10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended August 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to           .

Commission file number: 0-50150

CHS Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-0251095
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
5500 Cenex Drive Inver Grove Heights, Minnesota 55077 (Address of principal executive office, including zip code)	(651) 355-6000 (Registrant’s Telephone number, including area code)

Securities registered pursuant to Section 12(b) of the act: None

Securities registered pursuant to Section 12(g) of the act:

8% Cumulative Redeemable Preferred Stock

(Title of Class)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

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

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:

      The registrant’s voting and non-voting common equity has no market value (the registrant is a member cooperative).

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

DOCUMENTS INCORPORATED BY REFERENCE

     None.

INDEX

		Page
		No.
PART I.
Item 1.	Business		2
	Cautionary Statement		2
	The Company		5
	Agronomy		6
	Energy		9
	Country Operations and Services		12
	Grain Marketing		14
	Processed Grains and Foods		16
	Price Risk and Hedging		19
	Employees		20
	Membership in the Company and Authorized Capital		20
Item 2.	Properties		23
Item 3.	Legal Proceedings		25
Item 4.	Submission of Matters to a Vote of Security Holders		25
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		25
Item 6.	Selected Financial Data		26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		46
Item 8.	Financial Statements and Supplementary Data		47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		48
Item 9A.	Controls and Procedures		48
PART III.
Item 10.	Directors and Executive Officers of the Registrant		49
	Board of Directors		49
	Executive Officers		52
	Section 16(a) Beneficial Ownership Reporting Compliance		54
	Code of Ethics		54
	Audit Committee Matters		54
Item 11.	Executive Compensation		55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		62
Item 13.	Certain Relationships and Related Transactions		63
PART IV.
Item 14.	Principal Accountant Fees and Services		64
Item 15.	Exhibits and Financial Statements		65
SUPPLEMENTAL INFORMATION			68
SIGNATURES			69
Share Option Plan
Amendment No. 2 to Share Option Plan
Amendment No. 3 to Share Option Plan
Amendment No. 4 to Share Option Plan
CHS Inc. Share Option Plan Option Agreement
CHS Inc. Share Option Plan Trust Agreement
Amendment No. 1 to the Trust Agreement
Fifth Amendment to Credit Agreement
Subsidiaries of the Registrant
Consnet of Independent Registered Public Accounting Firm
Independent Auditors' Consent
Power of Attorney
Certification Pursuant ot Section 302
Certification Pursuant ot Section 302
Certification Pursuant ot Section 906
Certification Pursuant ot Section 906

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PART I.

Item 1. Business

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      The information in this Annual Report on Form 10-K for the year ended August 31, 2004, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company. In addition, the Company and its representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to its members and securityholders. Words and phrases such as “will likely result,” “are expected to,” “is anticipated,” “estimate,” “project” and similar expressions identify forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

      The Company’s forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. This Cautionary Statement is for the purpose of qualifying for the “safe harbor” provisions of the Act and is intended to be a readily available written document that contains factors which could cause results to differ materially from those projected in the forward-looking statements. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those which might be projected, forecasted, estimated or budgeted by the Company in the forward-looking statement or statements.

      The following factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any particular forward-looking statement. The following review should not be construed as exhaustive.

      The Company undertakes no obligation to revise any forward-looking statements to reflect future events or circumstances.

      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 weather, disease, insect damage, drought, the availability and adequacy of supply, government regulation and policies, and general political and economic conditions. We are also exposed to fluctuating commodity prices as the result of our inventories of commodities, typically grain and petroleum products, 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. 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.

      In our energy operations, profitability 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. Prices for both crude oil and for gasoline, diesel fuel and other refined petroleum products fluctuate widely. Factors influencing these prices, many of which are beyond our control, include:

•  levels of worldwide and domestic supplies;

•  capacities of domestic and foreign refineries;

•  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;

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

•  the level of consumer demand;

•  the price and availability of alternative fuels;

•  the availability of pipeline capacity; and

•  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.

      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 and 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. 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. 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 and we incur and expect to incur significant capital and operating expenses to comply with these laws and regulations. We may be unable to pass on those expenses to customers without experiencing volume and margin losses. For example, capital expenditures for upgrading our refineries, largely to comply with regulations requiring the reduction of sulfur levels in refined petroleum products, are expected to be approximately $87.0 million for our Laurel, Montana refinery and $311.0 million for the National Cooperative Refinery Association’s (NCRA) McPherson, Kansas refinery, of which $49.2 million had been spent at the Laurel refinery and $131.0 million had been spent by NCRA at the McPherson refinery as of August 31, 2004. We expect all of these compliance capital expenditures at the refineries to be completed by December 31, 2005, and anticipate funding these projects with a combination of cash flows from operations and debt proceeds.

      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. Furthermore, 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.

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      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 applicable 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 or feed 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 or feed products, such as the concern 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 and labor disputes. For example:

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

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

•  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, and it is likely to continue in the future. 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

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consumers of these products to enter into supply relationships with a smaller number of producers resulting in potentially higher prices for the products we purchase.

      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.

      If our customers chose alternatives to our refined petroleum products our revenues and profits may decline. Numerous alternative energy sources currently under development 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, idle acreage and development of insect and disease-resistant crops. These factors could cause Agriliance, LLC, an agronomy marketing and distribution venture in which we have a 50% interest, 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 significant losses in recent years as it has incurred increased prices for raw materials and manufacturing costs for those 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 and energy products. Technological advances in agriculture could decrease the demand for crop nutrients, energy and other crop input products and services that we provide. Genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could affect the demand for our crop nutrients and crop protection products. Demand for fuel that we sell could decline as technology allows for more efficient usage of 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 segment and portions of our grain marketing, wheat milling and foods businesses, are operated through joint ventures with third parties. By operating a business through a joint venture, we have less control over business decisions than we have in our wholly-owned or majority-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 those ventures.

THE COMPANY

      CHS Inc. (CHS or the Company) is one of the nation’s leading integrated agricultural companies. As a cooperative, the Company is owned by farmers and ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. The Company also has preferred stockholders that own shares of the Company’s 8% Cumulative Redeemable Preferred Stock which is listed on the NASDAQ National Market under the symbol CHSCP. On August 31, 2004, the Company had 4,226,428 shares of preferred stock outstanding. CHS buys commodities from and provides products and services to its members and other customers, both domestic and international. The Company provides a wide variety of products and services, from initial agricultural inputs such as fuels, farm supplies, crop

5

nutrients and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products. A portion of the Company’s operations are conducted through equity investments and joint ventures whose operating results are not fully consolidated with the Company’s results; rather, a proportionate share of the income or loss from those entities is included as a component in the Company’s net income under the equity method of accounting. For the fiscal year ended August 31, 2004, the Company’s total revenues were $11.1 billion, and net income was $221.3 million.

      The Company’s operations are organized into five business segments: Agronomy, Energy, Country Operations and Services, 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 crop production inputs. The third segment, Country Operations and Services, serves as the Company-owned retailer of a portion of these crop inputs and also serves as the first handler of a significant portion of the crops marketed and processed by the Company. The fourth segment, Grain Marketing, purchases and resells grains and oilseeds originated by the Country Operations and Services segment, by member cooperatives and also 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. The Company’s earnings derived from cooperative business are allocated to patrons based on the volume of business they do with the Company. The Company allocates these earnings to its members in the form of patronage refunds (which are also called patronage dividends) in cash and patron’s equities, which may be redeemed over time. Earnings derived from non-members, which are not allocated patronage are taxed at regular corporate rates and are retained by the Company as unallocated capital reserve. The Company also receives patronage refunds from the cooperatives in which it is a member, if those cooperatives have earnings to distribute and the Company qualifies for patronage refunds from them.

      The origins of CHS date back to the early 1930s with the founding of the predecessor companies of Cenex, Inc. and Harvest States Cooperatives. CHS emerged as the result of the merger of the two entities in 1998, and is headquartered in Inver Grove Heights, Minnesota. In August 2003, the Company changed its name from Cenex Harvest States Cooperatives to CHS Inc.

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

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

AGRONOMY

Overview

      Through the Agronomy business segment, the Company is engaged in the manufacture of crop nutrients and the wholesale distribution of crop nutrients and crop protection products. The Company conducts its agronomy operations primarily through two investments — a 20% cooperative ownership interest in CF Industries, Inc. (CF Industries) and, effective May 1, 2004, a 50% 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 based on sales.

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

      The Company’s minority ownership interest in CF Industries and 50% ownership interest in Agriliance are treated as investments, and therefore, those entities’ revenues and expenses are not reflected in the Company’s operating results. The Company’s interest in CF Industries is treated as a cost method

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investment and its interest in Agriliance is treated as an equity method investment. CF Industries and Agriliance each have their own line of financing, without recourse to the Company.

Operations

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

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

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

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

      Agriliance. Agriliance is one of the nation’s largest wholesale distributors of crop nutrients (fertilizers) and crop protection products (insecticides, fungicides and pesticides)based on sales, accounting for an estimated 17% of the U.S. market for crop nutrients and approximately 24% 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 primarily in the southern United States. In addition, Agriliance blends and packages crop protection products under the Agri Solutions brand. Agriliance purchased approximately 34% of its fertilizer from CF Industries during fiscal year 2004, and its other suppliers include IMC, PCS, PIC and Koch. Most of Agriliance’s crop protection products are purchased from Monsanto, Syngenta, Dow, Bayer, Dupont and BASF.

      Agriliance was formed in 2000 when CHS, Farmland Industries Inc. (Farmland) and Land O’Lakes, Inc. (Land O’Lakes) contributed their respective agronomy businesses to the new company in consideration for ownership interests in the venture. CHS holds its interests in Agriliance through United Country Brands, LLC (UCB), a wholly-owned holding company.

      In April 2003, CHS acquired a 13.1% additional economic interest in the crop protection products business of Agriliance (the “CPP Business”) for a cash payment of $34.3 million. After the transaction, the economic interests in Agriliance were owned 50% by Land O’Lakes, 25% plus an additional 13.1% of the CPP Business by CHS and 25% less 13.1% of the CPP Business by Farmland. The ownership or governance interests in Agriliance did not change with the purchase of this additional economic interest. Agriliance’s earnings were split among the members based upon the respective economic interests of each member.

      On April 30, 2004, the Company purchased all of Farmland’s remaining interests in Agriliance and UCB for $27.5 million in cash. The Company now owns 50% of the economic and governance interests in Agriliance. The Company continues to account for the investment using the equity method of accounting.

Products and Services

      CF Industries manufactures crop nutrient products, primarily nitrogen and phosphate fertilizers and potash. Agriliance wholesales and retails crop nutrient products and crop protection products that include insecticides, fungicides, and pesticides. In addition, Agriliance blends and packages 7% of the products it sells under the Agri Solutions brand. 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

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products to their members. Agriliance distributes agronomy products through approximately 2,200 local cooperatives from Ohio to the West Coast and from the Canadian border south to Kansas. Agriliance also provides sales and services through 48 Agriliance Service Centers and other retail outlets. Agriliance’s largest customer is the Company’s Country Operations and Services business segment. In 2004, Agriliance sold approximately $1.2 billion of crop nutrient products and approximately $2.3 billion of crop protection and other products.

Industry; Competition

      Regulation. The Agronomy business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Failure to comply with these laws, regulations and rules could subject CF Industries, Agriliance or CHS to administrative penalties, injunctive relief, civil remedies and possible recalls of products. CHS believes that CF Industries and Agriliance are in compliance with these laws, regulations and rules in all material respects and does not expect continued compliance to have a material effect on its capital expenditures, earnings or competitive position.

      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 and earnings 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.

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

      Agriliance. The wholesale and retail distribution of agronomy products is highly competitive and dependent upon relationships with agricultural producers, local cooperatives and growers, proximity to producers and local cooperatives and competitive pricing. Moreover, the crop protection products industry is mature with slow growth predicted for the future, which has led distributors and suppliers to turn to consolidation and strategic partnerships to benefit from economies of scale and increased market share. Agriliance competes with other large agronomy distributors, as well as other regional or local distributors and retailers. Agriliance competes on the strength of its relationships with the members of the Company and members of 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, Cargill, Koch, UAP and United Suppliers. Major competitors of Agriliance in crop protection products distribution include Helena, UAP, Tenkoz and numerous smaller distribution companies.

Summary Operating Results

      The Company accounts for its Agronomy business segment as follows:

      CF Industries. The Company’s investment in CF Industries of $153 million on August 31, 2004 is carried on the balance sheet at cost, including allocated qualified patronage. Since CF Industries is a cooperative, the Company recognizes income from the investment only if it receives qualified patronage refunds. In each of the years 1998 through 2003, CF Industries generated operating losses, none of which were allocated to its owners. Historically, crop nutrients manufacturing earnings have been cyclical in nature. CHS management has performed the appropriate impairment tests of this investment, and based upon those tests, believes that fair market value exceeds its carrying value. The Company will continue to

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perform impairment tests annually, including reviewing operating results, or as circumstances dictate, which could result in an impairment to its CF Industries investment.

      Agriliance. At August 31, 2004 the Company’s equity investment in Agriliance was $167.6 million. The Company recognizes earnings from Agriliance using the equity method of accounting, which results in the Company including its ownership percentage of Agriliance’s net earnings as equity income from investments. The Company applies related internal expenses against those earnings.

      Summary operating results and identifiable assets for the Agronomy business segment for the fiscal years ended August 31, 2004, 2003 and 2002 are shown below:

		2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales
	Other revenues	$	(15	)	$	(84	)	$	(89	)
			(15	)		(84	)		(89	)
Cost of goods sold
Marketing, general and administrative			8,482			8,138			8,957
Operating losses			(8,497	)		(8,222	)		(9,046	)
Interest			(352	)		(974	)		(1,403	)
Equity income from investments			(35,725	)		(20,773	)		(13,425	)
Income before income taxes		$	27,580		$	13,525		$	5,782
Total identifiable assets — August 31		$	327,448		$	285,906		$	242,015

ENERGY

Overview

      CHS is the nation’s largest cooperative energy company based on revenues and identifiable assets, 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 supply of propane. The Energy business segment processes crude oil into refined petroleum products at refineries in Laurel, Montana (wholly-owned) and McPherson, Kansas (an entity in which CHS has an approximately 74.5% ownership interest) and sells those products under the Cenex brand to member cooperatives and others through a network of approximately 1,600 independent retail sites, including approximately 800 that operate Cenex/ Ampride convenience stores.

Operations

      Laurel Refinery. The Company’s Laurel, Montana refinery processes medium and high sulfur crude oil into refined petroleum products that primarily include gasoline, diesel, and asphalt. The Laurel refinery sources approximately 90% of its crude oil supply from Canada, with the balance obtained from domestic sources. Laurel has access to Canadian and northwest Montana crude through the Company’s wholly-owned Front Range Pipeline, LLC 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 other distillates 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

9

carrier pipelines to Wyoming terminals and Denver, Colorado, and east via the Company’s wholly-owned Cenex Pipeline, LLC to Glendive, Montana, and Minot and Fargo, North Dakota.

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

      The McPherson refinery processes approximately 80,000 barrels of crude oil per day to produce refined products that consist of approximately 57% gasoline, 34% diesel and other distillates, and 9% propane and other products. Approximately 90% of the refined fuels are shipped via NCRA’s proprietary products pipeline to its terminal in Council Bluffs, Iowa and to other markets via common carrier pipelines. The remaining refined fuel products are loaded into trucks at the refinery.

      Other Energy Operations. The Company owns and operates a propane terminal, four asphalt terminals and three lubricants blending and packaging facilities. The Company also owns and leases a fleet of liquid and pressure trailers and tractors, which are used to transport refined fuels, propane, anhydrous ammonia and other products.

Products and Services

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

Sales and Marketing; Customers

      The Company makes approximately 70% of its refined fuel sales to members, with the balance sold to non-members. Sales are made wholesale to member cooperatives and through a network of independent retailers that operate convenience stores under the Cenex/ Ampride tradename. The Company sold approximately 1.4 billion gallons of gasoline and approximately 1.3 billion gallons of diesel fuel in fiscal year 2004. The Company also blends, packages and wholesales auto and farm machinery lubricants to both members and non-members. In fiscal year 2004, energy operations sold approximately 21 million gallons of lube oil. The Company is one of the nation’s largest propane wholesalers based on revenues. In fiscal year 2004, energy operations sold approximately 766 million gallons of propane. Most of the propane sold in rural areas is for heating and agricultural usage. Annual sales volumes of propane vary greatly depending on weather patterns and crop conditions.

Industry; Competition

      Regulation. Governmental regulations and policies, particularly in the areas of taxation, energy and the environment, have a significant impact on the Company’s Energy business segment. The Energy business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. Failure to comply with these laws, regulations and rules could subject CHS (and, in the case of the McPherson refinery, NCRA) to administrative penalties, injunctive relief, civil remedies and possible recalls of products. CHS believes that it and NCRA are in compliance with these laws, regulations and rules in all material respects and does not expect continued compliance to have a material effect on capital expenditures, earnings or competitive position of either CHS or NCRA.

      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

10

the Environmental Protection Agency low sulfur fuel regulations required by 2006, which are intended to lower the sulfur content of gasoline and diesel. The Company currently expects that the cost of compliance will be approximately $87.0 million for the Company’s Laurel, Montana refinery and $311.0 million for NCRA’s McPherson, Kansas refinery, of which $49.2 million had been spent at the Laurel refinery and $131.0 million had been spent by NCRA at the McPherson refinery as of August 31, 2004. The Company expects all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and anticipates funding these projects with a combination of cash flows from operations and debt proceeds.

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

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

Summary Operating Results

      Summary operating results and identifiable assets for the Energy business segment for the fiscal years ended August 31, 2004, 2003 and 2002 are shown below:

		2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales	$	4,028,248		$	3,648,093		$	2,657,689
	Other revenues		9,193			5,655			857
			4,037,441			3,653,748			2,658,546
Cost of goods sold			3,784,260			3,470,726			2,483,359
Marketing, general and administrative			66,493			63,740			66,731
Operating earnings			186,688			119,282			108,456
Gain on sale of investment			(14,666	)
Interest			13,819			16,401			16,875
Equity (income) loss from investments			(1,399	)		(1,353	)		1,166
Minority interests			32,507			20,782			14,604
Income before income taxes		$	156,427		$	83,452		$	75,811
Intersegment sales		$	(121,199	)	$	(94,209	)	$	(67,367	)
Total identifiable assets — August 31		$	1,591,254		$	1,449,652		$	1,305,828

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COUNTRY OPERATIONS AND SERVICES

Overview

      The Country Operations and Services business segment purchases a variety of grains from the Company’s producer members and other third parties, and provides cooperative members and producers with access to a full range of products and services including farm supplies, programs for crop and livestock production, hedging and insurance services, and agricultural operations financing. Country Operations and Services operates at 289 locations dispersed throughout Minnesota, North Dakota, South Dakota, Nebraska, Montana, Idaho, Washington and Oregon. Most of these locations purchase grain from farmers and sell agronomy products, energy products and feed to those same producers and others, although not all locations provide every product and service.

Products and Services

      Grain Purchasing. The Company is one of the largest country elevator operators in North America based on revenues. Through a majority of its elevator locations, the Country Operations and Services business segment purchases grain from member and non-member producers and other elevators and grain dealers. Most of the grain purchased is either sold through the Company’s Grain Marketing business segment or used for local feed and processing operations. For the year ended August 31, 2004, the Country Operations and Services business segment purchased approximately 318 million bushels of grain, primarily wheat (140 million bushels), corn (90 million bushels) and soybeans (47 million bushels). Of these bushels, 267 million were purchased from members and 248 million were sold through the Grain Marketing business segment.

      Other Products. Country Operations and Services manufactures and sells other products, both directly and through ownership interests in other entities. These include seed; crop nutrients; energy products; animal feed ingredients, supplements and products; animal health products; crop protection products; and processed sunflowers. The Company sells agronomy products at 160 locations, feed products at 126 locations and energy products at 103 locations.

      Financial Services. The Company has provided open account financing to more than 130 CHS members that are cooperatives (cooperative association members) in the past year. These arrangements involve the discretionary extension of credit in the form of term and seasonal loans and can also be used as a clearing account for settlement of grain purchases and as a cash management tool. A substantial part of the term and seasonal loans are sold to the National Bank for Cooperatives (CoBank), with CoBank purchasing up to 100% of any loan. The Company’s guarantee exposure on these loans at August 31, 2004 was approximately $5.9 million. Through its wholly-owned subsidiary Fin-Ag, Inc. the Company provides seasonal cattle feeding and swine financing loans, facility financing loans and crop production loans. Most loans are sold to Pro Partners (an affiliate of CoBank) under a program separate from that described above, under which the Company has guaranteed a portion of the loans. The Company’s exposure at August 31, 2004 was approximately $25.1 million. The Company’s borrowing arrangements allow for the Company to retain up to $110.0 million of loans in aggregate for both finance programs, or to sell the loans and extend guarantees up to $150.0 million in aggregate.

      The Company’s wholly-owned subsidiary Country Hedging, Inc. (Country Hedging), 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 (Ag States), is an independent insurance agency in which the Company holds a majority ownership interest. It sells insurance, including group benefits, property and casualty, and bonding programs. Its approximately 1,600 customers are primarily agricultural businesses, including local cooperatives and independent elevators, petroleum outlets, agronomy, feed and seed plants, implement dealers, fruit and vegetable packers/ warehouses, and food processors.

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Industry; Competition

      Regulation. The Country Operations and Services business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes; and the labeling of pesticides and similar substances. The Country Operations and Services business segment’s operations are also subject to laws and related regulations and rules administered by the United States Department of Agriculture, the Federal Food and Drug Administration, and other federal, state, local and foreign governmental agencies that govern the processing, packaging, storage, distribution, advertising, labeling, quality and safety of feed and grain products. Failure to comply with these laws, regulations and rules could subject CHS to administrative penalties, injunctive relief, civil remedies and possible recalls of products. CHS believes that it is in compliance with these laws, regulations and rules in all material respects and does not expect continued compliance to have a material effect on its capital expenditures, earnings or competitive position.

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

      Competitors to the Company’s financing operations are primarily other financial institutions. The Company competes primarily on the basis of price, services and patronage. Country Hedging’s competitors include international brokerage firms, national brokerage firms, regional brokerage firms (both cooperatives and non-cooperatives) as well as local introducing brokers, with competition driven 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 and identifiable assets for the Country Operations and Services business segment for the fiscal years ended August 31, 2004, 2003 and 2002 are shown below:

		2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales	$	2,227,764		$	1,885,825		$	1,474,553
	Other revenues		94,381			84,206			83,361
			2,322,145			1,970,031			1,557,914
Cost of goods sold			2,199,700			1,876,811			1,474,392
Marketing, general and administrative			70,196			55,887			47,995
Operating earnings			52,249			37,333			35,527
Gain on legal settlements			(692	)		(10,867	)		(2,970	)
Interest			16,019			14,975			13,851
Equity income from investments			(519	)		(788	)		(283	)
Minority interests			1,323			1,168			786
Income before income taxes		$	36,118		$	32,845		$	24,143
Intersegment sales		$	(987,145	)	$	(796,999	)	$	(615,853	)
Total identifiable assets — August 31		$	862,645		$	857,523		$	799,711

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GRAIN MARKETING

Overview

      CHS is the nation’s largest cooperative marketer of grain and oilseed based on grain storage capacity and grain sales, handling about 1.1 billion bushels annually. During fiscal year 2004, the Company purchased approximately 69% of its total grain volumes from individual and cooperative association members and the Country Operations and Services business segment, with the balance purchased from third parties. CHS arranges for the transportation of the grains either directly to customers or to Company owned or leased grain terminals and elevators awaiting delivery to domestic and foreign purchasers. The Company primarily conducts its Grain Marketing operations directly, but does conduct some of its business through two 50% owned joint ventures.

Operations

      The Grain Marketing segment purchases grain directly and indirectly from agricultural producers primarily in the midwestern and western United States. The purchased grain is typically contracted for sale for future delivery at a specified location, with the Company responsible for handling the grain and arranging for its transportation to that location. The sale of grain is recorded after title to the commodity has transferred and final weights, grades and settlement price have been agreed upon. Amounts billed to the customer as part of a sales transaction include the costs for shipping and handling. The Company’s ability to arrange efficient transportation, including loading capabilities onto unit trains, ocean-going vessels, and barges, is a significant part of the services it offers to its customers. Rail, vessel, barge and truck transportation is carried out by third parties, often under long-term freight agreements with the Company. Grain intended for export is usually shipped by rail or barge to an export terminal, where it is loaded onto ocean-going vessels. Grain intended for domestic use is usually shipped by rail or truck to various locations throughout the country.

      CHS owns export terminals, river terminals, and elevators involved in the handling and transport of grain. River terminals at St. Paul, Savage, and Winona, Minnesota, and Davenport, Iowa are used to load grains onto barges for shipment to both domestic and export customers via the Mississippi River system. The Company’s export terminal at Superior, Wisconsin, provides access to the Great Lakes and St. Lawrence Seaway, and an export terminal at Myrtle Grove, Louisiana serves the Gulf market. In the Pacific Northwest, the Company conducts its grain marketing operations through United Harvest, LLC (a 50% joint venture with United Grain Corporation), and TEMCO, LLC (a 50% joint venture with Cargill, Incorporated). United Harvest, LLC operates grain terminals in Vancouver and Kalama, Washington, and primarily exports wheat. TEMCO, LLC, operates an export terminal in Tacoma, Washington, and primarily exports corn and soybeans. These facilities serve the Pacific market, as well as domestic grain customers in the western United States. The Company also owns two 110-car shuttle-receiving elevator facilities in Friona, Texas and Collins, Mississippi that serve large-scale feeder cattle, dairy and poultry producers in those regions. In 2003, the Company opened an office in Sao Paulo, Brazil, for the procurement of soybeans for the Grain Marketing segment’s international customers.

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

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Products and Services

      The primary grains purchased by the Grain Marketing business segment for the year ended August 31, 2004 were corn (456 million bushels), wheat (389 million bushels) and soybeans (286 million bushels). Of the total grains purchased by the Grain Marketing business segment during the year ended August 31, 2004, 603 million bushels were purchased from the Company’s individual and cooperative association members, 248 million bushels were purchased from the Country Operations and Services 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

      Regulation. The Grain Marketing business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes. The Grain Marketing business segment’s operations are also subject to laws and related regulations and rules administered by the United States Department of Agriculture, the Federal Food and Drug Administration, and other federal state, local and foreign governmental agencies that govern the processing, packaging, storage, distribution, advertising, labeling, quality and safety of food and grain products. Failure to comply with these laws, regulations and rules could subject CHS to administrative penalties, injunctive relief, civil remedies and possible recalls of products. CHS believes that it is in compliance with these laws, regulations and rules in all material respects and does not expect continued compliance to have a material effect on its capital expenditures, earnings or competitive position.

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

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

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

      The results of the grain marketing business may be adversely affected by relative levels of supply and demand, both domestic and international, commodity price levels (including grain prices reported 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

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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 and identifiable assets for the Grain Marketing business segment for the fiscal years ended August 31, 2004, 2003 and 2002 are shown below:

		2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales	$	5,006,029		$	4,139,226		$	3,281,469
	Other revenues		28,710			25,676			22,399
			5,034,739			4,164,902			3,303,868
Cost of goods sold			5,006,704			4,133,677			3,272,985
Marketing, general and administrative			25,071			21,072			22,213
Operating earnings			2,964			10,153			8,670
Interest			5,874			4,738			4,807
Equity (income) loss from investments			(11,413	)		1,673			(4,257	)
Income before income taxes		$	8,503		$	3,742		$	8,120
Intersegment sales		$	(45,103	)	$	(2,435	)	$	(69,561	)
Total identifiable assets — August 31		$	487,807		$	450,415		$	481,232

PROCESSED GRAINS AND FOODS

Overview

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

      Regulation. The Processed Grains and Foods business segment’s operations are subject to laws and related regulations and rules designed to protect the environment that are administered by the Environmental Protection Agency, the Department of Transportation and similar government agencies. These laws, regulations and rules govern the discharge of materials to environment, air and water; reporting storage of hazardous wastes; the transportation, handling and disposition of wastes. The Processed Grains and Foods business segment’s operations are also subject to laws and related regulations and rules administered by the United States Department of Agriculture, the Federal Food and Drug Administration, and other federal state, local and foreign governmental agencies that govern the processing, packaging, storage, distribution, advertising, labeling, quality and safety of food and grain products. Failure to comply with these laws, regulations and rules could subject CHS or its foods partners to administrative penalties, injunctive relief, civil remedies and possible recalls of products. CHS believes that it is in compliance with these laws, regulations and rules in all material respects and does not expect continued compliance to have a material effect on its capital expenditures, earnings or competitive position.

Oilseed Processing

      The Company’s oilseed processing operations convert soybeans into soybean meal, soyflour, crude soyoil, refined soybean oil and associated by-products. These operations are conducted at a facility in

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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 produce approximately 1 billion pounds of refined soybean oil annually. Another crushing facility in Fairmont, Minnesota has a crushing capacity and crude soyoil output similar to the Mankato facility. The facility in Fairmont became operational in the first quarter of fiscal 2004.

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

      The Company’s soy processing facilities are located in areas with a strong production base of soybeans and end-user market for the meal and soyflour. The Company purchases virtually all of its soybeans from members. The oilseed crushing operations currently produce approximately 85% of the crude oil that the Company refines, and purchases the balance from outside suppliers.

      The Company’s customers for refined oil are principally large food product companies located throughout the United States. However, over 50% of the customers are located in the Midwest due to lower freight costs and slightly higher profitability potential. The largest customer for refined oil products is Ventura Foods, LLC (Ventura Foods), in which the Company holds a 50% ownership interest and with which the Company has a long-term supply agreement to supply minimum quantities of edible soybean oils as long as the Company maintains a minimum 25.5% ownership interest and the Company’s price is comparative with other suppliers of the product. The Company’s sales to Ventura Foods were $94.5 million in fiscal year 2004. The Company also sells soymeal to almost 600 customers, primarily feed lots and feed mills in southern Minnesota. Land O’Lakes/ Purina Feed, LLC accounts for 18% of soymeal sold and Commodity Specialists Company accounts for 22% of soymeal sold. The Company sells soyflour to customers in the baking industry both domestically and for export.

      The refined soybean products industry is highly competitive. Major industry competitors include ADM, Cargill, Ag Processing, Inc., and Bunge. These and other competitors have acquired other processors and have expanded existing plants, or have constructed new plants, both domestically and internationally. Price, transportation costs, services and product quality drive competition. The Company estimates that it has a market share of approximately 4% to 5% of the domestic refined soybean oil market and approximately 4% of the domestic soybean crushing capacity.

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

Wheat Milling

      In January 2002, the Company and Cargill formed Horizon Milling, LLC (Horizon Milling), in which the Company owns 24% and Cargill owns the remaining 76%. Horizon Milling is the largest U.S. wheat miller. Sales and purchases of wheat and durum by the Company to Horizon Milling during fiscal year 2004 were $206.2 million and $2.9 million, respectively. Horizon Milling’s advance payments on grain to the Company were $7.1 million on August 31, 2004, and are included in Customer Advance Payments on the Company’s Consolidated Balance Sheets.

      The Company leases five mills to Horizon Milling and ceased operations at its Huron, Ohio, mill prior to the formation of Horizon Milling. The Company has dismantled the milling equipment at Huron, and is currently pursuing the sale of the equipment that has not yet been sold. The Processed Grains and Foods business segment carries an impairment of approximately $5.7 million on the equipment.

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Foods

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

      Ventura Foods. Ventura Foods manufactures, packages, distributes and markets bulk margarine, salad dressings, mayonnaise, salad oils, syrups, soup bases and sauces, many of which utilize soybean oil as a primary ingredient. Approximately 40% of Ventura Foods’ 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 Foods’ 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 consist primarily of soybean oil, canola oil, cottonseed oil, peanut oil and various other ingredients and supplies, from various national suppliers, including the Company’s oilseed processing 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 60% in foodservice and the remainder split between retail and industrial customers who use edible oil products as ingredients in foods they manufacture for resale. During Ventura Foods’ 2004 fiscal year, Sysco accounted for 23% of net sales.

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

      Ventura Foods was created in 1996 and at the time was owned 40% by the Company and 60% by Wilsey Foods, Inc., a majority owned subsidiary of Mitsui & Co., Ltd. In March 2000, the Company purchased an additional 10% interest from Wilsey Foods, Inc. bringing the Company’s total equity investment in Ventura Foods to 50%. The Company accounts for the Ventura Foods investment under the equity method of accounting. At August 31, 2004 the Company’s equity investment in Ventura Foods was $107.7 million.

      Mexican Foods. Through its Mexican foods operations, the Company manufactures, packages, and distributes tortillas, tortilla chips and prepared frozen Mexican food products such as burritos and tamales. Sales are to both retail and food service customers. The Company sells these products under a variety of local and regional brand names and also produces private label products and co-packs for customers. The current operational focus is on establishing profitability and operational efficiency.

      The tortilla and tortilla chip industry in the United States is comprised of a large number of small regional manufacturers and a few dominant manufacturers. The Company estimates that its Mexican foods operation has approximately a 1.5% share of the national tortilla market and less than a 1% share of the national tortilla chip market. On a national basis, the primary competitors are large chip and snack companies such as Frito Lay. During the Company’s fiscal year ended August 31, 2004, U.S. Foods accounted for 13% of Mexican foods’ net sales and Sysco accounted for 11% of net sales.

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Summary Operating Results

      Summary operating results and identifiable assets for the Processed Grains and Foods business segment for the fiscal years ended August 31, 2004, 2003 and 2002 are shown below:

		2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales*	$	802,102		$	491,931		$	496,084
	Other revenues		2,836			2,411			(1,209	)
			804,938			494,342			494,875
Cost of goods sold			768,391			473,682			462,655
Marketing, general and administrative			31,811			29,715			31,813
Operating earnings (losses)			4,736			(9,055	)		407
Interest			15,307			12,845			9,514
Equity income from investments			(29,966	)		(26,056	)		(41,331	)
Income before income taxes		$	19,395		$	4,156		$	32,224
Intersegment sales		$	(1,363	)	$	(698	)	$	(560	)
Total identifiable assets — August 31		$	475,004		$	498,872		$	439,942

*  The 2004 net sales increase from 2003 and 2002 is primarily due to the additional crushing capacity of the Fairmont, Minnesota facility that began operation in the first fiscal quarter of 2004.

PRICE RISK AND HEDGING

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

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

      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 maintenance margin deposit would be required. Similarly, if the price of a long futures contract decreases, a maintenance margin deposit would

19

be required and sent to the applicable exchange. Subsequent price changes could require additional maintenance margins or could result in the return of maintenance margins.

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

EMPLOYEES

      At August 31, 2004, CHS had approximately 6,800 full, part-time and seasonal employees, which included approximately 560 employees of NCRA. Of that total, approximately 1,900 were employed in the Energy segment, 3,520 in the Country Operations and Services segment (including approximately 1,130 seasonal and temporary employees), 440 in the Grain Marketing segment, 710 in the Processed Grains and Foods segment and 230 in corporate and administrative functions. In addition to those employed directly by the Company, many employees work for the joint ventures in which the Company has an ownership interest, and are not included in these counts. All of the employees in the Agronomy segment and a portion of the Grain Marketing and Processed Grains and Foods segments are employed in this manner.

      Employees in certain areas are represented by collective bargaining agreements. Refinery and pipeline workers in Laurel, Montana (183 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 in regard to wages and benefits. The contracts covering the NCRA McPherson, Kansas refinery (260 employees in the PACE union) are also in place through 2006. There are approximately 165 employees in transportation and lubricant plant operations that are covered by other collective bargaining agreements that expire at various times. Production workers in grain marketing operations (142 employees) are represented by agreements with four unions, which expire at various times in 2005 and 2006. Finally, certain production workers in oilseed processing operations are subject to collective bargaining agreements with the American Federation of Grain Millers (120 employees) and the Pipefitters’ Union (2 employees) for which agreements are in place through 2006.

MEMBERSHIP IN THE COMPANY AND AUTHORIZED CAPITAL

Introduction

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

Distribution of Net Income; Patronage Dividends

      The Company is required by its organizational documents annually to distribute net earnings derived from patronage business with members, after payment of dividends on equity capital, to members on the basis of patronage, except that the Board of Directors may elect to retain and add to the Company’s unallocated capital reserve an amount not to exceed 10% of the distributable net income from patronage

20

business. Net income from non-patronage business may be distributed to members or added to the unallocated capital reserve, in whatever proportions the Board of Directors deems appropriate.

      These distributions, referred to as “patronage dividends,” may be distributed in cash, patrons’ equities, revolving fund certificates, securities of the Company or others, or any combination designated by the Board of Directors. Since 1998, the Board of Directors has distributed patronage dividends in the form of 30% cash and 70% patrons’ equities (see “— Patrons’ Equities” below). The Board of Directors may change the mix in the form of the patronage dividend in the future. In making distributions, the Board of Directors may use any method of allocation that, in its judgment, is reasonable and equitable. Patronage dividends distributed during the years ended August 31, 2004, 2003 and 2002 were $95.2 million ($28.7 million in cash), $88.3 million ($26.5 million in cash) and $132.6 million ($40.1 million in cash), respectively.

Patrons’ Equities

      Patrons’ equities are in the form of a book entry and represent a right to receive cash or other property when redeemed by the Company. Patrons’ equities form part of the capital of the Company, do not bear interest and are not subject to redemption upon request of a member. Patrons’ equities are redeemable only at the discretion of the Board of Directors and in accordance with the terms of the redemption policy adopted by the Board of Directors, which may be modified at any time without member consent. A new policy was adopted effective September 1, 2004, whereby redemptions of capital equity certificates approved by the Board of Directors will be divided into two pools, one for non-individuals (primarily member cooperatives) who may participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year will be determined by multiplying the dollars available for pro-rata redemptions that year as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator is the sum of the patronage certificates older than 10 years held by all eligible non-individuals.

      Cash redemptions of patrons and other equities during the years ended August 31, 2004, 2003 and 2002 were $10.3 million, $31.1 million and $31.1 million, respectively. An additional $13.0 million of equities were redeemed by issuance of shares of the Company’s 8% Cumulative Redeemable Preferred Stock during the year ended August 31, 2004.

Governance

      The Company is managed by a Board of Directors of not less than 17 persons elected by the members at the Company’s annual meeting. Terms of directors are staggered so that no more than seven directors are elected in any year. The Board of Directors is currently comprised of 17 directors. The articles of incorporation and bylaws of the Company may be amended only upon approval of a majority of the votes cast at an annual or special meeting of the members, except for the higher vote described under “— Certain Antitakeover Measures” below.

Membership

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

      As a membership cooperative, the Company does not have common stock. The Company may issue equity or debt securities, on a patronage basis or otherwise, to its members. The Company has two classes of outstanding membership. Individual members are individuals actually engaged in the production of agricultural products. Cooperative associations are associations of agricultural producers and may be either

21

cooperatives or other associations organized and operated under the provisions of the Agricultural Marketing Act and the Capper-Volstead Act.

Voting Rights

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

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

      Most matters submitted to a vote of the members require the approval of a majority of the votes cast at a meeting of the members, although certain actions require a greater vote. See “Certain Antitakeover Measures” below.

Debt and Equity Instruments

      The Company may issue debt and equity instruments to its current members and patrons, on a patronage basis or otherwise, and to persons who are neither members nor patrons. Capital equity certificates issued by the Company are subject to a first lien in favor of the Company for all indebtedness of the holder to the Company. As of August 31, 2004, the Company’s outstanding capital included patrons’ equities (consisting of capital equity certificates and non-patronage earnings certificates), 8% Cumulative Redeemable Preferred Stock and certain capital reserves.

Distribution of Assets Upon Dissolution; Merger and Consolidation

      In the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, all debts and liabilities would be paid first according to their respective priorities. After such payment, the holders of the preferred stock would then be entitled to receive out of 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 would 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 securities that rank senior to the preferred stock. After such distribution to the holders of equity capital, any excess would be paid to patrons on the basis of their past patronage. The bylaws provide for the allocation among the members and nonmember patrons of the consideration received in any merger or consolidation to which the Company is a party.

Certain Antitakeover Measures

      The Company’s governing documents may be amended upon the approval of a majority of the votes cast at an annual or special meeting. However, if the Board of Directors, in its sole discretion, declares that a proposed amendment to the Company’s governing documents involves or is related to a “hostile takeover,” the amendment must be adopted by 80% of the total voting power of the members of the Company.

      The approval of not less than two-thirds of the votes cast at a meeting is required to approve a “change of control” transaction which would include a merger, consolidation, liquidation, dissolution, or sale of all or substantially all of the Company’s assets. If the Board of Directors determines that a proposed change of control transaction involves a hostile takeover, the 80% approval requirement applies.

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The term “hostile takeover” is not further defined in the Minnesota cooperative law or the governing documents of the Company.

Tax Treatment

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

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

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

      NCRA is not consolidated for tax purposes.

Item 2. Properties

      The Company owns or leases energy, grain handling and processing, food manufacturing and agronomy related facilities throughout the United States. Below is a summary of these locations.

Energy

      Facilities in the Company’s Energy business segment include the following, all of which are owned except where indicated as leased:

Refinery		Laurel, Montana
Propane terminal		Glenwood, Minnesota
Transportation terminals/ repair facilities		12 locations in Iowa, Kansas, Minnesota, Montana, North Dakota, South Dakota, Texas, Washington and Wisconsin, 3 of which are leased
Petroleum & asphalt terminals/storage facilities		9 locations in Montana, North Dakota and Wisconsin
Pump stations		11 locations in Montana and North Dakota
Pipelines:
	Cenex Pipeline, LLC	Laurel, Montana to Fargo, North Dakota
	Front Range Pipeline, LLC	Canadian border to Laurel, Montana
Convenience stores/gas stations		33 locations in Iowa, Minnesota, Montana, North Dakota, South Dakota and Wyoming
Lubricant plants/warehouses		3 locations in Minnesota, Ohio and Texas

      The Company has a 74.5% interest in NCRA, which owns and operates the following facilities:

Refinery	McPherson, Kansas
Petroleum terminals/storage	2 locations in Iowa and Kansas
Pipeline	McPherson, Kansas to Council Bluffs, Iowa
Jayhawk Pipeline, LLC	Throughout Kansas, with branches in Oklahoma and Texas
Jayhawk stations	40 locations located in Kansas and Oklahoma

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Grain Marketing

      The Company owns or leases grain terminals used in the Grain Marketing business segment at the following locations:

Collins, Mississippi (owned)

Davenport, Iowa (2 owned)

Friona, Texas (owned)

Kalama, Washington (leased)

Minneapolis, Minnesota (owned, idle)

Myrtle Grove, Louisiana (owned)

St. Paul, Minnesota (leased)

Savage, Minnesota (owned)

Spokane, Washington (owned)

Superior, Wisconsin (owned)

Winona, Minnesota (1 owned, 1 leased)

Country Operations and Services

      In the Country Operations and Services business segment, the Company owns 289 agri-operations locations (of which some of the facilities are on leased land), 8 feed manufacturing facilities and 2 sunflower plants located in Minnesota, Nebraska, North Dakota, South Dakota, Montana, Washington, Oregon and Idaho.

Processed Grains and Foods

      Within the Processed Grains and Foods business segment, the Company owns and leases the following facilities:

Oilseed Processing

      The Company owns a campus in Mankato, Minnesota, comprised of a soybean crushing plant, an oilseed refinery, a soyflour plant, a quality control laboratory and an administration office. A soybean crushing plant in Fairmont, Minnesota became operational during the fiscal quarter ended November 30, 2003.

Wheat Milling

      The Company owns five flour milling facilities at the following locations, all of which are leased to Horizon Milling, LLC:

Rush City, Minnesota

Kenosha, Wisconsin

Houston, Texas

Mount Pocono, Pennsylvania

Fairmount, North Dakota

Foods

      The Company leases manufacturing facilities in New Brighton, Minnesota, Ft. Worth, Texas and Phoenix, Arizona. In addition, the Company owns two manufacturing facilities in Ft. Worth, Texas. The Company completed construction of a facility near Newton, North Carolina in 2003, which was originally to be used for manufacturing, but at this time the Company intends to sell or lease it. All facilities are related to the Company’s Mexican foods operations.

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Corporate Headquarters

      The Company is headquartered in Inver Grove Heights, Minnesota. The Company owns a 33-acre campus consisting of one main building with approximately 320,000 square feet of office space and two smaller buildings with approximately 13,400 and 9,000 square feet of space.

      The Company’s internet address is www.chsinc.com.

Item 3. Legal Proceedings

      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 affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

      In October 2003, the Company and NCRA reached agreement with the Environmental Protection Agency (EPA) and the State of Montana’s Department of Environmental Quality and the State of Kansas Department of Health and Environment, regarding the terms of settlements with respect to reducing air emissions at the Company’s Laurel, Montana and NCRA’s McPherson, Kansas refineries. These settlements are part of a series of similar settlements that the EPA has negotiated with major refiners under the EPA’s Petroleum Refinery Initiative. The settlements, which resulted from nearly three years of discussions, take the form of consent decrees filed with the U.S. District Court for the District of Montana (Billings Division) and the U.S. District Court for the District of Kansas. Each consent decree details specific capital improvements, supplemental environmental projects and operational changes that the Company and NCRA have agreed to implement at the relevant refinery over the next several years. The consent decrees also require the Company and NCRA to pay approximately $0.5 million in aggregate civil cash penalties. The Company and NCRA anticipate that their aggregate capital expenditures related to these settlements will range from approximately $25.0 million to $30.0 million over the next seven years. Approximately 50 percent of the expenditures will be made over the first three years. The Company does not believe that the settlements will have a material adverse affect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders

      None.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

      The Company has approximately 48,100 members, of which approximately 1,100 are cooperative association members and approximately 47,000 are individual members. As a cooperative, the Company does not have any common equity that is traded.

