will not be any dividend arrearages at the
time of redemption. The summary does not purport to deal with all aspects of
federal income taxation that may be relevant to your decision to purchase the
preferred stock, such as estate and gift tax consequences or tax consequences
arising under the laws of any state, local or other taxing jurisdiction. This
summary also does not apply to you if you belong to a category of investors
subject to special tax rules, such as dealers in securities, financial
institutions, insurance companies, tax-exempt organizations, foreign persons,
qualified retirement plans, individual retirement accounts, regulated investment
companies, U.S. expatriates, investors in pass-through entities or persons
subject to the alternative minimum tax.

We can give no assurance that the Internal Revenue Service (IRS) will
take a similar view with respect to the tax consequences described below. We
have not requested, nor do we plan to request, a ruling from the IRS on any tax
matters relating to the preferred stock. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
REGARDING THE FEDERAL,

STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP,
REDEMPTION, AND DISPOSITION OF THE PREFERRED STOCK.

DIVIDENDS AND OTHER DISTRIBUTIONS

Distributions on the preferred stock will be treated as dividends and
taxable as ordinary income to the extent of our current or accumulated earnings
and profits, as determined for federal income tax purposes. Any distribution in
excess of current or accumulated earnings and profits will be treated first as a
nontaxable return of capital reducing your tax basis in the preferred stock. Any
amount in excess of your tax basis will be treated as a capital gain.

Dividends received by corporate holders of the preferred stock are
eligible for a dividends received deduction equal to 70% of the amount of the
distribution, subject to applicable limitations, including limitations related
to "debt financed portfolio stock" under Section 246A of the Code and to the
holding period requirements of Section 246 of the Code. In addition, any amount
received by a corporate holder that is treated as a dividend may constitute an
"extraordinary dividend" subject to the provisions of Section 1059 of the Code
(except as may otherwise be provided in Treasury Regulations yet to be
promulgated). Under Section 1059, a corporate holder generally must reduce the
tax basis of all of the holder's shares (but not below zero) by the "nontaxed
portion" of any "extraordinary dividend" and, if the nontaxed portion exceeds
the holder's tax basis for the shares, must treat any excess as gain from the
sale or exchange of the shares in the year the payment is received. If you are a
corporate holder, you should consult your own tax advisor regarding the extent,
if any, to which these provisions may apply to you in light of your individual
facts and circumstances.

SALE OR EXCHANGE OF PREFERRED STOCK

On the sale or exchange of preferred stock to a party other than us,
you generally will realize capital gain or loss in an amount equal to the
difference between (a) the amount of cash and the fair market value of any
property you receive on the sale and (b) your adjusted tax basis in the
preferred stock. You should consult your own tax advisor regarding applicable
rates, holding periods and netting rules for capital gains and losses. Certain
limitations exist on the deduction of capital losses by both corporate and
noncorporate taxpayers.

REDEMPTION OF PREFERRED STOCK

If we exercise our right to redeem the preferred stock, your surrender
of the preferred stock for the redemption proceeds will be treated either as a
payment received upon sale or exchange of the preferred stock or as a
distribution with respect to all of your equity interests in us. Resolution of
this issue will turn on the application of Section 302 of the Code to your
individual facts and circumstances.

The redemption will be treated as gain or loss from the sale or
exchange of the preferred stock (as discussed above under "-- Sale or Exchange
of Preferred Stock") if:

o the redemption is "substantially disproportionate" with
respect to you within the meaning of Section 302(b)(2) of the
Code; or

o your interest in the preferred stock and any other equity
interest in us is completely terminated (within the meaning of
Section 302(b)(3) of the Code) as a result of such redemption;
or

o the redemption is "not essentially equivalent to a dividend"
(within the meaning of Section 302(b)(1) of the Code). In
general, redemption proceeds are "not essentially equivalent
to a dividend" if the redemption results in a "meaningful
reduction" of your interest in the issuer.

In determining whether any of these tests has been met, you must take into
account not only shares of preferred stock and other equity interests in us
(including patrons' equities and other equity interests) that you actually own,

but also shares and other equity interests that you constructively own within
the meaning of Section 318 of the Code.

