SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One	)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		for the quarterly period ended May 31, 2005.
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, MN 55077	(651) 355-6000
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

      Include 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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     YES o          NO þ

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Number of Shares Outstanding
Class	at May 31, 2005
NONE	NONE

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Consolidated Balance Sheets as of May 31, 2005, August 31, 2004 and May 31, 2004 (unaudited)		3
	Consolidated Statements of Operations for the three months and nine months ended May 31, 2005 and 2004 (unaudited)		4
	Consolidated Statements of Cash Flows for the three months and nine months ended May 31, 2005 and 2004 (unaudited)		5
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		35
Item 4.	Controls and Procedures		35
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		37
Item 6.	Exhibits		37
SIGNATURE PAGE			38
2005 Amended and Restated Credit Agreement
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

1

PART I. FINANCIAL INFORMATION

SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995

      This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company’s actual results to differ materially from the results discussed in the forward-looking statements. These factors include those set forth in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Cautionary Statement Regarding Forward-Looking Statements” to this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2005.

2

Item 1. Financial Statements

CHS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

			May 31,		August 31,		May 31,
			2005		2004		2004
			(dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	234,469	$	136,491	$	138,550
	Receivables			987,561		834,965		954,440
	Inventories			890,533		723,893		906,801
	Other current assets			257,399		273,355		392,714
		Total current assets		2,369,962		1,968,704		2,392,505
Investments				560,162		575,816		575,154
Property, plant and equipment				1,322,872		1,249,655		1,203,488
Other assets				222,040		237,117		244,222
		Total assets	$	4,475,036	$	4,031,292	$	4,415,369
LIABILITIES AND EQUITIES
Current liabilities:
	Notes payable		$	426,983	$	116,115	$	446,500
	Current portion of long-term debt			34,561		35,117		30,900
	Customer credit balances			55,550		88,686		100,405
	Customer advance payments			109,012		64,042		137,662
	Checks and drafts outstanding			49,377		64,584		91,542
	Accounts payable			691,206		717,501		658,887
	Accrued expenses			293,215		305,650		395,702
	Dividends and equities payable			73,580		83,569		84,485
		Total current liabilities		1,733,484		1,475,264		1,946,083
Long-term debt				743,469		648,701		655,780
Other liabilities				148,605		148,526		132,604
Minority interests in subsidiaries				154,724		130,715		136,187
Commitments and contingencies Equities				1,694,754		1,628,086		1,544,715
		Total liabilities and equities	$	4,475,036	$	4,031,292	$	4,415,369

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

3

CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Three Months Ended						For the Nine Months Ended
		May 31,			May 31,			May 31,			May 31,
		2005			2004			2005			2004
		(dollars in thousands)
Revenues:
	Net sales	$	3,088,403		$	2,799,127		$	8,400,736		$	7,908,213
	Other revenues		49,090			43,165			128,355			110,594
			3,137,493			2,842,292			8,529,091			8,018,807
Cost of goods sold			2,984,898			2,718,640			8,179,002			7,734,660
Marketing, general and administrative			46,241			49,258			145,856			140,818
Operating earnings			106,354			74,394			204,233			143,329
Gain on sale of investments						(14,666	)		(3,448	)		(14,666	)
Gain on legal settlements												(692	)
Interest			15,795			13,017			38,757			36,679
Equity income from investments			(57,610	)		(32,406	)		(74,139	)		(64,193	)
Loss on impairments of assets			2,478						37,478
Minority interests			17,958			16,417			30,873			23,559
Income from continuing operations before income taxes			127,733			92,032			174,712			162,642
Income taxes			17,872			8,909			24,792			18,573
Income from continuing operations			109,861			83,123			149,920			144,069
Loss from discontinued operations			2,915			1,734			16,255			3,430
Net income		$	106,946		$	81,389		$	133,665		$	140,639

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

4

CHS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

					For the Three Months						For the Nine Months
					Ended						Ended
					May 31,			May 31,			May 31,			May 31,
					2005			2004			2005			2004
					(dollars in thousands)
Cash flows from operating activities:
	Net income				$	106,946		$	81,389		$	133,665		$	140,639
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization				26,745			26,668			81,189			80,528
		Noncash income from equity investments				(57,610	)		(32,406	)		(74,139	)		(64,193	)
		Noncash loss on impairments of assets				2,478						37,478
		Minority interests				17,958			16,417			30,873			23,559
		Noncash portion of patronage dividends received				(755	)		(884	)		(1,192	)		(3,714	)
		Loss (gain) on sale of property, plant and equipment				912			(1,051	)		(1,324	)		(910	)
		Loss on sale of business				6,163						6,163
		Gain on sale of investments							(14,666	)		(3,448	)		(14,666	)
		Other, net				244			247			799			787
		Changes in operating assets and liabilities:
			Receivables			(213,074	)		(187,725	)		(128,460	)		(175,927	)
			Inventories			45,255			94,466			(166,432	)		(94,647	)
			Other current assets and other assets			47,772			105,460			14,303			(217,710	)
			Customer credit balances			(59,495	)		(26,248	)		(33,136	)		39,358
			Customer advance payments			29,693			26,346			44,970			14,267
			Accounts payable and accrued expenses			84,337			168,714			(40,329	)		152,451
			Other liabilities			9,299			1,099			1,051			12,817
				Net cash provided by (used in) operating activities		46,868			257,826			(97,969	)		(107,361	)
Cash flows from investing activities:
	Acquisition of property, plant and equipment					(64,541	)		(66,185	)		(187,404	)		(168,407	)
	Proceeds from disposition of property, plant and equipment					1,476			2,005			9,429			31,747
	Proceeds from sale of business					38,286						38,286
	Investments					(2,696	)		(47,750	)		(4,926	)		(48,772	)
	Equity investments redeemed					15,657			10,990			52,602			54,493
	Investments redeemed					1,021			1,158			3,114			7,273
	Proceeds from sale of investments								25,000			7,420			25,000
	Changes in notes receivable					(34,780	)		(3,100	)		(25,664	)		(8,996	)
	Distribution to minority owners											(4,966	)		(1,338	)
	Other investing activities, net					(4,395	)		(74	)		(3,024	)		3,129
				Net cash used in investing activities		(49,972	)		(77,956	)		(115,133	)		(105,871	)
Cash flows from financing activities:
	Changes in notes payable					72,867			(154,335	)		310,868			195,370
	Long-term debt borrowings								35,012			125,000			35,457
	Principal payments on long-term debt					(6,807	)		(4,094	)		(31,002	)		(12,365	)
	Changes in checks and drafts outstanding					(18,541	)		(10,762	)		(15,207	)		5,528
	Expenses incurred on equities exchanged					(9	)		(98	)		(87	)		(151	)
	Preferred stock dividends					(2,476	)		(2,113	)		(6,702	)		(5,861	)
	Retirements of equities					(986	)		(2,873	)		(20,271	)		(5,724	)
	Cash patronage dividends					(8	)		(563	)		(51,519	)		(28,721	)
				Net cash provided by (used in) financing activities		44,040			(139,826	)		311,080			183,533
Net increase (decrease) in cash and cash equivalents						40,936			40,044			97,978			(29,699	)
Cash and cash equivalents at beginning of period						193,533			98,506			136,491			168,249
Cash and cash equivalents at end of period					$	234,469		$	138,550		$	234,469		$	138,550

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

5

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands)

Note 1. Accounting Policies

      The unaudited consolidated balance sheets as of May 31, 2005 and 2004, and the statements of operations and cash flows for the three and nine months ended May 31, 2005 and 2004 reflect, in the opinion of our management, all normal recurring adjustments necessary for a fair statement of the financial position and results of operations and cash flows for the interim periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full fiscal year because of, among other things, the seasonal nature of our businesses. The consolidated balance sheet data as of August 31, 2004 has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

      The consolidated financial statements include our accounts and the accounts of all of our wholly-owned and majority-owned subsidiaries and limited liability companies. The effects of all significant intercompany accounts and transactions have been eliminated.

      These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2004, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

Goodwill and Other Intangible Assets

      Goodwill was $3.3 million, $26.9 million and $27.0 million on May 31, 2005, August 31, 2004 and May 31, 2004, respectively, and is included in other assets in the consolidated balance sheets. During the nine months ended May 31, 2005 we eliminated goodwill of $23.6 million related to our Mexican foods businesses as a result of our sale of those businesses as further discussed in Note 7.

      Intangible assets subject to amortization primarily include trademarks, tradenames, customer lists and non-compete agreements, and are amortized on a straight-line basis over the number of years that approximate their respective useful lives (ranging from 1 to 15 years). The gross carrying amount of these intangible assets was $34.6 million with total accumulated amortization of $14.6 million as of May 31, 2005. Intangible assets of $0.3 million and $0.2 million (non-cash) were acquired during the nine months ended May 31, 2005 and 2004, respectively. Total amortization expense for intangible assets during the three-month and nine-month periods ended May 31, 2005 and 2004, was $0.8 million and $0.9 million, respectively, and $2.4 million and $3.0 million, respectively. The estimated annual amortization expense related to intangible assets subject to amortization for the next five years will range from $1.6 million to $2.8 million.

Recent Accounting Pronouncements

      On November 24, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires those items to be recognized as current-period charges regardless of whether they meet the “abnormal” criterion outlined in ARB 43. It also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently analyzing what the effects of adopting this standard will have on us.

      On December 16, 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from fair value measurement

6

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

Reclassifications

      Certain reclassifications have been made to prior period’s amounts to conform to current period classifications, primarily discontinued operations discussed in Note 7. These reclassifications had no effect on previously reported net income, equities and comprehensive income, or cash flows.