      On August 31, 2004 the Company had 4,226,428 shares of 8% Cumulative Redeemable Preferred Stock outstanding, which is listed on the NASDAQ National Market under the symbol CHSCP.

      On April 25, 2003, the Company issued 298,099 shares of its 8% Cumulative Redeemable Preferred Stock (the “New Shares”) on conversion of 7,452,439 then-outstanding shares of 8% Preferred Stock (the “Old Shares”). The New Shares were exchanged by the Company with its existing security holders (the holders of the Old Shares) exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. Accordingly, the Company relied on the exemption from registration contained in Section 3(a)(9) of the Securities Act of 1933, as amended, for the issuance of the New Shares and did not file a registration statement with the Securities and Exchanges Commission with respect to that issuance.

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      Other than the issuance of the New Shares, the Company has not sold any equity securities during the three years ended August 31, 2004 that were not registered under the Securities Act of 1933, as amended.

Item 6. Selected Financial Data

      The selected financial information below has been derived from the Company’s consolidated financial statements for the years ended August 31. The selected consolidated financial information for August 31, 2004, 2003, and 2002 should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this filing.

Summary Consolidated Financial Data

		2004			2003			2002			2001			2000
		(dollars in thousands)
Income Statement Data:
Revenues:
	Net sales	$	10,909,333		$	9,270,734		$	7,156,454		$	7,464,242		$	8,248,413
	Other revenues		141,303			122,578			107,351			117,378			102,965
			11,050,636			9,393,312			7,263,805			7,581,620			8,351,378
Cost of goods sold			10,604,245			9,060,555			6,940,050			7,177,135			8,051,057
Marketing, general and administrative			208,284			183,757			182,175			183,491			155,266
Operating earnings			238,107			149,000			141,580			220,994			145,055
Gain on sale of investment			(14,666	)
Gain on legal settlements			(692	)		(10,867	)		(2,970	)
Interest			51,625			48,675			42,455			61,436			57,566
Equity income from investments			(79,022	)		(47,299	)		(58,133	)		(28,494	)		(28,325	)
Minority interests			33,830			21,950			15,390			35,098			24,546
Income before income taxes			247,032			136,541			144,838			152,954			91,268
Income taxes			25,700			12,700			18,700			(25,600	)		3,880
Net income		$	221,332		$	123,841		$	126,138		$	178,554		$	87,388
Balance Sheet Data (August 31):
	Working capital	$	493,440		$	458,738		$	249,115		$	305,280		$	214,223
	Net property, plant and equipment		1,249,655			1,122,982			1,057,421			1,023,872			1,034,768
	Total assets		4,031,292			3,807,968			3,481,727			3,057,319			3,172,680
	Long-term debt, including current maturities		683,818			663,173			572,124			559,997			510,500
	Total equities		1,628,086			1,481,711			1,289,638			1,261,153			1,164,426

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      The selected financial statement information below has been derived from the Company’s five business segments, and Corporate and Other, for the fiscal years ended August 31, 2004, 2003 and 2002. The intercompany sales between segments were $1,154.8 million, $894.3 million and $753.3 million for the fiscal years ended August 31, 2004, 2003 and 2002, respectively.

Summary Financial Data By Business Segment

		Agronomy									Energy
		2004			2003			2002			2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales										$	4,028,248		$	3,648,093		$	2,657,689
	Other revenues	$	(15	)	$	(84	)	$	(89	)		9,193			5,655			857
			(15	)		(84	)		(89	)		4,037,441			3,653,748			2,658,546
Cost of goods sold												3,784,260			3,470,726			2,483,359
Marketing, general and administrative			8,482			8,138			8,957			66,493			63,740			66,731
Operating (losses) earnings			(8,497	)		(8,222	)		(9,046	)		186,688			119,282			108,456
Gain on sale of investment												(14,666	)
Interest			(352	)		(974	)		(1,403	)		13,819			16,401			16,875
Equity (income) loss from investments			(35,725	)		(20,773	)		(13,425	)		(1,399	)		(1,353	)		1,166
Minority interests												32,507			20,782			14,604
Income before income taxes		$	27,580		$	13,525		$	5,782		$	156,427		$	83,452		$	75,811
Intersegment sales											$	(121,199	)	$	(94,209	)	$	(67,367	)
Total identifiable assets — August 31		$	327,448		$	285,906		$	242,015		$	1,591,254		$	1,449,652		$	1,305,828

		Country Operations and Services									Grain Marketing
		2004			2003			2002			2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales	$	2,227,764		$	1,885,825		$	1,474,553		$	5,006,029		$	4,139,226		$	3,281,469
	Other revenues		94,381			84,206			83,361			28,710			25,676			22,399
			2,322,145			1,970,031			1,557,914			5,034,739			4,164,902			3,303,868
Cost of goods sold			2,199,700			1,876,811			1,474,392			5,006,704			4,133,677			3,272,985
Marketing, general and administrative			70,196			55,887			47,995			25,071			21,072			22,213
Operating earnings			52,249			37,333			35,527			2,964			10,153			8,670
Gain on legal settlements			(692	)		(10,867	)		(2,970	)
Interest			16,019			14,975			13,851			5,874			4,738			4,807
Equity income (loss) from investments			(519	)		(788	)		(283	)		(11,413	)		1,673			(4,257	)
Minority interests			1,323			1,168			786
Income before income taxes		$	36,118		$	32,845		$	24,143		$	8,503		$	3,742		$	8,120
Intersegment sales		$	(987,145	)	$	(796,999	)	$	(615,853	)	$	(45,103	)	$	(2,435	)	$	(69,561	)
Total identifiable assets — August 31		$	862,645		$	857,523		$	799,711		$	487,807		$	450,415		$	481,232

		Processed Grains and Foods									Corporate and Other
		2004			2003			2002			2004			2003			2002
		(dollars in thousands)
Revenues:
	Net sales	$	802,102		$	491,931		$	496,084
	Other revenues		2,836			2,411			(1,209	)	$	6,198		$	4,714		$	2,032
			804,938			494,342			494,875			6,198			4,714			2,032
Cost of goods sold			760,918			473,682			462,655
Marketing, general and administrative			39,284			29,715			31,813			6,231			5,205			4,466
Operating earnings (losses)			4,736			(9,055	)		407			(33	)		(491	)		(2,434	)
Interest			15,307			12,845			9,514			958			690			(1,189	)
Equity income from investments			(29,966	)		(26,056	)		(41,331	)					(2	)		(3	)
Income (loss) before income taxes		$	19,395		$	4,156		$	32,224		$	(991	)	$	(1,179	)	$	(1,242	)
Intersegment sales		$	(1,363	)	$	(698	)	$	(560	)
Total identifiable assets — August 31		$	475,004		$	498,872		$	439,942		$	287,134		$	265,600		$	212,999

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      The following discussions of financial condition and results of operations should be read in conjunction with the accompanying audited financial statements and notes to such statements and the cautionary statement regarding forward-looking statements found at the beginning of Part I, Item 1, of this Form 10-K. This discussion contains forward-looking statements based on current expectations, assumptions, estimates and projections of management. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described in the cautionary statement and elsewhere in this Form 10-K.

      CHS Inc. (CHS or the Company) is a diversified company, which provides grain, foods and energy resources to businesses and consumers. As a cooperative, the Company is owned by farmers, ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. The Company also has preferred stockholders that own shares of the Company’s 8% Cumulative Redeemable Preferred Stock.

      CHS buys commodities from and provides products and services to members and other customers on a global basis. The Company provides products and services ranging from grain marketing to food processing and operates petroleum refineries and pipelines. Through a broad range of working partnerships, CHS markets and distributes Cenex® brand energy products, along with agronomic inputs and feed to rural America.

      The Company has five distinct business segments: Agronomy, Energy, Country Operations and Services, 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 crop production inputs. The third segment, Country Operations and Services, serves as the Company-owned retailer of a portion of these crop inputs and also serves as the first handler of a significant portion of the crops marketed and processed by the Company. The fourth segment, Grain Marketing, purchases and resells grains and oilseeds originated by the Country Operations and Services segment, by member cooperatives and also by third parties. The fifth business segment, Processed Grains and Foods, converts grains and oilseeds into value-added products.

      Summary data for each of these segments for the fiscal years ended August 31, 2004, 2003 and 2002 is shown on prior pages. Except as otherwise specified, references to years indicate the CHS fiscal year ended August 31, 2004 or ended August 31 of the year referenced.

      Corporate administrative expenses are allocated to all five business segments based on either direct usage for services that can be tracked, such as information technology and legal, and other factors or considerations relevant to the costs incurred. A portion of these costs are allocated based on direct usage. Administrative expenses are allocated to all segments, including segments comprised solely of investments and joint ventures.

      Many of the Company’s business activities are highly seasonal and operating results will vary throughout the year. Overall, the Company’s income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter. Certain business segments are subject to varying seasonal fluctuations. For example, the Agronomy and Country Operations and Services segments experience higher volumes and income during the spring planting season and in the fall, which corresponds to harvest. The Grain Marketing segment is subject to fluctuations in volume and earnings based on producer harvests, world grain prices and demand. The Company’s Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined products, in the summer and early fall when gasoline and diesel fuel usage is highest. Other energy products, such as propane, experience higher volumes and profitability during the winter heating and crop drying seasons.

      The Company’s revenue can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds and flour. Changes in market prices for commodities that

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the Company purchases without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Commodity prices are affected by a wide range of factors beyond the Company’s control, including the weather, crop damage due to disease or insects, drought, the availability and adequacy of supply, government regulations and policies, world events, and general political and economic conditions.

      While the Company’s sales and operating results are derived from businesses and operations which are wholly-owned and majority-owned, a portion of business operations are conducted through companies in which the Company holds ownership interests of 50% or less and does not control the operations. The Company accounts for these investments primarily using the equity method of accounting, wherein CHS records its proportionate share of income or loss reported by the entity as equity income from investments, without consolidating the revenues and expenses of the entity in the Company’s consolidated statements of operations. These investments principally include the Company’s 50% ownership in each of the following companies; Agriliance, LLC (Agriliance), TEMCO, LLC (TEMCO), United Harvest, LLC (United Harvest), Ventura Foods, LLC (Ventura Foods), and the 24% ownership in Horizon Milling, LLC (Horizon).

      Agriliance is owned and governed by Land O’Lakes, Inc. (50%) and United Country Brands, LLC (50%). United Country Brands, LLC, was initially owned and governed 50% by the Company and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, the Company’s indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as the Company’s ownership or governance interest. In April 2003, the Company acquired an additional 13.1% economic interest in the wholesale crop protection business of Agriliance (the “CPP Business”), which constituted only a part of the Agriliance business operations, for a cash payment of $34.3 million. After the transaction, the economic interests in Agriliance were owned 50% by Land O’Lakes, 25% plus an additional 13.1% of the CPP Business by the Company and 25% less 13.1% of the CPP Business by Farmland. The ownership or governance interests in Agriliance did not change with the purchase of this additional economic interest. Agriliance’s earnings were split among the members based upon the respective economic interests of each member. On April 30, 2004, the Company purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. The Company now owns 50% of the economic and governance interests in Agriliance, and continues to account for this investment using the equity method of accounting.

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

Results of Operations

Comparison of the Years Ended August 31, 2004 and 2003

      General. The Company recorded pretax earnings of $247.0 million in fiscal 2004 compared to $136.5 million in fiscal 2003, an increase of $110.5 million (81%). These results reflected increased pretax earnings in each of the business segments of the Company.

      The Agronomy segment generated pretax earnings of $27.6 million for the year ended August 31, 2004 compared to $13.5 million in the prior year. This increase in earnings of $14.1 million (104%) is primarily attributable to the acquisition of Farmland’s interests in Agriliance, as previously discussed, which represents $7.3 million of the increase in earnings, and improved Agriliance earnings from operations.

      The Energy segment generated pretax earnings of $156.4 million for the year ended August 31, 2004 compared with $83.5 million in the prior year. This increase in earnings of $72.9 million (87%) is primarily attributable to higher margins on refined fuels products, which resulted mainly from increased global demand. Earnings on lubricants, propane and transportation also improved compared to the previous year.

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      The Country Operations and Services segment generated pretax earnings of $36.1 million for the year ended August 31, 2004 compared to $32.8 million in the prior year. This increase in earnings of $3.3 million (10%) resulted primarily from strong operating margins in energy, seed, agronomy and processed sunflower products. In addition, pretax earnings from commodity brokerage and insurance services improved by $0.9 million compared to the prior year. During 2004 and 2003, the Country Operations and Services segment recorded $0.7 million and $10.9 million of earnings, respectively, from the cash settlements of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      The Grain Marketing segment generated pretax earnings of $8.5 million for the year ended August 31, 2004 compared to $3.7 million in the prior year. This increase in earnings of $4.8 million (127%) includes improved earnings in the Company’s two exporting joint ventures, TEMCO and United Harvest. Short supplies created strong demands for wheat, corn and soybeans along with favorable ocean freight spreads from the Pacific Northwest to Asia contributed to the improved earnings for these two joint ventures. During the third quarter of fiscal 2004, the Company, along with several other international grain marketing companies, experienced contract issues with Chinese customers for soybeans. Because the value of soybeans had declined between the date of the contracts and the delivery date, certain Chinese customers indicated their intent of nonperformance on these contracts. At that time, based upon an assessment of the impact of default, the Company valued those contracts at $18.5 million less than current market value, which was recorded as an addition to cost of goods sold in May 2004. The Company has since reached resolution on most of those contracts and has established receivables for the expected proceeds. These expected proceeds approximate the valuation placed on the contracts on May 31, 2004, and therefore, there was no additional impact on the Company’s net income during the fourth quarter of fiscal 2004.

      The Processed Grains and Foods segment generated pretax earnings of $19.4 million for the year ended August 31, 2004 compared to $4.2 million in the prior year. This increase in earnings of $15.2 million was primarily the result of improved crushing and refining margins within the Company’s oilseed processing operations. A poor 2003 harvest of soybeans in the U.S. because of weather conditions coupled with strong export demand put soybeans in short supply which widened soybean meal and oil margins throughout most of fiscal 2004. Earnings from our wheat milling joint venture, Horizon Milling, improved $3.0 million in fiscal 2004 while results from Mexican foods declined $1.1 million. Our share of earnings from Ventura Foods, our packaged foods joint venture, increased $0.9 million compared to the prior year.

      Net Income. Consolidated net income for the year ended August 31, 2004 was $221.3 million compared to $123.8 million for the year ended August 31, 2003, which represents a $97.5 million (79%) increase.

      Net Sales. Consolidated net sales of $10.9 billion for the year ended August 31, 2004 compared to $9.3 billion for the year ended August 31, 2003, which represents a $1.6 billion (18%) increase.

      Energy net sales of $3.9 billion increased $353.2 million (10%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. During the years ended August 31, 2004 and 2003, the Energy segment recorded sales to the Country Operations and Services segment of $121.2 million and $94.2 million, respectively. Intersegment sales are eliminated in deriving consolidated sales but are included for segment reporting purposes. The net sales increase of $353.2 million is comprised of an increase of $578.9 million related to price appreciation and a decrease in sales of $225.7 million because of lower sales volume, primary on refined fuels and propane products. On a more product-specific basis, the Company owns and operates two crude oil refineries from which it produces approximately 60% of the refined fuels products that it sells, the balance is purchased from other U.S. refiners and distributors. Refined fuels net sales increased $317.9 million (13%), of which $444.4 million was related to a net average price increase partially offset by a decrease of $126.5 million related to reduced volumes. The sales price of refined fuels increased $0.17 per gallon (18%) and volumes decreased 4% when comparing the year ended August 31, 2004 with the same period a year ago. Higher crude oil costs and global supply and

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demand forces contributed to the increase in refined fuels selling prices. The volume of refined fuels sales decreased primarily because of the non-renewal of a supply agreement with another refiner. Propane net sales increased by $33.1 million (7%), of which $84.6 million was related to a net average selling price change partially offset by a decrease of $51.5 million due to reduced volumes compared to the previous year. Propane prices increased $0.10 per gallon (18%) and sales volume decreased 9% in comparison of the same periods the prior year. Higher propane prices reflect lower industry stocks during the later part of 2003 as the result of a cold winter earlier in the calendar year. The lower sales volume for propane during the year ended August 31, 2004 is primarily reflective of a dry autumn which offered minimal opportunity for sales related to crop drying and a relatively warm early winter which reduced demand for home heating as compared to the same period in 2003.

      Company-wide grain and oilseed net sales of $5.3 billion increased $867.1 million (19%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. Sales to external customers by the Grain Marketing segment totaled $4,960.9 million and $4,136.8 million during the years ended August 31, 2004 and 2003, respectively. Grain sales of the Country Operations and Services segment to external customers during these same periods were $386.0 million and $343.0 million, respectively. Sales of grain between Country Operations and Services and Grain Marketing segments during these same periods were $1,032.2 million and $799.4 million, respectively. These intersegment sales are included for segment reporting purposes, but are eliminated on a consolidated basis. The net sales increase of $867.1 million is attributable to higher grain prices and increased volumes. during the year ended August 31, 2004 compared to the same period last fiscal year. The average sales price of all grain and oilseed commodities sold reflected an increase of $0.44 per bushel (11%), which contributed $480.8 million to the increase in net sales. Commodity prices in general increased due to a poor 2003 harvest in the U.S. because of weather conditions which caused a shortage of grains and oilseeds. The average market price per bushel of soybeans, corn and spring wheat were $2.34, $0.37 and $0.25 greater than the prices on those same grains as compared to the year ended August 31, 2003. Volumes increased 8% during the year ended August 31, 2004 compared with the same period of a year ago, and contributed $386.3 million to the increase. Wheat, corn and soybeans reflected the largest volume increases. Demand from Chinese customers increased international exports of soybeans.

      Country operations non-grain net sales of $854.6 million increased by $108.9 million (15%) during the year ended August 31, 2004 compared to the year ended August 31, 2003 primarily the result of increased average selling prices on energy, crop nutrients, seed and processed sunflower products. Overall, the average selling price on these products has increased compared to the previous year. In addition, volumes are up due to acquisitions.

      Processed Grains and Foods segment net sales of $800.7 million increased $309.5 million (63%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. Oilseed processing sales increased $313.4 million, of which $159.6 million was due to higher sales volumes, and $153.8 million was due to price appreciation. The average selling price of processed and refined oilseed products increased $76 per ton and $0.08 per pound, respectively, compared to the previous year. The volume increase is primarily due to the additional volumes from the crushing plant in Fairmont, Minnesota that began operations during the first quarter of fiscal year 2004. The price increase is primarily related to overall global market conditions for soybean oil. Sales of Mexican foods products decreased $3.3 million compared to the year ended August 31, 2003.

      Other Revenues. Other revenues of $141.3 million increased $18.7 million (15%) during the year ended August 31, 2004 compared to the year ended August 31, 2003. The majority of other revenue was generated within the Country Operations and Services and the Grain Marketing segments and derived primarily from services performed through the Country Operations and Services segment’s elevator and agri-service centers, including grain storage, grain cleaning, fertilizer spreading, crop protection product spraying and other services of this nature; the Country Operations and Services segment’s financial services, and the Grain Marketing segment’s service activities at its export terminals for loading vessels. Services revenue within the Country Operations and Services segment increased $5.0 million compared to the previous year, primarily due to increased commissions on commodity hedging and insurance services as

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a result of increased market share and expanded services offerings and safety and loss credits. Grain marketing services revenues and delivery income increased by $4.5 million compared to the year ended August 31, 2003. The Energy segment received $2.1 million of sulfur allotment recovery for the sale of a portion of its sulfur credits. In addition, CHS received patronage refunds of $7.7 million during the year ended August 31, 2004, an increase of $4.5 million (137%) compared to the previous year. The increase in patronage refunds is primarily the result of a patronage distribution in one of the Company’s cooperative investments, which was related to gains on legal settlements and on the sale of a warehouse facility.

      Cost of Goods Sold. Cost of goods sold of $10.6 billion increased $1.5 billion (17%) during the year ended August 31, 2004 compared to the year ended August 31, 2003.

      The Energy segment net cost of goods sold increased by $286.5 million (8%) during the year ended August 31, 2004 compared to the same period of the prior year, primarily due to increased average costs, which was partially offset by reduced volumes. On a more product-specific basis, the average cost of refined fuels increased by $0.16 per gallon, which was partially offset by a 4% decrease in volumes compared to the year ended August 31, 2003. The average cost increase on refined fuels is reflective of higher input costs at the Company’s two crude oil refineries and higher average prices on the refined products that are purchased for resale compared to the year ended August 31, 2003. The average per unit cost of crude oil purchased for the two refineries increased 15% compared to the previous fiscal year end. The Company processes approximately 55,000 barrels of crude oil per day at its Laurel, Montana refinery and 80,000 barrels of crude oil per day at NCRA’s McPherson, Kansas refinery. The average cost of propane increased $0.11 per gallon, which was partially offset by a 9% decrease in volumes compared to the year ended August 31, 2003. Propane volumes were reduced due to a dry autumn and relatively warm early winter, which was partially offset by an average cost increase due to higher input costs compared to the year ended August 31, 2003.

      The cost of all grains and oilseed procured by the Company through its Grain Marketing and Country Operations and Services segments increased $857.6 million (19%) compared to the year ended August 31, 2003, primarily the result of a $0.43 (11%) average cost per bushel increase and an 8% increase in volumes compared to the prior year. In addition to higher commodity prices, increased shipping costs and the $18.5 million net effect of the Chinese contract defaults described above contributed to this increase in cost of goods sold.

      Country operations non-grain cost of goods sold increased $105.5 million (13%) during the year ended August 31, 2004 compared to the year ended August 31, 2003, primarily due to an increased average cost per unit on energy products and crop nutrients, and additional volumes from acquisitions.

      The Processed Grains and Foods segment cost of goods sold increased by $294.0 million (62%) compared to the year ended August 31, 2003, which was primarily due to additional volumes of soybeans processed at the new crushing plant in Fairmont, Minnesota, and increased cost of raw materials in oilseed processing.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $208.3 million for the year ended August 31, 2004 increased by $24.5 million (13%) compared to the year ended August 31, 2003. The net increase includes additional expenses due to increased retiree benefit expenses of $4.9 million, higher healthcare costs and other employee related benefits and $5.4 million of additional bad debt expenses in the Country Operations and Services segment.

      Gain on Sale of Investment. During the year ended August 31, 2004, the Company recorded a gain of $14.7 million within the Energy segment from the sale of a portion of a petroleum crude oil pipeline investment. NCRA exercised its right of first refusal to purchase a partial interest in the pipeline, and subsequently sold a 50% interest to another third party for proceeds of $25.0 million.

      Gain on Legal Settlements. The Country Operations and Services segment received cash of $0.7 million and $10.9 million during the years ended August 31, 2004 and 2003, respectively, from the settlement of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

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      Interest. Interest expense of $51.6 million for the year ended August 31, 2004 increased by $3.0 million (6%) compared to the year ended August 31, 2003. The average level of short-term borrowings increased $93.2 million primarily due to financing higher working capital needs and was partially offset by an average short-term interest rate decrease of 0.4% during the year ended August 31, 2004 compared to the year ended August 31, 2003.

      Equity Income from Investments. Equity income from investments of $79.0 million for the year ended August 31, 2004 increased by $31.7 million (67%) compared to the year ended August 31, 2003. The Company records equity income or loss from the investments it owns 50% or less of its proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in the Company’s consolidated statements of operations. The increase in equity income from investments was primarily attributable to improved earnings from investments within the Company’s Agronomy segment of $15.0 million, Grain Marketing segment of $13.1 million and Processed Grain and Foods segment of $3.9 million.

      The Agronomy segment joint ventures generated increased earnings of $15.0 million. In April 2004, the Company finalized the purchase of additional ownership in Agriliance so that the Company now owns 50%, which accounts for $7.3 million of the increase. In addition, Agriliance recorded increased earnings from operations primarily in wholesale crop protection operations compared to the same period of a year ago. Agriliance recorded improved earnings on its crop protection products, which primarily consist of herbicides and pesticides, due to increased market share. However, the price of these products continues to decline as many come off patent and are replaced by cheaper generic brands. Crop nutrient volumes, which primarily consist of fertilizers and micronutrients, are down 20% over last year, which partially reduced Agriliance earnings. Consistently high and volatile domestic prices for crop nutrient products have created a competitive, global supply environment.

      The Grain Marketing segment recorded increased earnings of $13.1 million, primarily in two exporting joint ventures due to increased export demand and favorable ocean freight spreads from the Pacific Northwest, where the exporting facilities are located, to the Pacific Rim. These factors contributed to a $6.8 million increase in equity income from the Company’s investment in TEMCO, a joint venture, which exports primarily corn and soybeans. Similar conditions contributed to a $5.2 million improvement in equity income from the Company’s wheat exporting investment in United Harvest.

      The Processed Grains and Foods segment showed increased earnings of $3.9 million, of which $3.0 million was from Horizon, a wheat milling joint venture, due to increased operating efficiencies and demand growth for whole-grain wheat products. Ventura Foods, an oilseed based products and packaged foods joint venture, recorded increased earnings of $0.9 million compared to the previous year.

      Minority Interests. Minority interests of $33.8 million for the year ended August 31, 2004 increased by $11.9 million (54%) compared to the year ended August 31, 2003. This increase was primarily a result of more profitable operations within the Company’s majority-owned subsidiaries compared to the prior year and the minority interest net effect of the gain on the sale of the NCRA investment. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary.

      Income Taxes. Income tax expense of $25.7 million for the year ended August 31, 2004 compares with $12.7 million for the year ended August 31, 2003, resulting in effective tax rates of 10.4% and 9.3%, respectively. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the years ended August 31, 2004 and 2003. 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, 2003 and 2002

      Net Income. Consolidated net income for the year ended August 31, 2003 was $123.8 million compared to $126.1 million for the year ended August 31, 2002, which represents a $2.3 million (2%) decrease. This decrease in profitability is primarily attributable to decreased earnings in the Company’s Processed Grains and Foods and Grain Marketing segments, which was partially offset by increased

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earnings within the Energy, Country Operations and Services and Agronomy segments compared to the year ended August 31, 2002.

      Net Sales. Consolidated net sales of $9.3 billion for the year ended August 31, 2003 increased $2.1 billion (30%) compared to the year ended August 31, 2002.

      Energy net sales of $3.6 billion increased $963.6 million (37%) during the year ended August 31, 2003 compared to the year ended August 31, 2002. Sales for the year ended August 31, 2003 and 2002 were $3,648.1 million and $2,657.7 million, respectively. The Company eliminated all intersegment sales from the Energy segment to the Country Operations and Services segment of $94.2 million and $67.4 million for the years ended August 31, 2003 and 2002, respectively. Refined fuels net sales increased by $783.2 million, of which $418.0 million was related to a net average price change and $365.2 million was related to a net volume change. The sales price of refined fuels increased $0.18 per gallon and volume increased 17% compared to the year ended August 31, 2002. Refined fuels commodity prices increased due to global uncertainty in the energy markets brought on by the ensuing war and the Venezuela disruption. Propane net sales increased by $137.0 million, of which $75.9 million was related to a net volume change and $61.1 million was related to a net average price change. The average sales price of propane increased by $0.09 per gallon and volume increased by 19% compared to the year ended August 31, 2002. Domestic propane inventories were at extremely low levels coming out of the heating season, which supported a higher selling price. Refined fuels and propane volume increases were primarily a result of acquisitions, with the largest acquisition taking place in November 2001, when the Company purchased for $32.6 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.

      Company-wide grain and oilseed net sales of $4.5 billion increased $1.0 billion (30%) during the year ended August 31, 2003 compared to the year ended August 31, 2002. Sales to external customers by the Grain Marketing segment totaled $4,136.8 million and $3,211.9 million during the years ended August 31, 2003 and 2002, respectively. Grain sales of the Country Operations and Services segment to external customers during these same periods were $343.0 million and $246.2 million, respectively. Sales of grain between Country Operations and Services and Grain Marketing segments during these same periods were $799.4 million and $685.4 million, respectively. These intersegment sales are included for segment reporting purposes, but the Company eliminates all intersegment sales on a consolidated basis. The net increase in sales was primarily due to an increase of $0.93 (30%) per bushel in the average sales price of all grain and oilseed marketed by the Company while volumes remained essentially unchanged from the prior year. The net increase in company-wide grain and oilseed of $1.0 billion was primarily related to the price change due to stronger commodity prices and increased international soybean exports.

      Country operations non-grain net sales of $745.8 million increased by $133.3 million (22%) during the year ended August 31, 2003 compared to the year ended August 31, 2002. The net average price and net volume increased on the majority of farm supply products, which consists of seed; plant food; energy products; animal health ingredients, supplements and products; animal health products; and crop nutrient and crop protection products, compared to the prior year. In addition, net sales increased $46.4 million compared to the prior year due to the acquisition of a sunflower processing plant.

      Processed Grains and Foods segment net sales of $491.2 million decreased $4.3 million (1%) during the year ended August 31, 2003 compared to the year ended August 31, 2002. Intersegment sales of $0.7 million and $0.6 million for the years ended August 31, 2003 and 2002, respectively, have been eliminated. Oilseed processing and refining net sales increased $81.4 million primarily due to an average selling price increase of $0.07 per bushel in refined oilseed. In addition, Mexican Foods sales increased $4.1 million compared to the prior year. These sales increases were partially offset by an $89.6 million decrease in sales due to the formation of Horizon Milling, a wheat flour milling and processing joint venture that was formed in January 2002. After that date, the Company accounted for operating results of Horizon Milling under the equity method of accounting.

      Other Revenues. Other revenues of $122.6 million increased $15.2 million (14%) during the year ended August 31, 2003 compared to the year ended August 31, 2002. The most significant increases were

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within the Energy, Grain Marketing and Corporate and Other segments compared to the prior year. Patronage refunds received of $3.3 million during the year ended August 31, 2003, decreased $0.6 million (16%) compared to the year ended August 31, 2002, due to reduced patronage dividends from cooperatives.

      Cost of Goods Sold. Cost of goods sold of $9.1 billion increased $2.1 billion (31%) during the year ended August 31, 2003 compared to the year ended August 31, 2002.

      The Energy segment net cost of goods sold increased by $960.5 million (40%) during the year ended August 31, 2003 compared to the prior year, primarily due to refined fuels average cost increase of $778.1 million (46%), which consists of increased average cost of $0.18 per gallon and volume increases of 17% compared to the year ended August 31, 2002. In addition, the average cost of propane increased by $138.1 million (43%), of which the average cost increased by $0.10 per gallon and volumes increased by 19% compared to the prior year. Energy cost increases primarily related to the global effects of higher input costs and increased volumes primarily as a result of acquisitions.

      The cost of all grains and oilseed procured by the Company through its Grain Marketing and Country Operations and Services segments increased by $1.0 billion (30%) compared to the year ended August 31, 2002 primarily due to a $0.92 (30%) average cost per bushel increase while volumes remained essentially unchanged from the prior year. This increase in cost of goods sold was primarily the result of higher commodity prices and increased international exports.

      Country operations non-grain cost of goods sold increased by $129.1 million (12%) during the year ended August 31, 2003 compared to the prior year primarily due to a sunflower processing plant acquisition and increased average cost per unit on most farm supply products.

      Processed Grains and Foods segment cost of goods sold increased by $11.0 million (2%) compared to the year ended August 31, 2002. Oilseed processing and refining cost of goods sold increased $94.6 million, primarily due to the increased cost of raw materials related to oilseed refining of $0.07 per bushel. This increase was partially offset by decreased cost of goods sold of $89.7 million related to the formation of Horizon Milling, as previously discussed.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $183.8 million for the year ended August 31, 2003 increased by $1.6 million (1%) compared to the year ended August 31, 2002. The net increase is primarily due to additional expenses within the Country Operations and Services segment primarily due to a sunflower plant acquisition.

      Gain on Legal Settlements. The Country Operations and Services segment received cash of $10.9 million and $3.0 million during the years ended August 31, 2003 and 2002, respectively, from the settlement of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      Interest. Interest expense of $48.7 million for the year ended August 31, 2003 increased by $6.2 million (15%) compared to the year ended August 31, 2002. The average level of short-term borrowings increased $88.1 million primarily due to financing higher working capital needs, which was partially offset by an average short-term interest rate decrease of 0.4% during the year ended August 31, 2003 compared to August 31, 2002. Long-term debt borrowings increased due to an additional $175.0 million of private placement debt that was issued in October 2002.

      Equity Income from Investments. Equity income from investments of $47.3 million for the year ended August 31, 2003 decreased by $10.8 million (19%) compared to the year ended August 31, 2002. The Company records equity income or loss from the investments it owns 50% or less of for its proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in the Company’s consolidated statements of operations. The decrease in equity income from investments was primarily attributable to decreased earnings in Ventura Foods, which was partially offset by increased earnings in Agriliance compared to the prior year. During the fiscal year ended

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August 31, 2003, the Company recorded an additional 13.1% of income from the CPP business of Agriliance, as previously discussed.

      Minority Interests. Minority interests of $22.0 million for the year ended August 31, 2003 increased by $6.6 million (43%) compared to the year ended August 31, 2002. The net change in minority interests during the year ended August 31, 2003 compared to the prior year was primarily a result of more profitable operations within the Company’s majority-owned subsidiaries. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary.

      Income Taxes. Income tax expense of $12.7 million for the year ended August 31, 2003 compares with $18.7 million for the year ended August 31, 2002, resulting in effective tax rates of 9.3% and 12.9%, respectively. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the years ended August 31, 2003 and 2002. The income taxes and effective tax rate vary each year based upon profitability and nonpatronage business activity during each of the comparable years.

Liquidity and Capital Resources

      On August 31, 2004, the Company had working capital, defined as current assets less current liabilities, of $493.4 million and a current ratio, defined as current assets divided by current liabilities, of 1.3 to 1.0 compared to working capital of $458.7 million and a current ratio of 1.3 to 1.0 on August 31, 2003. Working capital increased during fiscal 2004 by $34.7 million despite capital expenditures of $245.1 million, primarily because of strong earnings and the addition of $30.0 million in long-term debt during this period.

      During May 2004, the Company renewed and expanded its committed lines of revolving credit which are used primarily to finance inventories and receivables. The previously established credit lines consisted of a $600 million 364-day revolver and a $100 million three-year revolver. The new committed credit facilities consist of a $750 million 364-day revolver and $150 million three-year revolver. These credit facilities are established with a syndicate of domestic and international banks, and the inventories and receivables financed with these loans are highly liquid. The terms of the new credit facilities are essentially the same as the terms for the credit facilities they replace. On August 31, 2004, $115.0 million was outstanding on these lines of credit. In September 2004, the Company borrowed $125.0 million from a group of insurance companies on a long-term basis and used the proceeds to pay down the revolving lines of credit. The Company’s management believes there is adequate liquidity to cover any increase in net operating assets and liabilities in the forseeable future.

Cash Flows from Operations

      Cash flows from operations are generally affected by commodity prices. These commodity prices are affected by a wide range of factors beyond our control, including weather, crop conditions, drought, the availability and the adequacy of supply and transportation, government regulations and policies, world events, and general political and economic conditions. These factors are described in the cautionary statement at the beginning of Part I, Item 1 of this Form 10-K, and may affect net operating assets and liabilities, and liquidity.

      Cash flows provided by operating activities were $333.3 million and $216.5 million for the years ended August 31, 2004 and 2003, respectively. Cash used in operating activities was $35.9 million for the year ended August 31, 2002. Volatility in cash flows from operations between fiscal 2004 and 2003 is primarily the result of increased earnings of $97.5 million (79%) during fiscal 2004 compared to 2003, as well as a decrease in net operating assets and liabilities as a result of decreased grain and oilseed inventories. Volatility in cash flows from operations between fiscal 2003 and 2002 is primarily the result of changing grain prices.

      Operating activities of the Company provided net cash of $333.3 million during the year ended August 31, 2004. Net income of $221.3 million, net non-cash expenses of $54.0 million, and a decrease in net operating assets and liabilities of $58.0 million, provided this net cash from operating activities. The

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primary components of net non-cash expenses included depreciation and amortization of $108.4 million and minority interests of $33.8 million, which were partially offset by income from equity investments of $79.0 million and a pretax gain on the sale of an investment of $14.7 million. The decrease in net operating assets and liabilities was caused primarily by a decrease in grain and oilseed inventories of 25.7 million bushels (63%) in the Country Operations and Services segment, and 5.2 million bushels (14%) in the Grain Marketing segment.

      Operating activities of the Company provided net cash of $216.5 million during the year ended August 31, 2003. Net income of $123.8 million and net non-cash expenses of $98.0 million were partially offset by a small increase in net operating assets and liabilities of $5.3 million. The primary components of net non-cash expenses included depreciation and amortization of $111.3 million and minority interests of $22.0 million, which were partially offset by income from equity investments of $47.3 million. Grain and oilseed prices on August 31, 2003 remained at the approximate levels prevailing on August 31, 2002, as market conditions were similar at the end of both fiscal years. Consequently, net operating assets and liabilities at August 31, 2003 changed only slightly compared with those at the prior year-end.

      Operating activities of the Company used net cash of $35.9 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 an increase in net operating assets and liabilities of $224.4 million. The primary components of net non-cash expenses included depreciation and amortization of $104.0 million and minority interests of $15.4 million, which were partially offset by income from equity investments of $58.1 million. The increase in net operating assets and liabilities was caused primarily by increases in the prices of the three primary grain commodities handled by the Company. Grain and oilseed prices increased considerably at the end of fiscal 2002 in response to drought conditions in parts of the grain production area, which reduced overall market supply and resulted in an increase in grain and oilseed inventory values of $155.6 million compared to that same inventory category of the prior year. The market price of spring wheat, soybeans and corn was higher on August 31, 2002 by $2.15 per bushel (70%), $1.15 per bushel (24%) and $0.45 per bushel (21%), respectively, than at the end of the prior fiscal year. These increases in grain prices also had the affect of increasing hedging margin deposits, which are carried in other current assets, and receivables. These and other less significant factors increased net operating assets and liabilities by $224.4 million and was the largest use of cash from operations. A major part of this increase in net operating assets and liabilities was financed with short-term notes payable. Because the change in short-term notes payable is shown in cash flows from financing activities, this source of cash does not offset the corresponding use of cash as part of the cash flows from operating activities in the Consolidated Statements of Cash Flows.

      The Company expects its net operating assets and liabilities to remain relatively constant with the levels on August 31, 2004 through most of the first quarter of fiscal 2005. Grain prices have not changed materially during the first two months of fiscal 2005, and harvest for several commodities have been delayed due to wet weather conditions. Production forecasts indicate normal to above normal volumes for most commodities. Anticipation of adequate supply has had the affect of producing grain prices that are generally lower than the prices of a year ago. Although crude oil prices are at a near historical high, related inventories and receivables are turned in a relatively short period, thus mitigating the effect on operating assets and liabilities.

Cash Flows from Investing Activities

      For the years ended August 31, 2004, 2003 and 2002, the net cash flows used in the Company’s investing activities totaled $181.3 million, $173.3 million and $147.6 million, respectively.

      The acquisition of property, plant and equipment comprised the primary use of cash totaling $245.1 million, $175.7 million and $140.2 million for the years ended August 31, 2004, 2003 and 2002, respectively. These acquisitions of property, plant and equipment included $8.5 million and $6.6 million acquired as part of business acquisitions during the years ended August 31, 2003 and 2002, respectively. Capital expenditures during the year ended August 31, 2003 included $46.0 million for the construction of an oilseed processing facility in Fairmont, Minnesota. The Fairmont facility was essentially complete and

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operational during the first quarter of fiscal 2004. Also during the first quarter of fiscal 2004, the Company entered into a sale-leaseback transaction for the Fairmont facility equipment and received cash proceeds of $19.8 million from the sale. For the year ending August 31, 2005, the Company expects to spend approximately $313.9 million for the acquisition of property, plant and equipment. Capital expenditures primarily related to the U.S. Environmental Protection Agency (EPA) low sulfur fuel regulations required by 2006, are expected to be approximately $87.0 million for the Company’s Laurel, Montana refinery and $311.0 million for NCRA’s McPherson, Kansas refinery, of which $49.2 million has been spent at the Laurel refinery and $131.0 million has been spent by NCRA at the McPherson refinery as of August 31, 2004. The Company expects all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and anticipates funding these projects with a combination of cash flows from operations and debt proceeds.

      In October 2003, the Company and NCRA reached agreement with the EPA and the State of Montana’s Department of Environmental Quality and the State of Kansas Department of Health and Environment, regarding the terms of settlements with respect to reducing air emissions at the Company’s Laurel, Montana and NCRA’s McPherson, Kansas refineries. These settlements are part of a series of similar settlements that the EPA has negotiated with major refiners under the EPA’s Petroleum Refinery Initiative. The settlements, which resulted from nearly three years of discussions, take the form of consent decrees filed with the U.S. District Court for the District of Montana (Billings Division) and the U.S. District Court for the District of Kansas. Each consent decree details specific capital improvements, supplemental environmental projects and operational changes that the Company and NCRA have agreed to implement at the relevant refinery over the next several years. The consent decrees also require the Company and NCRA to pay approximately $0.5 million in aggregate civil cash penalties. The Company and NCRA anticipate that their aggregate capital expenditures related to these settlements will total approximately $25.0 million to $30.0 million over the next seven years. Approximately 50 percent of the expenditures will be made over the first three years. The Company does not believe that the settlements will have a material adverse affect on the Company.

      Investments made during the years ended August 31, 2004, 2003 and 2002 totaled $49.8 million, $43.5 million and $6.2 million, respectively. During the year ended August 31, 2004 the Company purchased all of Farmland’s interest in Agriliance for a cash payment of $27.5 million, as previously discussed. During the year ended August 31, 2003, the Company purchased an additional 13.1% economic interest of the crop protection business of Agriliance for cash payment of $34.3 million, as previously discussed. Also during the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.

      Acquisitions of intangibles were $0.8 million, and $29.5 million for the years ended August 31, 2003 and 2002, respectively. During the year ended August 31, 2002, $26.4 million of the acquisitions of intangibles were related to the purchase of Farmland’s interest in its wholesale energy business, as previously discussed, and represented trademarks, tradenames and non-compete agreements.

      Net working capital acquired in business acquisitions was $13.0 million and $5.8 million, respectively, during the years ended August 31, 2003 and 2002.

      During the years ended August 31, 2004, 2003 and 2002, the changes in notes receivable resulted in decreases in cash flows of $6.9 million, $6.6 million and $22.0 million, respectively, primarily from related party notes receivables at NCRA from its minority owners, Growmark, Inc. and MFA Oil Company.

      Distributions to minority owners for the years ended August 31, 2004, 2003 and 2002 were $15.9 million, $4.4 million and $7.4 million, respectively, and were primarily related to NCRA. NCRA’s cash distributions to members have decreased as a percent of earnings in 2004, 2003 and 2002 when compared to prior years, due to the funding requirements for environmental capital expenditures previously discussed.

      Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $34.5 million, $26.9 million and $20.2 million for the years ended August 31,

38

2004, 2003 and 2002, respectively. During the year ended August 31, 2004, proceeds of $19.8 million were from a sale-leaseback transaction, as previously discussed. During the year ended August 31, 2003, proceeds were primarily from disposals of propane plants and non-strategic locations in the Energy segment, sales of equipment and non-strategic agri-operations locations in the Country Operations and Services segment, and sales of wheat milling equipment. During the year ended August 31, 2002, proceeds were primarily from the disposal of propane plants in the Energy segment and of non-strategic agri-operations locations in the Country Operations and Services segment. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $74.6 million, $44.4 million and $44.0 million for the years ended August 31, 2004, 2003 and 2002, respectively. During the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline as previously discussed, and subsequently sold a 50% interest in the same pipeline to another third party for proceeds of $25.0 million and recorded a pre-tax gain on the sale of $14.7 million.

Cash Flows from Financing Activities

      The Company finances its working capital needs through short-term lines of credit with a syndication of domestic and international banks. In May 2004, the Company renewed and expanded its committed lines of revolving credit. The previously established credit lines consisted of a $600.0 million 364-day revolver and a $100.0 million three-year revolver. The new committed credit facilities consist of a $750.0 million 364-day revolver and a $150.0 million three-year revolver. The terms of the new credit facilities are essentially the same as the terms of the credit facilities they replaced. In addition to these lines of credit, the Company has a two-year revolving credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million committed. On August 31, 2004 and 2003, the Company had total short-term indebtedness outstanding on these various facilities and other short-term notes payable totaling $116.1 million and $251.1 million, respectively. On August 31, 2004 interest rates on these facilities ranged from 2.01% to 2.23%. In October 2002, $175.0 million received from private placement proceeds was used to pay down the Company’s 364-day credit facility. In January 2003, $83.0 million of proceeds received from the issuance of the Company’s preferred stock (net of brokers commissions of $3.2 million), was also used to pay down the 364-day credit facility.

      In June 1998, the Company established a five-year revolving credit facility with a syndication of banks, with $200.0 million committed, which expired in May 2003. The Company had a previous outstanding balance on this facility of $75.0 million on August 31, 2002, of which repayments of $75.0 million were made during the year ended August 31, 2003.

      The Company finances its long-term capital needs, primarily for the acquisition of property, plant and equipment, with long-term agreements with various insurance companies and banks. In June 1998, the Company established a long-term credit agreement through the cooperative banks. This facility committed $200.0 million of long-term borrowing capacity to the Company, with repayments through fiscal year 2009. The amount outstanding on this credit facility was $131.2 million and $137.8 million on August 31, 2004 and 2003, respectively. Interest rates on August 31, 2004 ranged from 2.27% to 7.13%. Repayments of $6.6 million were made on this facility during each of the three years ended August 31, 2004, 2003 and 2002.

      Also in June 1998, the Company completed a private placement offering with several insurance companies for long-term debt in the amount of $225.0 million with an interest rate of 6.81%. Repayments are due in equal annual installments of $37.5 million each in the years 2008 through 2013.