If none of the above tests giving rise to sale treatment is satisfied,
then a payment made in redemption of the preferred stock will be treated as a
distribution that is subject to the tax treatment described above under
"Dividends and other Distributions." The amount of the distribution will be
measured by the amount of cash and the fair market value of property you receive
without any offset for your basis in the preferred stock. Your adjusted tax
basis in the redeemed shares of preferred stock will be transferred to any of
your remaining stock holdings in us. If, however, you have no remaining stock
holdings in us, your basis could be lost.

You should consult your own tax advisor regarding:

o whether the redemption payment will qualify for sale or
exchange treatment under Section 302 of the Code or,
alternatively, will be characterized as a distribution; and

o the resulting tax consequences to you in light of your
individual facts and circumstances.

BACKUP WITHHOLDING

We may be required to withhold federal income tax at a rate of 30% (in
2002 and 2003) from dividends and redemption proceeds paid to you if (i) you
fail to furnish us with your correct taxpayer identification number in the
manner required (ii) the IRS notifies us that your taxpayer identification
number is incorrect (iii) the IRS notifies us that you have failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect or (iv) when required to do so, you fail to certify that
you are not subject to backup withholding. Any amounts withheld may be credited
against your federal income tax liability.

UNDERWRITING

D.A. Davidson & Co., U.S. Bancorp Piper Jaffray Inc. and Fahnestock &
Co. Inc. are acting as the representatives of the underwriters named below.
Subject to the terms and conditions set forth in the underwriting agreement,
each underwriter named below has agreed severally to purchase, and we have
agreed to sell to each underwriter, the number of shares of preferred stock set
forth opposite the underwriter's name below:

Underwriters Number of Shares
------------ ----------------
D.A. Davidson & Co............................. __________
U.S. Bancorp Piper Jaffray Inc................. __________
Fahnestock & Co. Inc........................... __________
............................ __________
............................ __________
............................ __________
............................ __________
............................ __________
Total....................... 2,500,000

The underwriters are obligated to purchase all of the shares of
preferred stock offered hereby (other than those shares covered by the
over-allotment option described below) if they purchase any shares.

The underwriters are offering the shares of preferred stock, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of legal matters by their counsel and other conditions contained in the
underwriting agreement. The underwriters reserve the right to withdraw, cancel
or modify offers to the public and to reject orders in whole or in part.

We have agreed to indemnify the underwriters against liabilities
arising from this offering, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of those liabilities

OVER-ALLOTMENT OPTION

We have granted an option to the underwriters to purchase up to 375,000
additional shares of preferred stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option, in whole or part, at any time within 30
days after the date of this prospectus solely to cover over-allotments, if any.
If the underwriters exercise this option, each will be obligated, subject to
conditions set forth in the underwriting agreement, to purchase a number of
additional shares in proportion to that underwriter's respective commitment as
reflected in the table above.

DISCOUNTS AND COMMISSIONS

The underwriters propose to offer the shares of preferred stock
directly to the public at the public offering price and to certain dealers at
this price less a concession not to exceed $0.__ per share. Any underwriter may
allow, and such dealers may reallow, a concession not to exceed $0.__ per share
on sales to other underwriters or to certain dealers. After the commencement of
the offering, the public offering price and other selling terms may be changed.

The following table shows the public offering price, underwriting
discount and proceeds to us before expenses. The information assumes no exercise
or full exercise, as the case may be, of the underwriters' over-allotment
option.

WITHOUT
PER SHARE OPTION WITH OPTION
Public offering price $ 25.00 $ 62,500,000 $ 71,875,000.00
Underwriting discount $ 0.9375 $ 2,343,750 $ 2,695,312.50
Proceeds, before expenses, to us $ 24.0625 $ 58,593,750 $ 69,179,687.50

LIMITATION ON FUTURE ISSUANCES OF PREFERRED STOCK

We have agreed with the representatives that during calendar year 2003,
we will not, without the prior written consent of D.A. Davidson & Co. and U.S.
Bancorp Piper Jaffray Inc. offer or sell, directly or indirectly, any additional
shares of preferred stock or any securities convertible into, or exchangeable
for, preferred stock other than:

o pursuant to any dividend reinvestment plan we may adopt;

o in exchange for our currently outstanding preferred stock; or

o in an underwritten public offering.