Note 2. Receivables

	May 31,		August 31,		May 31,
	2005		2004		2004
Trade	$	965,012	$	835,066	$	921,847
Other		78,756		55,708		66,832
		1,043,768		890,774		988,679
Less allowances for doubtful accounts		56,207		55,809		34,239
	$	987,561	$	834,965	$	954,440

Note 3. Inventories

	May 31,		August 31,		May 31,
	2005		2004		2004
Grain and oilseed	$	347,349	$	308,207	$	478,951
Energy		347,755		277,801		245,985
Feed and farm supplies		162,658		110,885		145,349
Processed grain and oilseed		31,415		25,740		35,182
Other		1,356		1,260		1,334
	$	890,533	$	723,893	$	906,801

Note 4. Derivative Assets and Liabilities

      Included in other current assets on May 31, 2005, August 31, 2004 and May 31, 2004 are derivative assets of $61.1 million, $91.3 million and $185.1 million, respectively. Included in accrued expenses on May 31, 2005, August 31, 2004 and May 31, 2004 are derivative liabilities of $59.1 million, $110.8 million and $182.4 million, respectively.

Note 5. Investments

      During the nine months ended May 31, 2005, we sold an investment held in Corporate and Other for proceeds of $7.4 million and recorded a gain of $3.4 million.

      In November 2004, we evaluated the carrying value of our investment in CF Industries, Inc., a domestic fertilizer manufacturing company in which we hold a minority interest. Our carrying value of $153.0 million on that date consisted primarily of non-cash patronage refunds received from CF Industries, Inc. over the years. Based upon this evaluation, we determined that the carrying value of our CF

7

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Industries, Inc. investment should be reduced by $35.0 million, resulting in an impairment charge to our first fiscal quarter income. The net effect to income after taxes was $32.1 million.

      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 us and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, our indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as our ownership or governance interest. In April 2003, we 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, Inc., 25% plus an additional 13.1% of the CPP Business by us 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, we purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. We account for this investment using the equity method of accounting.

      The following provides summarized unaudited financial information for our unconsolidated significant equity investments in Ventura Foods, LLC (50% equity ownership) and the Agriliance, LLC, for the balance sheets as of May 31, 2005, August 31, 2004 and May 31, 2004 and statements of operations for the three-month and nine-month periods as indicated below.

Ventura Foods, LLC

	For the Three					For the Nine
	Months Ended					Months Ended
	May 31,		May 31,			May 31,		May 31,
	2005		2004			2005		2004
Net sales	$	348,740	$	370,293		$	1,060,961	$	1,044,844
Gross profit		52,780		25,953			142,737		131,275
Net income		23,337		(6,679	)		53,429		40,633

	May 31,		August 31,		May 31,
	2005		2004		2004
Current assets	$	294,856	$	286,613	$	274,256
Non-current assets		259,322		258,270		255,457
Current liabilities		153,865		171,269		160,409
Non-current liabilities		192,243		194,547		195,230

Agriliance, LLC

	For the Three Months Ended				For the Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2005		2004		2005		2004
Net sales	$	1,591,535	$	1,420,384	$	2,697,548	$	2,499,247
Gross profit		161,771		143,609		261,051		244,495
Net income		83,266		78,121		56,627		58,794

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CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

	May 31,		August 31,		May 31,
	2005		2004		2004
Current assets	$	1,555,093	$	1,123,671	$	1,311,022
Non-current assets		151,632		123,106		123,529
Current liabilities		1,307,030		878,814		1,045,860
Non-current liabilities		117,086		128,780		125,745

Note 6. Property, Plant and Equipment

      During the three months ended May 31, 2005, we reduced the carrying value of our Huron, Ohio wheat milling equipment by recording a pretax impairment charge of $2.5 million.

Note 7. Discontinued Operations

      We have reclassified our Mexican foods operations, previously reported in Corporate and Other, along with gains and losses recognized on sales of assets, and impairments on assets for sale, as discontinued operations that were sold or have met the criteria for such classification. In the Consolidated Statements of Operations (unaudited) all of our Mexican foods operations have been accounted for as discontinued operations. Accordingly, current and prior operating results have been restated to report those operations as discontinued. The amounts included in discontinued operations are as follows:

	For the Three Months						For the Nine Months
	Ended						Ended
	May 31,			May 31,			May 31,			May 31,
	2005			2004			2005			2004
Revenues	$	15,029		$	18,439		$	47,767		$	53,307
Cost of goods sold		15,207			17,287			48,113			48,244
Marketing, general and administrative		3,652			3,225			23,643			8,551
Interest		941			765			2,615			2,125
Income tax benefit		(1,856	)		(1,104	)		(10,349	)		(2,183	)
Loss from discontinued operations	$	(2,915	)	$	(1,734	)	$	(16,255	)	$	(3,430	)

      SFAS No. 144 requires that discontinued operations be valued on an asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, our management considered cash flow analyses, bids and offers related to those assets and businesses. The loss of $6.2 million on the sale of our Mexican foods businesses in the current quarter, and the reduction in the carrying amount of our Newton, North Carolina facility of $5.0 million taken in the previous quarter are included in marketing, general and administrative expenses in the table above. In accordance with the provisions of SFAS No. 144, assets held for sale will not be depreciated commencing with their classification as such.

Note 8. Notes Payable and Long-term Debt

      On September 21, 2004, we 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 our short-term debt.

9

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Note 9. Equities

      The following provides unaudited changes in equity for the nine-month periods as indicated below:

	May 31,			May 31,
	2005			2004
Balances, September 1, 2004 and 2003	$	1,628,086		$	1,481,711
Net income		133,665			140,639
Other comprehensive income		878			2,091
Patronage distribution		(171,119	)		(95,218	)
Patronage accrued 2004 and 2003		166,850			90,000
Equities retired		(20,271	)		(5,724	)
Equity retirements accrued 2004 and 2003		19,285			2,851
Equities issued in exchange for elevator properties		1,375			13,355
Preferred stock dividends		(6,702	)		(5,861	)
Preferred stock dividends accrued 2004 and 2003		1,409			1,249
Accrued dividends and equities payable 2005 and 2004		(61,750	)		(79,409	)
Other, net		3,048			(969	)
Balances, May 31, 2005 and 2004	$	1,694,754		$	1,544,715

      During the nine months ended May 31, 2005 and 2004 we redeemed $20.0 million and $13.0 million, respectively, of our capital equity certificates by issuing shares of our 8% Cumulative Redeemable Preferred Stock.

Note 10. Comprehensive Income

      Total comprehensive income primarily consists of net income, additional minimum pension liability and cash flow hedges. For the three months ended May 31, 2005 and 2004, total comprehensive income amounted to $106.7 million and $81.2 million, respectively. For the nine months ended May 31, 2005 and 2004, total comprehensive income amounted to $134.5 million and $142.7 million, respectively. Accumulated other comprehensive loss on May 31, 2005, August 31, 2004 and May 31, 2004 was $6.3 million, $7.1 million and $16.2 million, respectively.

10

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Note 11. Employee Benefit Plans

      Employee benefit information for the three and nine months ended May 31, 2005 and 2004 is as follows:

	Qualified						Non-Qualified
	Pension Benefits						Pension Benefits				Other Benefits
	2005			2004			2005		2004		2005			2004
Components of net periodic benefit cost for the three months ended May 31, 2005 and 2004:
Service cost	$	3,054		$	2,887		$	165	$	150	$	190		$	189
Interest cost		4,536			4,301			219		206		401			439
Return on plan assets		(6,839	)		(6,872	)
Prior service cost amortization		198			211			128		132		(72	)		(43	)
Actuarial loss (gain) amortization		1,173			1,037			30		26		(21	)		27
Transition amount amortization												51			234
Recognized net actuarial loss												184
Other adjustments										251
Net periodic benefit cost	$	2,122		$	1,564		$	542	$	765	$	733		$	846
Components of net periodic benefit cost for the nine months ended May 31, 2005 and 2004:
Service cost	$	9,161		$	8,661		$	495	$	451	$	571		$	566
Interest cost		13,606			12,902			658		617		1,202			1,318
Return on plan assets		(20,516	)		(20,616	)
Prior service cost amortization		594			632			385		395		(216	)		(130	)
Actuarial loss (gain) amortization		3,518			3,112			88		77		(62	)		81
Transition amount amortization												152			702
Recognized net actuarial loss												551
Other adjustments										753
Net periodic benefit cost	$	6,363		$	4,691		$	1,626	$	2,293	$	2,198		$	2,537

Employer Contributions:

      The National Cooperative Refinery Association (NCRA), of which we own approximately 74.5%, has made a $6.9 million dollar contribution to its pension plan during the nine months ended May 31, 2005. In June 2005, NCRA made another contribution in the amount of $5.0 million, and we contributed $4.1 million to our Production Employee Pension Plan. We expect that during our fourth quarter NCRA will contribute an additional $5.0 million to its pension plan.

Note 12. Segment Reporting

      On January 1, 2005, we realigned our business segments based on an assessment of how our businesses operate and the products and services they sell. As a result of this assessment, leadership

11

CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

changes were made, including the naming of a new executive vice president and chief operating officer, so that we now have three chief operating officers to lead our three business segments; Energy, Ag Business and Processing. Prior to the realignment, we operated five business segments; Agronomy, Energy, Country Operations and Services, Grain Marketing, and Processed Grains and Foods.

      The Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. The Ag Business segment derives its revenues through the origination and marketing of grain, including service activities conducted at export terminals, through the retail sales of petroleum and agronomy products, processed sunflowers, feed and farm supplies, and from investment income in our agronomy joint ventures and other investments. The Processing segment derives its revenues from the sales of soybean meal and soybean refined oil, from equity income in two wheat milling joint ventures, and from equity income in an oilseed food manufacturing and distribution joint venture. We have moved other business operations previously included in our operating segments to corporate and other because of the nature of their products and services, as well as the relative revenue size of those businesses. These businesses primarily include our insurance, hedging and other service activities related to crop production that were previously included in the Country Operations and Services segment ($30.9 million of revenues during the twelve months ended August 31, 2004).