      In January 2001, the Company entered into a note purchase and private shelf agreement with Prudential Insurance Company. The long-term note in the amount of $25.0 million has an interest rate of 7.9% and is due 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 has an interest rate 7.43% and is due in equal annual installments of approximately $7.9 million, in the years 2005 through 2011.

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      In October 2002, the Company completed 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 is due 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 is due in equal semi-annual installments of approximately $4.6 million during fiscal years 2012 through 2018.

      In March 2004, the Company entered into a note purchase and private shelf agreement with Prudential Capital Group, primarily for the purpose of financing the purchase of Farmland’s interest in Agriliance, as previously discussed. In April 2004, the Company borrowed $30.0 million under this arrangement. One long-term note in the amount of $15.0 million has an interest rate of 4.08% and is due in full at the end of the six-year term in 2010. Another long-term note in the amount of $15.0 million has an interest rate of 4.39% and is due in full at the end of the seven-year term in 2011.

      Subsequent to the year ended August 31, 2004 (September 21, 2004), the Company entered into a private placement with several insurance companies for long-term debt in the amount of $125.0 million with an interest rate of 5.25%. The debt is due in equal annual installments of $25.0 million during the fiscal years 2011 through 2015.

      The Company, through NCRA, had revolving term loans outstanding of $12.0 million and $15.0 million for the years ended August 31, 2004 and 2003, respectively. Interest rates on August 31, 2004 ranged from 6.48% to 6.99%. Repayments of $3.0 million were made during each of the three years ended August 31, 2004, 2003 and 2002.

      On August 31, 2004, the Company had total long-term debt outstanding of $683.8 million, of which $155.8 million was bank financing, $510.0 million was private placement debt and $18.0 million was industrial development revenue bonds and other notes and contracts payable. On August 31, 2003, the Company had long-term debt outstanding of $663.2 million. The Company’s long-term debt is unsecured except for other notes and contracts in the amount of $10.0 million; however, restrictive covenants under various agreements have requirements for maintenance of minimum working capital levels and other financial ratios. The Company was in compliance with all debt covenants and restrictions as of August 31, 2004. The aggregate amount of long-term debt payable as of August 31, 2004 was as follows (dollars in thousands):

2005	$	35,117
2006		35,582
2007		60,122
2008		98,626
2009		117,285
Thereafter		337,086
	$	683,818

      During the years ended August 31, 2004, 2003 and 2002, the Company borrowed on a long-term basis $35.5 million, $175.0 million and $30.0 million, respectively, and during the same periods repaid long-term debt of $15.3 million, $89.5 million and $18.0 million, respectively.

      In accordance with the bylaws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year. Patronage refunds are calculated 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. The patronage earnings from the fiscal year ended August 31, 2003 were primarily distributed during the second quarter of the year ended August 31, 2004. The cash portion of this distribution deemed by the Board of Directors to be 30% was $28.7 million. During the years ended

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August 31, 2003 and 2002, the Company distributed cash patronage of $26.5 million and $40.1 million, respectively.

      Cash patronage for the year ended August 31, 2004, deemed by the Board of Directors to be 30% and to be distributed in fiscal year 2005, is expected to be approximately $50.1 million and is classified as a current liability on the August 31, 2004 consolidated balance sheet.

      Effective September 1, 2004, redemptions of capital equity certificates approved by the Board of Directors will be divided into two pools, one for non-individuals (primarily member cooperatives) who will participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year will be determined by multiplying the dollars available for pro-rata redemptions that year as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator is the sum of the patronage certificates older than 10 years held by all eligible non-individuals. For the years ended August 31, 2004, 2003 and 2002, the Company redeemed in cash, patronage related equities in accordance with authorization from the Board of Directors in the amounts of $10.3 million, $31.1 million and $31.1 million, respectively. An additional $13.0 million of capital equity certificates were redeemed in fiscal 2004, by issuance of shares of the Company’s 8% Cumulative Redeemable Preferred Stock (New Preferred) pursuant to a registration statement on Form S-2 filed with the Securities and Exchange Commission. The amount of equities redeemed with each share of preferred stock issued was $27.10, which was the closing price per share of the stock on the NASDAQ National Market on March 2, 2004. On August 31, 2004, the Company had 4,226,428 shares of the New Preferred outstanding with a total redemption value of approximately $105.7 million, excluding accumulated dividends.

      The Company expects cash redemptions related to the year ended August 31, 2004, to be distributed in fiscal year 2005, to be approximately $32.1 million and are classified as a current liability on the August 31, 2004 consolidated balance sheet. The Company expects to redeem an additional $20.0 million of capital equity certificates in fiscal year 2005 by issuing shares of the Company’s New Preferred.

      In 2001 and 2002 the Company issued 9,454,874 shares of 8% Preferred Stock (Old Preferred). In late 2002, the Company suspended sales of the Old Preferred, and on February 25, 2003 the Company filed a post-effective amendment to terminate the offering of the Old Preferred shares. In January 2003, the Board of Directors authorized the sale and issuance of up to 3,500,000 shares of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a price of $25.00 per share. The Company filed a registration statement on Form S-2 with the Securities and Exchange Commission registering 3,000,000 shares of the New Preferred (with an additional over-allotment option of 450,000 shares granted to the underwriters), which was declared effective on January 27, 2003. The shares were subsequently sold for gross proceeds of $86.3 million (3,450,000 shares). The New Preferred is listed on the NASDAQ National Market. Expenses related to the issuance of the New Preferred were $3.8 million.

      On March 5, 2003, the Company’s Board of Directors authorized the redemption and conversion of the Old Preferred shares. A redemption notification and a conversion election form were sent to holders of the Old Preferred shares on March 21, 2003 explaining that on April 25, 2003 all shares of the Old Preferred would be redeemed by the Company for $1.00 per share unless they were converted into shares of the Company’s New Preferred. The conversion did not change the base liquidation amount or dividend amount of the Old Preferred, since 25 shares of the Old Preferred converted to 1 share of the New Preferred. The total Old Preferred converted to the New Preferred was 7,452,439 shares, and the balance of the Old Preferred (2,002,435 shares) was redeemed in cash at $1.00 per share.

      The New Preferred accumulates dividends at a rate of 8% per year, and dividends are payable quarterly.

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Off Balance Sheet Financing Arrangements

Lease Commitments:

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

      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, 2004, 2003 and 2002, was $35.3 million, $31.7 million and $30.7 million, respectively.

      Minimum future lease payments required under noncancellable operating leases as of August 31, 2004, were as follows:

	Total
	(Dollars in millions)
2005	$	30.4
2006		24.5
2007		20.0
2008		16.6
2009		12.0
Thereafter		19.3
Total minimum future lease payments	$	122.8

Guarantees:

      The Company is a guarantor for lines of credit for related companies of which $32.0 million was outstanding on August 31, 2004. The Company’s bank covenants allow maximum guarantees of $150.0 million. In addition, the Company’s bank covenants allow for guarantees dedicated solely for NCRA in the amount of $125.0 million. All outstanding loans with respective creditors are current as of August 31, 2004.

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Debt:

      There is no material off balance sheet debt.

Contractual Obligations

      The Company had certain contractual obligations at August 31, 2004, which require the following payments to be made:

	Payments Due by Period
			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(dollars in thousands)
Notes payable *	$	116,115	$	116,115
Long-term debt *		683,818		35,117	$	95,704	$	215,911	$	337,086
Operating leases		122,795		30,422		44,518		28,605		19,250
Purchase obligations **		1,461,168		1,231,274		221,669		1,245		6,980
Other liabilities ***		29,770				19,592		8,416		1,762
Total obligations	$	2,413,666	$	1,412,928	$	381,483	$	254,177	$	365,078

*	Included on the consolidated balance sheet.
**	Purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities; fixed, minimum, or variable price provisions; and timing of the transactions. Of the total purchase obligations $773.9 million is included in accounts payable and accrued expenses on the consolidated balance sheet.
***	Other liabilities includes deferred compensation, deferred income taxes, accrued turnaround and contractual redemptions, and is included on the consolidated balance sheet. Of the total other liabilities on the consolidated balance sheet of $148.5 million, the timing of the payments of $118.8 million of such liabilities cannot be determined.

Critical Accounting Policies

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

Allowances for Doubtful Accounts

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

Inventory Valuation and Reserves

      Grain, processed grains, oilseed and processed oilseeds 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

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(FIFO) and average cost methods. Estimates are used in determining the net realizable value of grain and oilseed and processed grains and oilseeds 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 valuations. If estimates regarding the valuation of inventories or the adequacy of reserves are less favorable than management’s assumptions, then additional reserves or write-downs of inventories may be required.

Derivative Financial Instruments

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

Pension and Other 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 costs, 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 expenses and the recorded obligations in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement obligations and future expenses.

Deferred Tax Assets

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

Long-Lived Assets

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

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

Environmental Liabilities

      Liabilities, including legal costs, related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based on current available facts, existing technology, undiscounted site-specific costs and currently enacted laws and regulations. Recoveries, if any, are recorded in the period in which recovery is considered probable. It is often difficult to estimate the cost of environmental compliance, remediation and potential claims given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternate cleanup methods. All liabilities are monitored and adjusted as new facts or changes in law or technology occur and management believes adequate provisions have been made for environmental liabilities. Changes in facts or circumstances may have an adverse impact on the Company’s financial results.

Effect of Inflation and Foreign Currency Transactions

      The Company believes that inflation and foreign currency fluctuations have not had a significant effect on its operations.

Recent Accounting Pronouncements

      In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Adoption of this standard did not have a material effect on the Company.

      In December 2003, the FASB issued SFAS No. 132R, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement requires additional disclosures to be made by employers regarding pensions and other postretirement benefit plans, but does not change the measurement or recognition of those plans. Under this Statement, the disclosure provisions regarding foreign plans and estimated future benefit payments are effective for fiscal years ending after December 15, 2003, and interim periods beginning after December 15, 2003. The Company has adopted the interim and annual disclosure provisions of this Statement during the current fiscal year.

      In December 2003, the FASB revised FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” The interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. It also requires consolidation by the primary beneficiary. For public entities the interpretation applies to interests in variable interest entities for periods ending after March 15, 2004, the Company’s third quarter. Adoption of this standard did not have an effect on the Company.

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      On May 19, 2004, the FASB issued a FASB Staff Position (FSP) regarding SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” discusses the effect of the Medicare Prescription Drug, Improvement and Modernization Act (the Act) enacted on December 8, 2003. FSP 106-2 considers the effect of the two new features introduced in the Act in determining accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit cost, which may serve to reduce a company’s postretirement benefit costs. Companies may elect to defer accounting for this benefit or may attempt to reflect the best estimate of the impact of the Act on net current periodic costs currently. The Company has chosen to defer accounting for the benefit until the FASB issues final accounting guidance to resolve various uncertainties related to this legislation. The Company’s measures of APBO and net periodic postretirement benefit costs, as of and for the year ended August 31, 2004, do not reflect the effects of the Act as permitted by the FSP.

      In March 2004, the FASB Emerging Issues Task Force (EITF) reached a consensus on and the FASB ratified EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides guidance for evaluating whether an investment is other-than-temporarily impaired. On September 30, 2004, the FASB issued FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments,”’ which delayed the effective date of the application guidance on impairment of securities included within EITF 03-1. The Company is still evaluating the potential impact of the adoption of EITF 03-1.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

      The Company utilizes futures and options contracts offered through regulated commodity exchanges to reduce price risk. The Company is exposed to risk of loss in the market value of inventories and fixed or partially fixed purchase and sales contracts. In order to reduce that risk, the Company generally takes 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, in order 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 futures contracts and options are available are also typically hedged first with forward contracts, with futures and options used to hedge within position limits the remaining portion. These futures and options contracts and forward purchase and sales contracts used to hedge against commodity price changes are effective economic hedges of price risk, but they are not designated as, or 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 using market-based prices. Inventories and fixed-price contracts are marked to fair value using market-based prices 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.

      Unrealized gains and losses on futures contracts and options used as economic hedges of energy inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. The inventories hedged with these derivatives are valued at the lower of cost or fair value, and the fixed-price contracts are marked to fair value using market-based prices. Certain fixed-price contracts 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.

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      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.

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 to minimize the effect of market interest rate changes. The effective interest rate to the Company on fixed rate debt outstanding on August 31, 2004, 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 fiscal years 2002 and 2004, the Company entered into interest rate treasury lock instruments to secure the interest rates related to a portion of its private placement debts issued on October 18, 2002, and September 21, 2004. These instruments were designated and are effective as cash flow hedges for accounting purposes, and accordingly, the net loss on settlements were recorded as a component of other comprehensive income. Interest expense for the years ended August 31, 2004 and 2003, includes $0.9 million and $0.7 million, respectively, related to the interest rate derivatives. The additional interest expense is an offset to the lower actual interest paid on the outstanding debt instruments.

Foreign Currency Risk

      The Company conducts essentially all of its business in U.S. dollars, except for grain marketing operations in Brazil and some purchases of products from Canada, and had minimal risk regarding foreign currency fluctuations during 2004 and in prior years. 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.

Item 8. Financial Statements and Supplementary Data

      The financial statements listed in 15(a)(1) are set forth beginning on page F-1. Supplementary financial information required by Item 302 of Regulation S-K for the years ended August 31, 2004 and 2003 is presented below. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

			2004
	November 30,
	2003		February 28		May 31		August 31
	(unaudited)
	(dollars in thousands)
Net sales	$	2,489,344	$	2,654,596	$	2,817,529	$	2,947,864
Total revenues		2,522,377		2,689,007		2,860,730		2,978,522
Gross profit		107,847		60,908		126,495		151,141
Net income		50,739		8,511		81,389		80,693

			2003
	November 30,
	2002		February 28			May 31		August 31
	(unaudited)
	(dollars in thousands)
Net sales	$	2,400,596	$	2,328,154		$	2,220,455	$	2,321,529
Total revenues		2,435,851		2,353,845			2,250,877		2,352,739
Gross profit		97,292		52,409			98,410		84,646
Net income (loss)		40,356		(4,100	)		52,173		35,412

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

      Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of August 31, 2004. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were effective.

      During our fourth fiscal quarter, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART III.

Item 10. Directors and Executive Officers of the Registrant

BOARD OF DIRECTORS

      The table below lists the directors of the Company as of August 31, 2004.

				Director
Name and Address		Age		District		Since
Bruce Anderson			52		3		1995
	13500 — 42nd St NE Glenburn, ND 58740-9564
Robert Bass			50		5		1994
	E 6391 Bass Road Reedsburg, WI 53959
David Bielenberg			55		6		2002
	16425 Herigstad Road NE Silverton, Oregon 97381
Dennis Carlson			43		3		2001
	3255 — 50th Street Mandan, ND 58554
Curt Eischens			52		1		1990
	2153 — 330th St North Minneota, MN 56264-1880
Robert Elliott			54		8		1996
	324 Hillcrest Alliance, NE 69301
Steve Fritel			49		3		2003
	2851 77th Street NE Barton, ND 58384
Robert Grabarski			55		5		1999
	1770 Highway 21 Arkdale, WI 54613
Jerry Hasnedl			58		1		1995
	12276 — 150th Avenue SE St. Hilaire, MN 56754-9776
Glen Keppy			57		7		1999
	21316 — 155th Avenue Davenport, IA 52804
James Kile			56		6		1992
	508 W. Bell Lane St. John, WA 99171
Randy Knecht			54		4		2001
	40193 — 112th Street Houghton, SD 57449
Michael Mulcahey			56		1		2003
	8109 360th Avenue Waseca, MN 56093
Richard Owen			50		2		1999
	PO Box 129 Geraldine, MT 59446

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				Director
Name and Address		Age		District		Since
Duane Stenzel			58		1		1993
	62904 — 295th Street Wells, MN 56097
Michael Toelle			42		1		1992
	5085 St. Anthony Drive Browns Valley, MN 56219
Merlin Van Walleghen			68		4		1993
	24106 — 408th Avenue Letcher, SD 57359-6021

      Bruce Anderson, assistant secretary-treasurer (1995): Served four years in the North Dakota House of Representatives, former board member with North Dakota Farmers Union and Farmers Union Mutual Insurance Company. Vice chairman of the North Dakota Agricultural Products Utilization Commission. Raises small grains near Glenburn, N.D. Mr. Anderson’s principal occupation has been farming for the last five years or longer.

      Robert Bass, first vice chairman (1994): Chairman of board audit committee. Also director of Wisconsin Federation of Cooperatives, plus Co-op Country Partners, Baraboo, Wis., for 15 years, seven as president. Graduate of the Madison Area Technical College Farm Training Program and holds a B.S. degree in agricultural and extension education from the University of Wisconsin–Madison. Former high school vocational agricultural teacher. Operates a 500-acre dairy and feed grain farm near Reedsburg, Wis. Mr. Bass’ principal occupation has been farming for the last five years or longer.

      David Bielenberg (2002): Director of Wilco Farmers Cooperative of Mt. Angel, Ore., since 1989, including five years as chairman. Chair of the East Valley Water District, member of American Society of Agricultural Engineers and Oregon Wheat Growers League. Holds a B.S. degree in Agricultural Engineering from Oregon State University and is a graduate of the Texas A&M University executive program for agricultural producers. Operates a diversified vegetable, fruit and horticultural farm near Silverton, Ore. Mr. Bielenberg’s principal occupation has been farming for the last five years or longer.

      Dennis Carlson (2001): Chairman, Farmers Union Oil Co. of Bismarck/ Mandan, N.D., serving since 1989. Operates a diversified wheat, sunflower and cow-calf operation near Mandan. Mr. Carlson’s principal occupation has been farming for the last five years or longer.

      Curt Eischens (1990): Has served as director of Farmers Co-op Association, Canby, Minn. for nine years, eight as board chairman. Chair of the Minnesota Association of Cooperatives, member of Minnesota Soybean Association, Minnesota Corn Growers, Minnesota Farmers Union, Minnesota FFA Alumni Association and National FFA Alumni Association. Graduate of the Canby Area Technical College Farm Management Program. Operates a corn and soybean farm near Canby. Mr. Eischens’ principal occupation has been farming for the last five years or longer.

      Robert Elliott (1996): Served on the boards of Western Cooperative Alliance and New Alliance Bean and Grain Company. Past president of Nebraska Wheat Growers Association and president of Hemingford Scholarship Foundation. Holds B.S. and M.S. degrees in agriculture from California Polytechnic University. Raises 6,000 acres of wheat, corn, dry beans, sugar beets and sunflowers. Mr. Elliott’s principal occupation has been farming for the last five years or longer.

      Steve Fritel (2003): Served more that two decades on the board of Rugby (N.D.) Farmers Union Elevator and nearly five years on the former CHS Wheat Milling Defined Member Board. Currently director of North Central Experiment Station Board of Visitors. Past member of the Adult Farm and Ranch Business Management Advisory Board. Raises 2,700 acres of cash grain, including spring wheat, barley, canola and soybeans, near Barton, N.D. Mr. Fritel’s principal occupation has been farming for the last five years or longer.

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      Robert Grabarski (1999): Previously chairman of Wisconsin River Cooperative, Adams and Mauston, Wis., and first vice chairman of Alto Cooperative Creamery, Waupun, Wis. Active in many civic organizations, including the Adams Volunteer Fire District. Graduate of the University of Wisconsin agriculture industry short-course. Operates a 1,100-acre dairy and crop farm, milking 100 registered Holsteins, near Arkdale, Wis. Mr. Grabarski’s principal occupation has been farming for the last five years or longer.

      Jerry Hasnedl (1995): Serves on boards for the Minnesota Association of Cooperatives and Minnesota Barley Growers. Chair of the former CHS Wheat Milling Defined Member Board and was director for Northwest Grain. Raises wheat, barley, corn, soybeans, canola, sunflowers and alfalfa near St. Hilaire, Minn. Mr. Hasnedl’s principal occupation has been farming for the last five years or longer.

      Glen Keppy (1999): Chairman of advisory committee for Clean Water Foundation and executive committee of the U.S. Meat Export Federation. Has been a director of the Iowa Pork Producers Association, National Pork Producers Association and Federal Reserve Bank Ag Committee. Graduate of University of Wisconsin–Platteville with a degree in technical agriculture. Operates a farrow-to-finish hog farm and raises 1,000 acres of corn, soybeans, oats and alfalfa near Davenport, Iowa. Mr. Keppy’s principal occupation has been farming for the last five years or longer.

      James Kile, second vice chairman (1992): Served 18 years, including 10 as chairman, on the board of St. John (Wash.) Grange Supply. Represents CHS on the Washington State Council of Farmer Cooperatives and Idaho Cooperative Council. Holds a degree in agricultural economics from Washington State University. Employed in banking before returning to St. John to operate a dryland wheat and barley farm. Mr. Kile’s principal occupation has been farming for the last five years or longer.

      Randy Knecht (2001): Director for eight years and current chairman of Four Seasons Cooperative, Britton, S.D., chairman of Northern Electric Cooperative board and director for Dakota Value Capture Cooperative, Pierre, S.D. Holds a B.S. degree in agriculture from South Dakota State University. Maintains a 450-head cow-calf operation and raises 4,000 acres of corn, soybeans, wheat and alfalfa near Houghton, S.D. Mr. Knecht’s principal occupation has been farming for the last five years or longer.

      Michael Mulcahey (2003): Chairman of Southern Valley Cooperative for eight years and current chairman of Crystal Valley Co-op, Mankato, Minn. Former director for South Central Federated Feeds. Raises 1,200 acres of corn and soybeans, and finishes about 300 beef cattle near Waseca, Minn. Mr. Mulcahey’s principal occupation has been farming for the last five years or longer.

      Richard Owen (1999): Serves on boards of Montana Council of Cooperatives, Mountain View, LLC, and Cooperative Development Center. President of Montana Cooperative Development Center, Inc. Former secretary and president of Equity Co-op Association of Geraldine, Mont., and past secretary of Central Montana Cooperative of Geraldine and Denton. Holds bachelor’s degree in agriculture from Montana State University. Operates a grain farm near Geraldine. Mr. Owens’s principal occupation has been farming for the last five years or longer.

      Duane Stenzel (1993): Member of WFS, St. James, Minn., and Wells (Minn.) Farmers Elevator, where he served as board president and secretary. Previously chair of former CHS Oilseed Processing and Refining Defined Member Board. Raises 710 acres of soybeans, sweet corn and corn near Wells. Mr. Stenzel’s principal occupation has been farming for the last five years or longer.

      Michael Toelle, chairman (elected in 1992; chairman since 2002): Served 15 years as director of Country Partners Cooperative, Browns Valley, Minn., including 10 years as chairman. Holds a B.S. degree in industrial technology from Moorhead State University. Operates a grain, hog and beef farm near Browns Valley. Mr. Toelle’s principal occupation has been farming for the last five years or longer.

      Merlin Van Walleghen, secretary-treasurer (1993): Previously director of Farmers Co-op Elevator Association of Mitchell, Letcher and Alexandria, S.D., including 10 years as president. Served nine years on the South Dakota Association of Cooperatives board, seven as president. Member of Heartland Consumer Power District board, former Butler Township supervisor, past board member of Farmers Home

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Administration, and former advisory board member for Mitchell Vocational Technical Institute. Operates a corn and soybean farm near Letcher. Mr. Van Walleghen’s principal occupation has been farming for the last five years or longer.

      Elections are for three-year terms and are open to any eligible candidate. To be eligible, a candidate must meet all of the following qualifications:

•  At the time of the election, the individual must be less than the age of 68.

•  The individual must be a member of this cooperative or a member of a Cooperative Association Member.

•  The individual must reside in the region from which he or she is to be elected.

•  The individual must be an active farmer or rancher. “Active farmer or rancher” means an individual whose primary occupation is that of a farmer or rancher, excluding any full-time employee of the Company or of a Cooperative Association Member.

•  The individual must currently be serving or shall have served at least one full term as a director of a Cooperative Association Member of this cooperative.

      The following positions on the Board of Directors will be elected at the 2004 Annual Meeting of Members:

Region	Current Incumbent
Region 1 (Minnesota)		Michael Toelle
Region 3 (North Dakota)		Dennis Carlson
Region 4 (South Dakota)		Randy Knecht
Region 5 (Connecticut, Indiana, Illinois, Kentucky, Michigan, Ohio, Wisconsin)		Robert Bass

EXECUTIVE OFFICERS

      The table below lists the executive officers of the Company as of August 31, 2004. Officers are appointed annually by, the Board of Directors.

Name	Age		Position
John D. Johnson		56	President and Chief Executive Officer
Patrick Kluempke		56	Executive Vice President — Corporate Planning and Administration
Thomas D. Larson		56	Executive Vice President — Member and Public Affairs
Mark Palmquist		47	Executive Vice President/Chief Operating Officer — Grains and Foods
John Schmitz		54	Executive Vice President and Chief Financial Officer
Leon E. Westbrock		57	Executive Vice President/Chief Operating Officer — Crop Inputs

      John D. Johnson, President and Chief Executive Officer, was born in Rhame, North Dakota, and grew up in Spearfish, South Dakota. He earned a degree in business administration and a minor in economics from Black Hills State University. In 1976, he joined Harvest States Cooperatives as a feed consultant in the GTA Feeds Division, later becoming regional sales manager, Director of Sales and Marketing and then General Manager of GTA Feeds. In 1992, he was elected Group Vice President of Farm Marketing and Supply for Harvest States Cooperatives and was selected President and CEO in January 1995. Mr. Johnson became President and General Manager of CHS Inc. upon its creation June 1,

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1998 and was named President and Chief Executive Officer on June 1, 2000. Mr. Johnson serves on CF Industries, Inc., as chairman and Gold Kist Inc. boards of directors.

      Patrick Kluempke, Executive Vice President of Corporate Planning and Administration, was raised on a family dairy farm in central Minnesota, and received a Bachelor of Science degree in Finance and Accounting from St. Cloud University and the University of Minnesota. Mr. Kluempke served in the United States Army in South Vietnam and South Korea, as Aide to General J. Guthrie. He began his agribusiness career in grain procurement and merchandising at General Mills and later with Louis Dreyfus Corporation in export marketing. Mr. Kluempke joined the predecessor to CHS when G.T.A. merged with North Pacific Grain Growers, in 1983, to form Harvest States Cooperatives and has held various positions in the commodity marketing division and at the corporate level. He was named to the position of Senior Vice President of Corporate Planning and Business Development in 1993 and held that position until 2000 when he was named to his current position. Mr. Kluempke serves on the board of Ventura Foods, LLC.

      Thomas D. Larson is Executive Vice President, Member and Public Affairs at CHS. After growing up on a 480-acre crop and hog farm near Slayton, Minnesota, he earned a Bachelor’s degree in Agriculture Education from South Dakota State University. After working as a vo-ag teacher, he took an agronomy sales position with Cenex, Inc. and later managed the local cooperative at Hoffman, Minnesota, for two years. Mr. Larson returned to the regional cooperative in 1978 and held positions in marketing and planning. He moved to agronomy in 1987 and became director of agronomy services for Cenex/ Land O’Lakes Agronomy Company in 1988. He was later named Vice President of agronomy services until 1996 when he became Vice President of Cenex Supply and Marketing, which included overseeing the operations of more than two dozen Cenex-owned agricultural supply outlets. Mr. Larson was named to his current position in January 1999. He oversees the public affairs area of the Company, which includes communications, corporate giving, meetings and travel and governmental affairs, including the Washington, D.C. office. He is active in the FFA organization and is a recipient of its Honorary American Degree.

      Mark Palmquist is the Executive Vice President and Chief Operating Officer of Grains and Foods. He is responsible for all related areas of grains including country operations, terminal operations, exports, logistics, transportation and grain marketing joint ventures. He is also responsible for the operations of wheat milling, oilseed processing and refining, and food manufacturing and packaging. Mr. Palmquist has worked for CHS for 25 years. Starting as a grain buyer and moving into merchandising, he has traded many different commodities including corn, soybeans and spring wheat. In 1990, he assumed the role of Vice President and director of grain marketing and then in 1993, was promoted to Senior Vice President, which he held until 2000 when he was named to his current position. Mr. Palmquist attended Gustavus Adolphus College in St. Peter, Minnesota, graduating in 1979. He also attended the Master of Business Administration program at the University of Minnesota. Mr. Palmquist serves as a board of director on Ventura Foods, LLC and National Cooperative Refinery Association.

      John Schmitz is the Executive Vice President and Chief Financial Officer of the Company. Mr. Schmitz joined Harvest States Cooperatives in 1974 as Corporate Accountant and has held a number of accounting and finance positions within the Company, including divisional controller positions in country services, farm marketing & supply and grain marketing. In 1986, he was named Vice President and Controller of Harvest States Cooperatives, and had served in that position up to the time of the merger with Cenex when he became Vice President, Finance, of CHS. In May 1999, Mr. Schmitz became Senior Vice President and Chief Financial Officer. Mr. Schmitz earned a Bachelor of Science Degree in Accounting from St. Cloud State University, and is a member of the American Institute of Certified Public Accountants, the Minnesota Society of CPA’s and the National Society of Accountants for Cooperatives. Mr. Schmitz serves on National Cooperative Refinery Association, Ventura Foods, LLC, and Fin-Ag, Inc. boards of directors.

      Leon E. Westbrock is the Executive Vice President and Chief Operating Officer of Crop Inputs for the Company. He joined the cooperative system in 1976 and managed three local cooperatives before joining the regional system. At the regional level, Mr. Westbrock served in the merchandising department at Cenex, Inc. and then later as Manager of the lubricants department and as director of retailing. Since

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January 1, 1987, he served as Vice President and Executive Vice President in the energy division of the Company. On March 1, 2000 Mr. Westbrock was appointed to his current position. He serves as chairman for both National Cooperative Refinery Association and Universal Cooperatives, Inc. boards of directors and also serves as a member of the Agriliance, LLC board of directors. Mr. Westbrock received a Bachelor’s Degree from St. Cloud State University and its 2004 College of Fine Arts and Humanities Leadership Award, and served a tour in the U.S. Army.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors and persons who beneficially own more than 10% of the Company’s 8% Cumulative Redeemable Preferred Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Such executive officers, directors and greater than 10% beneficial owners are required by the regulations of the Commission to furnish the Company with copies of all Section 16(a) reports they file.

      Based solely upon a review of copies of reports on Forms 3 and 4 and amendments thereto furnished to the Company during, and reports on Form 5 and amendments thereto furnished to the Company with respect to, the fiscal year ended August 31, 2004, and based further upon written representations received by the Company with respect to the need to file reports on Form 5, the following persons filed late reports required by Section 16(a) of the Exchange Act: Mr. Kile was late in filing a report on Form 4 relating to a transaction in June 2004.

Code of Ethics

      The Company has adopted a code of ethics within the meaning of Item 406(b) of Regulation S-K of the Securities and Exchange Commission. This code of ethics applies to all officers and employees of the Company. The Company will provide to any person, without charge, upon request, a copy of such code of ethics. A person may request a copy by writing or telephoning the Company at the following address:

CHS Inc.

Attention: Dave Kastelic

5500 Cenex Drive

Inver Grove Heights, Minnesota 55077

(651) 355-6000

Audit Committee Matters

      The Company’s Board of Directors has a separately designated standing Audit Committee for the purpose of overseeing the accounting and financial reporting processes of the Company and audits of the Company’s financial statements. The Audit Committee is comprised solely of directors Mr. Bass, Mr. Bielenberg and Mr. Carlson, each of whom is an independent director. The Audit Committee has oversight responsibility to the Company’s owners relating to the Company’s financial statements and the financial reporting process, preparation of the financial reports and other financial information provided by the Company to any governmental or regulatory body, the systems of internal accounting and financial controls, the internal audit function and the annual independent audit of the Company’s financial statements. The Audit Committee assures that the corporate information gathering and reporting systems developed by management represent a good faith attempt to provide senior management and the Board of Directors with information regarding material acts, events and conditions within the Company. In addition, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent registered public auditors.

      The Company does not believe that any member of the Audit Committee of the Board of Directors is an audit committee “financial expert” as defined in the Sarbanes-Oxley Act of 2002 and rules and regulations thereunder. As a cooperative, the Company’s 17-member Board of Directors is nominated and elected by the Company’s members. To ensure geographic representation of the Company’s members, the

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Board of Directors represent eight (8) regions in which the Company’s members are located. The members in each region nominate and elect the number of directors for that region as set forth in the Company’s bylaws. To be eligible for service as a director, a nominee must (i) be an active farmer or rancher, (ii) be a member of the Company and (iii) reside in the geographic region from which he or she is nominated. Neither management nor the incumbent directors have any control over the nominating process for directors. Because of the nomination procedure and the election process, the Company cannot ensure that an elected director will be an audit committee “financial expert”.

      However, many of the Company’s directors, including all of the Audit Committee members, are financially sophisticated and have experience or background in which they have had significant financial oversight responsibilities. The current Audit Committee includes directors who have served as presidents or chairmen of local cooperative association boards. Members of the Board of Directors, including the Audit Committee, also operate large commercial enterprises requiring expertise in all areas of management, including financial oversight.

Item 11. Executive Compensation

      Summary Compensation. The following table sets forth the cash and noncash compensation earned by the Chief Executive Officer and each of the executive officers of the Company whose total salary and bonus or similar incentive payment earned during the year ended August 31, 2004, exceeded $100,000 (the “Named Executive Officers”):

Summary Compensation Table

												Long-Term
		Annual Compensation										Compensation
								Other Annual		All Other		LTIP
Name and Principal Position		Year Ended		Salary(1)		Bonus(1)		Compensation(2)		Compensation(3)		Payouts(1)
John. D. Johnson			8/31/04	$	850,000	$	800,530	$	25,800	$	8,526	$	969,646
	President and		8/31/03		850,000		710,940		25,800		7,931
	Chief Executive Officer		8/31/02		820,000		811,750		30,376		10,216
Patrick Kluempke			8/31/04		287,600		212,680		15,120		9,884		211,562
	Executive Vice President —		8/31/03		230,880		145,842		15,120		7,549
	Corporate Planning and Administration		8/31/02		223,000		166,875		15,120		10,873
Thomas D. Larson			8/31/04		253,400		185,489		15,120		9,018		208,647
	Executive Vice President —		8/31/03		240,000		156,966		15,120		6,104
	Member and Public Affairs		8/31/02		229,100		172,200		18,878		10,214
Mark Palmquist			8/31/04		490,000		342,143		15,120		9,250		412,301
	Executive Vice President		8/31/03		482,400		145,323		15,120		6,938
	and Chief Operating Officer —		8/31/02		453,400		342,000		15,120		11,081
	Grains and Foods
John Schmitz			8/31/04		450,000		332,775		15,120		9,250		366,907
	Executive Vice President and		8/31/03		410,700		268,146		15,120		7,932
	Chief Financial Officer		8/31/02		317,300		244,500		21,856		12,255
Leon E. Westbrock			8/31/04		490,000		359,783		15,120		9,250		412,301
	Executive Vice President		8/31/03		482,400		344,148		15,120		6,725
	and Chief Operating Officer —		8/31/02		453,400		342,000		15,120		12,057
	Crop Inputs

(1)	Includes amounts of salary and bonus deferred pursuant to deferred compensation plans.
(2)	Amounts shown include personal use of a Company vehicle or vehicle allowance.
(3)	Other compensation includes the Company’s matching contributions under the Company’s 401(k) Plan and the portion of long-term disability premiums paid by the Company.

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Report on Executive Compensation

      The Corporate Responsibility Committee of the Board of Directors, subject to the approval of the Board of Directors, makes recommendations for the compensation of the CHS Inc. chief executive officer and oversees the administration of the executive compensation programs.

Executive Compensation Policies and Programs

      CHS Inc. executive compensation programs are designed to attract and retain highly qualified executives and to motivate them to optimize member owner returns by achieving aggressive goals. The compensation program links executive compensation directly to the Company’s performance. A significant portion of each executive’s compensation is dependent upon value-added operations and meeting financial goals and other individual performance objectives.

      Each year, the Committee reviews the executive compensation policies with respect to the correlation between executive compensation and the creation of member owner value, as well as the competitiveness of the programs. The Committee determines what, if any, changes are appropriate to executive compensation programs of CHS Inc. The Committee recommends to the total Board of Directors, salary actions relative to the chief executive officer and determines the amount of annual variable pay and the amount of long-term variable pay awards.

      The Company intends to the extent possible, to preserve the deductibility under the Internal Revenue Code of compensation paid to its executive officers while maintaining compensation programs to attract and retain highly qualified executives in a competitive environment. Accordingly, compensation paid under CHS Inc. share option and incentive compensation plans is generally deductible.

Components of Compensation

      There are three basic components to the CHS Inc. executive compensation plan: base pay; annual variable pay; and long-term variable pay (grants in the share option plan). Each component is designed to be competitive within the executive compensation market. In determining competitive compensation levels, the Company analyzes information from several independent compensation surveys, which include information regarding a comparable all-industrial market and other companies that compete for executive talent.

      Base Pay: Base pay is designed to be competitive at the 50th percentile of other large companies for equivalent positions. The executive’s actual salary relative to this competitive benchmark varies based on individual performance and the individual’s skills, experience and background.

      Annual Variable Pay: Award levels, like the base pay levels, are set with reference to competitive conditions and are intended to motivate the executives by providing substantial incentive payments for the achievement of aggressive goals. The actual amounts paid for 2004 were determined based on two factors: first, profitability and financial performance of the Company and the executive’s business unit; and second, the individual executive’s performance against other specific management objectives such as revenue volume growth, value added performance or talent development. Financial objectives are given greater weight than individual performance objectives in determining individual awards. The types and relative importance of specific financial and other business objectives varied among executives depending upon their positions and the particular business unit for which they were responsible.

      Long-Term Variable Pay: The main purpose of the long-term variable pay program is to encourage the CHS Inc. executives to increase the value of doing business with the Company by increasing and improving value-added business opportunities and therefore the value of member owners doing business with CHS Inc. The long-term variable pay component of the compensation program (through extended vesting) is also designed to create an incentive for the individual to remain with the Company.

      The long-term variable pay program consists of grants of options for shares in the private investment companies sponsored by CHS Inc. These options vest over a multi-year period. The Company periodically

56

grants new awards to provide continuing incentives for future performance. Like the annual variable pay, award levels are set with regard to competitive considerations and each individual’s actual award is based on financial performance of the Company, collectively.

Compensation of the Chief Executive Officer

      In determining the compensation of the chief executive officer, the Committee considers three factors: the absolute and relative performance of the business particularly as it relates to variable pay; the market for such positions; and CHS Inc. compensation strategy in determining the mix of base, annual, and long-term variable pay.

      In general, the Company’s strategy is to distribute pay for the chief executive officer among the three basic components so that it effectively reflects the competitive market with major consideration for achievement of individual performance objectives.

      Mr. Johnson’s actual base salary for fiscal year 2004 was $850,000. Based on CHS Inc. financial performance in terms of profitability and other individual goals related to achieving communications objectives, business partner accountability and other strategic objectives, Mr. Johnson received an annual variable pay award of $800,530 and will receive a long-term variable pay award of $969,646 for fiscal year 2004. These incentive payments were consistent with his achievement of performance standards set by the Board of Directors.

      Corporate Responsibility Committee Members,

Robert Elliott	Michael Mulcahey
Richard Owen	Merlin Van Walleghen

      The following summarizes certain benefits in effect as of August 31, 2004 to the Named Executive Officers.

Employment Agreement with John D. Johnson

      The Company’s executive officers are employed on an at-will basis and, except as provided below, none of the Company’s executive officers has a written employment agreement. On November 6, 2003, the Company entered into an employment agreement with John D. Johnson, the President and Chief Executive Officer. The employment agreement provides for a rolling three-year period of employment effective September 1, 2003 at an initial base salary of at least $850,000, subject to annual review. Either party, subject to the rights and obligations set forth in the employment agreement, may terminate Mr. Johnson’s employment at any time. The Company is obligated to pay Mr. Johnson a severance allowance of 2.99 times his base salary and target bonus in the event Mr. Johnson’s employment is terminated for any reason other than for cause (as such term is defined in the employment agreement), death, disability or voluntary termination, and in the event of the consolidation of the Company’s business with the business of any other entity, if Mr. Johnson is not offered the position of Chief Executive Officer of the combined entity. The contract provides for a gross-up for any possible excise tax. Mr. Johnson has also agreed to a non-compete clause of two years, in the event of his termination.

Management Compensation Incentive Program

      Each Named Executive Officer is eligible to participate in the Management Compensation Incentive Program (the “Incentive Program”) for the year ending August 31, 2004. The Incentive Program is based on Company, group or division performance and individual performance. These amounts will be paid after August 31, 2004. The target incentive is 50% of base compensation except for the President and Chief Executive Officer, where target incentive is 67% of base compensation.

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Long-Term Incentive Plan

      Each Named Executive Officer is eligible to participate in the Long–Term Incentive Plan. The plan consists of a three-year performance period. Award opportunities are expressed as a percentage of a participating employee’s position average mid-point. Company performance must meet a minimum level of pre-tax earnings per unit of sales volume and net income levels before any grants are made from this plan. The Board of Directors has discretion to increase or decrease an award up to 20%. Awards from the plan are grants to the Company’s Share Option Plan at the end of each plan period. For each of the fiscal years ended August 31, 2004 and 2003, the Board of Directors increased the awards by an additional 10%.

Long-Term Incentive Plans — Awards in Last Fiscal Year

		Award		Maturation		Threshold		Target		Maximum
Name and Principal Position		2002-2004		of Award		Each Year		Each Year		Each Year
John D. Johnson		$	969,646		2002-2004	$	84,000	$	562,800	$	840,000
	President and Chief Executive Officer
Patrick Kluempke			211,562		2002-2004		18,328		122,794		183,275
	Executive Vice President — Corporate Planning and Administration
Thomas D. Larson			208,647		2002-2004		18,075		121,103		180,750
	Executive Vice President — Member and Public Affairs
Mark Palmquist			412,301		2002-2004		35,718		239,307		357,175
	Executive Vice President and Chief Operating Officer — Grain and Foods
John Schmitz			366,907		2002-2004		31,785		212,960		317,850
	Executive Vice President and Chief Financial Officer
Leon E. Westbrock			412,301		2002-2004		35,718		239,307		357,175
	Executive Vice President and Chief Operating Officer — Crop Inputs

Retirement Plan

      Each of the Named Executive Officers is entitled to receive benefits under the Company’s Cash Balance Retirement Plan (the “Retirement Plan”). An employee’s benefit under the Retirement Plan depends on credits to the employee’s account, which are based on the employee’s total salary each year the employee works for the Company, the length of service with the Company and the rate of interest credited to the employee’s account balance each year. Credits are made to the employee’s account from Pay Credits, Special Career Credits and Investment Credits.

      The amount of Pay Credits added to an employee’s account each year is a percentage of the employee’s gross salary, including overtime pay, commissions, severance pay, bonuses, any compensation reduction pursuant to the 401(k) Plan and any pretax contribution to any of the Company’s welfare benefit plans, paid vacations, paid leaves of absence and pay received if away from work due to a sickness or injury. The Pay Credits percentage received is determined on a yearly basis, based on the years of Benefit Service completed as of January 1 of each year. An employee receives one year of Benefit Service for every calendar year of employment in which the employee completed at least 1,000 hours of service.

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      Effective January 1, 2004, Pay Credits are earned according to the following schedule:

	Pay Below Social Security			Pay Above Social Security
Years of Benefit Service	Taxable Wage Base			Taxable Wage Base
1 to 3 years		3	%		6	%
4 to 7 years		4	%		8	%
8 to 11 years		5	%		10	%
12 to 15 years		6	%		12	%
16 years and more		7	%		14	%

      The Company credits an employee’s account at the end of the year with an Investment Credit based on the balance at the beginning of the year. The Investment Credit is based on the average return for one-year U.S. Treasury Bills for the preceding 12-month period. The maximum Investment Credit will not exceed 12% for any year.

      As of December 31, 2003, the dollar value of the account and years of service for each of the Named Executive Officers was:

	Dollar Value		Years of Service
John D. Johnson	$	1,013,550		28
Patrick Kluempke		496,367		21
Thomas D. Larson		493,751		27
Mark Palmquist		544,953		24
John Schmitz		475,773		29
Leon E. Westbrock		1,078,650		23

      In addition, each of the Named Executive Officers may participate in the Company’s Deferred Compensation Supplemental Retirement Plan (the Supplemental Plan). Participants in the Supplemental Plan are select management or highly compensated employees of the Company who have been designated as eligible by the President of the Company to participate in such plan. Compensation waived under the Share Option Plan is not eligible for Pay Credits under the Cash Balance Retirement Plan or matching contributions under the 401(k) Plan. The Supplemental Plan is intended to replace the benefits lost under those plans due to Section 415 of the Internal Revenue Code of 1986, as amended (the Code) which cannot be considered for purposes of benefits due to Section 401(a)(17) of the Code under the qualified plans that the Company offers. Some of the Supplemental Plan benefits are funded by a rabbi trust, with a balance at August 31, 2004 of $7.1 million. No further contributions are being made to the trust and the Supplemental Plan is not being funded and does not qualify for special tax treatment under the Code.

      Finally, the President and Chief Executive Officer of the Company is eligible to participate in the Company’s Special Supplemental Executive Retirement Plan (the Special Supplemental Plan). The special supplemental retirement benefit will be credited at the end of each plan year for which the participant completes a year of service. The amount credited shall be an amount equal to that set forth in a schedule of benefits stated in the Special Supplemental Plan. The Special Supplemental Plan is not funded or qualified for special tax treatment under the Code.