In addition, we have advised the representatives that, if we elect to
offer the holders of our existing 8% preferred stock the opportunity to exchange
their shares for shares of this preferred stock, we will concurrently offer them
the opportunity to have those outstanding shares of preferred stock redeemed for
cash.

The resolutions creating the preferred stock contain additional
limitations and restrictions on our issuances of preferred stock that cannot be
modified without the affirmative vote of the holders of at least two-thirds of
the outstanding preferred stock. See "Description of the Preferred Stock -
Limitations and Restrictions on Future Inssuances."

STABILIZING TRANSACTIONS

In connection with the offering, the underwriters and their affiliates
may engage in transactions that are intended to stabilize, maintain or otherwise
affect the market price of the preferred stock, including transactions in which
the underwriters:

o create a short position for their own account by selling more
preferred stock than they are committed to purchase from us in
this offering, in which case they may purchase preferred stock
in the open market to cover all or part of the short position
or

o bid for or purchase the preferred stock at a price above that
which might otherwise prevail in the public market to peg, fix
or maintain the price of the preferred stock.

The underwriters also may reclaim selling concessions allowed to an
underwriter or dealer in the offering if the underwriters repurchase shares of
preferred stock previously distributed by any such underwriter or dealer to
cover syndicate short positions, make stabilizing purchases or otherwise.

Any of these activities may have the affect of preventing or retarding
a decline in the market price of the preferred stock or causing the market price
to be higher than it otherwise would be. The underwriters may conduct these
transactions on The Nasdaq National Market, in the over-the-counter market or
otherwise. If the underwriters commence any of these transactions, they may
discontinue them at any time.

NO PRIOR PUBLIC MARKET; LISTING

The preferred stock is a new issue of securities with no established
trading market and we cannot assure you that a secondary trading market for the
preferred stock will ever develop or, if one develops, that it will be
maintained or provide any significant liquidity. We have applied to have the
preferred stock on The Nasdaq National Market under the symbol "CHSCP." The
representatives have advised us that they intend to make a market with the
preferred stock. However, they are not obligated to do so and may discontinue
any such market activity at any time without notice.

OTHER RELATIONSHIPS

In the ordinary course of their respective businesses, certain of the
underwriters or their affiliates may in the future provide investment banking
and other financial services to us or our affiliates for which they would be
paid customary fees and commissions. An affiliate of U.S. Bancorp Piper Jaffray
Inc. provides commercial banking services to us and is a member of the
creditors' syndicate under our outstanding credit facility.

EXPENSES OF OFFERING

In addition to the underwriting fees, we have agreed to pay the
representatives a non-accountable expense allowance of $100,000. We estimate
that the total expenses of the offering, excluding the underwriting discount and
commissions, will be approximately $[________].

LEGAL MATTERS

Dorsey & Whitney LLP, Minneapolis, Minnesota, has represented us and
will provide us with an opinion that the shares of preferred stock offered by
this prospectus have been duly authorized and validly issued and will be fully
paid and nonassessable. The underwriters have been represented by Stoel Rives
LLP, Seattle, Washington.

EXPERTS

The consolidated financial statements of Cenex Harvest States
Cooperatives and Subsidiaries as of August 31, 2002 and 2001 and for each of the
three years in the period ended August 31, 2002 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The consolidated financial statements of Ventura Foods, LLC
incorporated by reference in this Prospectus from the Annual Report on Form 10-K
of Cenex Harvest States Cooperatives for the year ended August 31, 2002 have
been so incorporated in reliance on the report of Deloitte & Touche LLP,
independent public accountants, given on the authority of said firm as experts
in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the information requirements of the Securities
Exchange Act of 1934 and file reports and other information with the Securities
and Exchange Commission. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of its Public Reference
Room.