      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.

      We assign certain corporate general and administrative expenses to our business segments, based on use of such services and allocate 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 our business are allocated to the segments based upon factors which management considers to be non-symmetrical. 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.

      Segment information for the three and nine months ended May 31, 2005 and 2004 is as follows:

											Corporate
					Ag						and		Reconciling
		Energy			Business			Processing			Other		Amounts			Total
For the Three Months Ended May 31, 2005
	Net sales	$	1,449,989		$	1,524,913		$	154,471				$	(40,970	)	$	3,088,403
	Other revenues		2,859			31,342			1,135		$	13,754					49,090
			1,452,848			1,556,255			155,606			13,754		(40,970	)		3,137,493
	Cost of goods sold		1,357,798			1,514,276			153,794					(40,970	)		2,984,898
	Marketing, general and administrative		16,384			18,949			4,457			6,451					46,241
	Operating earnings (losses)		78,666			23,030			(2,645	)		7,303		—			106,354
	Interest		3,663			6,632			3,235			2,265					15,795
	Equity (income) loss from investments		(762	)		(43,713	)		(13,150	)		15					(57,610	)
	Loss on impairments of assets								2,478								2,478
	Minority interests		17,417			(18	)					559					17,958
	Income from continuing operations before income taxes	$	58,348		$	60,129		$	4,792		$	4,464	$	—		$	127,733
	Intersegment sales	$	(37,609	)	$	(3,275	)	$	(86	)			$	40,970		$	—
	Capital expenditures	$	43,037		$	4,529		$	841		$	16,134				$	64,541
	Depreciation and amortization	$	14,509		$	7,225		$	3,475		$	1,536				$	26,745

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CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

											Corporate
					Ag						and			Reconciling
		Energy			Business			Processing			Other			Amounts			Total
For the Three Months Ended May 31, 2004
	Net sales	$	1,046,218		$	1,568,254		$	222,290					$	(37,635	)	$	2,799,127
	Other revenues		3,613			26,515			1,127		$	11,910						43,165
			1,049,831			1,594,769			223,417			11,910			(37,635	)		2,842,292
	Cost of goods sold		964,696			1,575,253			216,326						(37,635	)		2,718,640
	Marketing, general and administrative		16,772			20,780			4,971			6,735						49,258
	Operating earnings (losses)		68,363			(1,264	)		2,120			5,175			—			74,394
	Gain on sale of investments		(14,666	)														(14,666	)
	Interest		3,139			5,288			3,163			1,427						13,017
	Equity (income) loss from investments		(522	)		(34,289	)		2,457			(52	)					(32,406	)
	Minority interests		16,063			(8	)					362						16,417
	Income (loss) from continuing operations before income taxes	$	64,349		$	27,745		$	(3,500	)	$	3,438		$	—		$	92,032
	Intersegment sales	$	(31,909	)	$	(5,726	)							$	37,635		$	—
	Capital expenditures	$	57,695		$	6,457		$	687		$	1,346					$	66,185
	Depreciation and amortization	$	14,423		$	7,458		$	3,327		$	1,460					$	26,668
For the Nine Months Ended May 31, 2005
	Net sales	$	4,029,133		$	4,066,381		$	429,389					$	(124,167	)	$	8,400,736
	Other revenues		7,484			88,536			2,950		$	29,385						128,355
			4,036,617			4,154,917			432,339			29,385			(124,167	)		8,529,091
	Cost of goods sold		3,835,634			4,042,690			424,845						(124,167	)		8,179,002
	Marketing, general and administrative		46,787			65,054			14,130			19,885						145,856
	Operating earnings (losses)		154,196			47,173			(6,636	)		9,500			—			204,233
	Gain on sale of investments											(3,448	)					(3,448	)
	Interest		10,034			15,514			9,501			3,708						38,757
	Equity income from investments		(2,230	)		(40,840	)		(30,586	)		(483	)					(74,139	)
	Loss on impairment of assets					35,000			2,478									37,478
	Minority interests		29,879			(42	)					1,036						30,873
	Income from continuing operations before income taxes	$	116,513		$	37,541		$	11,971		$	8,687		$	—		$	174,712
	Intersegment sales	$	(117,160	)	$	(6,580	)	$	(427	)				$	124,167		$	—
	Goodwill	$	3,041		$	250											$	3,291
	Capital expenditures	$	148,166		$	17,102		$	3,161		$	18,975					$	187,404
	Depreciation and amortization	$	44,025		$	22,038		$	10,394		$	4,732					$	81,189
	Total identifiable assets at May 31, 2005	$	1,945,394		$	1,709,885		$	430,458		$	389,299					$	4,475,036
For the Nine Months Ended May 31, 2004
	Net sales	$	2,868,509		$	4,607,073		$	531,318					$	(98,687	)	$	7,908,213
	Other revenues		7,357			70,772			2,909		$	29,556						110,594
			2,875,866			4,677,845			534,227			29,556			(98,687	)		8,018,807
	Cost of goods sold		2,717,030			4,601,868			514,449						(98,687	)		7,734,660
	Marketing, general and administrative		48,054			60,294			14,462			18,008						140,818
	Operating earnings		110,782			15,683			5,316			11,548			—			143,329
	Gain on sale of investments		(14,666	)														(14,666	)
	Gain on legal settlements					(692	)											(692	)
	Interest		10,652			13,639			9,312			3,076						36,679
	Equity income from investments		(811	)		(37,335	)		(25,887	)		(160	)					(64,193	)
	Minority interests		22,459			(8	)					1,108						23,559
	Income from continuing operations before income taxes	$	93,148		$	40,079		$	21,891		$	7,524		$	—		$	162,642
	Intersegment sales	$	(87,354	)	$	(11,333	)							$	98,687		$	—
	Goodwill	$	3,185		$	250					$	23,605					$	27,040
	Capital expenditures	$	126,173		$	24,384		$	7,146		$	10,704					$	168,407
	Depreciation and amortization	$	43,270		$	22,979		$	9,860		$	4,419					$	80,528
	Total identifiable assets at May 31, 2004	$	1,499,135		$	1,970,635		$	471,465		$	474,134					$	4,415,369

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CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Note 13. Commitments and Contingencies

Environmental

      We incur capital expenditures related to actions taken to comply with the Environmental Protection Agency low sulfur fuel regulations required by 2006. These expenditures were started in fiscal 2002, and are expected to be approximately $87.0 million for our Laurel, Montana refinery and $311.0 million for NCRA’s McPherson, Kansas refinery, of which $82.8 million has been spent at our Laurel refinery and $218.4 million has been spent by NCRA at the McPherson refinery as of May 31, 2005. We expect these compliance projects at the refineries to be complete by December 31, 2005, and are funding them with a combination of cash flows from operations and debt proceeds.

Guarantees

      We are a guarantor for lines of credit for related companies, of which $32.5 million was outstanding as of May 31, 2005. Our bank covenants allow maximum guarantees of $150.0 million.

      We 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.

      We make seasonal and term loans to member cooperatives, and our wholly-owned subsidiary, Fin-Ag, Inc., makes loans for agricultural purposes to individual producers. Some of these loans are sold to CoBank, and we guarantee a portion of the loans sold. In addition, we guarantee certain debt and obligations under contracts for our subsidiaries and members.

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CHS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

      Our obligations pursuant to our guarantees as of May 31, 2005 are as follows:

	Guarantee/		Exposure on
	Maximum		May 31,		Nature of			Recourse	Assets Held
Entities	Exposure		2005		Guarantee	Expiration Date	Triggering Event	Provisions	as Collateral
	(dollars in thousands)
Our financial services cooperative loans sold to CoBank		*	$	10,188	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		*		18,651	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	Nonperformance under flour sale agreement	Subrogation against Horizon Milling, LLC	None
TEMCO, LLC	$	25,000		2,800	Obligations by TEMCO, LLC under credit agreement	None stated	Credit agreement default	Subrogation against TEMCO, LLC	None
Third parties		*		908	Surety for, or indemnification of surety for sales contracts between affiliates and sellers of grain under deferred payment	None stated, but may be terminated by us 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
			$	32,547

*  Our bank covenants allow for guarantees of up to $150.0 million, but we are 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

      The information in this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2005, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we and our representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to our 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. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

      Our 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 our business, financial condition, liquidity, results of operations or prospects, financial or otherwise . 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 us 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.

      We undertake 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;

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

•  the level of consumer demand;

•  the price and availability of alternative fuels;

16

•  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 $82.8 million had been spent at our Laurel refinery and $218.4 million had been spent by NCRA at the McPherson refinery as of May 31, 2005. We expect all of these compliance projects at the refineries to be completed by December 31, 2005, and are funding them 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.

      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

17

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 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.

18

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 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.

General

      We are a diversified company, which provides grain, foods and energy resources to businesses and consumers. As a cooperative, we are owned by farmers, ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. We also have preferred stockholders that own shares of our 8% Cumulative Redeemable Preferred Stock.

      We provide a full range of production agricultural inputs such as refined fuels, propane, farm supplies, animal nutrients and agronomy products, as well as services, which include hedging, financing and insurance services. We own and operate petroleum refineries and pipelines and market and distribute refined fuels and other energy products under the Cenex® brand through a network of member cooperatives and independents. We purchase grains and oilseeds directly and indirectly from agricultural producers primarily in the Midwestern and Western regions of the United States. These grains and oilseeds are either sold to domestic and international customers, or further processed into a variety of grain-based products.