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      As of December 31, 2003, the dollar value of the accounts of each of the Named Executive Officers was approximately:

			Special
	Supplemental Plan		Supplemental Plan
John D. Johnson	$	2,575,684	$	0
Patrick Kluempke		151,037		N/A
Thomas D. Larson		624,081		N/A
Mark Palmquist		370,892		N/A
John Schmitz		327,616		N/A
Leon E. Westbrock		1,723,713		N/A

401(k) Plan

      Each Named Executive Officer is eligible to participate in the CHS Inc. Savings Plan (the 401(k) Plan). All benefit-eligible employees of the Company are eligible to participate in the 401(k) Plan. Effective January 1, 2002, participants may contribute between 1% and 50% (not to exceed the IRS limits on benefits in the case of “highly compensated” employees) of their pay on a pretax basis. Each of the Named Executive Officers is a “highly compensated” employee. The Company matches 50% of the first 6% of pay contributed each year. The Company’s Board of Directors may elect to reduce or eliminate matching contributions for any year or any portion thereof. Participants are 100% vested in their own contributions and are fully vested after three years of service in any Company matching contribution made on the participant’s behalf.

Nonqualified Deferred Compensation Plans

      In October 1997, the Company adopted a plan entitled the Share Option Plan. Participants in the Share Option Plan include directors, officers and other employees who have been designated as provided in the Share Option Plan. The Share Option Plan provides for the grant of options both as awards and in exchange for future compensation. Electing to receive an option in exchange for future compensation has the effect of deferring receipt of that amount of base salary or annual variable pay. With respect to options granted as awards, the Company has made all awards under its Long-Term Incentive Plan, described above, in the form of options under the Share Option Plan or deferred compensation plan. With respect to options granted in exchange for future compensation, a participant may elect to exchange up to 30% of his or her base salary and up to 100% of his or her annual variable compensation for options; this must be done prior to the beginning of the fiscal year in which the compensation will be earned. Options for foregone salary amounts are issued quarterly on or about March 31, June 30, September 30 and December 31; options for foregone annual and long-term variable compensation payments are issued as soon as practicable following determination of the relevant amount. If a participant’s employment with the Company terminates prior to the grant of an option to be issued in exchange for foregone compensation that has been earned, the amount of the compensation is paid to the participant in cash. During the fiscal year ended August 31, 2004, all of the Named Executive Officers participated in the non-elective deferral and all of the Named Executive Officers (except Mr. Larson) participated in the elective deferral to the Share Option Plan.

      Each option granted under the Share Option Plan has an exercise price equal to 25% of the amount of the award or the exchanged future compensation. Each option derives its value from the performance of one or more deemed investment alternatives selected by the recipient at the time of grant. The current investment options are investments in four private investment companies with different degrees of risk that are owned by the Company and managed for it by a third party investment manager. When a participant exercises an option, the Company pays the participant the amount that the participant would have received if the participant had made an investment in the selected investment on the option grant date in an amount equal to 125% of the amount of the award or exchanged future compensation, reinvested all dividends and other distributions on that investment from the grant date to the exercise date and then sold

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that investment on the exercise date. Options issued in exchange for foregone compensation become exercisable six months after the date of grant.

      Each time an option is granted under the Share Option Plan, the Company contributes an amount sufficient to purchase the investment or investments selected by the optionee in the relevant private investment company or companies. The Company’s obligations with respect to options granted under the Share Option Plan are unsecured obligations of the Company that rank equally with its other unsecured and unsubordinated obligations.

Change of Control Arrangements

      The Share Option Plan provides that in the event of a “change of control”:

•  even if an optionee’s option agreement provides that the optionee must remain in the employ of the Company for six months from the grant date, that requirement will no longer apply;

•  the exercise period for an option held by an employee whose employment (or a director whose service as a director) has terminated other than involuntarily for cause will not end prior to six months after the change of control;

•  the committee in charge of the Share Option Plan will not be able to amend options without the consent of the optionees other than as is necessary or advisable in connection with compliance with or any addition to or change in applicable laws; and

•  the Company may terminate options on any date after the change of control if the committee in charge of the Share Option Plan makes a cash payment equal to the payment that the participant would receive if the participant exercised the option on that date.

      For purposes of the Share Option Plan, “change of control” means, except as otherwise provided in a written agreement executed by the participant and the Company prior to the change of control, any change in:

•  the ownership of the Company;

•  the effective control of the Company, as defined in section 280G of the Internal Revenue Code; or

•  the ownership of a substantial portion of the assets of the Company, as defined under section 280G of the Internal Revenue Code.

      In addition, the Company’s employment agreement with John D. Johnson contains provisions that may be triggered in the case of a consolidation of the Company’s business with the business of another entity. See “Employment Agreement with John D. Johnson” above.

Directors’ Compensation

      The Board of Directors met monthly during the year ended August 31, 2004. Through August 31, 2004, the Company provided each director with compensation of $42,000, paid in twelve monthly payments, with; the Chairman of the Board receiving an additional annual compensation of $12,000, the First Vice Chairman receiving an additional annual compensation of $3,600, and the Secretary-Treasurer receiving an additional annual compensation of $1,800. Each director receives a per diem of $300 plus actual expenses and travel allowance for each day spent on Company meetings (other than regular Board meetings and the Annual Meeting), life insurance and health and dental insurance. Each director has a retirement benefit of $175 per month per year of service, with a maximum benefit of $2,625 per month, for life with a guarantee of 120 months (paid to beneficiary in the event of death). This benefit commences at age 60, or retirement, whichever is later. This retirement benefit may be converted to a lump sum. Some of the retirement benefits are funded by a rabbi trust, with a balance at August 31, 2004 of $0.9 million. The retired directors may also continue health benefits until eligible for Medicare and thereafter pay at their own expense for a Medicare supplemental policy.

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      Directors are eligible to participate in the Share Option Plan described above under “— Nonqualified Deferred Compensation Plans.” Each participating director may elect to exchange up to 100% of his or her monthly director fee; this must be done prior to the beginning of the fiscal year in which the fees will be earned. Electing to receive an option in exchange for future fees has the effect of deferring receipt of the amount of the fees exchanged.

Committees of the Board of Directors

      The Board of Directors appoints ad hoc committees from time to time to review certain matters and make reports and recommendations to the full Board of Directors for action. The entire Board of Directors determines the salaries and incentive compensation for the President and Chief Executive Officer using industry and compensation studies. The Board of Directors has a standing Audit Committee to review the results and scope of the annual audit and other services provided by the Company’s independent auditors, and another standing committee to review the equity redemption policy and its application to situations believed by the equity holder or patrons’ equity department to be unusual.

Compensation Committee Interlocks and Insider Participation

      As noted above, the Company’s Board of Directors does not have a Compensation Committee. The entire Board of Directors determined the compensation of the President and Chief Executive Officer and the terms of the employment agreement with the President and Chief Executive Officer. The President and Chief Executive Officer determines the compensation for all other executive officers.

      None of the directors are officers of the Company. See Item 13 for directors that were a party to related transactions.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      Beneficial ownership of equity securities as of August 31, 2004 is shown below:

		Amount and
		Nature of
		Beneficial
Title of Class	Name of Beneficial Owner	Ownership			% of Class
8% Cumulative Redeemable Preferred Stock	Directors:
	Michael Toelle		420  shares	(1)		*
	Bruce Anderson		40 shares			*
	Robert Bass		120 shares			*
	David Bielenberg		1,400 shares			*
	Dennis Carlson		460  shares	(1)		*
	Curt Eischens		120 shares			*
	Robert Elliott		640 shares			*
	Steve Fritel		880 shares			*
	Robert Grabarski		2,280  shares	(1)		*
	Jerry Hasnedl		200 shares			*
	Glen Keppy		200 shares			*
	James Kile		250  shares	(1)		*
	Randy Knecht		313  shares	(1)		*
	Michael Mulcahey		0 shares			*
	Richard Owen		240 shares			*

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		Amount and
		Nature of
		Beneficial
Title of Class	Name of Beneficial Owner	Ownership		% of Class
	Duane Stenzel		200 shares		*
	Merlin Van Walleghen		1,600 shares		*
	Named Executive Officers:
	John D. Johnson		3,400 shares		*
	Patrick Kluempke		1,000 shares		*
	Thomas D. Larson		400 shares		*
	Mark Palmquist		1,200 shares		*
	John Schmitz		1,400 shares		*
	Leon E. Westbrock		800 shares		*
	Directors and executive officers   as a group		17,563  shares		*

(1)  Includes shares held by spouse, children and Individual Retirement Accounts (IRA).

* Less than 1%.

      The Company has no compensation plans under which equity securities of the Company are authorized for issuance.

      To the Company’s knowledge there is no person who owns beneficially more than 5% of the 8% Cumulative Redeemable Preferred Stock.

Item 13. Certain Relationships and Related Transactions

      Because directors must be active patrons of the Company or an affiliated association, transactions between the Company and directors are customary and expected. Transactions include the sales of commodities to the Company and the purchases of products and services from the Company, as well as patronage refunds and equity redemptions received from the Company. During the period indicated, the value of those transactions between a particular director (and members of such director’s immediate family, which includes such director’s spouse; parents; children; siblings; mothers and fathers-in-law; sons and daughters-in-law; and brothers and sisters-in-law) and the Company in which the amount involved exceeded $60,000 are shown below.

	Year Ended
Name	August 31, 2004
Bruce Anderson	$	127,480
Curt Eischens		209,601
Jerry Hasnedl		553,598
Glen Keppy		109,654
Michael Mulcahey		119,578
Michael Toelle		459,829
Merlin Van Walleghen		313,209

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PART IV.

Item 14. Principal Accountant Fees and Services

      The following table shows the aggregate fees billed to the Company by PricewaterhouseCoopers for services rendered during the fiscal years ended August 31, 2004 and 2003:

Description of Fees		2004		2003
Audit Fees(1)		$	904,128	$	834,707
Audit — Related Fees(2)			99,717		70,754
Tax Fees(3)			705,151		138,109
All Other Fees
	Total	$	1,708,996	$	1,043,570

(1)	Includes fees for audit of annual financial statements and reviews of the related quarterly financial statements, certain statutory audits, work related to S-2 filings and assistance with preparation and review of documents filed with the Securities and Exchange Commission.
(2)	Includes fees for employee benefit plan audits.
(3)	Includes fees related to tax compliance, tax advice and tax planning.

      In accordance with the CHS Inc. Audit Committee Charter, on October 4, 2004, the Audit Committee adopted the following policies and procedures for the approval of the engagement of an independent auditor for audit, review or attest services and for pre-approval of certain permissible non-audit services, all to ensure auditor independence.

      The Company’s independent auditor will provide audit, review and attest services only at the direction of, and pursuant to engagement fees and terms approved by, the Audit Committee. The audit committee approves, in advance, all non-audit services to be performed by the independent auditors and the fees and compensation to be paid to the independent auditors. The Audit Committee approved all of the services listed above in advance.

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Item 15. Exhibits and Financial Statements

      (a)(1) Financial Statements

      The following financial statements and the Reports of Independent Registered Public Accounting Firms are filed as part of this Form 10-K.

	Page No.
CHS Inc.
Consolidated Balance Sheets as of August 31, 2004 and 2003		F-1
Consolidated Statements of Operations for the years ended August 31, 2004, 2003 and 2002		F-2
Consolidated Statements of Equities and Comprehensive Income for the years ended August 31, 2004, 2003 and 2002		F-3
Consolidated Statements of Cash Flows for the years ended August 31, 2004, 2003 and 2002		F-4
Notes to Consolidated Financial Statements		F-5
Report of Independent Registered Public Accounting Firm		F-31
VENTURA FOODS, LLC, a non-consolidated 50% owned equity investment
Independent Auditors’ Report		F-32
Consolidated Balance Sheets as of March 31, 2004 and 2003		F-33
Consolidated Statements of Income for the years ended March 31, 2004, 2003 and 2002		F-34
Consolidated Statements of Members’ Capital for the years ended March 31, 2004, 2003 and 2002		F-35
Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002		F-36
Notes to Consolidated Financial Statements for the years ended March 31, 2004, 2003 and 2002		F-37

*  Audited financial statements for Ventura Foods, LLC, as of and for the year ended March 31, 2005 will be filed by an amendment to this Form 10-K.

      (a)(2) Financial Statement Schedules

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

      (a)(3) Exhibits

3	.1	Articles of Incorporation of the Company, as amended.(13)
3	.2	Articles of Amendment to the Articles of Incorporation.(17)
3	.3	Bylaws of the Company, as amended.(13)
4	.1	Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.(14)
4	.2	Form of Certificate Representing 8% Cumulative Redeemable Preferred Stock.(15)
4	.3	Unanimous Written Consent Resolution of the Board of Directors Amending the Amended and Restated Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.(15)
4	.4	Unanimous Written consent Resolution of the Board of Directors Amending the Amended and Restated Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock to change the record date for dividends.(16)

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10	.1	Lease between the Port of Kalama and North Pacific Grain Growers, Inc., dated November 22, 1960.(1)
10	.2	Limited Liability Company Agreement for the Wilsey-Holsum Foods, LLC dated July 24, 1996.(1)
10	.3	Long Term Supply Agreement between Wilsey-Holsum Foods, LLC and Harvest States Cooperatives dated August 30, 1996.(*)(1)
10	.4	TEMCO, LLC Limited Liability Company Agreement between Cargill, Incorporated and Cenex Harvest States Cooperatives dated as of August 26, 2002.(12)
10	.5	Cenex Harvest States Cooperatives Supplemental Savings Plan.(7)
10	.6	Cenex Harvest States Cooperatives Supplemental Executive Retirement Plan.(7)
10	.7	Cenex Harvest States Cooperatives Senior Management Compensation Plan.(7)
10	.8	Cenex Harvest States Cooperatives Executive Long-Term Variable Compensation Plan.(7)
10	.9	Cenex Harvest States Cooperatives Share Option Plan.(21)
10	.9A	Amendment to Cenex Harvest States Share Option Plan, dated June 28, 2001.(10)
10	.9B	Amendment No. 2 to Cenex Harvest States Share Option Plan, dated May 2, 2001.(21)
10	.9C	Amendment No. 3 to Cenex Harvest States Share Option Plan, dated June 4, 2002.(21)
10	.9D	Amendment No. 4 to Cenex Harvest States Share Option Plan, dated April 6, 2004.(21)
10	.10	CHS Inc. Share Option Plan Option Agreement.(21)
10	.11	CHS Inc. Share Option Plan Trust Agreement.(21)
10	.11A	Amendment No. 1 to the Trust Agreement.(21)
10	.12	$225,000,000 Note Agreement (Private Placement Agreement) dated as of June 19, 1998 among Cenex Harvest States Cooperatives and each of the Purchasers of the Notes.(2)
10	.12A	First Amendment to Note Agreement ($225,000,000 Private Placement), effective September 10, 2003, among CHS Inc. and each of the Purchasers of the notes.(18)
10	.13	Credit Agreement (Revolving Loan) dated as of May 21, 2003 among Cenex Harvest States Cooperatives, CoBank, ACB, SunTrust Bank, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., BNP Paribas and the Syndication Parties.(16)
10	.13A	First Amendment to Credit Agreement dated as of May 20, 2004 between CHS Inc., CoBank, ACB, and the Syndication Parties.(20)
10	.14	$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).(2)
10	.14A	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.(4)
10	.14B	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.(6)
10	.14C	Third Amendment to Credit Agreement (Term Loan) dated May 23, 2001 among Cenex Harvest States Cooperatives, CoBank, ACB, and the Syndication Parties.(9)
10	.14D	Fourth Amendment to Credit Agreement (Term Loan) dated May 22, 2002 among Cenex Harvest States Cooperatives, CoBank, ACB and the Syndication Parties.(11)
10	.14E	Fifth Amendment to Credit Agreement (Term Loan) dated May 21, 2003 by and among Cenex Harvest States Cooperatives, CoBank, ACB and the Syndication Parties.(21)
10	.14F	Sixth Amendment to Credit Agreement (Term Loan) dated as of May 20, 2004 by and among CHS Inc., CoBank, ACB, and the Syndication Parties.(20)
10	.15	Limited Liability Agreement of United Harvest, LLC dated November 9, 1998 between United Grain Corporation and Cenex Harvest States Cooperatives.(3)
10	.16	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.(5)

66

10	.17	Employment Agreement dated November 6, 2003 by and between John D. Johnson and CHS Inc.(18)
10	.18	CHS Inc. Special Supplemental Executive Retirement Plan.(18)
10	.19	Note purchase and Private Shelf Agreement dated as of January 10, 2001 between Cenex Harvest States Cooperatives and The Prudential Insurance Company of America.(8)
10	.19A	Amendment No. 1 to Note Purchase and Private Shelf Agreement, dated as of March 2, 2001.(8)
10	.20	Note Purchase Agreement and Series D & E Senior Notes dated October 18, 2002.(12)
10	.21	2003 Amended and Restated Credit Agreement ($15 million, 2 Year Facility) dated December 16, 2003 between CoBank, ACB, U.S. AgBank, FCB and the National Cooperative Refinery Association, Inc.(19)
10	.22	Note Purchase and Private Shelf Agreement between CHS Inc. and Prudential Capital Group dated as of April 13, 2004.(20)
21	.1	Subsidiaries of the Registrant.(21)
23	.1	Consent of Independent Registered Public Accounting Firm.(21)
23	.2	Independent Auditors’ Consent.(21)
24	.1	Power of Attorney.(21)
31	.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(21)
31	.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(21)
32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(21)
32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(21)

(*)	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 Registration Statement on Form S-1 (File No. 333-17865), filed February 7, 1997.
(2)	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.
(3)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended November 30, 1998, filed January 13, 1999.
(4)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 1999, filed July 13, 1999.
(5)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended February 29, 2000 filed April 11, 2000.
(6)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 2000, filed July 10, 2000.
(7)	Incorporated by reference to the Company’s Form 10-K for the year ended August 31, 2000, filed November 22, 2000.
(8)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended February 28, 2001, filed April 10, 2001.
(9)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 2001, filed July 3, 2001.

(10)  Incorporated by reference to the Company’s Registration Statement on Form S-2 (File No. 333-65364), filed October 26, 2001.

67

(11)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 2002, filed July 3, 2002.
(12)	Incorporated by reference to the Company’s Form 10-K for the year ended August 31, 2002, filed November 25, 2002.
(13)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended November 30, 2002, filed January 9, 2003.
(14)	Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-2 (File No. 333-101916), dated January 13, 2003.
(15)	Incorporated by reference to Amendment No. 2 to the Company’s Registration Statement on Form S-2 (File No. 333-101916), dated January 23, 2003.
(16)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 2003, filed July 2, 2003.
(17)	Incorporated by reference to the Company’s Form 8-K, filed August 5, 2003.
(18)	Incorporated by reference to the Company’s Form 10-K for the year ended August 31, 2003 filed on November 21, 2003.
(19)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended February 29, 2004, filed April 7, 2004.
(20)	Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended May 31, 2004, filed July 12, 2004.
(21)	Filed herewith

      (b) Exhibits

      The exhibits shown in Item 15(a)(3) above are being filed herewith.

      (c) Schedules

      None.

Supplemental Information

      As a cooperative, the Company does not utilize proxy statements.

68

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 18, 2004.

CHS INC.

By:  /s/ JOHN D. JOHNSON

John D. Johnson

President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on November 18, 2004:

Signature		Title
/s/ JOHN D. JOHNSON John D. Johnson		President and Chief Executive Officer (principal executive officer)
/s/ JOHN SCHMITZ John Schmitz		Executive Vice President and Chief Financial Officer (principal financial officer)
/s/ JODELL HELLER Jodell Heller		Vice President and Controller (principal accounting officer)
Michael Toelle*		Chairman of the Board of Directors
Bruce Anderson*		Director
Robert Bass*		Director
David Bielenberg*		Director
Dennis Carlson*		Director
Curt Eischens*		Director
Robert Elliott*		Director
Steve Fritel*		Director
Robert Grabarski*		Director
Jerry Hasnedl*		Director
Glen Keppy*		Director
James Kile*		Director
Randy Knecht*		Director
Michael Mulcahey*		Director
Richard Owen*		Director
Duane Stenzel*		Director
Merlin Van Walleghen*		Director
*By:	/s/ JOHN D. JOHNSON John D. Johnson Attorney-in-fact

69

CHS INC.

CONSOLIDATED BALANCE SHEETS

		August 31
		2004		2003
		(Dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents	$	136,491	$	168,249
	Receivables		834,965		763,780
	Inventories		723,893		801,883
	Other current assets		273,355		178,661
Total current assets			1,968,704		1,912,573
Investments			575,816		532,893
Property, plant and equipment			1,249,655		1,122,982
Other assets			237,117		239,520
Total assets		$	4,031,292	$	3,807,968
LIABILITIES AND EQUITIES
Current liabilities:
	Notes payable	$	116,115	$	251,131
	Current portion of long-term debt		35,117		14,951
	Customer credit balances		88,686		58,417
	Customer advance payments		64,042		123,383
	Checks and drafts outstanding		64,584		85,239
	Accounts payable		717,501		627,250
	Accrued expenses		305,650		254,415
	Dividends and equities payable		83,569		39,049
Total current liabilities			1,475,264		1,453,835
Long-term debt			648,701		648,222
Other liabilities			148,526		111,555
Minority interests in subsidiaries			130,715		112,645
Commitments and contingencies
Equities			1,628,086		1,481,711
Total liabilities and equities		$	4,031,292	$	3,807,968

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

F-1

CHS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Years Ended August 31
		2004			2003			2002
		(Dollars in thousands)
Revenues:
	Net sales	$	10,909,333		$	9,270,734		$	7,156,454
	Other revenues		141,303			122,578			107,351
			11,050,636			9,393,312			7,263,805
Cost of goods sold			10,604,245			9,060,555			6,940,050
Marketing, general and administrative			208,284			183,757			182,175
Operating earnings			238,107			149,000			141,580
Gain on sale of investment			(14,666	)
Gain on legal settlements			(692	)		(10,867	)		(2,970	)
Interest			51,625			48,675			42,455
Equity income from investments			(79,022	)		(47,299	)		(58,133	)
Minority interests			33,830			21,950			15,390
Income before income taxes			247,032			136,541			144,838
Income taxes			25,700			12,700			18,700
Net income		$	221,332		$	123,841		$	126,138
Distribution of net income:
	Patronage refunds	$	166,850		$	90,000		$	92,900
	Unallocated capital reserve		54,482			33,841			33,238
Net income		$	221,332		$	123,841		$	126,138

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

F-2

CHS INC.

CONSOLIDATED STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME

		For the Years Ended August 31, 2004, 2003 and 2002
																	Accumulated
		Capital			Nonpatronage									Unallocated			Other			Allocated
		Equity			Equity			Preferred			Patronage			Capital			Comprehensive			Capital		Total
		Certificates			Certificates			Stock			Refunds			Reserve			Income (Loss)			Reserve		Equities
		(Dollars in thousands)
Balances, September 1, 2001		$	971,873		$	28,158					$	90,230		$	164,757		$	(1,915	)	$	8,050	$	1,261,153
Dividends and equity retirement determination			33,484									38,670											72,154
Patronage distribution			92,484									(128,900	)		(3,666	)							(40,082	)
Equities retired			(31,099	)		(46	)																(31,145	)
Equities issued			2,600																				2,600
Preferred stock issued, net								$	9,325						(3,428	)							5,897
Preferred stock dividends															(240	)							(240	)
Other, net			(106	)		(339	)								100								(345	)
Comprehensive income:
	Net income											92,900			33,238								126,138
	Other comprehensive loss																	(49,982	)				(49,982	)
Total comprehensive income																							76,156
Dividends and equities payable			(28,640	)								(27,870	)										(56,510	)
Balances, August 31, 2002			1,040,596			27,773			9,325			65,030			190,761			(51,897	)		8,050		1,289,638
Dividends and equity retirement determination			28,639									27,870											56,509
Patronage distribution			61,784									(92,900	)		4,638								(26,478	)
Equities retired			(31,092	)		(52	)																(31,144	)
Equities issued			350																				350
Preferred stock issued, net									86,379						(3,895	)							82,484
Preferred stock redeemed									(2,002	)													(2,002	)
Preferred stock dividends															(3,575	)							(3,575	)
Other, net			(2,440	)		(3	)								(4	)							(2,447	)
Comprehensive income:
	Net income											90,000			33,841								123,841
	Other comprehensive income																	33,584					33,584
Total comprehensive income																							157,425
Dividends and equities payable			(10,800	)								(27,000	)		(1,249	)							(39,049	)
Balances, August 31, 2003			1,087,037			27,718			93,702			63,000			220,517			(18,313	)		8,050		1,481,711
Dividends and equity retirement determination			10,800									27,000			1,249								39,049
Patronage distribution			66,500									(90,000	)		(5,222	)							(28,722	)
Equities retired			(10,292	)		(47	)																(10,339	)
Capital equity certificates exchanged for preferred stock			(12,990	)					12,990						(150	)							(150	)
Equities issued			13,355																				13,355
Preferred stock redeemed, treasury									—														—
Preferred stock dividends															(7,975	)							(7,975	)
Other, net			(7,669	)		(85	)								(30	)							(7,784	)
Comprehensive income:
	Net income											166,850			54,482								221,332
	Other comprehensive income																	11,178					11,178
Total comprehensive income																							232,510
Dividends and equities payable			(32,100	)								(50,060	)		(1,409	)							(83,569	)
Balances, August 31, 2004		$	1,114,641		$	27,586		$	106,692		$	116,790		$	261,462		$	(7,135	)	$	8,050	$	1,628,086

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

F-3

CHS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the Years Ended August 31
				2004			2003			2002
				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	221,332		$	123,841		$	126,138
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization			108,399			111,347			103,986
		Noncash income from equity investments			(79,022	)		(47,299	)		(58,133	)
		Minority interests			33,830			21,950			15,390
		Noncash portion of patronage dividends received			(4,986	)		(1,795	)		(2,327	)
		Loss (gain) on sale of property, plant and equipment			775			741			(6,418	)
		Deferred tax expense			8,500			9,000			4,400
		Gain on sale of investment			(14,666	)
		Other, net			1,150			4,052			5,467
		Changes in operating assets and liabilities:
			Receivables		(59,039	)		(18,669	)		(32,517	)
			Inventories		88,261			(25,692	)		(255,107	)
			Other current assets and other assets		(89,237	)		(83,347	)		(86,636	)
			Customer credit balances		27,639			30,238			(12,025	)
			Customer advance payments		(59,354	)		(45,740	)		59,988
			Accounts payable and accrued expenses		121,647			135,310			92,781
			Other liabilities		28,060			2,569			9,079
Net cash provided by (used in) operating activities					333,289			216,506			(35,934	)
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(245,148	)		(175,689	)		(140,169	)
	Proceeds from disposition of property, plant and equipment				34,530			26,886			20,205
	Investments				(49,757	)		(43,478	)		(6,211	)
	Equity investments redeemed				65,158			35,939			37,689
	Investments redeemed				9,481			8,467			6,310
	Proceeds from sale of investment				25,000
	Changes in notes receivable				(6,888	)		(6,630	)		(22,031	)
	Acquisitions of intangible assets							(767	)		(29,501	)
	Acquisitions of working capital, net							(13,030	)		(5,750	)
	Distributions to minority owners				(15,908	)		(4,444	)		(7,413	)
	Other investing activities, net				2,248			(507	)		(685	)
Net cash used in investing activities					(181,284	)		(173,253	)		(147,556	)
Cash flows from financing activities:
	Changes in notes payable				(135,016	)		(81,383	)		235,319
	Borrowings on long-term debt				35,457			175,000			30,000
	Principal payments on long-term debt				(15,299	)		(89,512	)		(17,968	)
	Payments on derivative financial instruments, net				(287	)		(7,574	)
	Changes in checks and drafts outstanding				(21,431	)		988			(3,557	)
	Proceeds from sale of preferred stock, net of expenses				(151	)		82,484			5,897
	Redemptions of preferred stock							(2,002	)
	Preferred stock dividends paid				(7,975	)		(3,575	)		(240	)
	Retirements of equities				(10,339	)		(31,144	)		(31,145	)
	Cash patronage dividends paid				(28,722	)		(26,478	)		(40,082	)
Net cash (used in) provided by financing activities					(183,763	)		16,804			178,224
Net (decrease) increase in cash and cash equivalents					(31,758	)		60,057			(5,266	)
Cash and cash equivalents at beginning of period					168,249			108,192			113,458
Cash and cash equivalents at end of period				$	136,491		$	168,249		$	108,192

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

F-4

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

Organization:

      CHS Inc. (CHS 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, oilseed processing, foods and wheat milling, the Company provides its patrons with energy and agronomy products, as well as other production agricultural inputs. Sales are both domestic and international.

Consolidation:

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

      The Company had various 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 the 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. Costs for inventories produced or modified by the Company through a manufacturing process include fixed and variable production and raw material costs, and in-bound freight costs for raw materials over the amount charged to cost of goods sold. Costs for inventories purchased for resale include the cost of products and freight incurred to place the products at the Company’s points of sales. 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 inventories of non-grain products purchased for resale 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 exposure from expected price fluctuations. The Company also manages its risks by entering into fixed-price purchase contracts with pre-approved producers and establishing appropriate limits for individual suppliers. Fixed-price sales contracts are entered into with customers of acceptable creditworthiness, as internally evaluated. The Company is exposed to loss in the event of nonperformance by the counterparties to the contracts and therefore, contract values are reviewed and adjusted to reflect potential nonperformance.

F-5

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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 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 values of 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. Included in other current assets on August 31, 2004 and 2003 are derivative assets of $91.3 million and $54.5 million, respectively. Included in accrued expenses on August 31, 2004 and 2003 are derivative liabilities of $110.8 million and $46.5 million, respectively.

Commodity Price Risk:

      The Company utilizes futures and options contracts offered through regulated commodity exchanges to reduce price risk. The Company is exposed to risk of loss in the market value of inventories and fixed or partially fixed purchase and sales contracts. In order to reduce that risk, the Company generally takes 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, in order 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 with forward contracts, with futures and options used to hedge within position limits the remaining portion. These futures and options contracts and forward purchase and sales contracts used to hedge against commodity price changes are effective economic hedges of price risk, 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 using market-based prices. Inventories and fixed-price contracts are marked to fair value using market-based prices so that gains or losses on the derivative contracts are offset by gains or losses on inventories and fixed-price contracts.

      Unrealized gains and losses on futures contracts and options used as economic hedges of energy inventories and fixed-price contracts are recognized in cost of goods sold for financial reporting using market-based prices. The inventories hedged with these derivatives are valued at the lower of cost or fair value, and fixed-price contracts are marked to fair value using market-based prices. Certain fixed-price contracts 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.

Interest Rate Risk:

      The Company manages interest expense using 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 to minimize the effect of

F-6

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market interest rate changes. The effective interest rate to the Company on fixed-rate debt outstanding on August 31, 2004, was approximately 6.4%.

      In fiscal years 2002 and 2004, the Company entered into interest rate treasury lock instruments to secure the interest rates related to a portion of its private placement debts issued on October 18, 2002, and September 21, 2004. These instruments were designated and are effective as cash flow hedges for accounting purposes and, accordingly, the net loss on settlements were recorded as a component of other comprehensive income. Interest expense for the years ended August 31, 2004 and 2003, includes $0.9 million and $0.7 million, respectively, related to the interest rate derivatives. The additional interest expense is an offset to the lower actual interest paid on the outstanding debt instruments.

Foreign Currency Risk:

      The Company conducts essentially all of its business in U.S. dollars, except for grain marketing operations in Brazil and purchases of products from Canada, and had minimal risk regarding foreign currency fluctuations during 2004 and in prior years. 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.

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 in other revenues 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.

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:

      Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to assets acquired and liabilities assumed. Goodwill is no longer amortized in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, but reviewed for impairment annually, or more frequently if certain impairment conditions arise, on the basis of undiscounted cash flows. After analysis,

F-7

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

assets that are deemed to require impairment are written down to fair market value. Other intangible assets consists primarily of trademarks, patents, customer lists and agreements not to compete. Intangible assets subject to amortization are provided on a straight-line basis over the number of years that approximate their respective useful lives (ranging from 5 to 15 years).

Revenue Recognition:

      The Company provides a wide variety of products and services, from production agricultural inputs such as fuels, farm supplies and crop nutrients, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products. Grain and oilseed sales are recorded after the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon. All other sales are recognized upon transfer of title, which could occur upon either shipment or receipt by the customer, depending upon the transactions. Amounts billed to a customer as part of a sales transaction related to shipping and handling are included in net sales. Service revenues are recorded only after such services have been rendered, and are included in other revenues.

Environmental Expenditures:

      Liabilities, including legal costs, related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of environmental 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 fiscal 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.

Comprehensive Income:

      Comprehensive income 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.

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.

F-8

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Pronouncements:

      In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Adoption of this standard did not have an effect on the Company.

      In December 2003, the FASB issued SFAS No. 132R, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement requires additional disclosures to be made by employers regarding pensions and other postretirement benefit plans, but does not change the measurement or recognition of those plans. Under this Statement, the disclosure provisions regarding foreign plans and estimated future benefit payments are effective for fiscal years ending after December 15, 2003 and interim periods beginning after December 15, 2003. The Company has adopted the interim and annual disclosure provisions of this Statement during the current fiscal year.

      In December 2003, the FASB revised FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” The interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. It also requires consolidation by the primary beneficiary. For public entities the interpretation applies to interests in variable interest entities for periods ending after March 15, 2004, the Company’s third quarter. Adoption of this standard did not have an effect on the Company.

      On May 19, 2004, the FASB issued a FASB Staff Position (FSP) regarding SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” discusses the effects of the Medicare Prescription Drug, Improvement and Modernization Act (the Act) enacted on December 8, 2003. FSP 106-2 considers the effect of the two new features introduced in the Act in determining accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit cost, which may serve to reduce a company’s post-retirement benefit costs. Companies may elect to defer accounting for this benefit or may attempt to reflect the best estimate of the impact of the Act on net periodic costs. The Company has chosen to defer accounting for the benefit until the FASB issues final accounting guidance due to various uncertainties related to this legislation. The Company’s measures of APBO and net periodic postretirement benefit costs as of and for the year ended August 31, 2004 do not reflect the effect of the Act as permitted by the FSP.

      In March 2004, the FASB Emerging Issues Task Force (EITF) reached a consensus on and the FASB ratified EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides guidance for evaluating whether an investment is other-than-temporarily impaired. On September 30, 2004, the FASB issued FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, ‘The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments,”’ which delayed the effective date of the application guidance on impairment of securities included within EITF 03-1. The Company is still evaluating the potential impact of the adoption of EITF 03-1.

F-9

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications:

      Certain reclassifications have been made to prior year’s amounts to conform to current year classifications. These reclassifications and changes had no effect on previously reported net income, equities and comprehensive income, or cash flows.

2.     Receivables:

      Receivables as of August 31, 2004 and 2003 are as follows:

	2004		2003
	(Dollars in thousands)
Trade	$	835,066	$	748,398
Other		55,708		47,000
		890,774		795,398
Less allowances for doubtful accounts		55,809		31,618
	$	834,965	$	763,780

      All international sales are denominated in U.S. dollars. International sales for the years ended August 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
	(Dollars in millions)
Africa	$	112	$	99	$	135
Asia		1,104		815		407
Europe		158		156		282
North America, excluding U.S.		456		367		298
South America		209		166		100
	$	2,039	$	1,603	$	1,222

3.     Inventories:

      Inventories as of August 31, 2004 and 2003 are as follows:

	2004		2003
	(Dollars in thousands)
Grain and oilseed	$	308,207	$	370,381
Energy		277,801		292,095
Feed and farm supplies		110,885		95,589
Processed grain and oilseed		25,740		42,688
Other		1,260		1,130
	$	723,893	$	801,883

      As of August 31, 2004, the Company valued approximately 24% of inventories, primarily related to energy, using the lower of cost, determined on the LIFO method, or market (24% as of August 31, 2003). If the FIFO method of accounting for these inventories had been used, inventories would have been higher than the reported amount by $160.3 million and $86.3 million at August 31, 2004 and 2003, respectively.

F-10

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Investments:

      Investments as of August 31, 2004 and 2003 are as follows:

		2004		2003
		(Dollars in thousands)
Cooperatives:
	CF Industries, Inc.	$	152,996	$	152,996
	Land O’Lakes, Inc.		31,057		27,105
	Ag Processing, Inc.		24,866		24,481
	CoBank ACB (CoBank)		16,625		22,505
Joint ventures:
	United Country Brands, LLC (Agriliance, LLC)		167,597		129,286
	Ventura Foods, LLC		107,719		107,464
	TEMCO, LLC		5,776		9,087
Other			69,180		59,969
		$	575,816	$	532,893

      The CHS investment in CF Industries, Inc. (CF) is carried at cost, including allocated patronage refunds. CHS recognizes income from this investment when qualified patronage refunds are received. In each of the years 1998 through 2003, CF has generated operating losses, none of which were allocated to its owners. CHS management has performed the appropriate impairment tests of this investment, and based upon those tests, believes that the fair market value exceeds its carrying value. CHS will continue to perform impairment tests annually, or as circumstances dictate, including reviewing operating results, which could result in impairment to its CF investment.

      The Company has a 50% interest in Ventura Foods, LLC, a joint venture, which produces and distributes oilseed-based products. The following provides summarized unaudited financial information for Ventura Foods, LLC balance sheets as of August 31, 2004 and 2003, and statements of operations for the twelve months ended August 31, 2004, 2003 and 2002:

	2004		2003
	(Dollars in thousands)
Current assets	$	286,613	$	193,632
Non-current assets		258,270		231,649
Current liabilities		171,269		227,400
Non-current liabilities		194,547		21,738

	2004		2003		2002
	(Dollars in thousands)
Net sales	$	1,425,061	$	1,165,823	$	1,013,475
Gross profit		167,581		155,274		181,217
Net income		44,696		42,837		75,368

      Agriliance, LLC (Agriliance) is owned and governed by Land O’Lakes, Inc. (50%) and United Country Brands, LLC (50%). United Country Brands, LLC, was initially owned and governed 50% by the Company and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, the Company’s indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as the Company’s ownership or governance interest. In April 2003, the Company acquired an additional 13.1% economic interest in the wholesale crop protection business of

F-11

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Agriliance (the “CPP Business”), which constituted only a part of the Agriliance business operations, for a cash payment of $34.3 million. After the transaction, the economic interests in Agriliance were owned 50% by Land O’Lakes, Inc. 25% plus an additional 13.1% of the CPP Business by the Company and 25% less 13.1% of the CPP Business by Farmland. The ownership or governance interests in Agriliance did not change with the purchase of this additional economic interest. Agriliance’s earnings were split among the members based upon the respective economic interests of each member. On April 30, 2004, the Company purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. The Company now owns 50% of the economic and governance interests in Agriliance, and continues to account for this investment using the equity method of accounting.

      The following provides summarized financial information for Agriliance balance sheets as of August 31, 2004 and 2003, and statements of operations for the years ended August 31, 2004, 2003 and 2002:

	2004		2003
	(Dollars in thousands)
Current assets	$	1,123,671	$	1,249,891
Non-current assets		123,106		119,615
Current liabilities		878,814		1,083,693
Non-current liabilities		128,780		27,061

	2004		2003		2002
	(Dollars in thousands)
Net sales	$	3,477,528	$	3,485,623	$	3,625,849
Earnings from operations		82,221		67,239		57,604
Net income		71,278		60,741		47,044

      During the year ended August 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million, increasing their holding to 100%. NCRA subsequently sold a 50% interest in the same pipeline to another third party for proceeds of $25.0 million and recorded a pre-tax gain on the sale of $14.7 million.

      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 values. Investments in cooperatives and joint ventures have no quoted market prices.

      Various agreements with other owners of investee companies and a majority-owned subsidiary set out parameters whereby CHS 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.

F-12

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Property, Plant and Equipment:

      A summary of property, plant and equipment as of August 31, 2004 and 2003 is as follows:

	2004		2003
	(Dollars in thousands)
Land and land improvements	$	64,709	$	60,453
Buildings		422,545		380,940
Machinery and equipment		1,618,428		1,515,976
Office and other		65,296		61,356
Construction in progress		214,988		159,555
		2,385,966		2,178,280
Less accumulated depreciation and amortization		1,136,311		1,055,298
	$	1,249,655	$	1,122,982

      In January 2002, the Company formed a limited liability company 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. The Company is leasing certain of its wheat milling facilities and related equipment to Horizon Milling, LLC under an operating lease agreement. The book value of the leased milling assets at August 31, 2004, was $93.6 million, net of accumulated depreciation of $37.1 million.

      For the years ended August 31, 2004, 2003 and 2002, the Company capitalized interest of $2.8 million, $3.9 million and $2.1 million, respectively, related to capitalized construction projects.

      During 2003, the Company adopted 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 Company’s Energy segment operates oil refineries and related pipelines for which the Company would be subject to Asset Retirement Obligations (ARO) if such assets were to be dismantled. The Company, however, expects to operate its refineries and related pipelines indefinitely. Since the time period to dismantle these assets is indeterminate, a corresponding ARO is not estimable and therefore has not been recorded.

F-13

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Other Assets:

      Other assets as of August 31, 2004 and 2003 are as follows:

	2004		2003
	(Dollars in thousands)
Goodwill	$	26,896	$	27,052
Customer lists, less accumulated amortization of $7,445 and $5,112, respectively		7,087		9,414
Non-compete covenants, less accumulated amortization of $2,115 and $11,774, respectively		1,638		1,766
Other intangible assets, less accumulated amortization of $3,113 and $1,986, respectively		13,498		14,607
Prepaid pension and other benefit assets		182,773		151,389
Deferred tax asset				28,689
Notes receivable		1,186		1,991
Other		4,039		4,612
	$	237,117	$	239,520

      Intangible assets amortization expenses for the years ended August 31, 2004, 2003 and 2002 were $3.8 million, $12.2 million and $4.2 million, respectively. The estimated amortization expense related to intangible assets subject to amortization for the next five years will approximate $2.7 million annually for the first four years, and $1.7 million for the fifth year.

      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 had a weighted-average life of approximately 12 years. During the year ended August 31, 2003, the Company accelerated the amortization of the non-compete agreement due to Farmland’s July 31, 2003 notification that it intended to liquidate its assets in bankruptcy. The Company had additional amortization expense of $7.5 million during 2003 related to the acceleration, and the asset had a zero book value as of August 31, 2003.

F-14

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Notes Payable and Long-Term Debt:

      Notes payable and long-term debt as of August 31, 2004 and 2003 consisted of the following:

		Interest Rates at
		August 31, 2004		2004		2003
				(Dollars in thousands)
Notes payable(a)(h)			2.01% to 2.23%	$	116,115	$	251,131
Long-term debt:
	Revolving term loans from cooperative and other banks, payable in installments through 2009, when the balance is due(b)(h)		2.27% to 13.00%	$	155,784	$	168,032
	Private placement, payable in equal installments beginning in 2008 through 2013(c)(h)		6.81%		225,000		225,000
	Private placement, payable in installments beginning in 2007 through 2018(d)(h)		4.96% to 5.60%		175,000		175,000
	Private placement, payable in equal installments beginning in 2005 through 2011(e)(h)		7.43% to 7.90%		80,000		80,000
	Private placement, payable in its entirety in 2010(f)(h)		4.08%		15,000
	Private placement, payable in its entirety in 2011(f)(h)		4.39%		15,000
	Industrial revenue bonds, payable in its entirety in 2011		5.23%		3,925		5,831
	Other notes and contracts(g)		5.70% to 12.17%		14,109		9,310
Total long-term debt					683,818		663,173
Less current portion					35,117		14,951
Long-term portion				$	648,701	$	648,222

		2004		2003
Weighted-average interest rates at August 31:
	Short-term debt		2.16%		1.83%
	Long-term debt		6.35%		6.52%

(a)

The Company finances its working capital needs through short-term lines of credit with a syndication of domestic and international banks. These revolving lines of credit include a 364-day facility of $750.0 million, and a three-year facility of $150.0 million, both of which are committed. On August 31, 2004, $115.0 million was outstanding on the 364-day facility. In addition to these short-term lines of credit, the Company has a two-year credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million, all of which is committed, with no amounts outstanding on August 31, 2004. Other miscellaneous notes payable totaled $1.1 million on August 31, 2004.

(b)

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, 2004, $131.2 million was outstanding. NCRA term loans of $12.0 million are collateralized by NCRA’s investment in CoBank.

F-15

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(c)	In June 1998, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $225.0 million.
(d)	In October 2002, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $175.0 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 and a subsequent note for $55.0 million was issued in March 2001.
(f)	In March 2004, the Company entered into a note purchase and private shelf agreement with Prudential Capital Group. In April 2004, two long-term notes were issued for $15.0 million each.
(g)	Other notes payable of $10.0 million are collateralized by property, plant and equipment, with a cost of approximately $16.9 million, less accumulated depreciation of approximately $1.4 million on August 31, 2004.
(h)	The debt is unsecured, however 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, 2004 and 2003.

      The aggregate amount of long-term debt payable as of August 31, 2004 is as follows:

	(Dollars in
	thousands)
2005	$	35,117
2006		35,582
2007		60,122
2008		98,626
2009		117,285
Thereafter		337,086
	$	683,818

      The Company is in compliance with all debt covenants and restrictions as of August 31, 2004.

      On September 21, 2004, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $125.0 million with an interest rate of 5.25%. The debt will be repaid in equal annual installments of $25.0 million during fiscal years 2011 through 2015. The proceeds were used to pay down the Company’s short-term debt.

8. Income Taxes:

      In October 2001, NCRA’s members ratified a resolution passed by NCRA’s Board of Directors to compute patronage distributions for all years ending after August 31, 2001, based on earnings for financial statement purposes, rather than amounts reportable for federal income tax purposes. As a result of this by-law change, NCRA’s 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. 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. Additional valuation allowances of $1.7 million and $6.2 million were provided to offset deferred tax benefits generated by NCRA as of August 31, 2003 and 2002, respectively. For the year ended August 31, 2004, NCRA decreased its valuation allowance by $5.0 million due to a reduction in NCRA’s deferred tax benefits. The Company recorded a $4.4 million

F-16

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

valuation allowance to offset deferred tax benefits relating to a capital loss carryforward in that same period.