The SEC allows us to "incorporate by reference" into this prospectus
the information we have filed with it. The information incorporated by reference
is an important part of this prospectus and the information that we file
subsequently with the SEC will automatically update this prospectus. The
information incorporated by reference is considered to be part of this
prospectus. We incorporate by reference our Annual Report on Form 10-K for the
fiscal year ended August 31, 2002, and any filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the initial filing of this registration statement that contains this prospectus
and prior to the time that all the securities offered by this prospectus are
sold.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

Cenex Harvest States Cooperatives
Attention: Jodell M. Heller
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 451-5151

If more recent information incorporated by reference in this prospectus
is inconsistent with information in this prospectus, then that information will
supersede the information in this prospectus.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CENEX HARVEST STATES COOPERATIVES

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-26

F-i

FINANCIAL STATEMENTS

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
------------- ------------- -------------
(DOLLARS IN THOUSANDS)

REVENUES:
Net sales .................................... $7,731,867 $7,753,012 $8,497,850
Patronage dividends .......................... 3,885 5,977 5,494
Other revenues ............................... 109,459 116,254 97,471
---------- ---------- ----------
7,845,211 7,875,243 8,600,815
Cost of goods sold ............................ 7,513,369 7,470,203 8,300,494
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 -- Cenex Harvest States Cooperatives (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.

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 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.

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 unaudited
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
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)

For the year ended
August 31, 2002:
Net sales ................ $2,657,689 $1,474,553 $3,787,322 $ 496,084 $ (683,781) $7,731,867
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 3,809,721 494,875 2,032 (683,781) 7,845,211
Cost of goods sold ....... 2,489,352 1,471,422 3,778,838 457,538 (683,781) 7,513,369
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
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
(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 $3,514,314 $ 662,726 $ (782,539) $7,753,012
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 3,538,118 662,827 9,220 (782,539) 7,875,243
Cost of goods sold ...... 2,549,099 1,569,884 3,514,575 619,184 (782,539) 7,470,203
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 $3,453,807 $ 584,052 $ (718,182) $8,497,850
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 3,470,108 584,142 5,164 (718,182) 8,600,815
Cost of goods sold ...... 764,744 2,862,715 1,404,120 3,439,863 547,234 (718,182) 8,300,494
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

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 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.

PRICEWATERHOUSECOOPERS, LLP
October 18, 2002
Minneapolis, Minnesota

F-26

[LOGO OF CENEX]

2,500,000 SHARES

8% CUMULATIVE REDEEMABLE PREFERRED STOCK

CENEX HARVEST STATES COOPERATIVES

$25.00 PER SHARE

------------------

______________, 2003

------------------

D.A. DAVIDSON & CO.
U.S. BANCORP PIPER JAFFRAY
FAHNESTOCK & CO. INC.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The fees and expenses incurred by the registrant in connection with the
offering are payable by the registrant and, other than registration, filing and
listing fees, are estimated as follows:

Securities and Exchange Commission Registration Fee..... $ 6,613
NASD Filing Fee......................................... 6,750
Nasdaq Listing Fee...................................... 100,000
Legal Fees and Expenses.................................
Blue Sky Fees and Expenses.............................. 5,000
Accounting Fees......................................... 60,000
Miscellaneous...........................................
Total................................................... $

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Our Bylaws require CHS to indemnify each director, officer, manager,
employee or agent, and any person serving at our request as a director, officer,
manager, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
to the fullest extent permitted under the laws of Minnesota.

Our Articles of Incorporation limit the liability of directors, in
their capacity as directors, to the full extent permitted by Minnesota law. As
permitted by Minnesota law, our Articles of Incorporation provide that a
director shall not be personally liable to the Company or its members for
monetary damages for breach of fiduciary duty as a director, except for
liability for a breach of the director's duty of loyalty to the Company or its
members, for acts of omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for a transaction from which the
director derived an improper personal benefit or for an act or omission
occurring prior to the date when such provisions became effective.

The provision of the Articles of Incorporation limits only the
liability of directors, not officers. These provisions do not affect the
availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. The above provisions also do not
limit liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities laws.

ITEM 16. EXHIBITS.