19

      We operate our businesses predominantly in the United States in three distinct segments: Energy, Ag Business and Processing. Together these business segments create vertical integration to link producers with consumers. The Energy segment produces and provides for the wholesale distribution of energy products. The Ag Business segment serves as our Company-owned retailer of energy, agronomy and other crop production inputs, and purchases and resells grains and oilseeds from member cooperatives and third parties, and holds our 50% equity ownership interests in Agriliance, LLC, a wholesale distributor of agronomy products. The Processing segment converts grains and oilseeds into value-added products.

      Corporate administrative expenses are allocated to all business segments based on either direct usage for services that can be tracked, such as information technology and legal services, or other factors and considerations relevant to the costs incurred.

      Many of our business activities are highly seasonal and operating results will vary throughout the year. Overall, our income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter. Certain business segments are subject to varying seasonal fluctuations. For example, the Ag Business segment experiences higher volumes and income during the spring planting season and in the fall, which corresponds to producer harvest. Other factors affecting the Ag Business segment volumes and profitability include world grain prices and demand. Our 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.

      Our revenues 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 we purchase 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 our 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 our 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 we hold ownership interests of 50% or less and do not control the operations. We account for these investments primarily using the equity method of accounting, where we record our 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 our consolidated statements of operations. These investments principally include our 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 our 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 us and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance. Initially, our indirect share of earnings (economic interest) in Agriliance was 25%, which was the same as our ownership or governance interest. In April 2003, we 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 us 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, we purchased all of Farmland’s remaining interest in Agriliance for $27.5 million in cash. We continue to account for this investment, in the Ag Business segment, using the equity method of accounting.

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      The consolidated financial statements include our accounts and all of our wholly-owned and majority-owned subsidiaries, including the National Cooperative Refinery Association (NCRA), which is included in the Energy segment. All significant intercompany accounts and transactions have been eliminated.

Recent Developments

      Energy prices, driven primarily by global market conditions and strong demand for energy products, increased considerably during the nine months ended May 31, 2005 when compared to the same period of the previous year. Commodity prices for grain decreased, compared to the high prices that were prevalent during most of fiscal 2004, primarily due to a strong fall harvest throughout most of the United States, which produced good yields and the quality of most crops rated in excellent and good condition.

Results of Operations

Comparison of the three months ended May 31, 2005 and 2004

      General. We recorded income from continuing operations before income taxes of $127.7 million during the three months ended May 31, 2005 compared to $92.0 million in the three months ended May 31, 2004, an increase of $35.7 million (39%).

      Our Energy segment generated income from continuing operations before income taxes of $58.3 million for the three months ended May 31, 2005 compared with $64.3 million for the three months ended May 31, 2004. This decrease in earnings of $6.0 million (9%) is primarily attributable to lower margins on refined fuels.

      Our Ag Business segment generated income from continuing operations before income taxes of $60.1 million for the three months ended May 31, 2005 compared to $27.7 million for the three months ended May 31, 2004. This increase in earnings of $32.4 million (117%) is related to improved earnings of $19.8 million in our grain marketing operations, $10.8 million in our agronomy equity investments and $1.8 million from our country operations. 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.

      Our Processing segment generated income from continuing operations before income taxes of $4.8 million for the three months ended May 31, 2005 compared to losses from continuing operations of $3.5 million for the three months ended May 31, 2004, an increase in earnings of $8.3 million (237%). Our share of earnings from Ventura Foods, our packaged foods joint venture, increased $15.2 million compared to the prior year. Oilseed processing earnings decreased $4.5 million, which was primarily the result of lower crushing and oilseed refining margins compared to the prior year due to higher input costs. Higher demand for soybeans in foreign markets have increased the cost of soybeans used in crushing operations. Another factor affecting the increase in soybean prices was that the Minnesota harvest was below that of the previous years’ harvests. During the three months ended May 31, 2005, we wrote off the remaining book value of approximately $2.5 million of miscellaneous milling equipment which we had salvaged from our Huron, Ohio mill upon its closing in 2002. Since that time, we have been selling pieces of equipment to other millers, and during the third quarter we determined that the value of the remaining equipment exceeded storage costs.

      Corporate and Other generated income from continuing operations before income taxes of $4.5 million for the three months ended May 31, 2005 compared to $3.5 million for the three months ended May 31, 2004, an increase in earnings of $1.0 million (28%) and reflects increased earnings in our business solutions operations.

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      Net Income. Consolidated net income for the three months ended May 31, 2005 was $106.9 million compared to $81.4 million for the three months ended May 31, 2004, which represents a $25.5 million (31%) increase in earnings.

      Net Sales. Consolidated net sales were $3.1 billion for the three months ended May 31, 2005 compared to $2.8 billion for the three months ended May 31, 2004, which represents a $289.3 million (10%) increase.

      Our Energy segment net sales, after elimination of intersegment sales, of $1.4 billion increased $398.1 million (39%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004. During the three months ended May 31, 2005 and 2004, the Energy segment recorded sales to the Ag Business segment of $37.6 million and $31.9 million, respectively. Intersegment sales are eliminated in deriving consolidated sales but are included for segment reporting purposes. The net sales increase of $398.1 million is comprised of an increase of $346.4 million related to price appreciation on refined fuels and propane products, and $51.7 million due to increased sales volume. On a more product-specific basis, we own and operate two crude oil refineries where we produce approximately 60% of the refined fuels that we sell and we purchase the balance from other United States refiners and distributors. Refined fuels net sales increased $319.4 million (41%), of which $244.2 million was related to a net average selling price increase and $75.2 million was related to increased volumes. The sales price of refined fuels increased $0.38 per gallon (31%) and volumes increased 7% when comparing the three months ended May 31, 2005 with the same period a year ago. Higher crude oil costs and global supply and demand contributed to the increase in refined fuels selling prices. Propane net sales increased by $33.5 million (48%), of which $24.7 million was related to a net average selling price increase and $8.8 million was due to increased volumes compared to the same three-month period in the previous year. Propane prices increased $0.23 per gallon (35%) and sales volume increased 9% in comparison to the same period of the prior year. Higher propane prices are reflective of the crude oil price increases during the three months ended May 31, 2005 compared to the same period in 2004.

      Our Ag Business segment net sales, after elimination of intersegment sales, of $1.5 billion decreased $40.9 million (3%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004. Grain net sales in our Ag Business segment totaled $1,164.5 million and $1,226.5 million during the three months ended May 31, 2005 and 2004, respectively. The net sales decrease of $62.0 million (5%) is primarily attributable to $68.5 million related to a net decrease in the average selling grain prices, partially offset by $6.5 million related to increased volumes during the three months ended May 31, 2005 compared to the same period last fiscal year. Commodity prices in general decreased due to a strong fall 2004 harvest that produced good yields throughout most of the United States and the quality of most grains were rated as excellent or good. The average market price per bushel of soybeans, spring wheat and corn were approximately $3.05, $0.17 and $1.00, respectively, less than the prices on those same grains as compared to the three months ended May 31, 2004. Volumes increased 1% during the three months ended May 31, 2005 compared with the same period of a year ago. The average sales price of all grain and oilseed commodities sold reflected a decrease of $0.25 per bushel (6%). Our Ag Business segment non-grain net sales of $357.1 million increased by $21.1 million (6%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004, primarily the result of increased sales of crop nutrient and energy products, partially offset by decreased feed, seed and other sales. The average selling price of energy products increased due to overall market conditions while volumes were fairly consistent to the three months ended May 31, 2004.

      Our Processing segment net sales, after elimination of intersegment sales, of $154.4 million decreased $67.9 million (31%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004. Sales in processing are entirely our oilseed sales, of which the oilseed processing decrease of $44.2 million (36%) is primarily $49.5 million due to lower average sales price, partially offset by $5.3 million due to 7% increase in sales volumes. Oilseed refining sales decreased $23.7 million (24%), of which $32.2 million was due to lower average sales price, partially offset by $8.5 million due to 12% increase in sales volume. The average selling price of processed oilseed decreased $116 per ton and the average selling price of refined oilseed products decreased $0.12 per pound compared to the same three-

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month period of the previous year. The change in price is primarily related to overall global market conditions for soybean meal and oil.

      Other Revenues. Other revenues of $49.1 million increased $5.9 million (14%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004. The majority of our other revenue is generated within our Ag Business segment and Corporate and Other. Our Ag Business segment’s country operations elevator and agri-service centers receives other revenues from activities related to production agriculture which include grain storage, grain cleaning, fertilizer spreading, crop protection product spraying and other services of this nature, and our grain marketing operations receives other revenues at our export terminals from activities related to loading vessels. Other revenues within our Ag Business segment increased $4.8 million (18%), and Corporate and Other increased $1.8 million (15%), which includes increased commissions on insurance services. Our Energy segment other revenues decreased $0.7 million.

      Cost of Goods Sold. Cost of goods sold of $3.0 billion increased $266.3 million (10%) during the three months ended May 31, 2005 compared to the three months ended May 31, 2004.

      Our Energy segment cost of goods sold, after elimination of intersegment costs, of $1.3 billion increased $387.4 million (42%) during the three months ended May 31, 2005 compared to the same period of the prior year, primarily due to increased average cost of refined fuels and propane products. On a more product-specific basis, the average cost of refined fuels increased by $0.38 (33%) per gallon and volumes increased 7% compared to the three months ended May 31, 2004. The average cost increase on refined fuels is reflective of higher input costs at our two crude oil refineries and higher average prices on the refined products that we purchased for resale compared to the three months ended May 31, 2004. The average per unit cost of crude oil purchased for the two refineries increased 39% compared to the three months ended May 31, 2004. We process approximately 55,000 barrels of crude oil per day at our Laurel, Montana refinery and 80,000 barrels of crude oil per day at NCRA’s McPherson, Kansas refinery. The average cost of propane increased $0.23 (35%) per gallon and volumes increased 9% compared to the three months ended May 31, 2004. The average price of propane increased due to higher input costs and relates to global demand compared to the same period in the previous year.