      The provision for income taxes for the years ended August 31, 2004, 2003 and 2002 is as follows:

	2004		2003		2002
	(Dollars in thousands)
Current	$	17,200	$	3,700	$	14,300
Deferred		7,900		7,300		(12,700	)
Valuation allowance		600		1,700		17,100
Income taxes	$	25,700	$	12,700	$	18,700

      The tax effect of temporary differences of deferred tax assets and liabilities as of August 31, 2004 and 2003 is as follows:

		2004			2003
		(Dollars in thousands)
Deferred tax assets:
	Accrued expenses and valuation reserves	$	49,151		$	53,521
	Postretirement health care and deferred compensation		37,067			29,153
	Property, plant and equipment					9,369
	Alternative minimum tax credit and loss carryforward		28,268			8,948
	Other		21,464			19,316
Total deferred tax assets			135,950			120,307
Deferred tax liabilities:
	Pension, including minimum liability		47,155			34,531
	Equity method investments		7,407			23,310
	Property, plant and equipment		35,737
	Other		1,184
Total deferred tax liabilities			91,483			57,841
Deferred tax assets valuation reserve			(11,212	)		(11,765	)
Net deferred tax assets		$	33,255		$	50,701

      As of August 31, 2004, net deferred tax assets of $43.4 million and $10.1 million are included in current assets and other liabilities, respectively ($22.0 million and $28.7 million in current assets and other assets, respectively, as of August 31, 2003). As of August 31, 2004, NCRA recognized a valuation allowance for the entire tax benefit associated with its net deferred tax asset, 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. As of August 31, 2004, NCRA’s net deferred tax assets of $6.8 million were comprised of deferred tax assets of $18.4 million and deferred tax liabilities of $11.6 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.

F-17

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31, 2004, 2003 and 2002 is as follows:

	2004			2003			2002
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		(25.8	)		(25.7	)		(25.0	)
Change in patronage determination								(7.5	)
Export activities at rates other than the U.S. statutory rate		(4.5	)		(3.2	)		(1.9	)
Deferred tax asset valuation allowance		0.2			1.3			11.8
Other		1.6			(2.0	)		(3.4	)
Effective tax rate		10.4	%		9.3	%		12.9	%

9. Equities:

      In accordance with the by-laws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year, 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. Redemptions are at the discretion of the Board of Directors.

      A new policy was adopted effective September 1, 2004, whereby redemptions of capital equity certificates approved by the Board of Directors will be divided into two pools, one for non-individuals (primarily member cooperatives) who may participate in an annual pro-rata program for equities older than 10 years, and another for individual members who are eligible for equity redemptions at age 72 or upon death. The amount that each non-individual member receives under the pro-rata program in any year will be determined by multiplying the dollars available for pro-rata redemptions, if any that year, as determined by the Board of Directors, by a fraction, the numerator of which is the amount of patronage certificates older than 10 years held by that member, and the denominator is the sum of the patronage certificates older than 10 years held by all eligible non-individuals.

      For the years ended August 31, 2004, 2003 and 2002, the Company redeemed in cash, patronage related equities in accordance with authorization from the Board of Directors in the amounts of $10.3 million, $31.1 million and $31.1 million, respectively. An additional $13.0 million of capital equity certificates were redeemed in fiscal 2004, by issuance of shares of the Company’s 8% Cumulative Redeemable Preferred Stock (New Preferred) pursuant to a registration statement on Form S-2 filed with the Securities and Exchange Commission. The amount of equities redeemed with each share of preferred stock issued was $27.10, which was the closing price per share of the stock on the NASDAQ National Market on March 2, 2004. On August 31, 2004, the Company had 4,226,428 shares of the New Preferred outstanding with a total redemption value of approximately $105.7 million, excluding accumulated dividends.

      The Company expects cash redemptions related to the year ended August 31, 2004, to be distributed in fiscal year 2005, to be approximately $32.1 million and are classified as a current liability on the August 31, 2004 consolidated balance sheet. The Company expects to redeem an additional $20.0 million

F-18

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of capital equity certificates in fiscal year 2005 by issuing shares of the Company’s New Preferred, pending approval from the Securities and Exchange Commission.

      In 2001 and 2002 the Company issued 9,454,874 shares of 8% Preferred Stock (Old Preferred). In late 2002, the Company suspended sales of the Old Preferred, and on February 25, 2003 the Company filed a post-effective amendment to terminate the offering of the Old Preferred shares. In January 2003, the Board of Directors authorized the sale and issuance of up to 3,500,000 shares of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a price of $25.00 per share. The Company filed a registration statement on Form S-2 with the Securities and Exchange Commission registering 3,000,000 shares of the New Preferred (with an additional over-allotment option of 450,000 shares granted to the underwriters), which was declared effective on January 27, 2003. The shares were subsequently sold for gross proceeds of $86.3 million (3,450,000 shares). The New Preferred is listed on the NASDAQ National Market under the symbol CHSCP. Expenses related to the issuance of the New Preferred were $3.8 million.

      On March 5, 2003, the Company’s Board of Directors authorized the redemption and conversion of the Old Preferred shares. A redemption notification and a conversion election form were sent to holders of the Old Preferred shares on March 31, 2003 explaining that on April 25, 2003 all shares of the Old Preferred would be redeemed by the Company for $1.00 per share unless they were converted into shares of the Company’s New Preferred. The conversion did not change the base liquidation amount or dividend amount of the Old Preferred, since 25 shares of the Old Preferred converted to 1 share of the New Preferred. The total Old Preferred converted to the New Preferred was 7,452,439 shares, and the balance of the Old Preferred (2,002,435 shares) was redeemed in cash at $1.00 per share.

      The New Preferred accumulates dividends at a rate of 8% per year, and dividends are payable quarterly.

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 sheets status as of August 31, 2004 and 2003 is as follows:

								Non-Qualified
		Qualified Pension Benefits						Pension Benefits						Other Benefits
		2004			2003			2004			2003			2004			2003
		(Dollars in thousands)
Change in benefit obligation:
	Benefit obligation at beginning of period	$	289,906		$	253,868		$	13,834		$	14,543		$	29,255		$	24,915
	Service cost		11,548			10,840			601			800			754			648
	Interest cost		17,203			17,503			822			1,033			1,758			1,722
	Plan participants contributions					1,771												215
	Plan amendments		105												(839	)		88
	Transfers														1,206
	Actuarial loss (gain)		4,539			22,049			77			(766	)		(2,162	)		2,527
	Special agreement								1,003
	Assumption change					4,659									502			1,469
	Benefits paid		(22,865	)		(20,784	)		(2,211	)		(1,776	)		(2,147	)		(2,329	)
Benefit obligation at end of period		$	300,436		$	289,906		$	14,126		$	13,834		$	28,327		$	29,255

F-19

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

								Non-Qualified
		Qualified Pension Benefits						Pension Benefits						Other Benefits
		2004			2003			2004			2003			2004			2003
		(Dollars in thousands)
Change in plan assets:
	Fair value of plan assets at beginning of period	$	280,217		$	201,563
	Actual income on plan assets		31,500			14,915
	Company contributions		10,700			84,523		$	2,211		$	1,776		$	2,147		$	2,114
	Participants contributions																	215
	Benefits paid		(22,865	)		(20,784	)		(2,211	)		(1,776	)		(2,147	)		(2,329	)
Fair value of plan assets at end of period		$	299,552		$	280,217		$	—		$	—		$	—		$	—
Funded status		$	(884	)	$	(9,689	)	$	(14,126	)	$	(13,834	)	$	(28,327	)	$	(29,255	)
Employer contributions after measurement date									32			84			222			247
Unrecognized actuarial loss (gain)			114,401			118,025			130			(899	)		(1,061	)		707
Unrecognized transition obligation															8,325			9,261
Unrecognized prior service cost			6,730			7,467			2,977			3,503			(1,742	)		(1,076	)
Special agreement									(1,003	)
Prepaid benefit cost (accrued)		$	120,247		$	115,803		$	(11,990	)	$	(11,146	)	$	(22,583	)	$	(20,116	)
Amounts recognized on balance sheets consist of:
	Accrued benefit liability	$	120,247		$	95,917		$	(11,990	)	$	(12,125	)	$	(22,583	)	$	(20,116	)
	Intangible assets					2,425						253
	Accumulated other comprehensive loss					17,461						726
Net amounts recognized		$	120,247		$	115,803		$	(11,990	)	$	(11,146	)	$	(22,583	)	$	(20,116	)

F-20

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      For measurement purposes, a 9.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended August 31, 2004. The rate was assumed to decrease gradually to 6.0% for 2006 and remain at that level thereafter. Components of net periodic benefit costs for the years ended August 31, 2004, 2003 and 2002 are as follows:

											Non-Qualified
		Qualified Pension Benefits									Pension Benefits						Other Benefits
		2004			2003			2002			2004		2003		2002		2004			2003			2002
		(Dollars in thousands)
Components of net periodic benefit cost:
	Service cost	$	11,548		$	10,840		$	9,275		$	601	$	800	$	1,168	$	754		$	648		$	557
	Interest cost		17,203			17,503			17,673			822		1,033		886		1,758			1,722			1,586
	Expected return on assets		(27,489	)		(23,788	)		(21,386	)
	Prior service cost amortization		843			806			740			526		564		574		(174	)		(172	)		(197	)
	Actuarial loss (gain) amortization		4,149			2,623			1,369			103		159		18		108			(215	)		(505	)
	Transition amount amortization								(708	)								936			936			936
Net periodic benefit cost		$	6,254		$	7,984		$	6,963		$	2,052	$	2,556	$	2,646	$	3,382		$	2,919		$	2,377
Average assumptions:
	Discount rate		6.40%			6.30%			7.10%			6.25%		6.00%		7.25%		6.40%			6.30%			7.10%
	Expected return on plan assets		9.00%			9.00%			9.00%			N/A		N/A		N/A		N/A			N/A			N/A
	Rate of compensation increase		4.30%			5.00%			5.00%			5.00%		5.00%		5.00%		4.30%			5.00%			5.00%

      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, 2004 and 2003:

	Qualified Pension				Non-Qualified
	Benefits				Pension Benefits
	2004		2003		2004		2003
	(Dollars in thousands)
Projected benefit obligation	$	—	$	120,068	$	14,126	$	13,834
Accumulated benefit obligation		—		107,760		12,463		12,209
Fair value of plan assets		—		104,560

      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% Increase		1% Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components	$	254	$	(229	)
Effect on postretirement benefit obligation		2,418		(2,190	)

      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; $8.6 million, $8.5 million and $11.0 million, for the years ended August 31, 2004, 2003 and 2002, respectively.

F-21

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company contributed $10.7 million to qualified pension plans in 2004. Because the plan is fully funded, the Company does not expect to contribute to the pension plans in 2005. The Company expects to pay $2.3 million to participants of the non-qualified pension and postretirement benefit plans during 2005.

      The Company’s retiree benefit payments which reflect expected future service are anticipated to be paid as follows:

	Qualified		Non-Qualified		Other
	Pension Benefits		Pension Benefits		Benefits
	(Dollars in thousands)
2005	$	30,586	$	241	$	2,166
2006		22,738		240		2,278
2007		26,394		244		2,658
2008		24,977		237		2,882
2009		26,950		235		3,298
2010-2014		150,883		1,134		23,716

      The Company has master trusts that hold the assets for the cash balance, production and NCRA pension plans. The Company and NCRA have qualified plan committees that set investment guidelines with the assistance of an external consultant. Investment objectives for the Company’s plan assets are to:

•  Optimize the long-term returns on plan assets at an acceptable level of risk, and

•  Maintain broad diversification across asset classes and among investment managers, and

•  Focus on long-term return objectives.

      Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption. The Company generally uses long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall investment markets.

      The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed income securities and real estate. Securities are also diversified in terms of domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles.

      The Committee believes with prudent risk tolerance and asset diversification, the plan should be able to meet its pension obligations in the future.

      The Company’s pension plans’ average asset allocations by asset categories are as follows:

	2004		2003
Cash		2.7%		1.8%
Debt		29.9%		29.5%
Equities		62.0%		63.2%
Real estate		3.8%		3.8%
Other		1.6%		1.7%
Total		100.0%		100.0%

F-22

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     Segment Reporting:

      The Company operates five business segments, which are based on products and services; Agronomy, Energy, Country Operations and Services, Grain Marketing, and Processed Grains and Foods. The Agronomy segment consists of joint ventures and other investments, from which the Company derives investment income based upon the profitability of these investments. The Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. The Country Operations and Services segment derives its revenues through the origination and marketing of grain, through the retail sales of petroleum and agronomy products, and processed sunflowers, feed and farm supplies. The Country Operations and Services segment also derives revenues from service activities related to crop production. The Grain Marketing segment derives its revenues from the sale of grains and oilseeds and from service activities conducted at its export terminals. The Processed Grains and Foods segment derives its revenues from the sales of soybean meal and soybean refined oil, from equity income in two wheat milling joint ventures, from equity income in an oilseed food manufacturing and distribution joint venture, and from the sales of Mexican food products.

      Reconciling Amounts represent the elimination of sales between segments. Such transactions are conducted at market prices to more accurately evaluate the profitability of the individual business segments.

      The Company assigns certain corporate general and administrative expenses to its business segments, based on use of such services and allocates other services based on factors or considerations relevant to the costs incurred.

      Expenses that are incurred at the corporate level for the purpose of the general operation of the Company are allocated to the segments based upon factors which management considers to be non-asymmetrical. Nevertheless, due to efficiencies in scale, 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.

F-23

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Segment information for the years ended August 31, 2004, 2003 and 2002 is as follows:

							Country						Processed
							Operations						Grains			Corporate
							and			Grain			and			and			Reconciling
	Agronomy			Energy			Services			Marketing			Foods			Other			Amounts			Total
	(Dollars in thousands)
For the year ended August 31, 2004:
Net sales				$	4,028,248		$	2,227,764		$	5,006,029		$	802,102					$	(1,154,810	)	$	10,909,333
Other revenues	$	(15	)		9,193			94,381			28,710			2,836		$	6,198						141,303
		(15	)		4,037,441			2,322,145			5,034,739			804,938			6,198			(1,154,810	)		11,050,636
Cost of goods sold					3,784,260			2,199,700			5,006,704			768,391						(1,154,810	)		10,604,245
Marketing, general and administrative		8,482			66,493			70,196			25,071			31,811			6,231						208,284
Operating (losses) earnings		(8,497	)		186,688			52,249			2,964			4,736			(33	)		—			238,107
Gain on sale of investment					(14,666	)																	(14,666	)
Gain on legal settlements								(692	)														(692	)
Interest		(352	)		13,819			16,019			5,874			15,307			958						51,625
Equity (income) from investments		(35,725	)		(1,399	)		(519	)		(11,413	)		(29,966	)								(79,022	)
Minority interests					32,507			1,323															33,830
Income (loss) before income taxes	$	27,580		$	156,427		$	36,118		$	8,503		$	19,395		$	(991	)	$	—		$	247,032
Intersegment sales				$	(121,199	)	$	(987,145	)	$	(45,103	)	$	(1,363	)				$	1,154,810		$	—
Goodwill				$	3,041		$	250					$	23,605								$	26,896
Capital expenditures				$	187,937		$	28,537		$	6,835		$	18,783		$	3,056					$	245,148
Depreciation and amortization	$	1,247		$	57,195		$	22,087		$	8,040		$	15,789		$	4,041					$	108,399
Total identifiable assets at August 31, 2004	$	327,448		$	1,591,254		$	862,645		$	487,807		$	475,004		$	287,134					$	4,031,292

F-24

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

							Country						Processed
							Operations						Grains			Corporate
							and			Grain			and			and			Reconciling
	Agronomy			Energy			Services			Marketing			Foods			Other			Amounts			Total
	(Dollars in thousands)
For the year ended August 31, 2003:
Net sales				$	3,648,093		$	1,885,825		$	4,139,226		$	491,931					$	(894,341	)	$	9,270,734
Other revenues	$	(84	)		5,655			84,206			25,676			2,411		$	4,714						122,578
		(84	)		3,653,748			1,970,031			4,164,902			494,342			4,714			(894,341	)		9,393,312
Cost of goods sold					3,470,726			1,876,811			4,133,677			473,682						(894,341	)		9,060,555
Marketing, general and administrative		8,138			63,740			55,887			21,072			29,715			5,205						183,757
Operating (losses) earnings		(8,222	)		119,282			37,333			10,153			(9,055	)		(491	)		—			149,000
Gain on legal settlements								(10,867	)														(10,867	)
Interest		(974	)		16,401			14,975			4,738			12,845			690						48,675
Equity (income) loss from investments		(20,773	)		(1,353	)		(788	)		1,673			(26,056	)		(2	)					(47,299	)
Minority interests					20,782			1,168															21,950
Income (loss) before income taxes	$	13,525		$	83,452		$	32,845		$	3,742		$	4,156		$	(1,179	)	$	—		$	136,541
Intersegment sales				$	(94,209	)	$	(796,999	)	$	(2,435	)	$	(698	)				$	894,341		$	—
Goodwill				$	3,185		$	262					$	23,605								$	27,052
Capital expenditures				$	80,837		$	26,738		$	5,298		$	60,576		$	2,240					$	175,689
Depreciation and amortization	$	1,247		$	65,868		$	21,039		$	6,718		$	13,321		$	3,154					$	111,347
Total identifiable assets at August 31, 2003	$	285,906		$	1,449,652		$	857,523		$	450,415		$	498,872		$	265,600					$	3,807,968
For the year ended August 31, 2002:
Net sales				$	2,657,689		$	1,474,553		$	3,281,469		$	496,084					$	(753,341	)	$	7,156,454
Other revenues	$	(89	)		857			83,361			22,399			(1,209	)	$	2,032						107,351
		(89	)		2,658,546			1,557,914			3,303,868			494,875			2,032			(753,341	)		7,263,805
Cost of goods sold					2,483,359			1,474,392			3,272,985			462,655						(753,341	)		6,940,050
Marketing, general and administrative		8,957			66,731			47,995			22,213			31,813			4,466						182,175
Operating (losses) earnings		(9,046	)		108,456			35,527			8,670			407			(2,434	)		—			141,580
Gain on legal settlements								(2,970	)														(2,970	)
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
Intersegment sales				$	(67,367	)	$	(615,853	)	$	(69,561	)	$	(560	)				$	753,341		$	—
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

      During the years ended August 31, 2004, 2003 and 2002, the Company received cash proceeds and recorded gains of $0.7 million, $10.9 million and $3.0 million, respectively, related to legal settlements from several vitamin product suppliers against whom the Company alleged certain price-fixing claims.

F-25

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 probable future costs of remediation of identified issues, which are included in cost of goods sold and marketing, general and administrative expenses in the consolidated statements of operations. The resolution of any such matters may affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

      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 $87.0 million for the Company’s Laurel, Montana, refinery and $311.0 million for NCRA’s McPherson, Kansas, refinery, of which $49.2 million has been spent at the Laurel refinery and $131.0 million has been spent by NCRA at the McPherson refinery as of August 31, 2004. The Company expects all of these compliance capital expenditures at the refineries to be completed by December 31, 2005, and anticipates funding these projects with a combination of cash flows from operations and debt proceeds.

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 affect consolidated net income for any fiscal period; however, management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company during any fiscal year.

Grain Storage:

      As of August 31, 2004 and 2003, the Company stored grain and processed grain products for third parties totaling $157.1 million and $155.2 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 of which $32.0 million was outstanding as of August 31, 2004. The Company’s bank covenants allow maximum guarantees of $150.0 million. In addition, the Company’s bank covenants allow for guarantees dedicated solely for NCRA in the amount of $125.0 million. All outstanding loans with respective creditors are current as of August 31, 2004.

      The Company has adopted FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which requires disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The interpretation also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of the guarantee for obligations the guarantor has undertaken in issuing the guarantee.

      The Company makes seasonal and term loans to member cooperatives, and its wholly-owned subsidiary, Fin-Ag, Inc., makes loans for agricultural purposes to individual producers. Some of these loans

F-26

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

are sold to CoBank, and the Company guarantees a portion of the loans sold. In addition, the Company also guarantees certain debt and obligations under contracts for its subsidiaries and members.

      The Company’s obligations pursuant to its guarantees as of August 31, 2004 are as follows:

	Guarantee/		Exposure on
	Maximum		August 31,		Nature of		Triggering		Assets Held
Entities	Exposure		2004		Guarantee	Expiration Date	Event	Recourse Provisions	as Collateral
	(Dollars in thousands)
The Company’s financial services cooperative loans sold to CoBank		*	$	5,927	10% of the obligations of borrowers (agricultural cooperatives) under credit agreements for loans sold	None stated, but may be terminated by either party upon 60 days prior notice in regard to future obligations	Credit agreement default	Subrogation against borrower	Some or all assets of borrower are held as collateral and should be sufficient to cover guarantee exposure
Fin-Ag, Inc. agricultural loans sold to CoBank		*		25,076	15% of the obligations of borrowers under credit agreements for some of the loans sold, 50% of the obligations of borrowers for other loans sold, and 100% of the obligations of borrowers for the remaining loans sold	None stated, but may be terminated by either party upon 90 days prior notice in regard to future obligations	Credit agreement default	Subrogation against borrower	Some or all assets of borrower are held as collateral and should be sufficient to cover guarantee exposure
Horizon Milling, LLC	$	5,000			Indemnification and reimbursement of 24% of damages related to Horizon Milling, LLC’s performance under a flour sales agreement	None stated, but may be terminated by any party upon 90 days prior notice in regard to future obligations	Non- performance under flour sale agreement	Subrogation against Horizon Milling, LLC	None
TEMCO, LLC	$	15,000			Obligations by TEMCO, LLC under credit agreement	None stated	Credit agreement default	Subrogation against TEMCO, LLC	None

F-27

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Guarantee/		Exposure on
	Maximum		August 31,		Nature of		Triggering			Assets Held
Entities	Exposure		2004		Guarantee	Expiration Date	Event		Recourse Provisions	as Collateral
	(Dollars in thousands)
Third parties		*		1,000	Surety for, or indemnification of surety for sales contracts between affiliates and sellers of grain under deferred payment contracts	Annual renewal on December 1st in regard to surety for one third party, otherwise none stated and may be terminated by the Company at any time in regard to future obligations		Nonpayment	Subrogation against affiliates	Some or all assets of borrower are held as collateral but might not be sufficient to cover guarantee exposure
			$	32,003

*  The Company’s bank covenants allow for guarantees of up to $150.0 million, but the Company is under no obligation to extend these guarantees. The maximum exposure on any given date is equal to the actual guarantees extended as of that date.

Lease Commitments:

      The Company leases approximately 1,900 rail cars with remaining lease terms of one to ten 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 term.

      Total rental expense for all operating leases, net of rail car mileage credits received from the railroad and sublease income was $35.3 million, $31.7 million and $30.7 million for the years ended August 31, 2004, 2003 and 2002, respectively. Mileage credits and sublease income totaled $7.2 million, $7.1 million and $9.5 million for the years ended August 31, 2004, 2003 and 2002, respectively.

      Minimum future lease payments, required under noncancellable operating leases as of August 31, 2004 are as follows:

	Rail				Equipment
	Cars		Vehicles		and Other		Total
	(Dollars in thousands)
2005	$	8,539	$	16,207	$	5,676	$	30,422
2006		6,090		13,233		5,180		24,503
2007		5,034		10,392		4,589		20,015
2008		4,179		9,133		3,241		16,553
2009		3,036		6,110		2,906		12,052
Thereafter		9,151		5,511		4,588		19,250
Total minimum future lease payments	$	36,029	$	60,586	$	26,180	$	122,795

F-28

CHS INC.

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, 2004, 2003 and 2002 is as follows:

		2004			2003			2002
		(Dollars in thousands)
Net cash paid during the period for:
	Interest	$	52,004		$	45,239		$	44,231
	Income taxes		27,997			956			27,965
Other significant noncash transactions:
	Capital equity certificates exchanged for preferred stock		12,990
	Capital equity certificates issued in exchange for elevator properties		13,355			350			1,842
	Exchange of preferred stock					7,452
	Accrual of dividends and equities payable		(83,569	)		(39,049	)		(56,510	)
	Other comprehensive income (loss)		11,178			33,584			(49,982	)

14. Related Party Transactions:

      Related party transactions with equity and cooperative investees as of August 31, 2004 and 2003 are as follows:

	2004		2003
	(Dollars in thousands)
Sales	$	1,185,366	$	779,857
Purchases		632,993		637,357
Receivables		17,679		13,393
Payables		28,118		29,113

      These related party transactions were primarily with TEMCO, LLC, CF Industries, Inc., Horizon Milling, LLC, Agriliance, LLC, United Harvest, LLC and Ventura Foods, LLC.

15. Comprehensive Income:

      The components of comprehensive income, net of taxes, for the years ended August 31, 2004, 2003 and 2002 are as follows:

	2004		2003			2002
	(Dollars in thousands)
Net income	$	221,332	$	123,841		$	126,138
Additional minimum pension liability		10,016		36,106			(48,797	)
Financial instruments		698		1,045			(548	)
Cash flow hedges		356		(3,549	)		(637	)
Foreign currency translation adjustment		108		(18	)
Comprehensive income	$	232,510	$	157,425		$	76,156

F-29

CHS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The components of accumulated other comprehensive loss, net of taxes, as of August 31, 2004 and 2003 are as follows:

	2004			2003
	(Dollars in
	thousands)
Additional minimum pension liability	$	3,930		$	13,946
Financial instruments		(534	)		164
Cash flow hedges		3,829			4,185
Foreign currency translation adjustment		(90	)		18
Accumulated other comprehensive loss	$	7,135		$	18,313

F-30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members and Patrons of CHS Inc.:

      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 CHS Inc. and subsidiaries at August 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.

October 28, 2004

Minneapolis, Minnesota

F-31

INDEPENDENT AUDITORS’ REPORT

Members Committee

Ventura Foods, LLC

      We have audited the accompanying balance sheets of Ventura Foods, LLC (the “Company”) as of March 31, 2004 and 2003, and the related statements of income, members’ capital and cash flows for the years ended March 31, 2004, 2003 and 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

      In our opinion, such financial statements present fairly, in all material respects, the financial position of Ventura Foods, LLC as of March 31, 2004 and 2003, and the results of their operations and their cash flows for the years ended March 31, 2004, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective April 1, 2002.

Deloitte & Touche LLP

Costa Mesa, California

June 18, 2004

F-32

VENTURA FOODS, LLC

BALANCE SHEETS

March 31, 2004 and 2003

			2004		2003
ASSETS (Note 3)
CURRENT ASSETS:
	Cash and cash equivalents (Note 2)		$	117,783,000	$	2,800,000
	Trade receivables, net of allowance for doubtful accounts of $1,929,000 and $1,909,000 at 2004 and 2003, respectively (Notes 2, 3 and 4)			79,877,000		64,313,000
	Inventories (Notes 2, 3 and 4)			108,605,000		92,366,000
	Prepaid expenses and other current assets			4,609,000		5,922,000
	Due from Wilsey Foods, Inc. (Note 4)					309,000
	Derivative contract asset (Notes 2 and 4)			31,073,000		18,703,000
		Total current assets		341,947,000		184,413,000
PROPERTY (Notes 2 and 3):
	Land, buildings and improvements			103,903,000		102,768,000
	Machinery and equipment			145,001,000		139,264,000
	Construction-in-progress			13,692,000		6,905,000
	Other property			13,856,000		10,798,000
		Total		276,452,000		259,735,000
Less accumulated depreciation and amortization				118,074,000		106,914,000
		Property — net		158,378,000		152,821,000
GOODWILL, Net of amortization of $18,087,000 at 2004 and 2003 (Notes 2 and 7)				43,156,000		43,156,000
TRADEMARKS, Net of amortization of $8,526,000 at 2004 and 2003 (Notes 2 and 7)				19,318,000		19,318,000
DEFERRED COMPENSATION PLAN TRUST (Note 5)				15,626,000		13,574,000
OTHER ASSETS, Net of amortization of $3,670,000 and $3,520,000 at 2004 and 2003 (Notes 2, 3 and 7)				4,319,000		4,673,000
TOTAL			$	582,744,000	$	417,955,000
LIABILITIES AND MEMBERS’ CAPITAL
CURRENT LIABILITIES:
	Accounts payable (Note 4)		$	81,199,000	$	58,395,000
	Accrued liabilities (Note 4)			53,325,000		36,984,000
	Dividends payable			16,091,000		5,748,000
	Bank lines of credit (Note 3)					20,500,000
	Current portion of long-term debt (Note 3)			2,804,000		74,228,000
	Derivative contract liability (Notes 2 and 4)			21,900,000		12,162,000
		Total current liabilities		175,319,000		208,017,000
LONG-TERM DEBT (Note 3)				195,152,000		22,950,000
DEFERRED COMPENSATION OBLIGATIONS (Note 5)				26,513,000		20,496,000
		Total liabilities		396,984,000		251,463,000
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
MEMBERS’ CAPITAL				185,760,000		166,492,000
TOTAL			$	582,744,000	$	417,955,000

See notes to financial statements.

F-33

VENTURA FOODS, LLC

STATEMENTS OF INCOME

Years Ended March 31, 2004, 2003 and 2002

			2004			2003		2002
NET SALES (Notes 2 and 5)			$	1,312,356,000		$	1,096,425,000	$	965,521,000
COST OF GOODS SOLD (Notes 2 and 5)				1,124,482,000			912,702,000		791,061,000
GROSS PROFIT				187,874,000			183,723,000		174,460,000
OPERATING EXPENSES:
	Selling, general and administrative (Notes 2 and 5)			111,375,000			105,424,000		91,827,000
	Amortization of intangibles (Notes 2 and 7)			83,000			223,000		6,227,000
		Total operating expenses		111,458,000			105,647,000		98,054,000
OPERATING INCOME				76,416,000			78,076,000		76,406,000
INTEREST EXPENSE — Net (Note 4)				8,932,000			6,785,000		7,474,000
OTHER EXPENSE (INCOME)				(1,758,000	)		733,000		(1,554,000	)
NET INCOME			$	69,242,000		$	70,558,000	$	70,486,000

See notes to financial statements.

F-34

VENTURA FOODS, LLC

STATEMENTS OF MEMBERS’ CAPITAL

Years Ended March 31, 2004, 2003 and 2002

		Wilsey
		Foods, Inc.			CHS, Inc.			Total
BALANCE — March 31, 2001		$	65,872,000		$	65,872,000		$	131,744,000
	Net income		35,243,000			35,243,000			70,486,000
	Dividends		(25,757,000	)		(25,757,000	)		(51,514,000	)
BALANCE — March 31, 2002			75,358,000			75,358,000			150,716,000
	Net income		35,279,000			35,279,000			70,558,000
	Dividends		(27,391,000	)		(27,391,000	)		(54,782,000	)
BALANCE — March 31, 2003			83,246,000			83,246,000			166,492,000
	Net income		34,621,000			34,621,000			69,242,000
	Dividends		(24,987,000	)		(24,987,000	)		(49,974,000	)
BALANCE — March 31, 2004		$	92,880,000		$	92,880,000		$	185,760,000

See notes to financial statements.

F-35

VENTURA FOODS, LLC

STATEMENTS OF CASH FLOWS

Years Ended March 31, 2004, 2003 and 2002

					2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	69,242,000		$	70,558,000		$	70,486,000
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				13,437,000			12,416,000			12,186,000
		Amortization of intangibles				83,000			223,000			6,227,000
		Impairment of other assets				984,000
		Deferred rent				1,095,000			515,000
		Loss on disposal of assets				646,000			872,000			324,000
		Derivative contract asset				(2,632,000	)		2,637,000			(1,803,000	)
		Changes in operating assets and liabilities:
			Trade receivables			(15,564,000	)		(7,174,000	)		(771,000	)
			Inventories			(16,239,000	)		(29,567,000	)		3,881,000
			Prepaid expenses and other current assets			1,169,000			(3,639,000	)		(793,000	)
			Accounts payable			22,804,000			6,350,000			(4,491,000	)
			Accrued liabilities			15,246,000			10,685,000			2,893,000
			Deferred compensation obligations			3,965,000			4,815,000			4,866,000
			Due from (to) affiliates			309,000			(309,000	)		47,000
				Net cash provided by operating activities		94,545,000			68,382,000			93,052,000
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of property					(19,698,000	)		(16,062,000	)		(13,268,000	)
	Proceeds from sale of assets					58,000			1,845,000			69,000
	Investment in rabbi trust											(13,976,000	)
	Other assets					(569,000	)		(1,332,000	)		(48,000	)
				Net cash used in investing activities		(20,209,000	)		(15,549,000	)		(27,223,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowing of long-term debt					175,000,000
	Repayment of long-term debt					(74,223,000	)		(12,758,000	)		(12,603,000	)
	Net (payments on) borrowings from line of credit					(20,500,000	)		12,500,000			3,000,000
	Payment to Wilsey Foods, Inc. (Note 1)								(491,000	)		(487,000	)
	Dividends paid					(39,630,000	)		(58,584,000	)		(60,589,000	)
				Net cash provided by (used in) financing activities		40,647,000			(59,333,000	)		(70,679,000	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						114,983,000			(6,500,000	)		(4,850,000	)
CASH AND CASH EQUIVALENTS — Beginning of period						2,800,000			9,300,000			14,150,000
CASH AND CASH EQUIVALENTS — End of period					$	117,783,000		$	2,800,000		$	9,300,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION — Cash paid during the period for interest					$	6,250,000		$	7,183,000		$	8,129,000

See notes to financial statements.

F-36

VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS

Years Ended March 31, 2004, 2003 and 2002

1. General Matters

      Ventura Foods, LLC (the “Company”) is a processor and distributor of edible oils used in food preparation and a packager of food products. The Company sells its products to national and regional restaurant chains, food wholesalers and retail chains. In April 2002, the Company dissolved its wholly-owned subsidiary, Ventura Jets, Inc., and consequently no longer consolidates the financial statements.

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

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

2. Accounting Policies

      Cash and Cash Equivalents — The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in accounts payable are bank overdrafts of $1,102,000 and $15,231,000 at March 31, 2004 and 2003, respectively.

      Inventories — Inventories consist of the following at March 31:

	2004		2003
Bulk oil	$	46,682,000	$	38,751,000
Finished goods		40,948,000		34,119,000
Ingredients and supplies		20,975,000		19,496,000
Total	$	108,605,000	$	92,366,000

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

      Derivative Financial Instruments — The Company’s use of derivative financial instruments is limited to forwards, futures and certain other delivery contracts as discussed below. The Company enters into these contracts to limit its exposure to price volatility of various food oils that are critical to its processing and distribution activities. It is the Company’s policy to remain substantially hedged with respect to edible oil product price risk; derivative contracts are used to maintain this hedged position. Forward purchase and sales contracts with established market participants as well as exchange-traded futures contracts are entered into in amounts necessary to protect against price changes on raw materials needed for the Company’s food oil processing and distribution activities. The Company also enters into purchase and sales commitments with major suppliers and customers at a specified premium or discount from a future market price (“Basis Contracts”). Additionally, the Company’s policies do not permit speculative trading of such contracts. All of these qualify as derivatives under Statement of Financial Accounting Standards

F-37

VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

(“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, and are stated at market value. Changes in market value are recognized in the statements of income, through cost of sales, in the periods such changes occur. The market value of futures contracts, Basis Contracts, and forward purchase and sales contracts is recorded separately on the balance sheets as derivative contract assets or liabilities. These contracts have maturities of less than one year.

      The following summarizes the Company’s various derivative contracts outstanding at March 31, 2004 and 2003 (pounds and dollars in thousands)

			Net
			Unrealized
Forward Contracts and Commitments	Pounds		Gain (Loss)
March 31, 2004
Forward purchases		412,000	$	12,164
Forward sales		630,000		(19,493	)
Basis purchase		810,600		6,462
Basis sales		65,100		(185	)
Futures contracts		421,400		10,225
		2,339,100	$	9,173
March 31, 2003
Forward purchases		334,100	$	11,060
Forward sales		433,300		(6,208	)
Basis purchase		259,800		857
Basis sales		17,500		(126	)
Futures contracts		146,000		958
		1,190,700	$	6,541

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

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

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

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

      Fair Value of Financial Instruments — The Company estimates the fair value of financial instruments using the following methods and assumptions:

      Accounts Receivable and Accounts Payable — The carrying amounts approximate fair value due to the short maturities of these instruments.

      Lines of Credit — The carrying amounts approximate fair value, as the interest rates are based upon variable reference rates.

F-38

VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Long-Term Debt — The fair value of long-term fixed rate debt is estimated based upon prevailing market interest rates available to the Company. The Company estimates the fair value on the $22,950,000 6.55% fixed rate debt as of March 31, 2004 to be $24,118,000. The Company estimates the fair value on the $175,000,000 senior notes fixed rate debt as of March 31, 2004 to approximate carrying value.

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

      Concentration of Credit Risk — During the years ended March 31, 2004, 2003 and 2002, net sales to one customer were 23%, 23% and 22% of total net sales, respectively. This customer represents approximately 19% and 23% of trade receivables at March 31, 2004 and 2003, respectively. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses.

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

      Marketable Securities — The Company’s marketable securities comprise equity securities that have been classified as trading securities. The equity securities are carried at fair market value based upon quoted market prices. Unrealized (gains) and losses on equity securities are recognized in net income and totaled $(2,052,000) and $666,000 for the years ended March 31, 2004 and 2003, respectively (see Note 5). The Company investments included an enterprise with which it conducted business; an impairment loss of $984,000 was recorded in the year ended March 31, 2004.

      Goodwill and Trademarks — The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective April 1, 2002, the first day of its 2003 fiscal year. As a result, goodwill and indefinite life intangible assets (“trademarks”) are no longer amortized, but reviewed for impairment annually, or more frequently if certain impairment indicators arise. See Note 7 for the effect of adopting SFAS No. 142.

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

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

      Advertising Costs — The Company expenses advertising costs in the period incurred. For the years ended March 31, 2004, 2003 and 2002, the Company incurred advertising expenses of approximately $8,366,000, $9,039,000 and $7,100,000, respectively.

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

      Revenue Recognition — The Company is a processor and distributor of edible oils used in food preparation and a packager of food products. Revenue is recognized upon transfer of title to the customer, which occurs generally upon shipment. In certain instances, title is transferred upon receipt by the customer, at which time the Company records revenue. Amounts billed to the customer as part of a sales

F-39

VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

transaction related to shipping and handling are included in sales. Revenue is recorded net of discounts, rebates and certain sales incentives.

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

      Recent Accounting Pronouncements — In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial statements.

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-03, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in Restructuring). This statement requires that the fair value of an initial liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred as opposed to when the entity commits to an exit plan, thereby eliminating the definition and requirements for recognition of exit costs. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s financial statements.

      On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial statements.

3. Line of Credit and Long-Term Debt

      Line of Credit — At March 31, 2004, the Company had a revolving line-of-credit agreement with a banking group to provide for borrowings of up to an aggregate of $75,000,000. Outstanding borrowings at March 31, 2004 and 2003 were $0 and $20,500,000, respectively. The applicable interest rates are based, at the option of the Company, at a London InterBank Offered Rate (“LIBOR”) or a term federal funds rate (“TFFR”) option. The weighted-average interest rate at March 31, 2003 was 1.72%. The line of credit matures on December 21, 2004.

      Long-Term Debt — At March 31, 2003, the Company had term loans with a banking group with a balance outstanding of $71,605,000. The interest rate applicable to these term loans is based, at the option of the Company, at a TFFR-based, LIBOR-based or a fixed rate option. The weighted-average interest

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VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

rate on such borrowings at March 31, 2003 was 6.53%. The term loans with the banking group matured on December 23, 2003.

      In December 2003, the Company issued, in a private placement, a series of senior unsecured notes in the aggregate amount of $175,000,000. The Company issued Series A, B and C notes in the amounts of $40,000,000, $70,000,000 and $65,000,000, respectively. The Series A and C notes have maturity dates of December 31, 2013 and December 23, 2018, respectively. The notes bear interest at an annualized rate of 5.65% and 5.95%. Interest is paid semiannually on June 23 and December 23 and principal is due on the maturity date. The Series B notes mature on December 23, 2015 and bear interest at an annualized rate of 5.65%. Interest is paid semiannually on June 23 and December 23. Beginning on December 23, 2011, the Company is required to make semi-annual payments of $7,777,778 on December 23 and June 23 through December 23, 2015 for principal and interest. Accrued interest at March 31, 2004 was $2,771,000. Proceeds from the borrowing in the amount of $71,600,000 were used to retire the long-term debt described above. The Company incurred $632,000 of debt issuance costs, included in other assets, which have been deferred and are being amortized as a component of interest expense over the term of the notes.

      The Company has a standby letter of credit available of $10,000,000 as of March 31, 2004.

      At March 31, 2004 and 2003, balances outstanding on a term loan with a bank were $22,950,000 and $25,573,000, respectively. The agreement requires quarterly principal and interest payments of $1,058,000. The interest rate on this term loan is fixed at 6.55%. The term loan with the bank matures in November 2010.

      The line of credit, term loan agreement and senior notes contain various covenants, including compliance with debt limitations, members’ capital minimums, interest coverage ratio and other financial ratios, restrictions on mergers, consolidations, sale of assets, transactions with affiliates and limitations on liens.

      Annual maturities of long-term debt are as follows at March 31, 2004:

2005	$	2,804,000
2006		2,987,000
2007		3,187,000
2008		3,401,000
2009		3,629,000
Thereafter		181,948,000
Total		197,956,000
Less current portion		2,804,000
Long-term debt	$	195,152,000

4. Transactions with Affiliates

      Purchases from CHS for the years ended March 31, 2004, 2003 and 2002 were $83,592,000, $66,682,000 and $47,745,000, respectively. Sales to CHS for the years ended March 31, 2004, 2003 and 2002 totaled $2,294,000, $1,056,000 and $883,000, respectively. Included in accounts payable at March 31, 2004 and 2003 were $10,000,000 and $8,035,000, respectively, payable to CHS for purchases of oil.

      During the years ended March 31, 2004, 2003, and 2002, the Company recorded expenses of $10,006,000, $9,402,000 and $8,487,000, respectively, to Mitsui USA for the Company’s participation in Mitsui USA’s insurance plans. Included in accounts payable at March 31, 2004 and 2003 were $1,001,000

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VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

and $790,000, respectively, due to Mitsui USA in connection with the Company’s participation in such plans.

      Sales to Mitsui USA for the years ended March 31, 2004, 2003 and 2002 totaled $1,231,000, $1,423,000 and $1,406,000, respectively. Included in trade receivables at March 31, 2004 and 2003 were $133,000 and $123,000, respectively, of receivables from Mitsui USA for product sales.

      Forward purchase contracts as of March 31, 2004 included commitments for purchases of 162,080,000 pounds of oil from CHS. The Company recognized gains of $763,000, $1,081,000 and $934,000 on such related party commitments for the years ended March 31, 2004, 2003 and 2002, respectively.

5. Employee Benefit Plans

      The Company has long-term incentive arrangements for certain key executives. Benefits under the initial plan were based on earnings over a three-to-five year period (as defined) from January 1, 1997 through December 31, 2001. An amount equal to the obligation incurred under the plan was contributed to a rabbi trust that would be available to general creditors in the event of bankruptcy. The trust holds investments primarily in marketable securities that are recorded at market value (classified as trading securities). The assets in the trust are to be distributed to the employees upon retirement. The liability under the arrangements was $15,626,000 and $13,574,000 as of March 31, 2004 and 2003, respectively, and is included in deferred compensation obligation in the accompanying balance sheets.

      On January 1, 2002, the Company established new long-term incentive arrangements with certain key executives. Under these arrangements, the amount of additional compensation is based on the attainment of cumulative income-based or equity-based targets over a two- to three-year period. At the end of the defined periods, assets equaling amounts earned by individual executives will be contributed to a rabbi trust, unless representatives of Wilsey and CHS elect to pay such amounts directly to the respective key executives. At March 31, 2004 and 2003, a liability for the plan of $8,017,000 and $4,702,000, respectively, is included in long-term deferred compensation obligation in the accompanying balance sheets.

      For the years ended March 31, 2004, 2003 and 2002, the Company recognized compensation expense under the long-term incentive arrangements of $2,148,000, $4,264,000 and $5,658,000, respectively.

      The Company has a combined 401(k) and defined contribution profit-sharing plan (the “Plan”) covering substantially all employees not covered by collective bargaining agreements. Under the Plan, employees can make annual voluntary contributions not to exceed the lesser of an amount equal to 15% of their compensation or limits established by the Internal Revenue Code. The Company is required, by the Plan, to make certain matching contributions of up to 4% of each participant’s salary and may make discretionary profit-sharing contributions. Expenses under this plan for the years ended March 31, 2004, 2003 and 2002 were $4,576,000, $6,484,000 and $5,855,000, respectively. The Company also established a 401(k) defined contribution plan covering employees under certain collective bargaining agreements. Under this plan, employees can make annual voluntary contributions of up to 15% of their compensation. Certain of the Company’s union employees are participants in multiemployer plans. Payments to multiemployer pension plans are negotiated in various collective bargaining agreements and aggregated $2,660,000, $2,367,000 and $1,162,000 for the years ended March 31, 2004, 2003 and 2002, respectively. The actuarial present value of accumulated plan benefits and net assets available for benefits to union employees under these multiemployer pension plans is not available, as the Company does not administer these plans.

      Effective January 1, 1999, the Company established a Supplemental Executive Retirement Plan for certain of its employees. The projected benefit obligation as of March 31, 2004 and 2003 was $3,922,000 and $2,955,000, respectively. A liability of $2,862,000 and $2,220,000 as of March 31, 2004 and 2003, respectively, is included in long-term deferred compensation obligation in the accompanying balance

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VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

sheets. The plan is unfunded. During the years ended March 31, 2004, 2003 and 2002, the Company recorded an expense related to the plan of $642,000, $552,000 and $111,000, respectively.