The following exhibits are filed with this Registration Statement:

Exhibit
Number Description
------- -----------

10.6 Cenex Harvest States Cooperatives Supplemental Executive
Retirement Plan.(9)
10.7 Cenex Harvest States Cooperatives Senior Management
Compensation Plan.(9)
10.8 Cenex Harvest States Cooperatives Executive Long-Term Variable
Compensation Plan.(9)
10.9 Cenex Harvest States Cooperatives Share Option Plan.(9)
10.9A Amendment to Cenex Harvest States Share Option Plan, dated
June 28, 2001.(12)
10.10 $225,000,000 Note Agreement (Private Placement Agreement)
dated as of June 19, 1998 among Cenex Harvest States
Cooperatives and each of the Purchases of the Notes.(3)
10.11 $400 Million 364-day and $200 Million 5-Year Revolving Loan
Credit Agreement dated as of June 1, 1998 among Cenex Harvest
States Cooperatives, CoBank, ACB, St. Paul Bank for
Cooperatives, et al., including Exhibit 2.4 (form of 364-Day
Facility Note) and Exhibit 3.4 (form of 5-Year Note).(3)
10.11A First Amendment to Credit Agreement (Revolving Loan),
effective as of May 31, 1999 among Cenex Harvest States
Cooperatives, CoBank, ACB, NationsBank, N.A. and St. Paul Bank
for Cooperatives.(5)
10.11B Second Amendment to Credit Agreement (Revolving Loan) dated
May 23, 2000 by and among Cenex Harvest States Cooperatives,
CoBank, ACB, Bank of America, SunTrust Bank and the
Syndication Parties.(8)
10.11C Third Amendment to Credit Agreement (Revolving Loan) dated May
23, 2001 among Cenex Harvest States Cooperatives, CoBank, ACB,
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
SunTrust Bank, BNP Paribas and the Syndication Parties.(11)
10.11D Fourth Amendment to Credit Agreement (Revolving Loan) dated
May 22, 2002 among Cenex Harvest States Cooperatives, CoBank,
ACB, Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
SunTrust Bank, Deere Credit, Inc., Credit Lyonnais Chicago
Branch and the Syndication Parties.(14)
10.12 $200 Million Term Loan Credit Agreement dated as of June 1,
1998 among Cenex Harvest States Cooperatives, CoBank, ACB, and
St. Paul Bank for Cooperatives, including Exhibit 2.4 (form of
$200 Million Promissory Note).(3)
10.12A First Amendment to Credit Agreement (Term Loan), effective as
of May 31, 1999 among Cenex Harvest States Cooperatives,
CoBank, ACB, and St. Paul Bank for Cooperatives.(5)
10.12B Second Amendment to Credit Agreement (Term Loan) dated May 23,
2000 by and among Cenex Harvest States Cooperatives, CoBank,
ACB, St. Paul Bank for Cooperatives and the Syndication
Parties.(8)
10.12C Third Amendment to Credit Agreement (Term Loan) dated May 23,
2001 among Cenex Harvest States Cooperatives, CoBank, ACB, and
the Syndication Parties.(11)
10.12D Fourth Amendment to Credit Agreement (Term Loan) dated May 22,
2002 among Cenex Harvest States Cooperatives, CoBank, ACB and
the Syndication Parties.(14)
10.13 Limited Liability Agreement of United Harvest, LLC dated
November 9, 1998 between United Grain Corporation and Cenex
Harvest States Cooperatives.(4)
10.14 $50 Million 364-Day Revolving Loan Credit Agreement dated as
of December 21, 1999 among National Cooperative Refinery
Association, CoBank, ACB, Mercantile Bank and Bank of America,
N.A.(6)
10.14A First Amendment to Credit Agreement (364-Day Revolving Loan)
dated December 19, 2000 by and among National Cooperative
Refinery Association, CoBank, ACB and Firstar Bank, N.A.(13)
10.15 Joint Venture Agreement for Agriliance LLC, dated as of
January 1, 2000 among Farmland Industries, Inc., Cenex Harvest
States Cooperatives, United Country Brands, LLC and Land O'
Lakes, Inc.(7)
10.16 Employment Agreement dated September 1, 2000 by and between
John D. Johnson and Cenex Harvest States Cooperatives.(9)
10.17 Note purchase and Private Shelf Agreement dated as of January
10, 2001 between Cenex Harvest States Cooperatives and The
Prudential Insurance Company of America.(10)
10.17A Amendment No. 1 to Note Purchase and Private Shelf Agreement,
dated as of March 2,2001.(10)
10.18 Note Purchase Agreement and Series D & E Senior Notes dated
October 18, 2002.(15)
12.1 Statement of Computation of Ratios(16)
23.1 Consent of PricewaterhouseCoopers LLP(16)

II-2

23.2 Consent of Deloitte & Touche LLP(16)
23.5 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney(16)
24.2 Power of Attorney(16)

* Pursuant to Rule 406 of the Securities Act of 1933, as
amended, confidential portions of Exhibit 10.3 have been
deleted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.