      Our Ag Business cost of goods sold, after elimination of intersegment costs, of $1.5 billion decreased $58.5 million (4%) during the three months ended May 31, 2005 compared to the same period of the prior year. Grain cost of goods sold in our Ag Business segment totaled $1,150.7 million and $1,229.2 million during the three months ended May 31, 2005 and 2004, respectively. Grains and oilseeds procured through our Ag Business segment decreased 6% compared to the three months ended May 31, 2004, primarily the result of a $0.31 (7%) average cost per bushel decrease, partially offset by an increase in volumes of 1% compared to the prior year. Commodity prices on soybeans, spring wheat and corn have decreased compared to the high prices that were prevalent during the majority of fiscal 2004. Our Ag Business segment cost of goods sold, excluding the cost of grains procured through this segment increased primarily due to volumes increases and average selling price increases on energy products due to overall market conditions compared to the three months ended May 31, 2004.

      Our Processing segment cost of goods sold, after elimination of intersegment costs, of $153.7 million decreased $62.6 million (29%) compared to the three months ended May 31, 2004, which was primarily due to decreased input cost of soybeans, partially offset by a 6% net volume increase processed at our two crushing plants.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $46.2 million for the three months ended May 31, 2005 decreased by $3.0 million (6%) compared to the three months ended May 31, 2004, and is reflective of reduced expenses in all of our business segments.

      Gain on Sale of Investments. During the third quarter of fiscal 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. National Cooperative Refinery Association (NCRA) exercised its right of first refusal to

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purchase a partial interest in the pipeline, and subsequently sold a 50% interest to another third party for proceeds of $25.0 million.

      Interest. Interest expense of $15.8 million for the three months ended May 31, 2005 increased $2.8 million (21%) compared to the three months ended May 31, 2004. In September 2004, we 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%, which we used to pay down short-term seasonal debt, resulting in a net increase of $1.0 million for the three months ended May 31, 2005 as compared to the same period in 2004. In addition to the increase related to the private placement, the average short-term interest rate increased 1.46%. Partially offsetting the increases in interest expense was the average level of short-term borrowings, which decreased $166.3 million, during the three months ended May 31, 2005 compared to the same period in 2004.

      Equity Income from Investments. Equity income from investments of $57.6 million for the three months ended May 31, 2005 favorably changed by $25.2 million (78%) compared to the three months ended May 31, 2004. We record equity income or loss from the investments that we own 50% or less of for our proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in our consolidated statements of operations. The change in equity loss (income) from investments was primarily attributable to improved earnings from investments within our Processing, Ag Business and Energy segments of $15.6 million, $9.4 million and $0.2 million, respectively.

      Our Processing segment generated improved earnings of $15.6 million from equity investments. Ventura Foods, our oilseed-based products and packaged foods joint venture, recorded increased earnings of $15.0 million and Horizon, our wheat milling joint venture, recorded increased earnings of $0.6 million compared to the same three months in the previous year. The Ventura Foods earnings improvement is primarily the result of improved operating margins.

      Our Ag Business segment generated improved earnings of $9.4 million from equity investments. Earnings in our equity investment in Agriliance increased $10.5 million and are primarily attributable to crop protection products of that joint venture. In April 2004, the Company finalized the purchase of additional ownership in Agriliance so that the Company now owns 50%, which accounts for the majority of this increase. In addition, Agriliance recorded slightly increased earnings from operations primarily in wholesale crop protection operations compared to the same period of a year ago. Crop protection products primarily consist of the wholesale distribution and, to a lesser degree, the blending and packaging of herbicide and pesticide products. Crop protection earnings improved compared to the same period in 2004 as a result of lower costs of inputs; however, the prices of these products continue to decline as many come off patent and are replaced by cheaper generic brands. Crop nutrient volumes, which primarily consist of fertilizers and micronutrients were up 9% over last year. Southern retail operations earnings also improved compared to the same period in 2004, which was partially offset by a decrease in a Canadian joint venture earnings of $0.4 million and equity earnings in other Ag Business segment joint ventures also decreased $0.7 million compared to the same three-month period in the previous year.

      Our Energy segment generated improved earnings of $0.2 million related to improved margins in an NCRA equity investment.

      Loss on Impairments of Assets. During the third fiscal quarter ended May 31, 2005, we recorded an impairment of $2.5 million, primarily on wheat milling equipment at a closed facility.

      Minority Interests. Minority interests of $18.0 million for the three months ended May 31, 2005 increased by $1.5 million (9%) compared to the three months ended May 31, 2004. This increase was primarily a result of more profitable operations within our majority-owned subsidiaries compared to the three months ended May 31, 2004. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary which we consolidate in our Energy segment.

      Income Taxes. Income tax expense of $17.9 million for the three months ended May 31, 2005 compares with $8.9 million for the three months ended May 31, 2004. The resulting effective tax rates for the three months ended May 31, 2005 and 2004 were 14.0% and 9.7%, respectively. The federal and state

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statutory rate applied to nonpatronage business activity was 38.9% for the periods ended May 31, 2005 and 2004. The income taxes and effective tax rate vary each period upon profitability and nonpatronage business activity during each of the comparable periods.

      Discontinued Operations. During the three months ended May, 31, 2005, we reclassified our Mexican foods operations, previously reported in Corporate and Other, along with gains and losses recognized on sales of assets, and impairments on assets for sale, as discontinued operations that were sold or have met required criteria for such classification. In the Consolidated Statements of Operations (unaudited) all of our Mexican foods operations have been accounted for as discontinued operations. Accordingly, current and prior operating results have been restated to report those operations as discontinued. The amounts recorded for the three months ended May 31, 2005 and 2004 were $4.8 million ($2.9 million, net of taxes) and $2.8 million ($1.7 million, net of taxes), respectively.

Comparison of the nine months ended May 31, 2005 and 2004

      General. We recorded income from continuing operations before income taxes of $174.7 million during the nine months ended May 31, 2005 compared to $162.6 million in the nine months ended May 31, 2004, an increase of $12.1 million (7%). Our earnings for 2005 included a $35.0 million impairment charge related to our investment in CF Industries, which we recorded in the first quarter of the current fiscal year.

      Our Energy segment generated income from continuing operations before income taxes of $116.5 million for the nine months ended May 31, 2005 compared with $93.1 million for the nine months ended May 31, 2004. This increase in earnings of $23.4 million (25%) is primarily attributable to higher margins on refined fuels, which resulted mainly from increased global demand, but were partially offset by decreased propane earnings, compared to the same nine-month period of the previous year.

      Our Ag Business segment generated income from continuing operations before income taxes of $37.5 million for the nine months ended May 31, 2005 compared to $40.1 million for the nine months ended May 31, 2004, a decrease in earnings of $2.6 million (6%). Our grain marketing operations improved earnings by $24.6 million, of which $18.5 million of the improvement is related to certain Chinese nonperformance of contracts, as previously discussed. Our country operations recorded improved earnings of $4.3 million. The activity in this segment also includes our proportionate share of earnings from our agronomy related investments. Partially offsetting the improvements in earnings is the decrease in earnings of $35.0 million, primarily due to an impairment of our investment in CF Industries, Inc. During the first fiscal quarter of fiscal year 2005, we determined that the carrying value of our investment in CF Industries, Inc., a domestic fertilizer manufacturing company in which we hold a minority interest, should be reduced by $35.0 million, resulting in an impairment charge to our first fiscal quarter results. The net effect to income after taxes was $32.1 million. Natural gas, the primary component in nitrogen fertilizer, tends to be more expensive in the United States than in most other parts of the world. As a result, CF Industries, Inc. has incurred significant losses in recent years because of increased costs for raw materials while at the same time imports of less expensive nitrogen fertilizer have increased. Based upon this evaluation, we determined that it was appropriate to decrease our carrying value in the investment by $35.0 million with an impairment charge to income during the fiscal quarter ended November 30, 2004. Our proportionate share of earnings from our other agronomy equity investments increased by $3.5 million for the nine months ended May 31, 2005 compared to the same period in 2004.

      Our Processing segment generated income from continuing operations before income taxes of $12.0 million for the nine months ended May 31, 2005 compared to $21.9 million for the nine months ended May 31, 2004, a decrease in earnings of $9.9 million (45%). Oilseed processing earnings decreased $12.3 million, which was primarily the result of lower crushing margins, partially offset by improved oilseed refining margins. The lower crushing margins are due to higher input costs. Higher demand for soybeans in foreign markets have increased the cost of soybeans used in crushing operations. Our share of earnings from Horizon, our wheat milling joint venture, decreased $1.8 million for the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004. In addition, we recorded an impairment

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of $2.5 million, primarily on wheat milling equipment at a closed facility. Partially offsetting these decreases in earnings was our share of earnings from Ventura Foods, our packaged foods joint venture, which increased $6.7 million compared to the prior year.

      Corporate and Other generated income from continuing operations before income taxes of $8.7 million for the nine months ended May 31, 2005 compared to $7.5 million for the nine months ended May 31, 2004, an increase in earnings of $1.2 million (15%). The primary increase in earnings was $3.4 million in a gain on sale of investment held in Corporate and Other as compared to the previous years nine-month period ended May 31, 2004. This increase was partially offset by our business solutions operations which reflected decreased earnings of $2.2 million, primarily as a result of reduced hedging and insurance income and increased expenses.