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

	March 31
	2004		2003		2002
Discount rate		6.0%		6.0%		7.0%
Rate of compensation increase		3.0%		3.0%		3.0%

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

6. Commitments and Contingencies

      Future minimum annual payments under noncancelable operating leases with lease terms in excess of one year at March 31, 2004 are as follows:

			Sublease		Net Lease
	Gross Rent		Income		Commitment
2005	$	8,186,000	$	942,000	$	7,244,000
2006		6,551,000		942,000		5,609,000
2007		4,848,000		942,000		3,906,000
2008		3,914,000		707,000		3,207,000
2009		3,351,000				3,351,000
Thereafter		12,948,000				12,948,000
Total	$	39,798,000	$	3,533,000	$	36,265,000

      Under the lease agreements, the Company is obligated to pay certain property taxes, insurance and maintenance costs. Certain leases contain renewal and purchase options. Rental expense for the years ended March 31, 2004, 2003 and 2002 under operating leases totaled $8,336,000, $7,138,000 and $5,671,000, respectively.

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

7. Goodwill

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

      The Company completed the transitional test of goodwill and trademarks during 2003. Based on the result of the test, the Company determined that there was no impairment of goodwill and trademarks as of

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VENTURA FOODS, LLC

NOTES TO FINANCIAL STATEMENTS — (Continued)

April 1, 2002. Pursuant to SFAS No. 142, goodwill and trademarks will be tested for impairment at least annually and more frequently if an event occurs which indicates that goodwill or trademarks may be impaired. Based on the result of the test, the Company determined that there was no impairment of goodwill and trademarks as of March 31, 2004 and March 31, 2003. During 2003, the Company abandoned the use of certain trademarks with a net book value of $100,000.

      A reconciliation of net income to the amount adjusted for the exclusion of goodwill and trademarks amortization follows for the years ended March 31:

		2004		2003		2002
Reported net income		$	69,242,000	$	70,558,000	$	70,486,000
Add:
	Goodwill amortization						3,972,000
	Trademark amortization						1,853,000
Adjusted net income		$	69,242,000	$	70,558,000	$	76,311,000

      Amortization expense for other intangible assets subject to amortization was $83,000, $223,000 and $402,000 for the years ended March 31, 2004, 2003 and 2002, respectively. Estimated annual amortization for each of the years in the five-year period ending March 31, 2009 is $40,000.

8. Subsequent Events

      On April 2, 2004, the Company purchased the assets of portion packing company for $7,437,000 before certain closing adjustments.

* * * * * *

F-44 EX-10.9 2 c87975exv10w9.htm SHARE OPTION PLAN

EXHIBIT 10.9

Confidential

Cenex Harvest States Cooperatives
Share Option Plan

(As Amended through August 31, 1998)

TABLE OF CONTENTS

ARTICLE	PAGE
ARTICLE I		1
Purpose
ARTICLE II		1
Definitions and Construction
ARTICLE III		3
Option Grant
ARTICLE IV		7
Option Exercice
ARTICLE V		9
Amendement or Termination
ARTICLE VI		10
Administration
ARTICLE VII		12
Trust Provisions
ARTICLE VIII
Miscellaneous Provisions		12

Cenex Harvest States Cooperatives
Share Option Plan

ARTICLE I

Purpose

     1.1 Purpose. The purpose of the Plan is to provide stock options to certain key individuals, commensurate with their contributions to the success of the Employer, in a form that will provide incentives and rewards for superior performance, and encourage the recipients to continue in the employment of the Employer.

     1.2 Intent. The Plan is intended to be a nonqualified stock option plan within the meaning of section 83 of the Code. The Plan is not intended to be a plan covered by the Employee Retirement Income Security Act of 1974, as amended.

ARTICLE II

Definitions and Construction

     As used herein, the following capitalized words and phrases shall have the respective meanings set forth below:

     2.1 “Beneficiary” means the person or persons designated by a Participant, pursuant to Section 3.7, to exercise an Option after the Participant’s death.

     2.2 “Board of Directors” or “Board” means the board of directors of the Employer.

     2.3 “Change of Control” means any change in (a) the ownership of the Employer, (b) the effective control of the Employer, as defined under section 280G of the Code, or (c) the ownership of a substantial portion of the assets of the Employer, as defined under section 280G of the Code, except as otherwise provided by written agreement executed by the Employer and a Participant prior to such Change of Control.

     2.4 “Code” means the Internal Revenue Code of 1986, any amendments thereto, and any regulations or rulings issued thereunder.

     2.5 “Committee” means the Cenex Harvest States Share Option Plan Committee appointed in accordance with Section 6.1.

     2.6 “Disability” means that the Participant has been determined to be disabled under the provisions of the Cenex Harvest States Cooperatives Long Term Disability Plan.

     2.7 “Effective Date” means January 1, 1998. The effective date of any amendment to this Plan is the date designated in the amendment adopted by the Board of Directors or its delegated officer of the Employer.

     2.8 “Employee” means any individual who is employed by the Employer.

     2.9 “Employer” means Cenex Harvest States Cooperatives, and any successor thereto, and any affiliated entity that is related to the Employer pursuant to the rules under Code sections 414(b), (c), or (d) and the regulations thereunder, which adopts the Plan as a participating Employer.

     2.10 “ERISA” means the Employee Retirement Income Security Act of 1974, any amendments thereto, and any regulations or rulings issued thereunder.

     2.11 “Exercise Date” means, with respect to any Option, the date on which the Option is exercised by a Participant.

     2.12 “Exercise Period” means the period during which a Participant may exercise an Option, as determined under Section 4.1.

     2.13 “Exercise Price” means the price to be paid by a Participant to exercise an Option, as determined under Section 3.3 or under an Option Agreement signed by the Participant and the Committee.

     2.14 “Grant Date” means, with respect to any Option, the date on which the Option Agreement is executed by the Employer and the Participant.

     2.15 “Market Price” means the closing price of a share of Stock reflected in the consolidated trading tables of the Wall Street Journal or other recognized market source, as determined by the Committee, on the applicable date of reference hereunder, or if there is no sale on such date, then the closing price on the last previous day on which a sale is reported. In the case of open-end mutual fund shares, the Market Price means the net asset value per share as reported by the fund on the applicable date of reference hereunder.

     2.16 “Option” means the right of a Participant, granted by the Employer in accordance with Section 3.2, to purchase Stock from the Employer at the Exercise Price.

     2.17 “Option Agreement” means an agreement executed by the Employer and a Participant to whom options have been awarded acknowledging the issuance of the options and setting forth any terms pursuant to Section 3.2.

     2.18 “Participant” means any individual who meets the eligibility requirements of Section 3.1, who has received an award of Options in accordance. with Section 3:2, and whose Options have been completely exercised or lapsed. After a Participant’s death, his or her Beneficiary is considered to be a Participant to the extent necessary to facilitate the exercise of

any Options that continue to be exercisable under the terms of the Plan. In the event of a Participant’s disability or other legal incapacity, the Participant’s legal representative is considered to be a Participant to the extent necessary to facilitate the exercise of any Options that are or become exercisable under the terms of the Plan. If a Participant has assigned his Options under Section 3.8 then the Participant’s assignee is considered a Participant able to exercise Options under the terms of the Plan.

     2.19 “Plan” means the Cenex Harvest States Cooperatives Share Option Plan, as set forth herein and from time to time amended.

     2.20 “Separation from Service” means a director’s separation from the service as a member of the Board of Directors of the Employer (including all affiliated) by reason of resignation, failure to be renominated, disabled, death, or other termination.

     2.21 “Stock” means shares of common or preferred stock of a corporation listed on a national securities exchange or shares of a regulated investment company designated by the Committee as subject to purchase through the exercise of an Option.

     2.22 “Termination of Employment” means an Employee’s separation from the service with the Employer (including all affiliates of the Employer) by reason of resignation, discharge, death, disability, or other termination of relationship. The Committee may, in its discretion, determine whether any leave or other absence from service constitutes a Termination of Employment for purposes of the Plan.

     2.23 “Trust” means the trust established pursuant to Article VII to hold the Stock that is subject to purchase through the exercise of an Option.

     2.24 “Trust Agreement” means an agreement setting forth the terms of the Trust established pursuant to Article VD.

     2.25 “Trust Fund” means the Stock subject to an Option that is held in the Trust.

     2.26 “Trustee” means the persons or institution acting as trustee of the Trust.

ARTICLE III

Option Grant

     3.1 Eligibility. Options may be granted to an Employee selected by the Committee from the executive officers and other key employees of the Employer who occupy senior management or professional positions or any member of the Board of Directors whom the Committee determines to have the capability of making a substantial contribution to the success of the Employer. In making this selection and in determining the form and amount of Options, the Committee shall consider any factors that it deems relevant, including the individual’s functions, responsibilities, value of services to the Employer and past and potential contributions to the Employer’s success and growth. Participation shall commence on the next January 1, April 1,

July 1, or October 1, following an individual’s selection by the Committee. Participation in the Plan of former Cenex employees selected by the Committee shall commence on or about October 1, 1998. Participant in the Plan of members of the Board of Directors shall commence on or about November 1, 1998.

     3.2 Grant of Options. Options may be granted by the Committee at any time on or after the Effective Date and prior to the termination of the Plan. An option may be granted, at the discretion of the Committee, in the form of an outright award, in exchange for a specified amount of future compensation, Board fees, or bonus of the Participant, or in return for the Participant’s Agreement to relinquish rights to unfunded, nonqualified deferred compensation that he or she has accrued but does not have a current right to receive. While a Participant may agree to exchange all or a portion of any future Board fees, bonus or incentive compensation payable to him or her for an Option, in the manner prescribed by the Committee and prior to the fiscal year in which such compensation is earned, the maximum percentage of future base compensation which a Participant may exchange for an Option during a calendar year shall not exceed 30 percent. No Committee member may take part in any way in determining the amount of any award of Options to himself or herself.

     (a) Grant Date and Option Agreement. An Option granted in exchange for a specified amount of future compensation, Board fees, or bonus of the Participant shall be delivered on or about October 15, 1998, of the first Plan Year, and thereafter on or about December 31, March 31, June 30, and September 30, to Participants who are employed by the Employer or who are serving as members of the Board of Directors and shall reflect the specified amount of future base compensation or Board fees of the Participant exchanged for the entire preceding calendar quarter. An option granted in exchange for a specified amount of future bonus or incentive compensation determined with respect to the preceding fiscal year of the Employer ending August 31 shall be delivered on the first quarterly grant date following the determination of the bonus or incentive compensation by the Employer to Participants who are employed by the Employer. An Option shall become effective upon the execution by Employer and the Participant of an Option Agreement specifying the Stock, the number of shares subject to the Option, the Exercise Price, and such other terms and in such form as the Committee may from time to time determine in accordance with the Plan. Any terms not specified in the Plan shall be specified in the Option Agreement.

     (b) Effect of Termination. In the event that a Participant’s employment with the Employer, or service as a member of the Board of Directors, terminates prior to the grant of his or her Option, an amount of compensation or Board fees equivalent to the foregone amount of future compensation or Board fees shall be paid to the Participant by the Employer upon his or her Termination of Employment or Separation from Service.

     (c) Minimum Option Grant. The minimum total Market Price of the Stock underlying an Option Agreement executed during any calendar quarter is $625.00.

     (d) Effect of Dividends and Distributions with Respect to Stock. The Employer agrees to reinvest all dividends and distributions received with respect to Stock in additional property of the same kind (or as nearly the same kind as feasible, if property of the same kind is not available). Any property acquired through reinvestment will be added to the Stock by rounding to the nearest one thousandth of a share and will be subject to the applicable Option, without any adjustment to the Exercise Price.

     3.3 Exercise Price. The Exercise Price shall be initially determined by the Committee and shall be noted on the individual Option Agreement signed by the eligible Participant and the Committee. The Committee has determined that the initial Exercise Price shall equal 25 percent of the Market Price of the Stock on the Grant Date. The Exercise Price shall subsequently be adjusted as otherwise provided in the Option Agreement or for the following events:

     In the event of a stock dividend, stock split, reverse stock split, rights offering, return of capital distribution, recapitalization or similar transaction that materially affects the Market Price of the Stock, the Committee shall adjust the Exercise Price so that it retains the same ratio to the Market Price of the Stock as existed immediately before such transactions, or as otherwise provided in the Option Agreement

     3.4 Conditions of Grant. As a condition to the grant of a Stock Option, the Committee may, in its discretion, require a Participant to enter into an agreement on or before the Grant Date to remain in the employ of the Employer or in service as a member of the Board of Directors for a designated period of time after the Grant Date of an Option.

     3.5 Stock to be Held in Trust. Upon the grant of an Option, the Employer, in accordance with the Trust Agreement, shall instruct the Trustee to purchase a portion of the Stock underlying each Option Agreement as of the date of the Option Agreement. The Employer shall transfer to the Trustee an amount of funds equal to at least the Market Price of the Stock less the initial Exercise Price. Such funds shall be applied by the Trustee for the purpose of payment for such underlying securities. In addition, if on the date the Committee grants the Option, the principal of the Trust, and any earnings thereon, are not sufficient to purchase such underlying securities, the Employer shall transfer to the Trustee an amount of funds sufficient to purchase such Stock.

     The Trustee shall establish a separate account for each Option Agreement in which the Trustee shall hold funds to purchase securities, as well as securities already purchased, underlying the Option Agreement. The Trustee shall hold the securities in its own name until the Plan Participant exercises the Option to purchase securities.

     The Stock shall not be subject to any security interest, whether or not perfected, or to any option or contract under which any other person may acquire any interest in it, except as otherwise provided in the Trust Agreement.

     3.6 Substitution of Assets Held in Trust. The Committee may, in its discretion, after consultation with the Participant, substitute Stock of equal Market Price for any Stock subject to purchase through the exercise of an Option. When such substitution occurs, both parties are required to terminate the Option Agreement and to adopt a new Option Agreement which awards Options of equal Market Price on the new Stock. Such change in Option property shall be considered the grant of a new Option and the terms of the Plan, including Articles ill and IV, shall apply to the grant of the new Option except that the Exercise Period under the new Option Agreement shall not exceed the Exercise Period under the original Option Agreement.

     In the event that the listing, registration or qualification of the Option or the Stock on any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, or the availability of any exemption therefrom, is necessary as a condition of, or in connection with, the exercise of the Option, then the Option shall not be exercised in whole or in part until such listing, registration, qualification, consent or approval has been affected or obtained.

     3.7 Designation of Beneficiary. As soon as practicable after the grant of an Option, the Participant shall designate one or more Beneficiaries and successor Beneficiaries, and may change them at any time, by filling the prescribed form with the Committee. The consent of the Participant’s current beneficiary shall not be required for a change of beneficiary. No beneficiary shall have any rights under the Plan or an Option Agreement during the lifetime of the Participant.

     (a) The Beneficiary of a Participant who dies without having designated a Beneficiary in accordance with this Section 3.7 and who is lawfully married on the date of death shall be the Participant’s surviving spouse.

     (b) The Beneficiary of any other Participant who dies without having designated a Beneficiary in accordance with this Section 3.7 shall be the Participant’s estate.

     3.8 General Non-Transferability. No Option granted under this Plan may be transferred, assigned, or alienated (whether by operation of law or otherwise), except as provided herein, and no Option shall be subject to execution, attachment or similar process. An Option may be exercised only by the Participant (or the Participant’s Beneficiary pursuant to Section 3.7).

     3.9 Permitted Transfers. Notwithstanding the provisions of Section 3.8, a Participant may at any time prior to death, assign all or any portion of an Option to:

(a) the Participant’s spouse or lineal descendants,

(b) the trustee of a trust for the primary benefit of the Participant’s spouse or lineal descendants, or

(c) a partnership of which the participant’s spouse and lineal descendants are the only partners.

(The forgoing shall be referred to collectively as “Permitted Transferee”)

     Any such assignment shall be permitted only if an assignment is expressly permitted in the Option Agreement, or approved in writing by the Committee, and the Participant receives no consideration for the assignment. Any such assignment shall be evidenced by an appropriate written document executed by the Participant, and delivered to the Committee on or before the effective date of the assignment. In the event of such assignment, the Permitted Transferee shall be entitled to all of the rights of the Participant with respect to the assigned portion of the Option, including, but not limited to the right to exercise the Option and such portion of the Option, shall continue to be subject to all of the terms, conditions and restrictions applicable to the Option, as set forth in the Plan and the Option Agreement.

ARTICLE IV

Option Exercise

     4.1 Exercise Period. A Participant (or the Participant’s Beneficiary pursuant to Section 3.7 or Permitted Transferee pursuant to Section 3.9) may exercise the adjusted portion of an Option as determined under Section 4.2 at any time during the period beginning six months after the Grant Date and ending on the earliest of the following:

(a) 90 days after the Participant’s Termination of Employment, or Separation from Service if such Participant is terminated involuntarily for cause, as determined by the Committee based upon the records of the Employer;

(b) 120 months after the Participant’s Termination of Employment, or Separation from Service if such Participant’s employment terminates for any other reason not set forth in Paragraph (a); or

(c) 20 years after the Grant Date.

If a Participant or his Beneficiary fails to exercise an Option within the Exercise Period then the Stock becomes the permanent property of the Employer with the Participant or his Beneficiary or assignee losing any right to any Option or Stock that was not exercised within the eligible Exercise Period pursuant to Section 4.1. Notwithstanding the foregoing, at no time shall the Exercise Period be less than six months from the Grant Date.

     4.2 Exercise of Adjusted Portion of Option. A Participant (or the Participant’s Beneficiary pursuant to Section 3.7 or Permitted Transferee pursuant to Section 3.9) may exercise 100 percent of his or her Option granted in exchange for a specified amount of future base compensation, Board fees, or bonus of a Participant, provided the Option is held for at least six months. If the Participant has been granted an Option in the form of an outright award or in exchange for the surrender of a deferred compensation account with the Employer, he or she may exercise the “Adjusted Portion” of the Option which has been granted to him or her. For purposes of this Plan, “Adjusted Portion” shall be defined in the Participant’s Option Agreement.

     The Participant shall exercise the Adjusted Portion of the Option by giving written notice to the Committee and tendering full payment of the Exercise Price by bank-certified or cashiers check on or before the date of exercise. That percentage of a Participant’s Option which is not an Adjusted Portion of an Option shall be forfeited by the Participant upon Termination of Employment unless otherwise provided in the Option Agreement. The minimum portion of an Option allowed to be exercised at anyone time is the number of shares of Stock for which the Market Price of such Stock totals $5,000.

     In the event that the listing, registration or qualification of the Option or the Stock on any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, or the availability of any exemption therefrom, is necessary as a condition of, or in connection with, the exercise of the Option, then the Option shall not be exercised in whole or in part until such listing, registration, qualification, consent, approval, or exemption has been affected, obtained, or established to the satisfaction of the Committee.

     4.3 Delivery of Stock. On the date of exercise, or as soon as practicable thereafter (but in no event later than fifteen business days after the Exercise Date), the Employer shall deliver or cause to be delivered the Stock then being purchased to the Participant (or the Participant’s Beneficiary pursuant to Section 3.7 or Permitted Transferee pursuant to Section 3.9).

     4.4 Tax Withholding. Whenever Stock is to be delivered upon exercise of an Option under the Plan, the Employer shall require as a condition of such delivery:

     (a) the cash payment by the Participant of an amount sufficient to satisfy all federal, state and local tax withholding requirements related thereto,

     (b) the withholding of such amount from any Stock to be delivered to the Participant, or

     (c) a combination of the foregoing, at the election of the Participant with the consent of the Employer. Such election shall be made before the date on which the amount of tax to be withheld is determined by the Employer, and such election shall be irrevocable.

     4.5 Additional Withholding. With the consent of the Employer, the Participant may elect a greater amount of withholding, not to exceed the estimated amount of the Participant’s total tax liability with respect to the delivery of Stock under the Plan. Such election shall be made at the same time and in the same manner as provided under Section 4.4.

     4.6 Failure to Exercise. No Option shall be exercised, in whole or in part, after the end of the Exercise Period, and the Employer shall have no obligation to deliver or cause to be delivered to the Participant (or the Participant’s Beneficiary) the Stock subject to such Option.

ARTICLE V

Amendment or Termination

     5.1 Plan Amendment. The Board may, from time to time in its discretion, amend any provision of the Plan, in whole or in part, with respect to any Participant or group of Participants. Such amendment shall be effective as of the date specified therein and shall be binding upon the Committee, all Participants and Beneficiaries, and all other persons claiming an interest under the Plan.

     5.2 Plan Termination. The Plan shall terminate on the twentieth anniversary of the Effective Date or such earlier date as the Board may determine in its discretion. Such termination shall be effective as of the date determined by the Board and shall be binding upon the Committee, all Participants and Beneficiaries, and all other persons claiming an interest under the Plan. Options shall continue to be exercisable after the effective date of such termination, and may be exercised in accordance with Article IV, but no new Options shall be granted. However, in the event of a termination of the Plan in connection with compliance with or any addition or change in the Code or ERISA, federal or state securities laws, or any other law or regulation, all Options shall be required to be exercised immediately.

     5.3 Amendment of Option. An Option Agreement may be amended by the Committee at any time if the Committee determines that an amendment is necessary or advisable in connection with

     (a) compliance with or any addition to or change in the Code or ERISA, federal or state securities laws, or any other law or regulation,

     (b) any substitution of Stock held in Trust pursuant to Section 3.6,

     (c) any Plan amendment pursuant to Section 5.1, or Plan termination pursuant to Section 5.2, provided that the amendment does not materially and adversely affect the terms, conditions and restrictions applicable to the Option, or

     (d) any circumstances not specified in Paragraphs (a), (b), or (c), with the consent of the Participant.

     5.4 Change of Control. Notwithstanding any other provision of the Plan or an Option Agreement, in the event of a Change of Control:

     (a) the Participant shall not be required to remain in the employ of the Employer for at least six months after the Grant Date of an Option under Section 3.4,

     (b) the Exercise Period under Section 4.1(b) shall not end prior to six months after such Change of Control,

     (c) an Option Agreement shall not be amended by the Committee under Section 5.3 for any reason other than pursuant to subparagraph (a) thereof without the consent of the Participant, and

     (d) an Option Agreement may be terminated by the Committee on any date after a Change of Control, in its sole discretion and without the consent of the Participant, if the Committee makes a cash payment to the Participant on such date in an amount equal to the Market Price of the Stock underlying such Option Agreement reduced by the Exercise Price, multiplied by the number of shares underlying such Option Agreement, and further reduced by all applicable tax withholding required by Section 4.4.

ARTICLE VI

Administration

     6.1 The Committee. The Plan shall be administered by a Committee consisting of one or more persons appointed by the Board of Directors. The Committee shall act by a majority of its members at the time in office and may take action either by vote at a meeting or by consent in writing without a meeting.

     (a) The Board may remove any member of the Committee at any time, with or without cause, and may fill any vacancy. If a vacancy occurs, the remaining member or members of the Committee shall have full authority to act.

     (b) Any member of the Committee may resign by written resignation delivered to the Board. Any such resignation shall become effective upon its receipt by the Board or on such other date as agreed to by the Board and the resigning member.

     6.2 Powers of the Committee. In carrying out its duties with respect to the general administration of the Plan, the Committee shall have, in addition to any other powers conferred by the Plan or by law, the following powers:

     (a) to determine eligibility to participate in the Plan and eligibility to receive Options;

     (b) to grant Options, and to determine the form, amount and timing of such Options;

     (c) to determine the terms and provisions of the Option Agreements, and to modify such Option Agreements as provided in Section 5.3;

     (d) to substitute stock held in Trust as provided in Section 3.6,

     (e) to maintain all records necessary for the administration of the Plan;

     (f) to prescribe, amend, and rescind rules for the administration of the Plan to the extent not inconsistent with the terms thereof;

     (g) to appoint such individuals and subcommittees as it deems desirable for the conduct of its affairs and the administration of the Plan;

     (h) to employ counsel, accountants and other consultants to aid in exercising its powers and carrying out its duties under the Plan;

     (i) to direct the trustee on the investment of trust funds; and

     (j) to perform any other acts necessary and proper for the conduct of its affairs and the administration of the Plan, except those reserved by the Board.

     6.3 Determinations by the Committee. The Committee shall interpret and construe the Plan and the Option Agreements, and its interpretations and determinations shall be conclusive and binding on all Participants, Beneficiaries and any other persons claiming an interest under the Plan or any Option Agreement. The Committee’s interpretations and determinations under the Plan and the Option Agreements need not be uniform and may be made by it selectively among Participants, Beneficiaries and any other persons whether or not they are similarly situated. The failure of the Committee to strictly enforce the terms and conditions of the Plan or the Option Agreement shall not constitute a waiver of any provision of the Plan or the Option Agreement. No Participant may rely on any act or statement of the Committee or anyone charged with the administration of the Plan which is inconsistent with any of the terms and conditions of the Plan or the Option Agreement.

     6.4 Indemnification of the Committee. The Employer shall indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of such member’s action or failure to act in such capacity, excepting only expenses and liabilities arising out of such member’s own willful misconduct or gross negligence.

     (a) Expenses and liabilities against which a member of the Committee is Indemnified hereunder shall include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or the settlement thereof, provided that the Employer shall not be liable for any settlement to which it does not consent but such consent shall not be unreasonably withheld.

     (b) This right of indemnification shall be in addition to any other rights to which any member of the Committee may be entitled.

     (c) The Employer may, at its own expense, settle any claim asserted or proceeding brought against any member of the Committee when such settlement appears to be in the best interests of the Employer, provided that such settlement includes a complete release from liability of such member and is otherwise reasonably acceptable to such member.

     The provisions of this Section 6.4 are for the benefit of each member of the Committee, his or her heirs, successors and assigns and as to each such member shall survive the termination of his service as such. Any amendment of this Section 6.4 shall not materially impair the rights of members and former members of the Committee thereunder as to any period prior to such amendment.

     6.5 Expenses of the Committee. The members of the Committee shall serve without compensation for services as such. All reasonable expenses of the Committee shall be paid by the Employer.

ARTICLE VII

Trust Provisions

     7.1 Establishment of the Trust. The Trust shall be established to hold all Stock contributed by the Employer pursuant to Section 3.5 as well as any stock acquired with those funds. Except as otherwise provided in the Trust Agreement, the Trust shall be irrevocable and no portion of the Trust Fund shall be used for any purpose other than the delivery of Stock pursuant to the exercise of an Option, and the payment of expenses of the Plan and Trust.

     7.2 Trust Status. The Trust is intended to be a grantor trust, within the meaning of Section 671 of the Code, of which the Employer is the grantor, and this Plan is to be construed in accordance with that intention. Notwithstanding any other provision of this Plan, the Trust Fund shall remain the property of the Employer and shall be subject to the claims of its creditors in the event of its bankruptcy or insolvency. No Participant shall have any priority claim on the Trust Fund or any security interest or other right superior to the rights of a general creditor of the Employer.

ARTICLE VIII

Miscellaneous Provisions

     8.1 Headings. The headings of articles, sections and paragraphs are solely for convenience of reference. If there is any conflict between such headings and the text of this Plan, the text shall control.

     8.2 Gender. Unless the context clearly requires a different meaning, all pronouns shall refer indifferently to persons of any gender.

     8.3 Singular and Plural. Unless the context clearly requires a different meaning, singular terms shall also include the plural and vice versa.

     8.4 Governing Law. Except to the extent preempted by federal law, the construction and operation of the Plan shall be governed by the laws of the State of Minnesota without regard to the choice of law principles of such state.

     8.5 Severability. If any provision of this Plan is held illegal or invalid by any court or governmental authority for any reason, the remaining provisions shall remain in full force and effect and shall be construed and enforced in accordance with the purposes of the Plan as if the illegal or invalid provision did not exist.

     8.6 No Obligation to Exercise. The granting of an Option shall impose no obligation upon a Participant to exercise such Option.

     8.7 No Rights of Shareholder. Neither the Participant, nor a Beneficiary shall be, or shall have any of the rights and privileges of, a stockholder with respect to any Stock purchasable or issuable upon the exercise of an Option, prior to the date of exercise of such Option.

     8.8 No Right to Continued Employment. Nothing contained in the Plan shall be deemed to give any person the right to be retained in the employ of the Employer, or in service as members of the Board of Directors, or to interfere with the right of the Employer to discharge any person at any time without regard to the effect that such discharge shall have upon such person’s rights or potential rights, if any, under the Plan. The provisions of the Plan are in addition to, and not a limitation on, any rights that a Participant may have against the Employer by reason of any employment or other agreement with the Employer.

     8.9 Notices. Unless otherwise specified in an Option Agreement, any notice to be provided under the Plan to the Committee shall be mailed (by certified mail, postage prepaid) or delivered to the Committee in care of the Employer at its executive offices, and any notice to the Participant shall be mailed (by certified mail, postage prepaid) or delivered to the Participant at the current address shown on the payroll records of the Employer. No notice shall be binding on the Committee until received by the Committee.

EX-10.9

exv10w9

EX-10.9B

EXHIBIT 10.9B

Amendment No. 2 to
Cenex Harvest States Cooperatives
Share Option Plan

WHEREAS, the Cenex Harvest States Share Option Plan (the “Plan”) was adopted by the Company effective January 1, 1998 and was amended on August 31, 1998 and on May 2, 2001; and

WHEREAS, the Cenex Harvest States Share Option Plan Committee (the “Committee”) has recommended to the Board that the Plan be further amended to provide for pricing of shares on a net asset value rather than market price basis; and

WHEREAS, the Plan provides that the Board of Directors of the Company may, from time to time in its discretion, amend any provision of the Plan, in whole or in part, with respect to any participant or group of participants.

NOW, THEREFORE, BE IT RESOLVED, That the Plan is amended, effective August 1, 2001, as follows.

1. Section 2.15, previously defining “Market Price,” is amended and restated as follows:

“Net Asset Value” means, in the case of open-end mutual fund shares, the net asset value per share as reported by the fund on the applicable date of reference hereunder. In the case of a share of stock of a private investment company established by the Employer, the Net Asset Value means the market-to-market value of the securities and other assets held by the private investment company, plus any cash, minus all liabilities. Expenses and fees and any reserves are accrued and taken into account for the purpose of determining the Net Asset Value of the private investment company. For purposes of determining the value of the private investment company’s assets, the Company generally shall value any securities that is traded principally on a market for which daily transaction prices are published at the last sale price on the date of valuation. If there has been no sale of such security on such day, such security shall be valued at the mean of the closing bid and asked prices on such day. If no bid or asked prices are quoted on such day, such security shall be valued by such method as the Company shall determine in good faith to reflect its fair market value. Any security traded principally in a market for which daily transaction prices are not published but for which bid and ask quotations are available generally shall be valued at the latest bid price available on the date of valuation. All other securities or investments and assets of the private investment company, including securities whose market value cannot be readily determined, shall be assigned such fair value as the Company shall in its sole discretion determine in good faith to reflect its fair value. All values in foreign currencies, if any, shall be converted into U.S. dollars at the average interbank currency exchange rate at the close of business on the valuation day.

2	Section 3.2 (d), “Effect of Dividends and Distributions with Respect to Stock,” is amended by striking the following sentence from the end thereof: “Any property acquired (or deemed to be acquired) through reinvestment will be added to the Stock by rounding to the nearest one thousandth of a share and will be subject to the applicable Option, without any adjustment to the Exercise Price.”
3.	Section 3.3, “Exercise Price,” is amended by replacing the words “Market Price” with the words “Net Asset Value” in each of the three places they appear.
4.	In Section 3.5, the title shall be amended to read as follows: “Stock May be Held in Trust.”
5.	Section 3.6, “Substitution of Assets Held in Trust,” is amended by (i) replacing the words “Market Price” with the words “Net Asset Value” in the first sentence; and (ii) changing the last sentence to read as follows: “Such change in Option property shall be considered the grant of a new Option and the terms of the Plan, including Articles III and IV, shall apply to the grant of the new Option except that the Exercise Period under the new Option Agreement shall not exceed the Exercise Period under the original Option Agreement, the six-month waiting period to exercise the Option shall not be applicable, any conditions of the grant recited in the original Option pursuant to section 3.4 shall be carried over to the new Option, and the initial Exercise Price of the new Option shall be equal to the initial Exercise Price of the Option being replaced.”
6.	Section 5.4, “Change of Control,” is amended by replacing the words “Market Price” with the words “Net Asset Value” in Subsection (d) thereof.
7.	Section 6.2, “Powers of the Committee,” is amended by replacing the word “stock” with the word “Stock” in subsection (d) thereof.

RESOLVED FURTHER, That the Chief Executive Officer and the Cenex Harvest States Share Option Plan Committee are authorized and empowered to take any and all additional actions to implement the aforesaid resolution, including but not limited to, the amendment of the trust agreement and the execution of administrative and investment advisory agreements in order to fully implement the resolution.

Adopted: 08/07/01

CENEX HARVEST STATES COOPERATIVES
By:	s/John Schmitz
	John Schmitz
	Its Executive Vice President and CFO

EX-10.9C

EXHIBIT 10.9C

Amendment No. 3 to
Cenex Harvest States Cooperatives
Share Option Plan

WHEREAS, the Cenex Harvest States Share Option Plan (the “Plan”) was adopted by the Company effective January 1, 1998 and was amended on August 31, 1998 and May 2, 2001; and

WHEREAS, the Cenex Harvest States Share Option Plan Committee (the “Committee”) has recommended to the Board that the Plan be amended in order to enable the Company to grant options issued in exchange for the bonus or incentive compensation of a participant on or about October 31 following the determination of the bonus or incentive compensation with respect to a fiscal year of the Company ending August 31; and

WHEREAS, the Plan provides that the Board of Directors of the Company may, from time to time in its discretion, amend any provision of the Plan, in whole or in part, with respect to any participant or group of participants;

NOW, THEREFORE, BE IT RESOLVED, That the Plan is amended, effective January 1, 2002, by amending and restating Section 3.2(a) thereof to read as follows:

     (a) Grant Date and Option Agreement. An Option granted in exchange for a specified amount of future compensation or Board fees of the Participant shall be delivered on or about March 31, June 30, September 30, and December 31, to Participants who are employed by the Employer or who are serving as members of the Board of Directors and shall reflect the specified amount of future base compensation or Board fees of the Participant exchanged for the entire preceding calendar quarter. An option granted in exchange for a specified amount of future bonus or incentive compensation determined with respect to the preceding fiscal year of the Employer ending August 31 shall be delivered as soon as practicable following the determination of the bonus or incentive compensation by the Employer to Participants who are employed by the Employer. An Option shall become effective upon the execution by the Employer and the Participant of an Option Agreement specifying the Stock, the number of shares subject to the Option, the Exercise Price, and such other terms and in such form as the Committee may from time to time determine in accordance with the Plan. Any terms not specified in the Plan shall be specified in the Option Agreement.

RESOLVED FURTHER, That the Chief Executive Officer and the Cenex Harvest States Share Option Plan Committee are authorized and empowered to take any and all additional actions to implement the aforesaid resolution.

Adopted: 06/04/02

CENEX HARVEST STATES COOPERATIVES
By:	s/ John Schmitz
	John Schmitz
	Its Executive Vice President and CFO

EX-10.9D

EXHIBIT 10.9D

Amendment No. 4 to
Cenex Harvest States Cooperatives
Share Option Plan

WHEREAS, the Cenex Harvest States Share Option Plan (the “Plan”) was adopted by the Company effective January 1, 1998 and was amended on August 31, 1998, May 2, 2001, and June 4, 2002; and

WHEREAS, the Committee for the Plan has recommended to the Board that the Plan be amended to reflect the change in the name of the Company from Cenex Harvest States Cooperatives to CHS Inc., which was effective as of August 5, 2003; and

WHEREAS, Section 5.1 of the Plan provides that the Board may amend the Plan in whole, or in part.

NOW, THEREFORE, BE IT RESOLVED, That the Plan is amended, effective as of August 5, 2003, as follows:

I. Section 2.5 of the Plan is amended to read as the following:

     2.5 “Committee” means the CHS Inc. Share Option Plan Committee appointed in accordance with Section 6.1.

2. Section 2.6 of the Plan is amended to read as the following:

     2.6 “Disability” means that the Participant has been determined to be disabled under the provision of the CHS Inc. Long Term Disability Plan (formerly known as the Cenex Harvest States Cooperatives Long Term Disability Plan).

3. Section 2.9 of the Plan is amended to read as the following:

     2.9 “Employer” means CHS Inc. (formerly known as Cenex Harvest States Cooperatives), and any successor thereto, and any affiliated entity that is related to the Employer pursuant to the rules under Code sections 414(b), (c), or (d) and the regulations thereunder, which adopts the Plan as a participating Employer.

4. Section 2.19 of the Plan is amended to read as the following:

     2.19 “Plan” means the CHS Inc. Share Option Plan (formerly known as the Cenex Harvest States Cooperatives Share Option Plan), as set forth herein and from time to time amended.

RESOLVED FURTHER, That the Chief Executive Officer of the Company and the Committee for the Plan are authorized and empowered to take any and all additional actions to implement the aforesaid resolutions.

Adopted: 04/06/04

CHS INC.
By:	s/ John Schmitz
	John Schmitz
	Its Executive Vice President and CFO

EX-10.10

EXHIBIT 10.10

Option Agreement

CHS Inc.
Share Option Plan
Option Agreement

1. Grant of Option. CHS hereby grants to the Participant an Option to purchase shares of Stock from CHS at the Exercise Price set forth in Paragraph 2 below:

Name of Participant:

Social Security No.

Grant Date:

The shares of Stock subject to this Option and the total Market Price of the underlying Stock as of the Grant Date will consist of the following investments and that number of shares represented by the Market Price shown below:

Name of Investment
Subject to Option	Market Price
	$
	$
	$
	$

2. Exercise and Transfer of Option. The Option may be exercised only by the Participant, the Participant’s Beneficiary, or the Permitted Transferee in whole or in part, subject to minimum exercise requirements contained in the CHS Inc. Share Option Plan (the “Plan”). In addition, under the terms of this Agreement, the transfer of Options is not allowable except as permitted under Section 3.8 of the Plan. The Option shall not otherwise be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided therein, and no Option shall be subject to execution, attachment or similar process.

Written notice of an election to exercise the Option, specifying the desired Exercise Date and enclosing this Agreement shall be: (a) delivered to the CHS Inc. Share Option Plan Committee (the “Committee”) at the following address no later than three (3) business days prior to the desired Exercise Date, or (b) mailed (by certified mail, postage prepaid), to the Committee at the following address no later than ten (10) business days prior to the desired Exercise Date:

CHS Inc.
Share Option Plan Committee
Sta. 479
P.O. Box 64089
St. Paul, MN 55164-0089

The Committee has determined the initial Grant Date Exercise Price shall equal twenty-five percent (25%) of the Market Price of the Stock on the Grant Date. For these purposes, the “Exercise Date” shall be the date upon which the Participant’s written Option Exercise Form is approved by the Committee after payment is received by the Committee (or arranged by financing from a financial institution) at its principal business address (which is the address shown in this Agreement, unless later changed).

3. Payment of Exercise Price. Payment of the Exercise Price shall be made by check or other means acceptable to the Committee (in accordance with the terms of the Plan) on or before the Exercise Date, and the Participant must satisfy all federal, state and local withholding tax requirements in any manner permitted under the Plan.

4. Time of Exercise. The holder of this Option may exercise the Adjusted Portion of an Option at any time during the period beginning six (6) months after the Grant Date and ending on the earliest of:

(a) ninety (90) days after the date of the Participant’s Termination of Employment or Separation from Service, if he or she is terminated involuntarily for cause;

(b) one-hundred-twenty (120) months after the Participant’s Termination of Employment or Separation from Service, if his or her employment or service terminates for any reason not specified above; or

(c) twenty (20) years from the Grant Date of the Option.

5. Adjusted Portion of Option. If the Participant experiences a Termination of Employment or Separation from Service after the Grant Date, only the Adjusted Portion of the Option may be exercised. The Adjusted Portion of this Option which has been granted as an outright award or in exchange for the future base compensation, annual variable pay, or Board of Directors’ fees of a Participant is one-hundred percent:

6. Rights and Privileges. Neither the Participant nor a Beneficiary shall have any of the rights and privileges of a stockholder with respect to any Stock purchasable or issuable upon the exercise of an Option unless and until such Option is exercised and the purchase price for the Stock has been paid in full.

7. Required Acceptance of Option Agreement. This Option is conditioned upon the acceptance of this Agreement by the Participant as evidenced by the return of an executed copy to the Committee within ten (10) days from date of receipt.

8. Interpretation of Option Agreement. Except to the extent preempted by federal law, the Option and this Agreement shall be construed and interpreted according to the laws of the State of Minnesota without regard to the choice of law principles of such state.

9. Incorporation by Reference. Except as specifically provided in this Agreement, the rights of the Participant, or any other person entitled to exercise the Option, are governed by the terms and provisions of the CHS Inc. Share Option Plan, which are incorporated by reference into this Agreement. All initial capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Plan. The Participant agrees to be bound by the terms of the Plan should a discrepancy exist between the terms of this Agreement and the terms of the Plan, then the terms of the Plan will control.

10. Immediate Exercise. In the event of the termination of the Plan in connection with compliance with, or any addition or change in, any federal or state law or regulation, the holder of this Option will be required to exercise it immediately.

11. No Right to Continued Service. Nothing contained in this Agreement or in the Plan shall be deemed to give any person the right to be retained in the employ or in service as a member of the Board of Directors of CHS, or to interfere with the right of CHS to discharge any employee at any time without regard to the effect that such discharge shall have upon such a employee’s rights or potential rights, if any, under the Plan. The provisions of the Plan are in addition to, and not a limitation on any rights that a Participant may have against CHS be reason of any employment or other agreement with CHS.

12. Amendment of Option Agreement. The Board of Directors of CHS may amend this Option Agreement at any time (i) to comply with applicable law or regulations, (ii) in connection with a Plan termination or amendment, or (iii) with the consent of the Participant.

CHS Inc.

By:   Its Authorized Officer

The undersigned has consulted with tax and legal advisors and is not relying on the advice or representations of CHS or the Committee on any legal or tax matters. The undersigned certifies that this Option will be suitable for his or her financial condition.

Participant Date

Committee Acknowledgment:
	By: Its Representative	Date

EX-10.11

EXHIBIT 10.11

TRUST AGREEMENT

This Agreement is made, as of the date set forth below, by and between Cenex Harvest States Cooperatives (the “Employer”) and The Capital Trust Company of Delaware, a trust company incorporated under the Laws of Delaware (the “Trustee”).

WHEREAS, the Employer has adopted the Cenex Harvest States Cooperatives Key Employee Share Option Plan (the “Plan”); and

WHEREAS, the Employer has incurred or expects to incur liability under the terms of the Plan with respect to the individuals participating in the Plan; and

WHEREAS, the Employer wishes to establish a trust (the “Trust”) and to contribute to the Trust assets that shall be held therein, subject to the claims of the Employer’s Insolvency, as herein defined, until options are exercised by Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; and

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement; and

WHEREAS, it is the intention of the Employer to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan;

NOW, THEREFORE, the parties hereto do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

ARTICLE 1. ESTABLISHMENT OF TRUST

1.1	The Employer shall make an initial contribution to the Trust of money and other property (acceptable to the Trustee), which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. All such money and other property (acceptable to the Trust), all investments and reinvestments made therewith or proceeds thereof and all earnings and profits thereon, less all payments and charges as authorized herein, are hereafter referred to as the “Trust Fund”. The Trustee may use a general disbursement account for distributions from the Trust Fund without incurring any liability for the payment of interest thereon, notwithstanding the Trustee’s receipt of credit or interest in respect of funds held in such distribution account.
1.2	The Trust hereby established shall be irrevocable.
1.3	The Trust is intended to be a grantor trust, of which Employer is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

1.4	The Trust Fund shall be held separate and apart from other funds of the Employer and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Employer. Any assets held by the Trust will be subject to the claims of the Employer’s general creditors under federal and state law in the event the Employee is Insolvent, as defined in Section 3.1 herein.
1.5	The Employer, in its sole discretion, may at any time or from time to time make additional deposits of cash or other property (acceptable to the Trustee) in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any plan participant or beneficiary shall have any right to compel such additional deposits.
1.6	The Trustee accepts the Trust established under this Trust Agreement on the terms and subject to the provisions set forth herein.

ARTICLE 2. PAYMENTS UPON EXERCISE OF OPTION AGREEMENTS

2.1	The Employer shall grant to each Plan participant an option to purchase securities pursuant to the terms and conditions of an option agreement by and between the Employer and the Plan participant (the “Option Agreement”). Upon execution of an Option Agreement, the Employer shall deliver to the Trustee written instructions (the “Option Instructions”) that provide a formula or other instructions acceptable to the Trustee for determining the amounts payable under the terms of the Option Agreement. Except as otherwise provided herein, the Trustee shall make payments from the Trust in accordance with such Options Instructions. The Employer shall make provision for the reporting and withholding of any federal, state, or local taxes that may be required to be withheld by reason of the operation of the Plan and shall make provisions for the payment of amounts withheld to the appropriate taxing authorities.
2.2	The entitlement of a Plan participant or his or her beneficiaries to rights under the Plan shall be determined by the Employer or such party as the Employer shall designate under the Plan, and any claim for such rights shall be considered and reviewed under the procedures set out in the Plan.
2.3	The Trustee, in accordance with the Option Instructions, shall liquidate the securities or other investments underlying the applicable Option Agreement in an amount equal to the amount of options to be exercised under the Option

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Agreement and make payments as directed by the Employer (“Option Agreement Payments”). In addition, if the Trust Fund is not sufficient to make payments due in accordance with the terms of the Plan, the Employer shall make the balance of each such payment as it falls due. The Trustee shall notify the Employer when the Trust Fund’s principal and earnings, net of authorized payments and charges, are not sufficient.