(1) Incorporated by reference to the Company's Form 8-K filed June
10, 1998.

(2) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-17865), effective February
14, 1997.

(3) Incorporated by reference to the Company's Form 10-Q
Transition Report for the period June 1, 1998 to August 31,
1998, filed October 14, 1998.

(4) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended November 30, 1998, filed January 13,
1999.

(5) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended May 31, 1999, filed July 13, 1999.

(6) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended November 30, 1999, filed January 12,
2000.

(7) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended February 29, 2000 filed April 11, 2000.

(8) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended May 31, 2000, filed July 10, 2000.

(9) Incorporated by reference to the Company's Form 10-K for the
year ended August 31, 2000, filed November 22, 2000.

(10) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended February 28, 2001, filed April 10,
2001.

(11) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended May 31, 2001, filed July 3, 2001.

(12) Incorporated by reference to the Company's Registration
Statement on Form S-2 (File No. 333-65364), effective October
31, 2001.

(13) Incorporated by reference to the Company's Form 10-K for the
year ended August 31, 2001, filed November 19, 2001.

(14) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended May 31, 2002, filed July 3, 2002.

(15) Incorporated by reference to the Company's Form 10-K for the
year ended August 31, 2002, filed November 25, 2002.

(16) Filed herewith.

(17) To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3

(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment of
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Inver Grove Heights, State of Minnesota on this
17 day of December, 2002.

CENEX HARVEST STATES COOPERATIVES

By: /s/ John Schmitz
-----------------------------
John Schmitz
Executive Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title
--------- -----

John D. Johnson* President and Chief
Executive Officer
(principal executive officer)

John Schmitz Executive Vice President and
Chief Financial Officer
(principal financial officer)

Jodell M. Heller* Vice President and Controller
(principal accounting officer)

Michael Toelle* Director
Bruce Anderson* Director
Robert Bass* Director
David Bielenberg* Director
Dennis Carlson* Director
Curt Eischens* Director
Robert Elliott* Director
Robert Grabarski* Director
Jerry Hasnedl* Director
Glen Keppy* Director
James Kile* Director
Randy Knecht* Director
Leonard Larsen* Director
Richard Owen* Director
Duane Stenzel* Director
Merlin Van Walleghen* Director
Elroy Webster* Director

*By: /s/ John Schmitz
-----------------------
John Schmitz
For himself and as Attorney-in-fact