      Net Income. Consolidated net income for the nine months ended May 31, 2005 was $133.7 million compared to $140.6 million for the nine months ended May 31, 2004, which represents a $6.9 million (5%) decrease.

      Net Sales. Consolidated net sales were $8.4 billion for the nine months ended May 31, 2005 compared to $7.9 billion for the nine months ended May 31, 2004, which represents a $492.5 million (6%) increase.

      Our Energy segment net sales, after elimination of intersegment sales, of $3.9 billion increased $1,130.8 million (41%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004. During the nine months ended May 31, 2005 and 2004, the Energy segment recorded sales to the Ag Business segment of $117.2 million and $87.4 million, respectively. The net sales increase of $1,130.8 million is comprised of a net increase of $1,053.8 million related to price appreciation on refined fuels and propane products and $77.0 million related to a net increase in sales volume. Refined fuels net sales increased $866.7 million (44%), of which $736.9 million was related to a net average selling price increase and $129.8 million was related to increased volumes. The sales price of refined fuels increased $0.39 per gallon (38%) and volumes increased 5% when comparing the nine months ended May 31, 2005 with the same period a year ago. Higher crude oil costs and global supply and demand contributed to the increase in refined fuels selling prices. Propane net sales increased by $127.5 million (30%), of which $124.2 million was related to a net average selling price increase and $3.3 million was due to increased volumes compared to the same nine-month period in the previous year. Propane prices increased $0.20 per gallon (29%) and sales volume increased 1% in comparison to the same period of the prior year. Higher propane prices are reflective of the crude oil price increases during the nine months ended May 31, 2005 compared to the same period in 2004.

      Our Ag Business segment net sales, after elimination of intersegment sales, of $4.1 billion decreased $535.9 million (12%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004. Grain net sales in our Ag Business segment totaled $3,362.7 million and $3,952.7 million during the nine months ended May 31, 2005 and 2004, respectively. The grain net sales decrease of $590.0 million (15%) is attributable to decreased average selling grain prices of $334.8 million, and $255.2 million was related to decreased volumes during the nine months ended May 31, 2005 compared to the same period last fiscal year. The average sales price of all grain and oilseed commodities sold reflected a decrease of $0.52 per bushel (9%). Commodity prices in general decreased due to a strong fall 2004 harvest that produced good yields throughout most of the United States and the quality of most grains were rated as excellent or good. The average market price per bushel of soybeans, spring wheat and corn were approximately $2.22, $0.49 and $0.87, respectively, less than the prices on those same grains as compared to the nine months ended May 31, 2004. Volumes decreased 7% during the nine months ended May 31, 2005 compared with the same period of a year ago. Corn and winter wheat reflect the largest volume decreases compared to the nine months ended May 31, 2004. The decreases in grain volumes are offset by increased volumes in our two Pacific Northwest equity investments. Our Ag Business segment non-grain net sales of $697.1 million increased by $54.0 million (8%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004, primarily the result of increased sales of energy and crop nutrient products, partially offset by decreased feed and seed sales. The average selling

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price of energy products increased due to overall market conditions while volumes were fairly consistent to the nine months ended May 31, 2004.

      Our Processing segment net sales, after elimination of intersegment sales, of $429.0 million decreased $102.4 million (19%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004. Sales in processing are entirely our oilseed sales, of which the oilseed processing decrease of $80.7 million (29%) is primarily $88.8 million due to lower average sales price, partially offset by $8.1 million due to 4% increase in sales volumes. Oilseed refining sales decreased $21.7 million (9%), of which $25.3 million was due to lower average sales price, partially offset by $3.6 million due to 2% increase in sales volume. The average selling price of processed oilseed decreased $76 per ton and the average selling price of refined oilseed products decreased $0.03 per pound compared to the same nine-month period of the previous year. The change in price is primarily related to overall global market conditions for soybean meal and oil.

      Other Revenues. Other revenues of $128.4 million increased $17.8 million (16%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004. The majority of our other revenue is generated within our Ag Business segment and Corporate and Other. Our Ag Business segment’s country operations elevator and agri-service centers receives other revenues from activities related to production agriculture which include grain storage, grain cleaning, fertilizer spreading, crop protection product spraying and other services of this nature, and our grain marketing operations receives other revenues at our export terminals from activities related to loading vessels. Other revenues within the Ag Business segment increased $17.8 million (25%) primarily due to increased grain storage and drying revenues.

      Cost of Goods Sold. Cost of goods sold of $8.2 billion increased $444.3 million (6%) during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004.

      Our Energy segment cost of goods sold, after elimination of intersegment costs, of $3.7 billion increased by $1,088.8 million (41%) during the nine months ended May 31, 2005 compared to the same period of the prior year, primarily due to increased average costs of refined fuels and propane products. On a more product-specific basis, the average cost of refined fuels increased by $0.39 (38%) per gallon and volumes increased 5% compared to the nine months ended May 31, 2004. The average cost increase on refined fuels is reflective of higher input costs at our two crude oil refineries and higher average prices on the refined products that we purchased for resale compared to the nine months ended May 31, 2004. The average per unit cost of crude oil purchased for the two refineries increased 43% compared to the nine months ended May 31, 2004. The average cost of propane increased $0.20 (31%) per gallon and volumes increased by 1% compared to the nine months ended May 31, 2004. The average price of propane increased due to higher input costs related to global demand.

      Our Ag Business cost of goods sold, after elimination of intersegment costs, of $4.0 billion decreased $554.4 million (12%) during the nine months ended May 31, 2005 compared to the same period of the prior year. Grain cost of goods sold in our Ag Business segment totaled $3,314.2 million and $3,924.8 million during the nine months ended May 31, 2005 and 2004, respectively. The cost of grains and oilseed procured through our Ag Business segment decreased $610.6 million (16%) compared to the nine months ended May 31, 2004, primarily the result of a $0.41 (9%) average cost per bushel decrease and a 7% decrease in volumes as compared to the prior year. Corn and winter wheat reflected the largest volume decreases compared to the nine months ended May 31, 2004. Commodity prices on soybeans, spring wheat and corn have decreased compared to the high prices that were prevalent during the majority of fiscal 2004. Volumes of corn and winter wheat have decreased, primarily due to global demand on our export joint venture companies in the Pacific Northwest. Our Ag Business segment cost of goods sold, excluding the cost of grains procured through this segment, increased during the nine months ended May 31, 2005 compared to the nine months ended May 31, 2004, primarily due to energy and crop nutrient products, partially offset by decreased cost of feed and seed products. The average cost of energy products increased due to overall market condition while volumes stayed fairly consistent to the nine months ended May 31, 2004.

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      Our Processing segment cost of goods sold, after elimination of intersegment costs, of $424.4 million decreased $90.0 million (18%) compared to the nine months ended May 31, 2004, which was primarily due to net decreased input costs of soybeans processed at our two crushing plants.

      Marketing, General and Administrative. Marketing, general and administrative expenses of $145.9 million for the nine months ended May 31, 2005 increased by $5.0 million (4%) compared to the nine months ended May 31, 2004. The net increase is primarily due to higher administrative costs in our Ag Business segment and inflation.

      Gain on Sale of Investments. During the second fiscal quarter of fiscal 2005, Corporate and Other sold stock in an investment, for cash proceeds of $7.4 million and recorded a gain of $3.4 million. During the third quarter of fiscal 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. Our Ag Business segment received cash of $0.7 million during the nine months ended May 31, 2004 from the settlement of a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.

      Interest. Interest expense of $38.8 million for the nine months ended May 31, 2005 increased $2.1 million (6%) compared to the nine months ended May 31, 2004. The average short-term interest rate increase of 1.34% was partially offset by the average level of short-term borrowings decrease of $264.0 million during the nine months ended May 31, 2005 compared to the same period in 2004.

      Equity Loss (Income) from Investments. Equity income from investments of $74.1 million for the nine months ended May 31, 2005 favorably changed by $9.9 million (15%) compared to the nine months ended May 31, 2004. The net increase in equity income from investments was attributable to improved earnings from investments within our Processing, Ag Business and Energy segments, and Corporate and Other of $4.7 million, $3.5 million, $1.4 million and $0.3 million, respectively.

      Our Processing segment generated improved earnings of $4.7 million from equity investments. Ventura Foods, our oilseed-based products and packaged foods joint venture, recorded increased earnings of $6.4 million, partially offset by Horizon, our wheat milling joint venture, which recorded decreased earnings of $1.7 million compared to the same nine months in the previous year, The Ventura Foods earnings improvement is primarily the result of improved operating margins, offset by depressed margins in our wheat milling joint venture.

      Our Ag Business segment generated improved earnings of $3.5 million from equity investments. Equity investments within the Ag Business segment increases were 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 $1.6 million increase in equity income from our investment in TEMCO, a joint venture, which exports primarily corn and soybeans. Similar conditions contributed to a $0.3 million improvement in equity income from our wheat exporting investment in United Harvest. Our country operations also had increases in equity investments of $0.6 million. Our investments in a Canadian joint venture contributed improved earnings of $1.5 million. Crop nutrient volumes increased 5% compared to the previous period, however, these increases were partially offset by our equity investment in Agriliance, which decreased $0.2 million.

      Our Energy segment generated improved earnings of $1.4 million related to improved margins in an NCRA equity investment, and Corporate and Other generated improved earnings of $0.3 million from equity investments as compared to the nine months ended May 31, 2004.

      Loss on Impairments of Assets. We recorded a pretax impairment loss on our CF Industries, Inc. investment of $35.0 million in our fiscal quarter ended November 30, 2004, as previously discussed, and during the third fiscal quarter ended May 31, 2005, an additional impairment of $2.5 million, primarily on wheat milling equipment at a closed facility.