ARTICLE 3. THE TRUSTEE’S RESPONSIBILITY REGARDING PAYMENTS

TO TRUST BENEFICIARY WHEN EMPLOYER IS INSOLVENT

3.1	The Trustee shall cease Option Agreement Payments if the Employer is insolvent. The Employer shall be considered “Insolvent” for purposes of this Trust Agreement if (i) the Employer is unable to pay its debts as they become due, or (ii) the Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
3.2	At all times during the continuance of this Trust, as provided in Section 1. 4 hereof, the Trust Fund shall be subject to claims of general creditors of the Employer under federal and state law as set forth below:

3.2.1.	The Board of Directors and the Chief Executive Officer of the Employer shall have the duty to inform the Trustee as soon as possible after it has been determined that the Employer is Insolvent. If a person claiming to be a creditor of Employer alleges in writing to the Trustee that the Employer has become Insolvent, the Trustee shall, upon reasonable investigation, determine whether the Employer is Insolvent and, upon such determination, discontinue the Option Agreement Payments.
3.2.2.	Unless the Trustee has actual knowledge of the Employer’s Insolvency, or has received notice from the Employer or a person claiming to be a creditor alleging that the Employer is Insolvent, the Trustee shall have no duty to inquire whether the Employer is Insolvent. The Trustee may in all events rely on such evidence concerning the Employer’s solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Employer’s solvency.
3.2.3.	If at any time the Trustee has determined that the Employer is Insolvent, and the Trustee has discontinued Option Agreement Payments, the Trustee shall hold the assets of the Trust for the benefit of the Employer’s general creditors. Under such circumstances, the Trustee shall suspend Trust Fund payments and shall pay the assets held in the Trust Fund only as a court of competent jurisdiction shall direct to satisfy claims of general creditors of the Employer. Nothing in this Trust Agreement shall in any way diminish

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	any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Employer with respect to benefits due under the Plan or otherwise.
3.2.4.	The Trustee shall resume Option Agreement Payments in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Employer is not Insolvent (or is no longer Insolvent).
3.2.5.	Provided that there are sufficient Trust assets, if the Trustee discontinues Option Agreement Payments from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all Option Agreement Payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Employer in lieu of Option Agreement Payments provided for hereunder during any such period of discontinuance.

ARTICLE 4. PAYMENTS TO EMPLOYER

4.1 Except as provided in Article 3 or Section 11.2 herein, after the Trust has become irrevocable, the Employer shall have no right or power to direct the Trustee to return to the Employer or to divert to others any of the Trust assets before all Option Agreement Payments have been made pursuant to the terms of the Plan.

ARTICLE 5. INVESTMENT AUTHORITY

5.1

In no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations directly issued by the Employer, other than a de minimis amount held in common investment vehicles in which the Trustee invests. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated under the Plan, and shall in no event be exercisable by or rest with Plan participants.

5.2

The Employer shall have the responsibility for establishing and carrying out a funding policy and method, consistent with the objectives of the Plan, taking into consideration the Plan’s short-term and long-term financial needs. The Trustee’s responsibility for investment and diversification of the assets in the Trust shall be subject to, and is limited by, the investment instructions issued to it by the Employer (or a committee appointed by the Employer) in accordance with its funding policy. It is understood that, unless otherwise agreed in writing, the Employer, rather than the Trustee, shall be responsible for the overall investment of Trust assets.

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5.3

The Trustee shall invest and reinvest the Trust Fund assets only to the extent and in the manner directed by the Employer (or a committee appointed by the Employer) and confirmed in writing. Communication of any such direction to the Trustee shall be in a manner acceptable to the Trustee and shall conclusively be deemed an authorization to the Trustee’s designee or broker-dealer to implement the direction even though coming from a person other than the Trustee. Neither the Trustee nor any other person shall have liability for following such directions improperly or failing to act in the absence of any such directions. The Trustee shall have no liability for the acts or omissions of the Employer directing the investment or reinvestment of Trust Fund assets. Neither shall the Trustee have any duty or obligation to review any such investment or other direction, act, or omission, or except upon receipt of a proper direction, to invest or otherwise manage any asset of the Trust Fund which is subject to the control to the Employer.

5.4

At the direction of the person authorized to direct such action as referred to in Section 5, the Trustee or the Trustee’s designee or a broker-dealer referred to in Section 5.3, is authorized and empowered:

(a)	To invest and reinvest the Trust Fund, together with the income therefrom, in shares of regulated investment companies, including those advised, managed or offered by the Trustee, or an affiliate of the Trustee.
(b)	To sell, exchange, convey, transfer, or otherwise dispose of any property held in the Trust Fund, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or other property delivered to the Trustee or to inquire into the validity, expediency, or propriety of any such sale or other disposition.
(c)	To cause any securities or other property held as part of the Trust Fund to be registered in the Trustee’s own name, in the name of one or more of its nominees or to be held in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust.
(d)	To keep that portion of the Trust in cash or cash balances as the Employer may, from time to time, direct.
(e)	To make, execute, acknowledge and deliver any and all documents of transfer or conveyance and to carry out the powers herein granted.
(f)	To consent to or participate in any plans for the reorganization, recapitalization, consolidation or merger, or sale or lease of assets of any

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	corporation, any security of which is held in the Trust, and to pay any and all costs and assessments imposed upon the owners of such securities as a condition of their participation therein, and to consent to any contract, lease, mortgage, purchase or sale of property, by or between such corporation and any other corporation or person.
(g)	To grant options to purchase any property.
(h)	To foreclose any obligation by judicial proceedings or otherwise.
(i)	To disclose any information concerning the existence, condition, management and administration of the assets of the Trust Fund as may be required by law or as may be necessary to prepare any reports required by law.
(j)	To lend, through a common, collective or investment fund, any securities held in such fund to brokers, dealers or other borrowers and to permit the loaned securities to be transferred into the name and custody and be voted by the borrower or others.
(k)	To retain any assets in the Trust Fund for such period of time as the Trustee deems appropriate.
(l)	To vote, either in person or by general or limited proxy, or refrain from voting, any corporate securities for any purpose; to exercise or dispose of any conversion privilege or subscription right which the Trustee may have as a holder of any security or otherwise.
(m)	To deposit any security in any voting trust or under any pooling agreement or with any protective or reorganization committee, or with depositories designated by such trust, agreement, or committee, and to delegate such power and authority with relation thereto as the Trustee may deem proper, and to agree to pay and to pay out of the Trust Fund such portion of the expenses and compensation of such trust, agreement, or committee as the Trustee may deem proper.
(n)	To execute and deliver any general or specific proxies or powers of attorney, with or without power of substitution, to such person or persons as the Trustee may deem proper, granting to such persons and authority with relation any property or securities at any time held in the Trust Fund as the Trustee may deem proper.
(o)	To borrow money from any source with or without giving security, and to encumber the Trust Fund by mortgage, deed of trust, pledge, or otherwise.

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(p)	To renew or extend the time of payments of any obligation due or becoming due.
(q)	To settle, compromise, or submit to arbitration any claims, debts, or damages due to or arising from the Trust Fund; to commence or defend suits or legal or administrative proceedings; to represent the Trust in all suits and legal and administrative hearings; and to pay all reasonable expenses and arising from any such action from the Trust Fund, if not paid by the Employer.
(r)	To employ legal, accounting, clerical, and other assistance, including counsel to the Employer, as may be required in carrying out the provisions of this Trust Agreement and, pay their reasonable expenses and compensation from the Trust Fund if not paid by the Employer.
(s)	To do all other acts, although not specifically mentioned herein, as the Trustee may deem necessary to carry out any of the foregoing powers and purposes of this Trust Agreement.

ARTICLE 6. DISPOSITION OF INCOME

6.1 During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested in the Trust.

ARTICLE 7. ACCOUNTING BY THE TRUSTEE

7.1 The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Employer and the Trustee. Within one hundred twenty (120) days following the close of each calendar year and one hundred twenty (120) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Employer a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

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ARTICLE 8. COMPENSATION, EXPENSES AND TAXES

8.1	The Employer shall pay all administrative and Trustee’s fees and expenses. To the extent the Employer does not pay such fees within sixty (60) days of presentation of the Trustee’s statement, such fees shall be charged against and paid from the Trust Fund. The Trustee is specifically authorized, upon direction of the Employer, to sell such Trust Fund assets as are necessary to pay all amounts due under this Article 8.
8.2	The Employer will from time to time pay all reasonable expenses incurred by the Trustee in the performance of its duties under this Trust Agreement, including brokerage commissions. To the extent that any such expenses are not paid by the Employer, the Trustee shall, upon notice from the Employer, pay such expenses out of the Trust Fund.
8.3	The Employer will from time to time pay taxes of any and all kinds which are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Employer, the Trustee is authorized to deduct from and charge against the Trust Fund any taxes or assessments by any lawful taxing or governmental authority, including interest and penalties with respect thereof, which may be imposed upon the Trust Fund or any account or the income thereof, or which the Trustee is required to pay with respect to the interest of any person therein, under existing or future laws. The Trustee shall have full power to pay any such tax or assessment, in the case of an individual account plan, only out of any money or other property in the account of the person whose interest is liable therefore, provided that at least fifteen (15) days prior to making such payment the Trustee shall give notice to the Employer of its intention to make such payment. Until paid, such taxes shall be a lien against the Trust Fund. In addition, upon written notice of the Employer, the Trustee shall pay any such taxes or assessments, including amounts due as employment or payroll taxes, only in the amounts and at the times specified in writing by the Employer for each participant. The Trustee shall, at the direction of the Employer and at the Employer’s expense, contest the validity of such taxes in any manner deemed appropriate by the Employer or its counsel or the Employer may itself contest the validity of any such taxes.

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ARTICLE 9. RESPONSIBILITY OF THE TRUSTEE

9.1	The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request, or approval given by the Employer which is contemplated by, and in conformity, with the terms of the Plan or this Trust and is given in writing by the Employer and, provided further, that the Trustee shall incur no liability to any persons for any actions or failure to act incident to a determination of Insolvency.
9.2	If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Employer agrees to indemnify the Trustee against the Trustee’s costs, expenses and liabilities (including, without limitation, attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments. If the Employer does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.
9.3	The Trustee may consult with legal counsel (who may also be counsel for the Employer or the Trustee generally) with respect to any of its duties or obligations.
9.4	hereunder and shall have no liability for any action or failure to act in reliance upon such legal counsel.
9.5	The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants, or other professionals to assist it in performing any of its duties or obligations hereunder.
9.6	The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law as set forth in Section 12.4 of this Agreement, unless expressly provided otherwise herein, or expressly provided otherwise in the Plan; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall not have power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor trustee, or to loan to any person the proceeds of any borrowing against such policy.
9.7	Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or by applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

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9.8 The Employer hereby indemnifies the Trustee against, and shall hold the Trustee harmless from, any and all loss, claim, liability, and expense, including reasonable attorney fees, imposed upon the Trustee or incurred by the Trustee as a result of any acts taken, or any failure to act, in accordance with directions from the Employer (or the committee appointed by the Employer) or by reason of the Trustee’s good faith execution of its duties with respect to the Trust, including, but not limited to, its holding of assets of the Trust as provided for in Article I, the Employer’s obligations in the foregoing regard to be satisfied promptly on request by the Trustee, provided that in the event that the loss, claim, liability or expense involved is determined by a no longer appealable final judgement entered in a lawsuit or proceeding to have resulted from the negligence or willful misconduct of the Trustee, the Trustee, shall promptly thereafter return to the Employer any amount previously received by the Trustee under this Article with respect to such loss, claim liability or expense.

ARTICLE 10. RESIGNATION AND REMOVAL OF THE TRUSTEE

10.1	The Trustee may resign at any time by written notice to the Employer, which shall be effective thirty (30) days after receipt of such notice unless the Employer and the Trustee agree otherwise.
10.2	The Trustee may be removed by the Employer on thirty (30) days notice or upon shorter notice accepted by the Trustee.
10.3	In the event of such removal or resignation, the Trustee shall duly file with the Employer a written accounting for the period since the last previous annual accounting, listing the Trust Fund investments and any uninvested cash balance thereof, and setting forth receipts, disbursements, distributions and other transactions respecting the Trust not included in any previous accounting, and if written objections to such accounting are not filed within ninety (90) days, the Trustee shall to the maximum extent permitted by applicable law be released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such accounting.
10.4	Within sixty (60) days after any such notice of removal or resignation of the Trustee, the Employer shall designate a successor trustee qualified to act hereunder. Upon the failure of the Employer to appoint a successor trustee by the effective day of the resignation or removal, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor. Each such successor trustee, during such period as it shall act as such, shall have the powers and duties herein conferred on an individual trustee, and the word “Trustee” wherever used herein, except where the context otherwise requires, shall be deemed to include any successor trustee. Upon designation of a successor trustee and delivery to the

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	resigned or removed Trustee of written acceptance by the successor trustee of such designation, such resigned or removed Trustee shall promptly assign, transfer, deliver and pay over to such successor trustee; in conformity with the requirements of applicable law, the funds and properties in its control or possession then constituting the Trust after deducting therefrom such amounts as the Trustee deems necessary to provide for expenses, taxes, fees, or other amounts due to or by the Trustee pursuant to Article 8 hereof not paid by the Employer prior to such assignment, transfer, delivery, or payment.
10.5	If the Trustee resigns or is removed in accordance with Section 10.1 or 10.2 hereof, the Employer may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Employer or the successor Trustee to evidence the transfer.
10.6	The successor trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 10.3 and Article 8 hereof. The successor trustee shall not be responsible for and the Employer shall indemnify and defend the successor trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

ARTICLE 11. AMENDMENT OR TERMINATION

11.1	This Trust Agreement may be amended by a written instrument executed by the Trustee and the Employer. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable.
11.2	No part of the Trust Fund assets or income shall be paid to the Employer or be used for any purpose other than for the exclusive purpose of providing benefits to Participants prior to the satisfaction of all liabilities of the Plan; provided, however, that nothing in this Section shall be deemed to limit or otherwise prevent the payment from the Trust Fund of expenses, taxes and other charges as provided in Article 8.
11.3	The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Employer.

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ARTICLE 12. MISCELLANEOUS

12.1	Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
12.2	Rights to Option Agreement Payments under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process except in accordance with the terms of the Plan.
12.3	The Employer shall provide the Trustee with a copy of the Plan document and a copy of any amendments to the Plan as soon as administratively possible following the adoption thereof.
12.4	This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict of laws principles.
12.5	No party to this Trust Agreement shall be liable to any other party for consequential damages under any provision of this Trust Agreement or for any consequential damages arising out of any act or failure to act hereunder.
12.6	Nothing contained in this Trust Agreement shall be construed as depriving the Trustee of the right to a judicial settlement of the Trustee’s accounts, and upon any proceeding for a judicial settlement of the Trustee’s accounts or for instructions, the only necessary party in addition to the Trustee shall be the Employer.
12.7	Nothing in this Trust Agreement shall cause the parties hereto to be considered to enter into a partnership or joint venture.
12.8	This Trust Agreement may be signed in counterparts.

ARTICLE 13. EFFECTIVE DATE

13.1 The effective date of this Trust Agreement shall be June 26, 2001.

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IN WITNESS WHEREOF, the Employer and the Trustee have caused this Trust to be executed on the dates set forth below.

CENEX HARVEST STATES COOPERATIVES
By:	s/David A. Kastelic
Print Name:		David A. Kastelic
Title:		Vice President & General Counsel
Date:		June 27, 2001
THE CAPITAL TRUST COMPANY
OF DELAWARE, INC.
By:		s/Bridget A. Vargo
Print Name:		Bridget A. Vargo
Title:		AVP, Trust Marketing Officer
Date:		June 27, 2001

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EX-10.11A

EXHIBIT 10.11A

AMENDMENT NO. 1
TO THE TRUST AGREEMENT

CHS Inc. (formerly known as Cenex Harvest States Cooperatives), pursuant to the power of amendment reserved to it in Article 11 of the Trust Agreement between Cenex Harvest States Cooperatives and The Capital Trust Company of Delaware, Inc., executed June 27, 2001, (the “Trust”) hereby amends the Trust in the manner set forth below effective as of August 5, 2003.

     1. The name of the “Employer” is changed from “Cenex Harvest States Cooperatives” to “CHS Inc.”

     2. The name of the “Plan” is changed from the “Cenex Harvest States Cooperatives Share Option Plan” to the “CHS Inc. Share Option Plan”

         IN WITNESS WHEREOF, CHS Inc. and the Trustee have caused the Trust to be amended as executed on the dates below.

CHS INC.

By /s/Richard L. Baldwin

Its VPHR

Dated 12-29-03

THE CAPITAL TRUST COMPANY OF DELAWARE INC.

By /s/Deborah E. Harris

Its Senior Vice President

Dated 1/29/04

EX-10.14E

EXHIBIT 10.14E

FIFTH AMENDMENT
TO

CREDIT AGREEMENT
(Term Loan)

     This Fifth Amendment to Credit Agreement (Term Loan) (“Amendment Agreement”) is made May 21, 2003, to be effective as of the Effective Date, by and among Cenex Harvest States Cooperatives, a Minnesota cooperative corporation (“Borrower”), CoBank, ACB (“CoBank”) as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity “Administrative Agent”), and the Syndication Parties signatory hereto, including CoBank in such capacity (each a “Syndication Party” and collectively, the “Syndication Parties”).

RECITALS

     A. Borrower, CoBank, St. Paul Bank for Cooperatives (“St. Paul Bank”), and the Syndication Parties signatory thereto entered into a Credit Agreement (Term Loan) (as amended, the “Credit Agreement”) dated as of June 1, 1998.

     B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Term Loan) effective as of May 31, 1999 (“First Amendment”) and by the Second Amendment to Credit Agreement (Term Loan) effective as of May 23, 2000 (“Second Amendment”), and by the Third Amendment to Credit Agreement (Term Loan) dated as of May 23, 2001 (“Third Amendment”) , and by the Fourth Amendment to Credit Agreement (Term Loan) dated as of May 22, 2002 (“Fourth Amendment”).

     C. CoBank is the successor by merger to the interests and obligations of St. Paul Bank under the Credit Agreement.

     D. The parties hereto desire to amend the Credit Agreement as hereinafter set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:

1. Definitions. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein.

2. Amendments to Credit Agreement. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date:

     2.1 The following Sections of Article 1 are amended in their entirety to read as follows:

     1.2 Adjusted Consolidated Funded Debt: All Consolidated Funded Debt of Borrower and its Consolidated Subsidiaries, plus the net present value of operating leases of Borrower and its Consolidated Subsidiaries as discounted by a rate of 8.0% per annum.

     1.17 Base Rate: a rate of interest per annum equal to the “prime rate” as published from time to time in the Eastern Edition of the Wall Street Journal as the average prime lending rate for seventy-five percent (75%) of the United States’ thirty (30) largest commercial banks, or if the Wall Street Journal shall cease publication or cease publishing the “prime rate” on a regular basis, such other regularly published average prime rate applicable to such commercial banks as is acceptable to the Administrative Agent in its reasonable discretion, with the consent of Borrower, which consent will not be unreasonably withheld (provided that Borrower’s consent shall not be required at any time there has occurred and is continuing a Potential Default or an Event of Default).

     1.25 Consolidated Cash Flow: for any period, the sum of (a) earnings before income taxes of Borrower and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; plus (b) amounts that have been deducted in the determination of such earnings before income taxes for such period for (i) Consolidated Interest Expense for such period, (ii) Depreciation for such period, (iii) Amortization for such period, and (iv) extraordinary and/or one-time non-cash losses for such period; minus (c) the amounts that have been included in the determination of such earnings before income taxes for such period for (i) extraordinary and/or one-time income, (ii) non-cash patronage income, and (iii) non-cash equity earnings in joint ventures.

     1.28 Consolidated Funded Debt: all indebtedness for borrowed money of the Borrower and its Subsidiaries, that is classified as long term debt in accordance with GAAP, and shall include Debt of such maturity created or assumed by the Borrower or any Consolidated Subsidiary either directly or indirectly, including obligations of such maturity secured by liens upon property of the Borrower or its Consolidated Subsidiaries and upon which such entity customarily pays the interest, and all rental payments under capitalized leases of such maturity.

     1.29 Consolidated Interest Expense: for any period, all interest expense of Borrower and its Consolidated Subsidiaries, as determined in accordance with GAAP.

2

     1.30 Consolidated Members’ and Patrons’ Equity: the amount of equity accounts plus (or minus in the case of a deficit) the amount of surplus and retained earnings accounts of Borrower and its Consolidated Subsidiaries and the minority interest in Subsidiaries, provided that the total amount of intangible assets of Borrower and its Consolidated Subsidiaries (including, without limitation, unamortized debt discount and expense, deferred charges and goodwill) included therein shall not exceed $30,000,000 (and to the extent such intangible assets exceed $30,000,000.00, they will not be included in the calculation of Consolidated Members’ and Patrons’ Equity); all as determined in accordance with GAAP consistently applied.

     1.31 Consolidated Subsidiary: (a) any Subsidiary whose accounts are consolidated with those of Borrower in accordance with GAAP and (b) Ventura Foods, LLC so long as the accounts thereof are required to be consolidated with those of Borrower in accordance with GAAP.

     1.33 Debt: means as to any Person: (a) indebtedness or liability of such Person for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (b) obligations of such Person as lessee under capital leases; (c) obligations of such Person arising under bankers’ or trade acceptance facilities; (d) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations of such Person to purchase any of the items included in this definition, to provide funds for payment, to supply funds to invest in any other Person, or otherwise to assure a creditor of another Person against loss (without duplication) ; (e) all obligations secured by a lien on property owned by such Person, whether or not the obligations have been assumed; and (f) all obligations of such Person under any agreement providing for an interest rate swap, cap, cap and floor, contingent participation or other hedging mechanisms with respect to interest payable on any of the items described in this definition.

     1.39 Environmental Laws: any federal, state, or local law, statute, ordinance, rule, regulation, administration order, or permit now in effect or hereinafter enacted, pertaining to the public health, safety, industrial hygiene, or the environmental conditions on, under or about any of the real property interests of a Person, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended, 42 U.S.C. 9601-9657 (“CERCLA”) and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901-6987 (“RCRA”).

     1.49 Funded Debt: means, with respect to any Person, at any time, all Debt of such Person in each case maturing by its terms more than one year after the date of creation thereof, or which is renewable or extendible at the option of such Person for a period ending more than one (1) year after the date of creation thereof, and shall include Debt of such maturity created or assumed by such Person either directly or indirectly, including obligations of such maturity secured by liens upon property of such Person and upon which such Person customarily pays the interest, and all obligations of such Person under Capital Leases of such maturity, and the net present value of obligations under Operating Leases as discounted by a rate of 8.0% per annum, and all obligations to reimburse the Letter of Credit Bank or any Syndication Party with

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respect to all Letters of Credit which support long-term debt, with expiration dates in excess of one year from the date of issuance thereof.

     1.53 GAAP : generally accepted accounting principles in the United States of America, as in effect from time to time.

     1.63 Investment: means, with respect to any Person, (a) any loan or advance by such Person to any other Person, (b) the purchase or other acquisition by such Person of any capital stock, obligations or securities of, or any capital contribution to, or investment in, or the acquisition by such Person of all or substantially all of the assets of, or any interest in, any other Person, (c) any performance or standby letter of credit where (i) that Person has the reimbursement obligation to the issuer, and (ii) the proceeds of such letter of credit are to be used for the benefit of any other Person, (d) the agreement by such Person to make funds available for the benefit of another Person to either cover cost overruns incurred in connection with the construction of a project or facility, or to fund a debt service reserve account, (e) the agreement by such Person to assume, guarantee, endorse or otherwise be or become directly or contingently responsible or liable for the obligations or debts of any other Person (other than by endorsement for collection in the ordinary course of business), (f) an agreement to purchase any obligations, stocks, assets, goods or services but excluding an agreement to purchase any assets, goods or services entered into in the ordinary course of business, (g) an agreement to supply or advance any assets, goods or services not in the ordinary course of business, or (h) an agreement to maintain or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any Person against loss.

     1.67 Material Adverse Effect: means a material adverse effect on (a) the financial condition, results of operation, business or property of Borrower; or (b) on the ability of Borrower to perform its obligations under this Credit Agreement and the other Loan Documents; or (c) on the ability of the Administrative Agent or the Syndication Parties to enforce their rights and remedies against Borrower under the Loan Documents.

     1.71 Multiemployer Plan: means a Plan meeting the definition of a “multiemployer plan” in Section 3(37) of ERISA.

     1.91 Required Lenders: shall mean Syndication Parties (including Voting Participants) whose aggregate Individual Commitments constitute fifty-one percent (51.0%) of the Aggregate Commitment; provided that the number of Syndication Parties (including Voting Participants) which constitute the Required Lenders must be the lesser of (i) all, or (ii) no fewer than three (3), if fewer than three (3) Syndication Parties (including Voting Participants) would constitute fifty-one percent (51.0%) of the aggregate Individual Commitments. Pursuant to Section 13.32 hereof, Voting Participants shall, under the circumstances set forth therein, be entitled to voting rights and to be included in determining whether certain action is being taken by the Required Lenders.

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     1.94 Revolving Loan Credit Agreement: means that certain Credit Agreement (Revolving Loan) dated as of May 21, 2003 by and between Borrower , CoBank, as administrative agent for all syndication parties thereunder, and as a syndication party thereunder, and the other syndication parties set forth on the signature pages thereto, as it shall be amended from time to time.

     1.95 Subsidiary: means with respect to any Person: (a) any corporation in which such Person, directly or indirectly, (i) owns more than fifty percent (50%) of the outstanding stock thereof, or (ii) has the power under ordinary circumstances to elect at least a majority of the directors thereof, or (b) any partnership, association, joint venture, limited liability company, or other unincorporated organization or entity, other than Ventura Foods, LLC, with respect to which such Person, (i) directly or indirectly owns more than fifty percent (50%) of the equity interest thereof, or (ii) directly or indirectly owns an equity interest in an amount sufficient to control the management thereof. All of Borrower’s Subsidiaries owned as of May 21, 2003 are set forth on Exhibit 1.95 hereto.

     2.2 The following new Sections are added to Article 1, reading as follows:

     1.107 Anti-Terrorism Laws:. shall have the meaning set forth in Subsection 7.24.1.

     1.108 Borrower Benefit Plan: means (a) any “employee benefit plan”, as such term is defined in Section 3(3) of ERISA (including any “multiemployer plan” as defined in Section 3(37) of ERISA); (b) any “multiple employer plan” within the meaning of Section 413 of the Code; (c) any “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA; (d) a “voluntary employees’ beneficiary association” within the meaning of Section 501(a)(9) of the Code; (e) a “welfare benefit fund” within the meaning of Section 419 of the Code; or (f) any employee welfare benefit plan within the meaning of Section 3(1) of ERISA for the benefit of retired or former employees, which is maintained by Borrower or in which Borrower participates or to which Borrower is obligated to contribute.

     1.109 Borrower Pension Plan: means each Borrower Benefit Plan that is an “employee pension benefit plan” as defined in Section 3(2) of ERISA that is intended to satisfy the requirements of Section 401(a) of the Code.

     1.110 CERCLA: shall have the meaning set forth in Section 1.39.

     1.111 Communications: shall have the meaning set forth in Subsection 14.16.1.

     1.112 Embargoed Person: shall have the meaning set forth in Section 9.16.

     1.113 Executive Order: shall have the meaning set forth in Subsection 7.24.1.

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     1.114 Farm Credit System Institution: shall mean any Farm Credit Bank, any Federal land bank association, any production credit association, the banks for cooperatives, and such other institutions as may be a part of the Farm Credit System and chartered by and subject to regulation by the Farm Credit Administration.

     1.115 Holdout Lender: shall have the meaning set forth in Section 13.32.

     1.116 Intellectual Property: shall have the meaning set forth in Section 7.18.

     1.117 NCRA: shall have the meaning set forth in Section 10.5.

     1.118 Non-US Lender: shall have the meaning set forth in Section 13.30.

     1.119 OFAC: shall have the meaning set forth in Section 9.16.

     1.120 Other List: shall have the meaning set forth in Section 9.16.

     1.121 Platform: shall have the meaning set forth in Subsection 14.16.2.

     1.122 Primary Portal: shall have the meaning set forth in Subsection 14.16.2.

     1.123 RCRA: shall have the meaning set forth in Section 1.39.

     1.121 Replacement Lender: shall have the meaning set forth in Section 13.32.

     1.122 SDN List: shall have the meaning set forth in Section 9.16.

     2.3 Subsection 3.1.1 is amended by the addition of the following sentence:

     Base Rate Loans must be in minimum amounts of $10,000,000.00 and in incremental multiples of $1,000,000.00.

     2.4 Section 4.4 is amended in its entirety to read as follows:

     4.4 Manner of Payment. All payments, including prepayments, that Borrower is required or permitted to make under the terms of this Credit Agreement and the other Loan Documents shall be made to the Administrative Agent in immediately available federal funds, to be received no later than 1:00 P.M. Central time of the Banking Day on which such payment is due (or the following Banking Day if such date is not a Banking Day) by wire transfer through Federal Reserve Bank, Kansas City, Routing Number: 307088754, COBANK ENGWD (or to such other account as the Administrative Agent may designate by notice).

     4.4.1 Payments to be Free and Clear. All sums payable by Borrower under this Credit Agreement and the other Loan Documents shall be paid without setoff or counterclaim and free and clear of, and without any deduction or withholding on account of, any tax imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Borrower or by any

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federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment (excluding taxes imposed on or measured by the net income or net profits of the recipient of such payment, and franchise taxes imposed in lieu thereof).

     4.4.2 Grossing-up of Payments. If Borrower or any other Person is required by law to make any deduction or withholding on account of any such tax from any sum paid or payable by Borrower to the Administrative Agent or any Syndication Party under any of the Loan Documents:

          (a) Borrower shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as Borrower becomes aware of it;

          (b) Borrower shall pay any such tax when such tax is due, such payment to be made (if the liability to pay is imposed on Borrower) for its own account or (if that liability is imposed on the Administrative Agent or such Syndication Party, as the case may be) on behalf of and in the name of the Administrative Agent or such Syndication Party;

          (c) the sum payable by Borrower in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Administrative Agent or such Syndication Party, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and

          (d) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any tax which it is required by clause (b) above to pay, Borrower shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;

     provided that no such additional amount shall be required to be paid to any Syndication Party under clause (c) above except to the extent that any change after the date on which such Syndication Party became a Syndication Party in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date on which such Syndication Party became a Syndication Party, in respect of payments to such Syndication Party.

     2.5 Section 4.5 is amended by the addition of the following sentence at the end of such Section:

     In no event will the amount of Funding Losses payable under this Section be less than $300.00 with respect to any such prepayment.

     2.6 The following Sections of Article 7 are amended in their entirety to read as follows:

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     7.10 Employee Benefit Plans. Exhibit 7.10 sets forth as of the Closing Date a true and complete list of each Borrower Benefit Plan that is maintained by Borrower or any of its Subsidiaries or in which Borrower or any of its Subsidiaries participates or to which Borrower or any of its Subsidiaries is obligated to contribute, in each case as of the Closing Date. Borrower and its Subsidiaries are in compliance in all material respects with the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder (“ERISA”), to the extent applicable to them, and have not received any notice to the contrary from the Pension Benefit Guaranty Corporation (“PBGC”).

     7.15 Fiscal Year. Each fiscal year of Borrower begins on September 1 of each calendar year and ends on August 31 of the following calendar year.

     7.18 Trademarks, Tradenames, etc. Borrower owns or licenses all patents, trademarks, trade names, service marks and copyrights (collectively, “Intellectual Property”) that it utilizes in its business as presently being conducted and as anticipated to be conducted, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect on Borrower. Borrower is not a licensee under any written license for any patent, trademark, tradename, service mark or copyright other than shrinkwrap licenses for “off-the-shelf” software used by Borrower in the conduct of its business. The Intellectual Property is in full force and effect, and Borrower has taken or caused to be taken all action, necessary to maintain the Intellectual Property in full force and effect and has not taken or failed to take or cause to be taken any action which, with the giving of notice, or the expiration of time, or both, could result in any such Intellectual Property being revoked, invalidated, modified, or limited.

     7.21 Acts of God. Neither the business nor the properties of Borrower or any Subsidiary are currently affected by any fire, explosion, accident, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) which has resulted in, or could reasonably be expected to result in, a Material Adverse Effect.

     2.7 The following new Sections and Subsections are added to Article 7, and existing Section 7.23 is renumbered as Section 7.25:

     7.23 Labor Matters and Labor Agreements. Except as set forth in Exhibit 7.23 hereto: (a) As of the Closing Date, there are no collective bargaining agreements or other labor agreements covering any employees of Borrower or any Subsidiary the termination, cessation, or breach of which could reasonably be expected to result in a Material Adverse Effect, and a true and correct copy of each such agreement will be furnished to the Administrative Agent upon its written request from time to time. (b) There is no organizing activity involving Borrower pending or, to Borrower’s knowledge, threatened by any labor union or group of employees. (c) There are, to Borrower’s knowledge, no representation proceedings pending or threatened with the National Labor Relations Board, and no labor organization or group of employees of Borrower has made a pending demand for recognition. (d) There are no complaints or charges against Borrower pending or, to Borrower’s knowledge threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Borrower of any individual. (e) There are no strikes or other labor disputes against Borrower

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that are pending or, to Borrower’s knowledge, threatened. (f) Hours worked by and payment made to employees of Borrower or any Subsidiary have not been in violation of the Fair Labor Standards Act (29 U.S.C. § 201 et seq.) or any other applicable law dealing with such matters. The representations made in clauses (b) through (f) of this Section are made with respect to those occurrences described which could, considered in the aggregate, reasonably be expected to have a Material Adverse Effect.

     7.24 Anti-Terrorism Laws.

          7.24.1 Violation of Law. Neither the Borrower nor, to the knowledge of Borrower, any of its Subsidiaries, is in violation of any laws relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (“Executive Order”), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56.

          7.24.2 Classification. Neither Borrower nor, to the knowledge of Borrower, any of its Subsidiaries, or their respective brokers or other agents acting or benefiting in any capacity in connection with the Loans, is any of the following:

            (a) a Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

            (b) a Person or entity owned or controlled by, or acting for or on behalf of, any Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

            (c) a Person or entity with which any Syndication Party is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

            (d) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or

            (e) a Person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list.

          7.24.3 Conduct of Business. Neither Borrower nor to the knowledge of Borrower, any of its brokers or other agents acting in any capacity in connection with the Loans (a) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in clause (b) of Subsection 7.24.2 above, (b) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (c) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

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     2.8 The following Sections and Subsections of Article 9 are amended in their entirety to read as follows:

          9.2.1 Annual Financial Statements. As soon as available, but in no event later than one hundred and twenty (120) days after the end of any Fiscal Year of Borrower occurring during the term hereof one copy of the audit report for such year and accompanying consolidated financial statements (including all footnotes thereto), including a consolidated balance sheet, a consolidated statement of earnings, a consolidated statement of capital, and a consolidated statement of cash flow for the Borrower and its Subsidiaries, showing in comparative form the figures for the previous Fiscal Year, all in reasonable detail, prepared in conformance with GAAP consistently applied and certified without qualification by PricewaterhouseCoopers, or other independent public accountants of nationally recognized standing selected by the Borrower and satisfactory to the Administrative Agent, and to be accompanied by a copy of the management letter of such accountants addressed to the board of directors of Borrower related to such annual audit; and annual financial statements of Borrower. Delivery to the Administrative Agent within the time period specified above of copies of Borrower’s Annual Report on Form 10-K as prepared and filed in accordance with the requirements of the Securities Exchange Commission shall be deemed to satisfy the requirements of this Subsection if accompanied by the required unqualified accountant’s certification. Such annual financial statements or Form 10-K’s required pursuant to this Subsection shall be accompanied by a Compliance Certificate signed by Borrower’s Chief Financial Officer or other officer of Borrower acceptable to the Administrative Agent.

          9.2.2 Quarterly Financial Statements. As soon as available but in no event more than forty-five (45) days after the end of each Fiscal Quarter (except the last Fiscal Quarter of Borrower’s Fiscal Year) the following financial statements or other information concerning the operations of Borrower and its Subsidiaries for such Fiscal Quarter, the Fiscal Year to date, and for the corresponding periods of the preceding Fiscal Year, all prepared in accordance with GAAP consistently applied: (a) a consolidated balance sheet, (b) a consolidated summary of earnings, (c) a consolidated statement of cash flows, and (d) such other statements as the Administrative Agent may reasonably request. Delivery to the Administrative Agent within the time period specified above of copies of Borrower’s Quarterly Report on Form 10-Q as prepared and filed in accordance with the requirements of the Securities Exchange Commission shall be deemed to satisfy the requirements of this Subsection other than clause (d) hereof. Such quarterly financial statements or Form 10-Q’s required pursuant to this Subsection shall be accompanied by a Compliance Certificate signed by Borrower’s Chief Financial Officer or other officer of Borrower acceptable to the Administrative Agent (subject to normal year end adjustments).

          9.2.4 ERISA Reports. As soon as possible and in any event within twenty (20) days after Borrower knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC or Borrower or any Subsidiary has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, or that Borrower, any Subsidiary or any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan, or that a Plan which is a Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is terminating, a certificate of Borrower’s Chief Financial Officer

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setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination or withdrawal or reorganization or insolvency and the action Borrower or such Subsidiary proposes to take with respect thereto, provided, however, that notwithstanding the foregoing, no reporting is required under this subsection (6) unless the matter(s), individually or in the aggregate, result, or could be reasonably expected to result, in aggregate obligations or liabilities of Borrower and/or the Subsidiaries in excess of ten million dollars ($10,000,000).

          9.2.5 Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, arbitration and any other proceedings before any Governmental Authority, affecting Borrower or any Subsidiary which, if determined adversely to Borrower or any Subsidiary, could reasonably be expected to require Borrower or any Subsidiary to have to pay or deliver assets having a value of ten million dollars ($10,000,000) or more (whether or not the claim is covered by insurance) or could reasonably be expected to result in a Material Adverse Effect.

          9.2.11 Additional Information. With reasonable promptness, such other information respecting the condition or operations, financial or otherwise, of Borrower or any Subsidiary as the Administrative Agent or any Syndication Party may from time to time reasonably request.

     9.5 Compliance with Legal Requirements and Agreements. Borrower shall, and shall cause each Subsidiary to: (a) comply with all laws, rules, regulations and orders applicable to Borrower (or such Subsidiary, as applicable) or its business unless such failure to comply is the subject of a Good Faith Contest; and (b) comply with all agreements, indentures, mortgages, and other instruments to which it (or any Subsidiary, as applicable) is a party or by which it or any of its (or any Subsidiary, or any of such Subsidiary’s, as applicable) property is bound; provided, however, that the failure of Borrower to comply with this sentence in any instance not directly involving the Administrative Agent or a Syndication Party shall not constitute an Event of Default unless such failure could reasonably be expected to have a Material Adverse Effect.

     9.7 Taxes. Borrower shall pay or cause to be paid, and shall cause each Subsidiary to pay, when due all taxes, assessments, and other governmental charges upon it, its income, its sales, its properties (or upon Subsidiary and its income, sales, and properties, as applicable), and federal and state taxes withheld from its (or Subsidiary’s, as applicable) employees’ earnings, unless (a) the failure to pay such taxes, assessments, or other governmental charges could not reasonably be expected to result in a Material Adverse Effect, or (b) such taxes, assessments, or other governmental charges are the subject of a Good Faith Contest and Borrower has established adequate reserves therefor in accordance with GAAP.

     9.7 Insurance. Borrower shall maintain, and cause each Subsidiary to maintain, insurance with one or more financially sound and reputable insurance carrier or carriers reasonably acceptable to the Administrative Agent, in such amounts (including deductibles) and covering such risks (including fidelity coverage) as are usually carried by companies engaged in the same or a similar business and similarly situated, provided, however, that Borrower may, to the extent permitted by Law, provide for appropriate self-insurance with respect to workers’ compensation. At the request of Administrative Agent, copies of all policies (or such other proof of compliance with this Section as may be reasonably satisfactory) shall be delivered to the

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Administrative Agent. All such insurance policies shall contain a provision requiring at least ten (10) days’ notice to Borrower prior to any cancellation for non-payment of premiums and at least forty-five (45) days’ notice to Borrower of cancellation for any other reason or of non-renewal. With respect to all such insurance policies, Borrower shall provide the Administrative Agent with (a) within ten (10) days after obtaining such knowledge, written notice of any material modification of which it has knowledge; and (b) one or more certificates of insurance which shall include the agreement of the broker/insuror representative providing such certificates to provide to the Administrative Agent at least ten (10) days’ notice prior to any cancellation of any such insurance policies for non-payment of premiums and at least forty-five (45) days’ notice prior to cancellation of any such insurance policies for any other reason, and of non-renewal or material modification of any such insurance policies. No later than forty (40) days prior to expiration, Borrower shall give the Administrative Agent (x) satisfactory written evidence of renewal of all such policies with premiums paid, or (y) a written report as to the steps being taken by Borrower to renew or replace all such policies, provided that notwithstanding the receipt of such written report, the Administrative Agent may at any time thereafter give Borrower written notice to provide the Administrative Agent with such evidence as described in clause (x), in which case Borrower must do so within ten (10) days of such notice. Borrower agrees to pay all premiums on such insurance as they become due (including grace periods), and will not permit any condition to exist which would wholly or partially invalidate any insurance thereon.

     9.11 Inspection. Borrower shall permit, and cause its Subsidiaries to permit, the Administrative Agent or any Syndication Party or their agents, during normal business hours or at such other times as the parties may agree, to inspect the assets and operations of Borrower and its Subsidiaries and to examine, and make copies of or abstracts from, Borrower’s properties, books, and records, and to discuss the affairs, finances, operations, and accounts of Borrower and its Subsidiaries with their respective officers, directors, employees, and independent certified public accountants (and by this provision Borrower authorizes said accountants to discuss with the Administrative Agent or any Syndication Party or their agents the finances and affairs of Borrower); provided, that, in the case of each meeting with the independent accountants Borrower is given an opportunity to have a representative present at such meeting.

     9.12 Required Licenses; Permits; Intellectual Property; Etc. Borrower shall duly and lawfully obtain and maintain in full force and effect, and shall cause its Subsidiaries to obtain and maintain in full force and effect, all Required Licenses and Intellectual Property as appropriate for the business being conducted and properties owned by Borrower or such Subsidiaries at any given time.

     9.13 ERISA Borrower shall make or cause to be made, and cause each Subsidiary to make or cause to be made, all payments or contributions to all Borrower Pension Plans covered by Title IV of ERISA, which are necessary to enable those Borrower Pension Plans to continuously meet all minimum funding standards or requirements.

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     9.15 Financial Covenants. Borrower shall maintain the following financial covenants:

          9.15.1 Working Capital. Borrower shall have at all times Consolidated Current Assets minus Consolidated Current Liabilities of not less than $200,000,000.

     [NOTE: Subsections 9.15.2 and 9.15.3 remain un changed.]

     2.9 The following new Sections are added to Article 9 to read as follows:

     9.16 Embargoed Person. At all times throughout the term of the Loans, (a) none of the funds or assets of Borrower that are used to repay the Loans shall constitute property of, or shall be beneficially owned directly or, to the knowledge of Borrower, indirectly by, any Person subject to sanctions or trade restrictions under United States law (“Embargoed Person” or “Embargoed Persons”) that is identified on (1) the “List of Specially Designated Nationals and Blocked Persons” (the “SDN List”) maintained by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury, and/or to the knowledge of Borrower, as of the date thereof, based upon reasonable inquiry by Borrower, on any other similar list (“Other List”) maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in Borrower (whether directly or indirectly), is prohibited by law, or the Loans made by the Syndication Parties would be in violation of law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders, and (b) no Embargoed Person shall have any direct interest, and to the knowledge of Borrower, as of the date hereof, based upon reasonable inquiry by Borrower, indirect interest, of any nature whatsoever in Borrower, with the result that the investment in Borrower (whether directly or indirectly), is prohibited by law or the Loans are in violation of law.

     9.17 Anti-Money Laundering. At all times throughout the term of the Loans, to the knowledge of Borrower, as of the date hereof, based upon reasonable inquiry by Borrower, none of the funds of Borrower, that are used to repay the Loans shall be derived from any unlawful activity, with the result that the investment in Borrower (whether directly or indirectly), is prohibited by law or the Loans would be in violation of law.

     2.10 The following Sections and Subsections of Article 10 (and including certain subparagraphs of Section 10.3) are amended in their entirety, and a new subparagraphs (n) and (o) are added to Section 10.3, in each case to read as follows:

     10.1 Borrowing. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) create, incur, assume or permit to exist, directly or indirectly, any Debt, except for: (a) Debt of Borrower arising under this Credit Agreement and the other Loan Documents; (b) trade payables arising in the ordinary course of business; (c) Capital Leases in existence from time to time; (d) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business; (e) unsecured Debt arising under uncommitted lines of credit; provided that the maximum principal amount that may be outstanding at any one time shall not exceed $50,000,000.00; (f) Debt in existence on the date hereof as set forth in Exhibit 10.1

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attached hereto; (g) unsecured long-term Debt; (h) Debt of Borrower incurred pursuant to the Revolving Loan Credit Agreement; (i) documentary and standby letters of credit issued at the request of Borrower or any Restricted Subsidiary, provided the aggregate undrawn face amount under all such letters of credit does not exceed $75,000,000; and (j) such other Debt agreed upon in writing between Borrower and the Syndication Parties.