II-5

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

1.1 Form of Underwriting Agreement(17)
4.1 Resolution Creating a Series of Preferred Equity to be
Designated 8% Cumulative Redeemable Preferred Stock(17)
5.1 Opinion of Dorsey & Whitney LLP(17)
10.1 Lease between the Port of Kalama and North Pacific Grain
Growers, Inc., dated November 22, 1960.(2)
10.2 Limited Liability Company Agreement for the Wilsey-Holsum
Foods, LLC dated July 24, 1996.(2)
10.3 Long Term Supply Agreement between Wilsey-Holsum Foods, LLC
and Harvest States Cooperatives dated August 30, 1996.(*)(2)
10.4 TEMCO, LLC Limited Liability Company Agreement between
Cargill, Incorporated and Cenex Harvest States Cooperatives
dated as of August 26, 2002.(15)
10.5 Cenex Harvest States Cooperatives Supplemental Savings
Plan.(9)
10.6 Cenex Harvest States Cooperatives Supplemental Executive
Retirement Plan.(9)
10.7 Cenex Harvest States Cooperatives Senior Management
Compensation Plan.(9)
10.8 Cenex Harvest States Cooperatives Executive Long-Term Variable
Compensation Plan.(9)
10.9 Cenex Harvest States Cooperatives Share Option Plan.(9)
10.9A Amendment to Cenex Harvest States Share Option Plan, dated
June 28, 2001.(12)
10.10 $225,000,000 Note Agreement (Private Placement Agreement)
dated as of June 19, 1998 among Cenex Harvest States
Cooperatives and each of the Purchases of the Notes.(3)
10.11 $400 Million 364-day and $200 Million 5-Year Revolving Loan
Credit Agreement dated as of June 1, 1998 among Cenex Harvest
States Cooperatives, CoBank, ACB, St. Paul Bank for
Cooperatives, et al., including Exhibit 2.4 (form of 364-Day
Facility Note) and Exhibit 3.4 (form of 5-Year Note).(3)
10.11A First Amendment to Credit Agreement (Revolving Loan),
effective as of May 31, 1999 among Cenex Harvest States
Cooperatives, CoBank, ACB, NationsBank, N.A. and St. Paul Bank
for Cooperatives.(5)
10.11B Second Amendment to Credit Agreement (Revolving Loan) dated
May 23, 2000 by and among Cenex Harvest States Cooperatives,
CoBank, ACB, Bank of America, SunTrust Bank and the
Syndication Parties.(8)
10.11C Third Amendment to Credit Agreement (Revolving Loan) dated May
23, 2001 among Cenex Harvest States Cooperatives, CoBank, ACB,
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
SunTrust Bank, BNP Paribas and the Syndication Parties.(11)
10.11D Fourth Amendment to Credit Agreement (Revolving Loan) dated
May 22, 2002 among Cenex Harvest States Cooperatives, CoBank,
ACB, Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
SunTrust Bank, Deere Credit, Inc., Credit Lyonnais Chicago
Branch and the Syndication Parties.(14)
10.12 $200 Million Term Loan Credit Agreement dated as of June 1,
1998 among Cenex Harvest States Cooperatives, CoBank, ACB, and
St. Paul Bank for Cooperatives, including Exhibit 2.4 (form of
$200 Million Promissory Note).(3)

II-6

10.12A First Amendment to Credit Agreement (Term Loan), effective as
of May 31, 1999 among Cenex Harvest States Cooperatives,
CoBank, ACB, and St. Paul Bank for Cooperatives.(5)
10.12B Second Amendment to Credit Agreement (Term Loan) dated May 23,
2000 by and among Cenex Harvest States Cooperatives, CoBank,
ACB, St. Paul Bank for Cooperatives and the Syndication
Parties.(8)
10.12C Third Amendment to Credit Agreement (Term Loan) dated May 23,
2001 among Cenex Harvest States Cooperatives, CoBank, ACB, and
the Syndication Parties.(11)
10.12D Fourth Amendment to Credit Agreement (Term Loan) dated May 22,
2002 among Cenex Harvest States Cooperatives, CoBank, ACB and
the Syndication Parties.(14)
10.13 Limited Liability Agreement of United Harvest, LLC dated
November 9, 1998 between United Grain Corporation and Cenex
Harvest States Cooperatives.(4)
10.14 $50 Million 364-Day Revolving Loan Credit Agreement dated as
of December 21, 1999 among National Cooperative Refinery
Association, CoBank, ACB, Mercantile Bank and Bank of America,
N.A.(6)
10.14A First Amendment to Credit Agreement (364-Day Revolving Loan)
dated December 19, 2000 by and among National Cooperative
Refinery Association, CoBank, ACB and Firstar Bank, N.A.(13)
10.15 Joint Venture Agreement for Agriliance LLC, dated as of
January 1, 2000 among Farmland Industries, Inc., Cenex Harvest
States Cooperatives, United Country Brands, LLC and Land O'
Lakes, Inc.(7)
10.16 Employment Agreement dated September 1, 2000 by and between
John D. Johnson and Cenex Harvest States Cooperatives.(9)
10.17 Note purchase and Private Shelf Agreement dated as of January
10, 2001 between Cenex Harvest States Cooperatives and The
Prudential Insurance Company of America.(10)
10.17A Amendment No. 1 to Note Purchase and Private Shelf Agreement,
dated as of March 2,2001.(10)
10.18 Note Purchase Agreement and Series D & E Senior Notes dated
October 18, 2002.(15)

II-7

12.1 Statement of Computation of Ratios(16)
23.1 Consent of PricewaterhouseCoopers LLP(16)
23.2 Consent of Deloitte & Touche LLP(16)
23.5 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney(16)
24.2 Power of Attorney(16)