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      Minority Interests. Minority interests of $30.9 million for the nine months ended May 31, 2005 increased by $7.3 million (31%) compared to the nine months ended May 31, 2004. This increase was primarily a result of more profitable operations within our majority-owned subsidiaries compared to the nine months ended May 31, 2004. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary, which we consolidate in our Energy segment.

      Income Taxes. Income tax expense of $24.8 million for the nine months ended May 31, 2005 compares with $18.6 million for the nine months ended May 31, 2004. Effective tax rates for the nine months ended May 31, 2005 and 2004 were 14.2% and 11.4%, respectively. Excluding the CF Industries, Inc. previously discussed, the resulting effective tax rates for the nine months ended May 31, 2005 and 2004 were 11.8% and 11.4%, respectively. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the periods ended May 31, 2005 and 2004. The income taxes and effective tax rate vary each period upon profitability and nonpatronage business activity during each of the comparable periods.

      Discontinued Operations. During the three months ended May, 31, 2005, we reclassified our Mexican foods operations, previously reported in Corporate and Other, along with gains and losses recognized on sales of assets, and impairments on assets for sale, as discontinued operations that were sold or have met required criteria for such classification. In the Consolidated Statements of Operations (unaudited) all of our Mexican foods operations have been accounted for as discontinued operations. Accordingly, current and prior operating results have been restated to report those operations as discontinued. The amounts recorded for the nine months ended May 31, 2005 and 2004 were $26.6 million ($16.3 million, net of taxes) and $5.6 million ($3.4 million, net of taxes), respectively.

Liquidity and Capital Resources

      On May 31, 2005, we had working capital, defined as current assets less current liabilities, of $636.5 million, and a current ratio, defined as current assets divided by current liabilities, of 1.4 to 1.0 compared to working capital of $493.4 million, and a current ratio of 1.3 to 1.0 on August 31, 2004. On May 31, 2004, we had working capital of $446.4 million, and a current ratio of 1.2 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. The increase in working capital between August 31, 2004 and May 31, 2005 is primarily due to earnings and the addition of $125.0 million in long-term debt during this period. This financing was initiated in part to fund capital expenditures related to low sulfur fuel regulations discussed below in Cash Flows from Investing Activities.

      During May, 2005 we renewed and expanded our committed lines of revolving credit which are used primarily to finance inventories and receivables. The previous established credit lines consisted of a $750 million 364-day revolver and a $150 million three-year revolver. The current committed credit facilities consist of a $700 million 364-day revolver and a $300 million five-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 current credit facilities are the same as the terms of the credit facilities they replaced in all material respects, except interest rate spreads over the LIBOR rate are reduced under the current credit facilities. On May 31, 2005, we had $425.9 million outstanding on these lines compared with $445.3 million on May 31, 2004. We believe that we have adequate liquidity to cover any increase in net operating assets and liabilities in the foreseeable 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 preceding cautionary statements, and may affect net operating assets and liabilities, and liquidity.

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      Cash flows used by operating activities were $98.0 million for the nine months ended May 31, 2005 compared to $107.4 million for the nine months ended May 31, 2004. Volatility in cash flows from operations for these periods is primarily the result of changing grain and crude oil prices as well as grain inventory quantities. Cash usage was comparable during the current nine-month period to the same period a year ago due to increases in grain and crude oil prices during both periods as well as an increase in grain inventory quantities during the current nine-month period. During the nine months ended May 31, 2005 grain prices increased for both soybeans ($0.53 per bushel, 8%) and spring wheat ($.01 cent per bushel, less than 1%) between August 31, 2004 and May 31, 2005, and corn, another high volume commodity, saw a price decline during that period ($.06 per bushel, 3%). Grain inventory quantities increased 29.6 million bushels (52%) during the same period. Crude oil prices on May 31, 2005 increased $9.85 per barrel (23%) when compared to August 31, 2004. During the period between August 31, 2003 and May 31, 2004, the market price per bushel of spring wheat, soybeans and corn were $0.33 (9%), $2.14 (36%), and $0.59 (24%) greater than their respective values on August 31, 2003. Crude oil prices on May 31, 2004 increased $8.31 per barrel (26%) when compared to August 31, 2003. These increases in grain and crude oil prices and grain inventories had the effect of contributing significantly to cash usage during both nine-month periods. Crude oil prices are expected to be volatile throughout the balance of the fiscal year. Grain prices are influenced significantly by global projections of grain stocks available until the next harvest.

      Our operating activities used net cash of $98.0 million during the nine months ended May 31, 2005. Net income of $133.7 million and net non-cash expenses of $76.4 million were offset by an increase in net operating assets and liabilities of $308.1 million, resulting in the use of net cash in operating activities. The primary components of net non-cash expenses included depreciation and amortization of $81.2 million, loss on impairments of assets of $37.5 million and minority interests of $30.9 million, partially offset by income from equity investments of $74.1 million. The increase in net operating assets and liabilities was caused primarily by an increase in receivables and inventories, as a result of increases in the market value of our three primary grain commodities, crude oil prices, and inventory quantities, as explained previously. These and less significant factors increased net operating assets and liabilities by $308.1 million, and represented the largest use of cash from operations.

      Our operating activities used net cash of $107.4 million during the nine months ended May 31, 2004. Net income of $140.6 million and net non-cash expenses of $21.4 million were offset by an increase in net operating assets and liabilities of $269.4 million. The primary components of net non-cash expenses included depreciation and amortization of $80.5 million and minority interests of $23.6 million, partially offset by income from equity investments of $64.2 million. The increase in net operating assets and liabilities was caused primarily by increases in the market value of our three primary grain commodities, and an increase in crude oil prices, as explained previously. These and less significant factors increased net operating assets and liabilities by $269.4 million, and represented the largest use of cash from operations.

      Our operating activities provided net cash of $46.9 million during the three months ended May 31, 2005. Net income of $106.9 million was partially offset by net non-cash income of $3.9 million and an increase in net operating assets and liabilities of $56.1 million, resulting in this net cash provided by operating activities. The primary components of net non-cash income included income from equity investments of $57.6 million partially offset by depreciation and amortization of $26.7 million and minority interest of $18.0 million. The increase in net operating assets and liabilities on May 31, 2005 compared to February 28, 2005 was caused primarily by an increase in receivables from the sale of seasonal inventories during the spring planting season partially offset by a decrease in the inventory sold.

      Our operating activities provided net cash of $257.8 million during the three months ended May 31, 2004. Net income of $81.4 million and a decrease in net operating assets and liabilities of $182.1 million were partially offset by net non-cash expenses of $5.7 million. The primary component of net non-cash expenses included depreciation and amortization of $26.7 million and minority interests of $16.4 million, which were partially offset by income from equity investments of $32.4 million. The decrease in net operating assets and liabilities was caused primarily by lower gas prices on May 31, 2004 compared to

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February 29, 2004, as well as decreased seasonal inventories at our country operations locations, partially offset by increased receivables from the sale of those inventories.

Cash Flows from Investing Activities

      For the nine months ended May 31, 2005 and 2004, the net cash flows used in our investing activities totaled $115.1 million and $105.9 million, respectively.

      The acquisition of property, plant and equipment comprised the primary use of cash totaling $187.4 million and $168.4 million for the nine months ended May 31, 2005 and 2004, respectively. For the year ending August 31, 2005, we expect 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 our Laurel, Montana refinery and $311.0 million for NCRA’s McPherson, Kansas refinery, of which $82.8 million has been spent at our Laurel refinery and $218.4 million has been spent by NCRA at the McPherson refinery as of May 31, 2005. We expect all of these compliance projects at the refineries to be complete by December 31, 2005, and are funding them with a combination of cash flows from operations and debt proceeds.

      In July 2005, our Board of Directors approved a capital project at our Laurel, Montana refinery for $325 million that will allow us to produce more refined fuels and less asphalt from a barrel of crude oil. We expect to complete the project in fiscal 2008, and anticipate funding it with a combination of cash flows from operations and debt proceeds.

      In October 2003, we, 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 our 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 we, and NCRA have agreed to implement at the relevant refinery over the next several years. The consent decrees also require us, and NCRA to pay approximately $0.5 million in aggregate civil cash penalties. We, 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. We do not believe that the settlements will have a material adverse effect on us, or NCRA.

      Investments made during the nine months ended May 31, 2005 and 2004 totaled $4.9 million and $48.8 million, respectively. During the nine months ended May 31, 2004 we purchased all of Farmland’s interest in Agriliance for a cash payment of $27.5 million. Subsequent to purchasing Farmland’s interest, we own 50% of the economic and governance interests in Agriliance. Also during the nine months ended May 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.

      During the nine months ended May 31, 2005 and 2004, the changes in notes receivable resulted in decreased cash flows of $25.7 million and $9.0 million, respectively, primarily from related party notes receivables at NCRA with its minority owners, Growmark, Inc. and MFA Oil Company.

      Distributions to minority owners for the nine months ended May 31, 2005 and 2004 were $5.0 million and $1.3 million, respectively, and were primarily related to NCRA. NCRA’s cash distributions to members decreased as a percent of earnings in fiscal years 2002 through 2004, when compared to prior years, due to the funding requirements for environmental capital expenditures previously discussed.

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      Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $9.4 million and $31.7 million for the nine months ended May 31, 2005 and 2004, respectively. During the nine months ended May 31, 2004, proceeds of $19.8 million were from a sale-leaseback transaction of equipment at the Fairmont, Minnesota soybean crushing plant. During the nine months ended May 31, 2005, we sold a portion of our Mexican Foods businesses for proceeds of $38.3 million which includes $13.8 million received for equipment that was purchased off leases during the same period. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $55.7 million and $61.8 million for the nine months ended May 31, 2005 and 2004, respectively. In addition, during the nine months ended May 31, 2005, we sold an investment held in Corporate and Other for proceeds of $7.4 million and recorded a gain of $3.4 million. During the nine months ended May 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 gain of $14.7 million.