     10.3 Liens. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) create, incur, assume or suffer to exist any mortgage, pledge, lien, charge or other encumbrance on, or any security interest in, any of its real or personal properties (including, without limitation, leasehold interests, leasehold improvements and any other interest in real property or fixtures), now owned or hereafter acquired, except the following Liens (“Permitted Encumbrances”):

          (c) Liens under workers’ compensation, unemployment insurance, social security or similar legislation (other than ERISA), or to secure payments of premiums for insurance purchased in the ordinary course of business, or to secure the performance of tenders, statutory obligations, surety and appearance bonds and bids, bonds for release of an attachment, stay of execution or injunction, leases, government contracts, performance and return-of-money bonds and other similar obligations, all of which are incurred in the ordinary course of business of Borrower or the Restricted Subsidiary, as applicable, and not in connection with the borrowing of money;

          (d) Any attachment or judgment Lien, the time for appeal or petition for rehearing of which shall not have expired or in respect of which Borrower or the Restricted Subsidiary is protected in all material respects by insurance or for the payment of which adequate reserves have been established, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are the subject of a Good Faith Contest, and provided further that the aggregate amount of liabilities of Borrower and its Restricted Subsidiaries so secured (including interest and penalties) shall not be in excess of $10,000,000.00 at any one time outstanding;

          (k) Liens of CoBank and other cooperatives, respectively, on Investments by Borrower in the stock, participation certificates, or allocated reserves of CoBank or other cooperatives, respectively, owned by Borrower;

          (m) Liens securing its reimbursement obligations under any letter of credit issued in connection with the acquisition of an asset; provided that (i) the lien attaches only to such asset, and (ii) the lien is released upon satisfaction of such reimbursement obligation;

          (n) Liens to secure and provide credit support, up to a maximum of $25,000,000.00, for regulated exchange or over-the-counter hedging transactions; and

          (o) Liens created pursuant to the Revolving Loan Credit Agreement on the Cash Collateral Account (as that term is defined in the Revolving Loan Credit Agreement) and on all money, financial assets, or other property on deposit or held therein.

[NOTE: the other subparagraphs of Section 10.3 remain un changed.]

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     10.4 Sale of Assets. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) sell, convey, assign, lease or otherwise transfer or dispose of, voluntarily, by operation of law or otherwise, any material part of its now owned or hereafter acquired assets during any twelve (12) month period commencing September 1, 2002 and each September 1 thereafter, except: (a) the sale of inventory, equipment and fixtures disposed of in the ordinary course of business, (b) the sale or other disposition of assets no longer necessary or useful for the conduct of its business, and (c) leases of assets to an entity in which Borrower has at least a fifty-percent (50%) interest in ownership, profits, and governance. For purposes of this Section, “material part” shall mean ten percent (10%) or more of the lesser of the book value or the market value of the assets of Borrower or such Restricted Subsidiary as shown on the balance sheets thereof as of the August 31 immediately preceding each such twelve (12) month measurement period.

     10.5 Liabilities of Others. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) assume, guarantee, become liable as a surety, endorse, contingently agree to purchase, or otherwise be or become liable, directly or indirectly (including, but not limited to, by means of a maintenance agreement, an asset or stock purchase agreement, or any other agreement designed to ensure any creditor against loss), for or on account of the obligation of any Person, except (a) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of the Borrower’s or any Restricted Subsidiary’s business, (b) guarantees made from time to time, whether in existence on the Closing Date or made subsequent thereto, by Borrower and its Restricted Subsidiaries in the ordinary course of their respective businesses with respect to the liabilities and obligations of Persons other than National Cooperative Refinery Association (“NCRA”); provided, however, that the aggregate amount of all indebtedness guaranteed under this clause (b) shall not exceed $150,000,000.00 in the aggregate, and (c) guarantees made by Borrower from time to time, whether in existence on the Closing Date or made subsequent thereto, of liabilities and obligations of NCRA for Funded Debt of NCRA, provided that the maximum amount of liabilities of NCRA guaranteed pursuant to this clause (c), when added to the amount of Investments by Borrower pursuant to clause (i) of Subsection 10.8 hereof, shall not exceed $125,000,000.00.

     10.6 Loans. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) lend or advance money, credit, or property to any Person, except for (a) loans to Restricted Subsidiaries; (b) trade credit extended in the ordinary course of business and advances against the purchase price for the purchase by Borrower of goods or services in the ordinary course of business; (c) loans made by Borrower to its members on open account maintained by such members with Borrower or made by Borrower to its members pursuant to its Affiliate Financing CoBank Participation Program; and (d) loans made by Fin-Ag, Inc. to agricultural producers, provided that at all times on and after May 21, 2003, the aggregate outstanding principal amount of all such loans retained by Borrower and Fin-Ag, Inc. under clauses (c) and (d) of this Section shall not exceed $110,000,000.00.

     10.7 Merger; Acquisitions; Business Form; Etc. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) merge or consolidate with any entity, or acquire all or substantially all of the assets of any person or entity, or form or create any new Subsidiary (other than a Restricted Subsidiary formed by Borrower), change its business form from a cooperative corporation, or commence operations under any other name, organization, or entity,

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including any joint venture; provided, however,

          (a) The foregoing shall not prevent any consolidation, acquisition, or merger if after giving effect thereto:

               (i) The book value of Borrower and its subsidiaries does not increase due to all such mergers, consolidations or acquisitions by an aggregate amount in excess of $100,000,000.00 in any Fiscal Year of Borrower;

               (ii) Borrower is the surviving entity; and

               (iii) No Event of Default or Potential Default shall have occurred and be continuing.

          (b) The foregoing shall not prevent Borrower from forming or creating any new Subsidiary provided:

               (i) The Investment in such Subsidiary does not violate any provision of Section 10.8 hereof; and

               (ii) Such Subsidiary shall not acquire all or substantially all of the assets of any Person except through an acquisition, consolidation, or merger satisfying the requirements of clause (a) of this Section.

     10.8 Investments. Except for the purchase of Bank Equity Interests, Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, or otherwise make an Investment in, any Person, except that Borrower and the Restricted Subsidiaries may own, purchase or acquire:

          (f) Investments in Persons, which are not Restricted Subsidiaries, identified, including the book value of each such Investment, on Exhibit 10.8(f) hereto; provided that the amount of such Investment shall not increase above the amount shown in Exhibit 10.8(f),except for (i) property and cash contributions made between March 31, 2003 and May 21, 2003 and not shown in Exhibit 10.8(f), and (ii) Investments made pursuant to clauses (h) through (k) of this Section subsequent to May 21, 2003;

          (h) Investments in the form of non-cash patronage dividends in any Person;

          (i) Investments in NCRA in addition to (1) non-cash patronage dividends, and (2) those Investments in NCRA by Borrower prior to the Closing Date, as shown, by amount and date, on Exhibit 10.8(i) hereto, provided that the maximum amount of Investments in NCRA subsequent to the Closing Date pursuant to this clause (i), when added to the aggregate amount of obligations and liabilities of NCRA guaranteed by Borrower pursuant to clause (c) of Subsection 10.5 hereof, shall not exceed $125,000,000.00;

          (j) Investments in Ventura Foods, LLC in addition to those Investments in Ventura Foods, LLC by Borrower prior to the Closing Date, as shown, by amount and date, on

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Exhibit 10.8(j) hereto, provided that the maximum amount of Investments in Ventura Foods, LLC subsequent to the Closing Date pursuant to this clause (j) shall not exceed $75,000,000.00; and

          (k) Investments, in addition to those permitted by clauses (a) through (j) above, in an aggregate amount not exceeding $110,000,000.00.

[NOTE: the other subparagraphs of Section 10.8 remain un changed.]

     2.11 The following new Sections are added to Article 10, reading as follows:

     10.12 ERISA. Borrower shall not: (a) engage in or permit any transaction which could result in a “prohibited transaction” (as such term is defined in Section 406 of ERISA) or in the imposition of an excise tax pursuant to Section 4975 of the Code with respect to any Borrower Benefit Plan; (b) engage in or permit any transaction or other event which could result in a “reportable event"( as such term is defined in Section 4043 of ERISA) for any Borrower Pension Plan; (c) fail to make full payment when due of all amounts which, under the provisions of any Borrower Benefit Plan, Borrower is required to pay as contributions thereto; (d) permit to exist any “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA) as of the end of any Fiscal Year, in excess of $25,000,000.00, whether or not waived, with respect to any Borrower Pension Plan; (e) fail to make any payments to any Multiemployer Plan that Borrower may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto; or (f) terminate any Borrower Pension Plan in a manner which could result in the imposition of a lien on any property of Borrower pursuant to Section 4068 of ERISA. Borrower shall not terminate any Borrower Pension Plan so as to result in any liability to the PBGC.

     10.13 Anti-Terrorism Law. Borrower shall not (a) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in Subsection 7.24.2 above, (b) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (c) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and Borrower shall deliver to the Administrative Agent any certification or other evidence requested from time to time by the Administrative Agent in its reasonable discretion, confirming Borrower’ compliance with this Section).

     2.12 Subparagraphs (c), (d), and (e) of Section 12.1 are amended in their entirety to read as follows:

               (c) Any default by Borrower in the performance or compliance with the covenants, promises, conditions or provisions of Sections 9.8 (only if such default is with respect to the last sentence of such Section), 9.11, 9.15, 9.16, 9.17, 10.1, 10.4, 10.5, 10.7, 10.10, or 10.13 of this Credit Agreement; provided that a default under Subsection 9.15.1 hereof shall not constitute an Event of Default nor a Potential Default if Borrower is in compliance with such Subsection within five (5) Banking Days after the earlier of (i) the date on which Borrower

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discovers that it is not in compliance with such test, or (ii) the date by which Borrower is required by Subsections 9.2.1 or 9.2.2 hereof to provide quarterly or year-end financial statements and/or Compliance Certificates to the Administrative Agent.

               (d) Any default by Borrower in the performance or compliance with the covenants, promises, conditions or provisions of Sections 9.2, 9.5, 9.6, 9.7, 9.8 (except as provided in clause (c) of this Section), 9.9, 9.10, (except as provided in Section 12.1(e)), 9.12, 9.13, 9.14, 10.3, 10.6, 10.8, 10.9, or 10.11 of this Credit Agreement, and such failure continues for fifteen (15) days after Borrower learns of such failure to comply, whether by Borrower’s own discovery or through notice from the Administrative Agent.

               (e) The failure of Borrower to pay when due, or failure to perform or observe any other obligation or condition with respect to any of the following obligations to any Person, beyond any period of grace under the instrument creating such obligation: (i) any indebtedness for borrowed money or for the deferred purchase price of property or services, (ii) any obligations under leases which have or should have been characterized as Capital Leases, or (iii) any contingent liabilities, such as guaranties, for the obligations of others relating to indebtedness for borrowed money or for the deferred purchase price of property or services or relating to obligations under leases which have or should have been characterized as Capital Leases; provided that no such failure will be deemed to be an Event of Default hereunder unless and until the aggregate amount owing under obligations with respect to which such failures have occurred and are continuing is at least $10,000,000.00.

     2.13 Section 12.13 is amended in its entirety to read as follows:

     12.13 Rights and Remedies. In addition to the remedies set forth in Section 12.1 and 12.2 hereof, upon the occurrence of an Event of Default, the Administrative Agent shall be entitled to exercise, subject to the provisions of Subsection 13.6.4 hereof, all the rights and remedies provided in the Loan Documents and by any applicable law. Each and every right or remedy granted to the Administrative Agent pursuant to this Credit Agreement and the other Loan Documents, or allowed the Administrative Agent by law or equity, shall be cumulative. Failure or delay on the part of the Administrative Agent to exercise any such right or remedy shall not operate as a waiver thereof. Any single or partial exercise by the Administrative Agent of any such right or remedy shall not preclude any future exercise thereof or the exercise of any other right or remedy.

     2.14 The reference in Section 13.3 to 11:00 A.M. (Central time) is changed to 2:00 P.M. (Central time).

     2.15 The following Sections and Subsections of Article 13 are amended in their entirety as follows:

          13.5.1 Advice To solicit the advice and assistance of each of the Syndication Parties and Voting Participants concerning the administration of the Loans and the exercise by the Administrative Agent of its various rights, remedies, powers, and discretions with respect thereto. As to any matters not expressly provided for by this Credit Agreement or any other Loan Document, the Administrative Agent shall in all cases be fully protected in acting, or in

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refraining from acting, hereunder in accordance with instructions signed by all of the Syndication Parties or the Required Lenders, as the case may be (and including in each such case, Voting Participants), and any action taken or failure to act pursuant thereto shall be binding on all of the Syndication Parties, Voting Participants, and the Administrative Agent.

          13.6.2 Distribute Payments. To receive and distribute to the Syndication Parties payments made by Borrower pursuant to the Loan Documents, as provided in Article 4 hereof. Unless the Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due to any Syndication Party hereunder that Borrower will not make such payment in full, the Administrative Agent may assume that Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent in its sole discretion may, but shall not be obligated to, in reliance upon such assumption, cause to be distributed to each Syndication Party on such due date an amount equal to the amount then due such Syndication Party. If and to the extent Borrower shall not have so made such payment in full to the Administrative Agent, each Syndication Party shall repay to the Administrative Agent forthwith on demand such amount distributed to such Syndication Party together with interest thereon, for each day from the date such amount is distributed to such Syndication Party until the date such Syndication Party repays such amount to the Administrative Agent at the customary rate set by the Administrative Agent for the correction of errors among banks for three (3) Banking Days and thereafter at the Base Rate.

          13.6.3 Loan Administration. Subject to the provisions of Section 13.8 hereof, to, on behalf of and for the ratable benefit of all Syndication Parties, in accordance with customary banking practices, exercise all rights, powers, privileges, and discretion to which the Administrative Agent is entitled to administer the Loans, including, without limitation: (a) monitor all borrowing activity, Individual Commitment balances, and maturity dates of all Treasury Rate Loans and Quoted Rate Loans; (b) monitor and report Credit Agreement and covenant compliance, and coordinate required credit actions by the Syndication Parties (including Voting Participants where applicable); (c) manage the process for future waivers and amendments if modifications to the Credit Agreement are required; and (d) administer, record, and process all assignments to be made for the current and future Syndication Parties (including the preparation of a revised Schedule 1 to replace the previous Schedule 1).

     13.8 Consent Required for Certain Actions.

          13.8.1 Unanimous. Each of the Syndication Parties and Voting Participants before:

               (a) Amending the definition of Required Lenders as set forth herein or amending this Subsection 13.8.1.

               (b) Agreeing to an increase in the Aggregate Commitment or an extension of the Availability Period or of the Maturity Date.

          13.8.2 Required Lenders. The Required Lenders before:

               (a) Consenting to any action, amendment, or granting any waiver not covered in Subsection 13.8.1; or

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               (b) Agreeing to amend Article 13 of this Credit Agreement (other than Subsection 13.8.1).

          13.8.3 Action Without a Vote. Notwithstanding any other provisions of this Section, the Administrative Agent may take the following actions without obtaining the consent of the Syndication Parties or the Voting Participants:

               (a) Determining (i) whether the conditions to an Advance have been met, and (ii) the amount of such Advance;

     13.12 Collateral Application. The Syndication Parties shall have no interest in any other loans made to Borrower by any other Syndication Party other than the Loans, or in any property taken as security for any other loan or loans made to Borrower by any other Syndication Party, or in any property now or hereinafter in the possession or control of any other Syndication Party, which may be or become security for the Loans solely by reason of the provisions of a security instrument that would cause such security instrument and the property covered thereby to secure generally all indebtedness owing by Borrower to such other Syndication Party. Notwithstanding the foregoing, to the extent such other Syndication Party applies such funds or the proceeds of such property to reduction of one or more of the Loans, such other Syndication Party shall share such funds or proceeds with all Syndication Parties according to their respective Individual Commitments. In the event that any Syndication Party shall obtain payment, whether partial or full, from any source in respect of one or more of the Loans, including without limitation payment by reason of the exercise of a right of offset, banker’s lien, general lien, or counterclaim, such Syndication Party shall promptly make such adjustments (which may include payment in cash or the purchase of further Syndication Interests or participations in the Loans) to the end that such excess payment shall be shared with all other Syndication Parties in accordance with their respective Individual Commitments. Notwithstanding any of the foregoing provisions of this Section or Article 6 hereof, no Syndication Party other than CoBank shall have any right to, or to the proceeds of, or any right to the application to any amount owing to such Syndication Party hereunder of any the proceeds of, any Bank Equity Interests issued to Borrower by CoBank or on account of any statutory lien held by CoBank on such Bank Equity Interests.

     13.14 Reports and Information to Syndication Parties. The Administrative Agent shall use reasonable efforts to provide to the Syndication Parties, as soon as practicable after actual knowledge thereof is acquired by an officer thereof primarily responsible for the Administrative Agent’s duties as such with respect to the Loans or primarily responsible for the credit relationship between the Administrative Agent and Borrower, any material factual information which has a material adverse effect on the creditworthiness of Borrower, and Borrower hereby authorizes such disclosure by the Administrative Agent to the Syndication Parties (and by the Syndication Parties to any of their participants). Failure of the Administrative Agent to provide the information referred to in this Section or in Subsection 13.6.5 hereof shall not result in any liability upon, or right to make a claim against, the Administrative Agent except where a court of competent jurisdiction renders a final non-appealable determination that such failure is a result of the willful misconduct or gross negligence of the Administrative Agent. Syndication Parties acknowledge and agree that all information and reports received pursuant to this Credit Agreement will be received in confidence in connection with their Syndication Interest, and that such information and reports constitute confidential information and shall not,

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without the prior written consent of the Administrative Agent or Borrower (which consent will not be unreasonably withheld, provided that Borrower shall have no consent rights upon the occurrence and during the continuance of an Event of Default), be (a) disclosed to any third party (other than the Administrative Agent, another Syndication Party or potential Syndication Party, or a participant or potential participant in the interest of a Syndication Party, which disclosure is hereby approved by Borrower), except pursuant to appropriate legal or regulatory process, or (b) used by the Syndication Party except in connection with the Loans and its Syndication Interest.

     13.15 Standard of Care. The Administrative Agent shall not be liable to Syndication Parties for any error in judgment or for any action taken or not taken by the Administrative Agent or its agents, except to the extent that a court of competent jurisdiction renders a final non-appealable determination that any of the foregoing resulted from the gross negligence or willful misconduct of the Administrative Agent. Subject to the preceding sentence, the Administrative Agent will exercise the same care in administering the Loans and the Loan Documents as it exercises for similar loans which it holds for its own account and risk, and the Administrative Agent shall not have any further responsibility to the Syndication Parties. Without limiting the foregoing, the Administrative Agent may rely on the advice of counsel concerning legal matters and on any written document it believes to be genuine and correct and to have been signed or sent by the proper Person or Persons.

     13.18 Syndication Parties’ Indemnification of the Administrative Agent. Each of the Syndication Parties agree to indemnify the Administrative Agent, including any Successor Agent, and their respective directors, officers, employees, agents, professional advisers and representatives (“Indemnified Agency Parties”), (to the extent not reimbursed by Borrower, and without in any way limiting the obligation of Borrower to do so), ratably (based on the ratio of the total of its Individual Commitments to the Aggregate Commitment), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans and/or the expiration or termination of this Credit Agreement) be imposed on, incurred by or asserted against the Administrative Agent (or any of the Indemnified Agency Parties while acting for the Administrative Agent or for any Successor Agent) in any way relating to or arising out of this Credit Agreement or the Loan Documents, or the performance of the duties of the Administrative Agent hereunder or thereunder or any action taken or omitted while acting in the capacity of the Administrative Agent under or in connection with any of the foregoing; provided that the Syndication Parties shall not be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of an Indemnified Agency Party to the extent that a court of competent jurisdiction renders a final non-appealable determination that the foregoing are the result of the willful misconduct or gross negligence of such Indemnified Agency Party. The agreements and obligations in this Section shall survive the payment of the Loans and the expiration or termination of this Credit Agreement.

     13.20 Administrative Agent Fee. The Administrative Agent and any Successor Agent shall be entitled to such fee as agreed upon between Borrower and the Administrative Agent for acting as the Administrative Agent.

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     13.21 The Administrative Agent’s Resignation or Removal. The Administrative Agent may resign at any time by giving at least sixty (60) days’ prior written notice of its intention to do so to each of the Syndication Parties and Borrower. After the receipt of such notice, the Required Lenders shall appoint a successor (“Successor Agent”). If (a) no Successor Agent shall have been so appointed which is either (i) a Syndication Party, or (ii) if not a Syndication Party, which is a Person approved by Borrower, such approval not to be unreasonably withheld (provided that Borrower shall have no approval rights upon the occurrence and during the continuance of an Event of Default), or (b) if such Successor Agent has not accepted such appointment, in either case within forty-five (45) days after the retiring Administrative Agent’s giving of such notice of resignation, then the retiring Administrative Agent may, after consulting with, but without obtaining the approval of, Borrower, appoint a Successor Agent which shall be a bank or a trust company organized under the laws of the United States of America or any state thereof and having a combined capital, surplus and undivided profit of at least $250,000,000. Any Administrative Agent may be removed upon the written demand of the Required Lenders, which demand shall also appoint a Successor Agent. Upon the appointment of a Successor Agent hereunder, (a) the term “Administrative Agent” shall for all purposes of this Credit Agreement thereafter mean such Successor Agent, and (b) the Successor Agent shall notify Borrower of its identity and of the information called for in Subsection 14.4.2 hereof. After any retiring Administrative Agent’s resignation hereunder as the Administrative Agent, or the removal hereunder of any Administrative Agent, the provisions of this Credit Agreement shall continue to inure to the benefit of such Administrative Agent as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Credit Agreement.

     13.22 Representations and Warranties of All Parties. The Administrative Agent and each Syndication Party represents and warrants that: (a) the execution and delivery of, and performance of its obligations under, this Credit Agreement is within its power and has been duly authorized by all necessary corporate and other action by it; (b) this Credit Agreement is in compliance with all applicable laws and regulations promulgated under such laws and does not conflict with nor constitute a breach of its charter or by-laws nor any agreements by which it is bound, and does not violate any judgment, decree or governmental or administrative order, rule or regulation applicable to it; (c) no approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by it in connection with the execution and delivery of, and performance of its obligations under, this Credit Agreement; and (d) this Credit Agreement has been duly executed by it, and constitutes the legal, valid, and binding obligation of such Person, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity). Each Syndication Party that is a state or national bank represents and warrants that the act of entering into and performing its obligations under this Credit Agreement has been approved by its board of directors or its loan committee and such action was duly noted in the written minutes of the meeting of such board or committee, and that it will, upon the Administrative Agent’s written request, furnish the Administrative Agent with a certified copy of such minutes or an excerpt therefrom reflecting such approval.

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     13.26 Purchase for Own Account; Restrictions on Transfer; Participations. Each Syndication Party represents that it has acquired and is retaining its interest in the Loans for its own account in the ordinary course of its banking or financing business and not with a view toward the sale, distribution, further participation, or transfer thereof. Each Syndication Party other than CoBank agrees that it will not sell, assign, convey or otherwise dispose of (“Transfer”) to any Person, or create or permit to exist any lien or security interest on all or any part of its interest in the Loans, without the prior written consent of the Administrative Agent and Borrower (which consent will not be unreasonably withheld, provided that Borrower shall have no approval rights upon the occurrence and during the continuance of an Event of Default); provided that: (a) any such Transfer (except a Transfer to another Syndication Party or a Transfer by CoBank) must be in a minimum amount of $5,000,000.00; (b) each Syndication Party must maintain an Individual Commitment of no less than $5,000,000.00, unless it Transfers its entire Syndication Interest; (c) the transferee must execute an agreement substantially in the form of Exhibit 13.26 hereto (“Syndication Acquisition Agreement”) and assume all of the transferor’s obligations hereunder and execute such documents as the Administrative Agent may reasonably require; and (d) the Syndication Party making such Transfer must pay, or cause the transferee to pay, the Administrative Agent an assignment fee of $3,500.00. Any Syndication Party may participate any part of its interest in the Loans to any Person with the prior written consent of the Administrative Agent and Borrower (which consent will not be unreasonably withheld, provided that Borrower shall have no approval rights upon the occurrence and during the continuance of an Event of Default), provided that no such consent shall be required where the participant is a Person at least fifty percent (50%) the equity interest in which is owned by such Syndication Party or which owns at least fifty percent (50%) of the equity interest in such Syndication Party or at least fifty percent (50%) of the equity interest of which is owned by the same Person which owns at least fifty percent (50%) of the equity interest of such Syndication Party, and each Syndication Party understands and agrees that in the event of any such participation: (x) its obligations hereunder will not change on account of such participation; (y) the participant will have no rights under this Credit Agreement, including, without limitation, voting rights (except as provided in Section 13.31 hereof with respect to Voting Participants) or the right to receive payments or distributions; and (z) the Administrative Agent shall continue to deal directly with the Syndication Party with respect to the Loans (including with respect to voting rights, except as provided in Section 13.31 hereof with respect to Voting Participants) as though no participation had been granted and will not be obligated to deal directly with any participant (except as provided in Section 13.31 hereof with respect to Voting Participants). Notwithstanding any provision contained herein to the contrary, any Syndication Party may at any time pledge or assign all or any portion of its interest in the Loans to any Federal Reserve Bank or the Federal Farm Credit Bank in accordance with applicable law. CoBank reserves the right to sell participations on a non-patronage basis.

     13.30 Withholding Taxes. Each Syndication Party represents that under the applicable law in effect as of the date it becomes a Syndication Party, it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to the Administrative Agent and to Borrower such forms, certifications, statements and other documents as the Administrative Agent or Borrower may request from time to time to evidence such Syndication Party’s exemption from the withholding of any tax imposed by any jurisdiction or to enable the Administrative Agent or Borrower, as the case may be, to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, each

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Syndication Party that was not created or organized under the laws of the United States of America or any state or other political subdivision thereof (“Non-US Lender”), shall, on the Closing Date, or upon its becoming a Syndication Party (for Persons that were not Syndication Parties on the Closing Date), furnish to the Administrative Agent and Borrower two original copies of IRS Form W-8BEN, W-8ECI, 4224, or Form 1001, as appropriate, (or any successor forms), or such other forms, certifications, statements of exemption, or documents as may be required by the IRS or by the Administrative Agent or Borrower, in their reasonable discretion, duly executed and completed by such Syndication Party, to establish, and as evidence of, such Syndication Party’s exemption from the withholding of United States tax with respect to any payments to such Syndication Party of interest or fees payable under any of the Loan documents. Further, each Non-US Lender hereby agrees, from time to time after the initial delivery by such Syndication Party of such forms, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence so delivered obsolete or inaccurate in any material respect, that such Syndication Party shall promptly (a) deliver to the Administrative Agent and to Borrower two original copies of renewals, amendments or additional or successor forms, properly completed and duly executed by such Syndication Party, together with any other certificate or statement of exemption required in order to confirm or establish that such Syndication Party is not subject to United States withholding tax with respect to payments to such Syndication Party under the Loan Documents or (b) notify the Administrative Agent and Borrower of its inability to deliver any such forms, certificates or other evidence. Notwithstanding anything herein to the contrary, Borrower shall not be obligated to make any payments hereunder to such Syndication Party until such Syndication Party shall have furnished to the Administrative Agent and Borrower each requested form, certification, statement or document.

     2.16 The following new Sections and Subsections are added to Article 13 to read as follows, and existing Sections 13.31 and 13.32 are renumbered as 13.33 and 13.34 respectively:

          13.6.5 Forwarding of Information. The Administrative Agent shall, within a reasonable time after receipt thereof, forward to the Syndication Parties and Voting Participants notices and reports provided to the Administrative Agent by Borrower pursuant to Section 9.2 hereof.

          13.8.4 Voting Participants. Under the circumstances set forth in Section 13.31 hereof, each Voting Participant shall be accorded voting rights as though such Person was a Syndication Party, and in such case the voting rights of the Syndication Party from which such Voting Participant acquired its participation interest shall be reduced accordingly.

If no written consent or denial is received from a Syndication Party or a Voting Participant within five (5) Banking Days after written notice of any proposed action as described in this Section is delivered to such Syndication Party or Voting Participant by the Administrative Agent, such Syndication Party or Voting Participant shall be conclusively deemed to have consented thereto for the purposes of this Section.

24

     13.31 Certain Participants’ Voting Rights. Any Farm Credit System Institution which (a) has acquired and, at any time of determination maintains, a participation interest in the minimum aggregate amount of $5,000,000.00 in a particular Syndication Party’s Syndication Interest; and (b) has been designated in writing by such Syndication Party to the Administrative Agent as having such entitlement (such designation to include for such participant, its name, contact information, and dollar participation amount) (each a “Voting Participant”), shall be entitled to vote (and such Syndication Party’s voting rights shall be correspondingly reduced), on a dollar basis, as if such Voting Participant were a Syndication Party, on any matter requiring or allowing a Syndication Party, to provide or withhold its consent, or to otherwise vote on any proposed action. The voting rights of any Syndication Party so designating a Voting Participant shall be reduced by an equivalent dollar amount.

     13.32 Replacement of Holdout Lender. If any action to be taken by the Syndication Parties or the Administrative Agent hereunder requires the unanimous consent, authorization, or agreement of all Syndication Parties, and a Syndication Party (“Holdout Lender”) fails to give its consent, authorization, or agreement, then the Administrative Agent, upon at least five (5) Banking Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Syndication Parties (each, a “Replacement Lender”), and the Holdout Lender shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than fifteen (15) Banking Days after the date such notice is given. Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver a Syndication Acquisition Agreement, subject only to the Holdout Lender being repaid its full share of the outstanding Bank Debt without any premium, discount, or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Syndication Acquisition Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Syndication Acquisition Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 13.26 hereof. Until such time as the Replacement Lenders shall have acquired all of the Syndication Interest of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to provide the Holdout Lender’s Funding Share of Advances.

     2.17 The following Sections of Article 14 are amended in their entirety to read as follows:

     14.2 Service of Process and Consent to Jurisdiction. Borrower and each Syndication Party hereby agrees that any litigation with respect to this Credit Agreement or to enforce any judgment obtained against such Person for breach of this Credit Agreement or under the Notes or other Loan Documents may be brought in the courts of the State of Colorado and in the United States District Court for the District of Colorado (if applicable subject matter jurisdictional requirements are present), as the Administrative Agent may elect; and, by execution and delivery of this Credit Agreement, Borrower and each Syndication Party irrevocably submits to such jurisdiction. With respect to litigation concerning this Credit Agreement or under the Notes or other Loan Documents within the jurisdiction of the courts of the State of Colorado or the United States District Court for the District of Colorado, Borrower and each Syndication Party hereby irrevocably appoints, until six (6) months after the expiration

25

of the Maturity Date (as it may be extended at anytime), The Corporation Company, or such other Person as it may designate to the Administrative Agent, in each case with offices in Denver, Colorado and otherwise reasonably acceptable to the Administrative Agent to serve as the agent of Borrower or such Syndication Party to receive for and on its behalf at such agent’s Denver, Colorado office, service of process, which service may be made by mailing a copy of any summons or other legal process to such Person in care of such agent. Borrower and each Syndication Party agrees that it shall maintain a duly appointed agent in Colorado for service of summons and other legal process as long as it remains obligated under this Credit Agreement and shall keep the Administrative Agent advised in writing of the identity and location of such agent. The receipt by such agent and/or by Borrower or such Syndication Party, as applicable, of such summons or other legal process in any such litigation shall be deemed personal service and acceptance by Borrower or such Syndication Party, as applicable, for all purposes of such litigation.

     14.12 Replacement Notes. Upon receipt by Borrower of evidence satisfactory to it of: (a) the loss, theft, destruction or mutilation of any Note, and (in case of loss, theft or destruction) of the agreement of the Syndication Party to which the Note was payable to indemnify Borrower, and upon surrender and cancellation of such Note, if mutilated; or (b) the assignment by any Syndication Party of its interest hereunder and the Notes relating thereto, or any portion thereof, pursuant to this Credit Agreement, then Borrower will pay any unpaid principal and interest (and Funding Losses, if applicable) then or previously due and payable on such Notes and will (upon delivery of such Notes for cancellation, unless covered by subparagraph (a) of this Section) deliver in lieu of each such Note a new Note or, in the case of an assignment of a portion of any such Syndication Party’s Syndication Interest, new Notes, for any remaining balance.

     14.15 Patronage Payments. Borrower acknowledges and agrees that: (a) only that portion of the Loan represented by CoBank’s Individual Pro Rata Share which is retained by CoBank for its own account is entitled to patronage distributions in accordance with CoBank’s bylaws and its practices and procedures related to patronage distribution; and (b) any patronage, or similar, payments to which Borrower is entitled on account its ownership of Bank Equity Interests or otherwise will not be based on any portion of CoBank’s interest in the Loans in which CoBank has at any time granted a participation interest.

     14.20 Confidentiality. Each Syndication Party shall maintain the confidential nature of, and shall not use or disclose, any of Borrower’s financial information, confidential information or trade secrets without first obtaining Borrower’s written consent. Nothing in this Section shall require any Syndication Party to obtain such consent after there is an Event of Default. The obligations of the Syndication Parties shall in no event apply to: (a) providing information about Borrower to any financial institution contemplated or described in Sections 13.6, 13.14, and 13.26 hereof or to such Syndication Party’s parent holding company or any of such Syndication Party’s Affiliates; (b) any situation in which any Syndication Party is required by Law or required by any Governmental Authority to disclose information; (c) providing information to counsel to any Syndication Party in connection with the transactions contemplated by the Loan Documents; (d) providing information to independent auditors retained by the such Syndication Party; (e) any information that is in or becomes part of the public domain otherwise than through a wrongful act of such Syndication Party or any of its employees or agents thereof; (f) any information that is in the possession of any Syndication Party prior to receipt thereof from

26

Borrower or any other Person known to such Syndication Party to be acting on behalf of Borrower; (g) any information that is independently developed by any Syndication Party; and (h) any information that is disclosed to any Syndication Party by a third party that has no obligation of confidentiality with respect to the information disclosed. A Syndication Party’s confidentiality requirements continue after it is no longer a Syndication Party under this Credit Agreement. Notwithstanding any provision to the contrary in this Credit Agreement, the Administrative Agent and each Syndication Party (and each employee, representative, or other agent thereof) may disclose to any and all Persons, without limitations of any kind, the tax treatment and tax structure of the transaction described in this Credit Agreement and all materials of any kind (including opinions or other tax analyses), if any, that are provided to the Administrative Agent or such Syndication Party relating to such tax treatment and tax structure. Nothing in the preceding sentence shall be taken as an indication that such transaction would, but for such sentence, be deemed to be a “reportable transaction” as defined in Treasury Regulation Section 1.6011-4.

     2.18 A new Section 14.16 is added reading as follows, and Sections 14.17, 14.18, and 14.19 are renumbered as 14.18, 14.19, and 14.20 respectively

     14.16 Direct Website Communications; Electronic Mail Communications

          14.16.1 Delivery

               (a) Borrower hereby agrees that it will provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to this Credit Agreement and any other Loan Document, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but, subject to the provisions of Subsection 14.16.3 hereof, excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (ii) relates to the payment of any principal or other amount due under this Credit Agreement prior to the scheduled date therefor, (iii) provides notice of any Potential Default or Event of Default under this Credit Agreement or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Credit Agreement and/or any borrowing, or other extension of credit hereunder (all such non-excluded communications collectively, the “Communications”), by transmitting the Communications in an electronic/soft medium and in a format acceptable to the Administrative Agent as follows (A) all financial statements to closing@cobank.com and (B) all other Communications to mtousignant@cobank.com. In addition, Borrower agrees to continue to provide the Communications to the Administrative Agent in the manner specified in this Credit Agreement but only to the extent requested by the Administrative Agent. Receipt of the Communications by the Administrative Agent at the appropriate e-mail address as set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of this Credit Agreement and any other Loan Documents. Nothing in this Section 14.16 shall prejudice the right of the Administrative Agent or any Syndication Party to give any notice or other communication pursuant to this Credit Agreement or any other Loan Document in any other manner specified in this Credit Agreement or any other Loan Document.

27

               (b) Each Syndication Party agrees that receipt of e-mail notification that such Communications have been posted pursuant to Subsection 14.16.2 below at the e-mail address(es) set forth beneath such Syndication Party’s name on its signature page hereto or pursuant to the notice provisions of any Syndication Acquisition Agreement shall constitute effective delivery of the Communications to such Syndication Party for purposes of this Credit Agreement and any other Loan Document. Each Syndication Party further agrees to notify the Administrative Agent in writing (including by electronic communication) promptly of any change in its e-mail address or any extended disruption in its internet delivery services.

          14.16.2 Posting. Borrower further agrees that the Administrative Agent may make the Communications available to the Syndication Parties by posting the Communications on “Intralinks” (“Platform”), the Administrative Agent’s internet delivery system that is part of Intralinks, Inc.’s primary web portal (the “Primary Portal”). The Primary Portal is secured with a dual firewall and a User ID/Password Authorization System and the Platform is secured through a single user per deal authorization method whereby each user may access the Platform only on a deal-by-deal basis. Borrower acknowledges that the distribution of Communications through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution.

          14.16.3 Additional Communications. The Administrative Agent reserves the right and Borrower and each Syndication Party consents and agrees thereto, to, upon written notice to Borrower and all Syndication Parties, implement and require use of a secure system whereby any notices or other communications required or permitted by this Credit Agreement, but which are not specifically covered by Subsection 14.16.1 hereof, and including, without limitation, Borrowing Notices, Funding Notices, and any communication described in clauses (i) through (iv) of Subsection 14.16.1(a) hereof, shall be sent and received via electronic mail to the e-mail addresses described in Subsection 14.16.1 hereof.

          14.16.4 Disclaimer. The Communications transmitted pursuant to this Section 14.16 and the Platform are provided “as is” and “as available.” CoBank does not warrant the accuracy, adequacy or completeness of the Communications or the Platform and CoBank expressly disclaims liability for errors or omissions in the Communications or the Platform. No warranty of any kind, express, implied or statutory, including without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by CoBank in connection with the Communications or the Platform.

          14.16.5 Termination. The provisions of this Section 14.16 shall automatically terminate on the date that CoBank, ACB ceases to be the Administrative Agent under this Credit Agreement.

     2.19 The documents labeled Exhibit 1.95, Exhibit 7.10, and Exhibit 7.23 and Exhibit 13.26 attached hereto shall become Exhibit 1.95, Exhibit 7.10, Exhibit 7.23, and Exhibit 13.26 to the Credit Agreement.

28

3. Borrower’s Representations. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents.

4. Effective Date. This Amendment Agreement shall become effective on May 21, 2003 (“Effective Date”), so long as on or before that date the Administrative Agent receives (a) an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto, (b) an opinion of Borrower’s counsel in all respects acceptable to the Administrative Agent; and (c) payment by wire transfer of each of the costs, expenses described in Section 5 hereof. Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith.

5. Costs; Expenses and Taxes. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder.

6. General Provisions.

     6.1 The Credit Agreement, except as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.

     6.2 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement.

     6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the “Credit Agreement” shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement.

7. Governing Law. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

8. Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Telefax copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by telefax, shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed

29

counterpart of this Amendment Agreement by telefacsimile also shall deliver an original executed counterpart of this Amendment Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment Agreement.

[EXECUTION PAGES BEGIN ON THE NEXT PAGE].

30

     IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to Credit Agreement (Term Loan) to be executed by their duly authorized officers as of the Effective Date.

BORROWER:
CENEX HARVEST STATES COOPERATIVES, a
cooperative corporation formed under the laws of
the State of Minnesota
By:	s/John Schmitz
Name: John Schmitz
Title: Executive Vice President Finance and
Administration, and Chief Financial Officer
ADMINISTRATIVE AGENT:
COBANK, ACB
By:	s/Michael Tousignant
Name: Michael Tousignant
Title: Vice President
SYNDICATION PARTY:
COBANK, ACB
By:	s/Michael Tousignant
Name: Michael Tousignant
Title: Vice President

31

EX-21.1

EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT

	STATE OF
	INCORPORATION/
SUBSIDIARY	ORGANIZATION
ADM/CHS, LLC	Delaware
Ag States Agency, LLC	Minnesota
Ag States Agency of Montana Inc, a subsidiary of Ag States Agency LLC	Montana
Agronomy Company of Canada, Ltd.	Nova Scotia
Allied Agronomy, LLC	North Dakota
Battle Creek/CHS, LLC	Delaware
Bec-Lin of Perham, Inc.	Minnesota
Cenex Ag, Inc.	Delaware
CHS Energy Canada, Inc.	Alberta
Cenex Petroleum, Inc.	Minnesota
Cenex Pipeline, LLC	Minnesota
Central Montana Propane, LLC	Montana
CHS-Browns Valley	Minnesota
CHS-Chinook	Montana
CHS-Clinton/Wilmot	Minnesota
CHS-Connell, Inc.	Washington
CHS-Dickinson	North Dakota
CHS-Drayton	North Dakota
CHS-Edgeley	North Dakota
CHS-Garrison	North Dakota
CHS-Glasgow	Montana
CHS-Grangeville, Inc.	Idaho
CHS-Highmore	South Dakota
CHS-Hoffman	Minnesota
CHS-Jasper	South Dakota
CHS-Kindred	North Dakota
CHS-Lewistown	Montana
CHS-Philip	South Dakota
CHS-Sioux Falls	South Dakota
CHS-Starbuck	Minnesota
Circle Land Management, Inc.	Minnesota
Classic Farms, LLC	South Dakota
Country Hedging, Inc.	Delaware
Dakota Agronomy Partners, LLC	North Dakota
Energy Partners, LLC	Montana
Fin-Ag, Inc.	South Dakota
Front Range Pipeline, LLC	Minnesota
Full Circle, LTD	Minnesota

Genetic Marketing Group, LLC	Washington
Green Bay Terminal Corporation	Wisconsin
Harvest States do Brasil Ltda.	Brazil
Harvest States Cooperatives Europe B.V.	Netherlands
Horizon Milling, LLC	Delaware
Kropf/CHS, LLC	Oregon
Montevideo Grain, LLC	Delaware
Mountain View of Montana, LLC	Delaware
National Cooperative Refinery Association (NCRA)	Kansas
Clear Creek Transportation, LLC, a subsidiary of NCRA	Kansas
Jayhawk Pipeline, LLC, a subsidiary of NCRA	Kansas
Kaw Pipeline, a subsidiary of NCRA	Delaware
Osage Pipeline Co, a subsidiary of NCRA	Delaware
Norick Risk Funding Concepts, LLC	Minnesota
PGG/HSC Feed Company, LLC	Oregon
Red Rock Cooperative Association	South Dakota
Sparta Foods, Inc.	Minnesota
St. Paul Maritime Corporation	Minnesota
TEMCO, LLC	Delaware
Tillamook/GTA Feeds, LLC	Oregon
United Country Brands, LLC	Delaware
Agriliance, LLC, a subsidiary of United Country Brands, LLC	Delaware
United Energy, LLC	Delaware
United Harvest, LLC	Delaware
United Processors, LLC	Delaware
Rocky Mountain Milling, LLC, a subsidiary of United Processors, LLC	Delaware
Ventura Foods, LLC	Delaware
Whitman Terminal Association, LLC	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-42153) of CHS Inc. and subsidiaries of our report dated October 28, 2004 relating to the consolidated financial statements for the year ended August 31, 2004, which appears in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
November 17, 2004

EX-23.2 12 c87975exv23w2.htm INDEPENDENT AUDITORS' CONSENT

Exhibit 23.2

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement No. 333-42153 on Form S-8 of CHS Inc. of our report dated June 18, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in 2002) on the consolidated financial statements of Ventura Foods, LLC and subsidiary, appearing in the Annual Report on Form 10-K of CHS Inc. for the year ended August 31, 2004.

Deloitte & Touche LLP

Los Angeles, California
November 17, 2004

EX-24.1 13 c87975exv24w1.htm POWER OF ATTORNEY

Exhibit 24.1

POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John D. Johnson and John Schmitz, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities to sign a Form 10-K under the Securities Act of 1933, as amended, of CHS Inc. and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or the substitutes for such attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereof.

Name	Title	Date
s/John D. Johnson John D. Johnson	Chief Executive Officer (principal executive officer)	October 6, 2004
s/John Schmitz John Schmitz	Executive Vice President & Chief Financial Officer (principal financial officer)	October 6, 2004
s/Michael Toelle Michael Toelle	Chairman of the Board	October 6, 2004
s/Bruce Anderson Bruce Anderson	Director	October 6, 2004
s/Robert A. Bass Robert Bass	Director	October 6, 2004
s/David J. Bielenberg David Bielenberg	Director	October 6, 2004
s/Dennis Carlson Dennis Carlson	Director	October 6, 2004
s/Curt Eischens Curt Eischens	Director	October 6, 2004
s/Robert Elliott Robert Elliott	Director	October 6, 2004
s/Steve Fritel Steve Fritel	Director	October 6, 2004

s/Robert Grabarski Robert Grabarski	Director	October 6, 2004
s/Jerry Hasnedl Jerry Hasnedl	Director	October 6, 2004
s/Glen L. Keppy Glen Keppy	Director	October 6, 2004
s/James Kile	Director	October 6, 2004
James Kile
s/Randy Knecht Randy Knecht	Director	October 6, 2004
s/Michael J. Mulcahey Michael Mulcahey	Director	October 6, 2004
s/Richard G. Owen Richard Owen	Director	October 6, 2004
s/Duane Stenzel Duane Stenzel	Director	October 6, 2004
s/Merlin Van Walleghen Merlin Van Walleghen	Director	October 6, 2004

2 

EX-23.2

exv23w2

EX-24.1

exv24w1

EX-31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John D. Johnson, certify that:

      1. I have reviewed this annual report on Form 10-K of CHS Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ JOHN D. JOHNSON

John D. Johnson

President and Chief Executive Officer

Date: November 18, 2004 EX-31.2 15 c87975exv31w2.htm CERTIFICATION PURSUANT OT SECTION 302

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John Schmitz, certify that:

      1. I have reviewed this annual report on Form 10-K of CHS Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ JOHN SCHMITZ

John Schmitz

Executive Vice President and Chief Financial Officer

Date: November 18, 2004 EX-32.1 16 c87975exv32w1.htm CERTIFICATION PURSUANT OT SECTION 906

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the Annual Report of CHS Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Johnson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ JOHN D. JOHNSON

John D. Johnson

President and Chief Executive Officer

November 18, 2004 EX-32.2 17 c87975exv32w2.htm CERTIFICATION PURSUANT OT SECTION 906

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the Annual Report of CHS Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Schmitz, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ JOHN SCHMITZ

John Schmitz

Executive Vice President and Chief Financial Officer

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