      For the three months ended May 31, 2005 and 2004, the net cash flows used in our investing activities totaled $50.0 million and $78.0 million, respectively.

      The acquisition of property, plant and equipment comprised the primary use of cash totaling $64.5 million and $66.2 million for the three months ended May 31, 2005 and 2004, respectively.

      Investments made during the three months ended May 31, 2005 and 2004 totaled $2.7 million and $47.8 million, respectively. During the three months ended May 31, 2004 we purchased all of Farmland’s interest in Agriliance for a cash payment of $27.5 million, as previously discussed. Also during the three months ended May 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.

      During the three months ended May 31, 2005 and 2004, the changes in notes receivable resulted in decreases in cash flows of $34.8 million and $3.1 million, respectively, primarily from related party notes receivables at NCRA with its minority owners, Growmark, Inc. and MFA Oil.

      Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $1.5 million and $2.0 million for the three months ended May 31, 2005 and 2004, respectively. During the three months ended May 31, 2005, we sold a portion of our Mexican Foods businesses for proceeds of $38.3 million which includes $13.8 million received for equipment that was purchased off leases during the same period. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $16.7 million and $12.1 million for the three months ended May 31, 2005 and 2004, respectively.

Cash Flows from Financing Activities

      We finance our working capital needs through short-term lines of credit with a syndication of domestic and international banks. In May 2005, we renewed and expanded our committed lines of revolving credit. The previously established credit lines consisted of a $750.0 million 364-day revolver and a $150.0 million three-year revolver. The current committed credit facilities consist of a $700.0 million 364-day revolver and a $300.0 million five-year revolver. The terms of the current credit facilities are the same as the terms of the credit facilities they replaced in all material respects, except interest rate spreads over the LIBOR rate are reduced under the current credit facilities. In addition to these lines of credit, we have a two-year revolving credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million committed. On May 31, 2005, August 31, 2004 and May 31, 2004, we had total short-term indebtedness outstanding on these various facilities and other short-term notes payable totaling $427.0 million, $116.1 million and $446.5 million, respectively. In September 2004, $125.0 million received from private placement debt proceeds was used to pay down our 364-day credit facility.

      We finance our 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, we established a long-term credit agreement through the cooperative banks. This facility committed

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$200.0 million of long-term borrowing capacity to us, with repayments through fiscal year 2009. The amount outstanding on this credit facility was $118.9 million, $131.2 million and $132.8 million on May 31, 2005, August 31, 2004 and May 31, 2004, respectively. Interest rates on May 31, 2005 ranged from 4.52% to 7.13%. Repayments of $4.1 million were made on this facility during each quarter of the nine months ended May 31, 2005. Repayments of $1.6 million were made on this facility during each quarter of the nine months ended May 31, 2004.

      Also in June 1998, we 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, we entered into a note purchase and private shelf agreement with Prudential Insurance Company. The long-term note in the amount of $25.0 million 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, and has an interest rate of 7.43%. Repayments are due in equal annual installments of approximately $7.9 million, in the years 2005 through 2011. During the nine months ended May 31, 2005, repayments on these notes totaled $11.4 million.

      In October 2002, we 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, we 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, we 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 nine-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.

      In September 2004, we 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.

      Through NCRA, we had revolving term loans outstanding of $9.8 million, $12.0 million and $12.8 million for the periods ended May 31, 2005, August 31, 2004 and May 31, 2004, respectively. Interest rates on May 31, 2005 ranged from 6.48% to 6.99%. Repayments of $0.8 million were made during each quarter of the nine months ended May 31, 2005 and 2004.

      On May 31, 2005, we had total long-term debt outstanding of $778.0 million, of which $138.2 million was bank financing, $623.6 million was private placement debt and $16.2 million was industrial development revenue bonds and other notes and contracts payable. The aggregate amount of long-term debt payable presented in the Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended August 31, 2004 has not materially changed during the nine months ended May 31, 2005, other than for the $125.0 million of private placement debt discussed previously, of which repayments will start in 2011. On May 31, 2004, we had total long-term debt outstanding of $686.7 million. Our long-term debt is unsecured except for other notes and contracts in the amount of $9.6 million; however, restrictive covenants under various agreements have requirements for maintenance of minimum working capital levels and other financial ratios. In addition, NCRA term loans of $9.8 million are collateralized by NCRA’s investment in CoBank. We were in compliance with all debt covenants and restrictions as of May 31, 2005.

      During the nine months ended May 31, 2005 and 2004, we borrowed on a long-term basis $125.0 million and $35.5 million, respectively, and during the same periods repaid long-term debt of $31.0 million and $12.4 million, respectively.

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      During the three months ended May 31, 2005 we had no additional long-term borrowing and during the three months ended May 31, 2004 we borrowed on a long-term basis $35.0 million. During the three months ended May 31, 2005 and 2004, we repaid long-term debt of $6.8 million and $4.1 million, respectively.

      In accordance with the bylaws and by action of our Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year. Patronage refunds are calculated based on amounts using financial statement earnings. The cash portion of the patronage distribution is determined annually by our Board of Directors, with the balance issued in the form of capital equity certificates. The patronage earnings from the fiscal year ended August 31, 2004 were distributed during the three months ended February 28, 2005. The cash portion of this distribution, deemed by our Board of Directors to be 30%, was $51.5 million. During the three months ended February 29, 2004, we distributed cash patronage of $28.7 million from the patronage earnings of the fiscal year ended August 31, 2003.

      Effective September 1, 2004, redemptions of capital equity certificates approved by our 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. These equity redemptions are not automatic, and will only be redeemed upon approval by our Board of Directors. 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 our 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. Total cash redemptions related to the year ended August 31, 2004, to be distributed in fiscal year 2005, are expected to be approximately $32.1 million, of which $1.0 million was redeemed during the three months ended May 31, 2005 compared to $2.9 million during the three months ended May 31, 2004, and $20.3 million was redeemed during the nine months ended May 31, 2005 compared to $5.7 million during the nine months ended May 31, 2004.

      We also redeemed an additional $20.0 million of capital equity certificates during the three months ended February 28, 2005 by issuing shares of our 8% Cumulative Redeemable Preferred Stock (Preferred Stock) pursuant to a registration statement on Form S-2 filed with the Securities and Exchange Commission. During the three months ended February 29, 2004 we redeemed $13.0 million of capital equity certificates by issuing shares of our Preferred Stock.

      On May 31, 2005, we had 4,951,434 shares of Preferred Stock outstanding with a total redemption value of approximately $123.8 million, excluding accumulated dividends. The Preferred Stock accumulates dividends at a rate of 8% per year, and dividends are payable quarterly.

Off Balance Sheet Financing Arrangements

Lease Commitments:

      Our lease commitments presented in Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended August 31, 2004 have not materially changed during the nine months ended May 31, 2005.

Guarantees:

      We are a guarantor for lines of credit for related companies, of which $32.5 million was outstanding on May 31, 2005. Our bank covenants allow maximum guarantees of $150.0 million. All outstanding loans with respective creditors are current as of May 31, 2005.

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Debt:

      We have no material off balance sheet debt.

Critical Accounting Policies

      Our Critical Accounting Policies are presented in our Annual Report on Form 10-K for the year ended August 31, 2004. There have been no changes to these policies during the nine months ended May 31, 2005.

Contractual Obligations

      Our contractual obligations are presented in Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended August 31, 2004. Other than the balance sheet changes in payables and long-term debt, the total obligations have not materially changed during the nine months ended May 31, 2005.

Effect of Inflation and Foreign Currency Transactions

      Inflation and foreign currency fluctuations have not had a significant effect on our operations. During fiscal 2003, we opened a grain marketing office in Brazil that impacts our exposure to foreign currency fluctuations, but to date, there has been no material effect.

Recent Accounting Pronouncements

      On November 24, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires those items to be recognized as current-period charges regardless of whether they meet the “abnormal” criterion outlined in ARB 43. It also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently analyzing what the effects of adopting this standard will have on us.

      On December 16, 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from fair value measurement in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

      We did not experience any material changes in market risk exposures for the period ended May 31, 2005, that affect the quantitative and qualitative disclosures presented in our Annual Report on Form 10-K for the year ended August 31, 2004.

Item 4. 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 our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of May 31, 2005. 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.

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      During the third fiscal quarter ended May 31, 2005, 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.

Exhibits

Exhibit			Description
	10	.1	2005 Amended and Restated Credit Agreement (Revolving Loan) by and between CHS Inc. and the Syndication Parties dated as of May 19, 2005
	31	.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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PART II. OTHER INFORMATION

Item 1. Not applicable

Item 2. Not applicable

Item 3. Not applicable

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

      Our members approved changes to our Articles of Incorporation and Bylaws which allow us to take advantage of the repeal of the Federal Dividend Allocation Rule (DAR). Members voted 99 percent in favor of the changes through a mail ballot which was counted during a special meeting May 3, 2005 at our headquarters. Sixty-four percent of eligible votes were cast on the issue. A simple majority of votes cast was require for approval.

      With the repeal of the DAR in late 2004, and passage of the article and bylaw changes, we will no longer be required to reduce our net earnings available for patronage refunds by the dividends paid on capital stock or other proprietary capital interest.

Item 5. Not applicable

Item 6. Exhibits

Exhibit			Description
	10	.1	2005 Amended and Restated Credit Agreement (Revolving Loan) by and between CHS Inc. and the Syndication Parties dated as of May 19, 2005
	31	.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHS Inc.

(Registrant)

/s/ John Schmitz

John Schmitz

Executive Vice President and

Chief Financial Officer

July 8, 2005

(Date)

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