##### Table of Contents









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
    November 30, 2003.                                       
|          
|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 333-17865

Exchange Act Filing 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 November 30, 2003        
|      |  |                             
|NONE  |  | NONE                        



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TABLE OF CONTENTS



|                                                       |  |  |  |  |  |  |  | 
|------------------------------------------------------ |  |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                         
|CHS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 
|CONSOLIDATED STATEMENTS OF OPERATIONS                 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|PART II. OTHER INFORMATION                            
|SIGNATURES                                            
|EX-31.1 Certification Pursuant to Section 302         
|EX-31.2 Certification Pursuant to Section 302         
|EX-32.1 Certification Pursuant to Section 906         
|EX-32.2 Certification Pursuant to Section 906         
|EX-99.1 Cautionary Statement                          



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##### Table of Contents



INDEX

|                              |  |                                                                                                                            |    |      |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                                            |    | Page
|                              |  |                                                                                                                            |    |     
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements                                                                                                       |    |      |    | 
|                              |  | Consolidated Balance Sheets as of
    November 30, 2003 (unaudited), August 31, 2003 and
    November 30, 2002 (unaudited) |    |      | 3  | 
|                              |  | Consolidated Statements of Operations for the
    three months ended November 30, 2003 and 2002 (unaudited)                |    |      | 4  | 
|                              |  | Consolidated Statements of Cash Flows for the
    three months ended November 30, 2003 and 2002 (unaudited)                |    |      | 5  | 
|                              |  | Notes to Consolidated Financial Statements
    (unaudited)                                                                 |    |      | 6  | 
|                             
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                  |    |      | 13 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                             |    |      | 21 | 
|Item 4.                       |  | Controls and Procedures                                                                                                    |    |      | 21 | 
|                             
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                                          |    |      | 23 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                                                    |    |      | 23 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                           |    |      | 23 | 
|                             
|SIGNATURE PAGE                |  |                                                                                                                            | 24 |     

1



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##### Table of Contents






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 Exhibit 99.1, under the caption Cautionary
Statement to this Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 2003.

2



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|        |                     
|------- | --------------------
|Item 1. | Financial Statements




CHS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |         |           | 
|---------------------------------- | --------------------------------- | ------------------------------ | --------- | ---------- | --------- | ------------ | --------- | ------- | --------- |  | --------- | ------- | --------- | 
|                                   |                                   | November 30,                   |           | August 31, |           | November 30,
|                                   |                                   | 2003                           |           | 2003       |           | 2002        
|                                   |                                   |                                |           |            |           |             
|                                   |                                   | (Unaudited)                    |           |            |           | (Unaudited) 
|                                   |                                   |                               
|                                   |                                   | (Dollars in thousands)        
|ASSETS                            
|Current assets:                    |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   | Cash and cash equivalents         |                                | $         | 119,086    |           |              | $         | 168,249 |           |  | $         | 138,823 |          
|                                   | Receivables                       |                                |           | 818,632    |           |              |           | 763,780 |           |  |           | 824,899 |          
|                                   | Inventories                       |                                |           | 1,022,523  |           |              |           | 801,883 |           |  |           | 929,995 |          
|                                   | Other current assets              |                                |           | 292,669    |           |              |           | 178,661 |           |  |           | 202,828 |          
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   |                                   | Total current assets           |           |            | 2,252,910 |              |           |         | 1,912,573 |  |           |         | 2,096,545 | 
|Investments                        |                                   |                                | 519,107   |            |           |              | 532,893   |         |           |  | 489,289   |        
|Property, plant and equipment      |                                   |                                | 1,135,351 |            |           |              | 1,122,982 |         |           |  | 1,068,786 |        
|Other assets                       |                                   |                                | 248,915   |            |           |              | 239,520   |         |           |  | 181,068   |        
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   |                                   | Total assets                   |           | $          | 4,156,283 |              |           | $       | 3,807,968 |  |           | $       | 3,835,688 | 
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                  
|LIABILITIES AND EQUITIES          
|Current liabilities:               |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   | Notes payable                     |                                | $         | 376,846    |           |              | $         | 251,131 |           |  | $         | 246,061 |          
|                                   | Current portion of long-term debt |                                |           | 17,437     |           |              |           | 14,951  |           |  |           | 89,026  |          
|                                   | Customer credit balances          |                                |           | 72,254     |           |              |           | 58,417  |           |  |           | 91,792  |          
|                                   | Customer advance payments         |                                |           | 168,370    |           |              |           | 123,383 |           |  |           | 222,137 |          
|                                   | Checks and drafts outstanding     |                                |           | 83,110     |           |              |           | 85,239  |           |  |           | 70,150  |          
|                                   | Accounts payable                  |                                |           | 700,885    |           |              |           | 627,250 |           |  |           | 642,537 |          
|                                   | Accrued expenses                  |                                |           | 281,593    |           |              |           | 254,415 |           |  |           | 231,003 |          
|                                   | Dividends and equities payable    |                                |           | 63,082     |           |              |           | 39,049  |           |  |           | 72,088  |          
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   |                                   | Total current liabilities      |           |            | 1,763,577 |              |           |         | 1,453,835 |  |           |         | 1,664,794 | 
|Long-term debt                     |                                   |                                | 642,187   |            |           |              | 648,222   |         |           |  | 654,196   |        
|Other liabilities                  |                                   |                                | 118,204   |            |           |              | 111,555   |         |           |  | 116,144   |        
|Minority interests in subsidiaries |                                   |                                | 116,181   |            |           |              | 112,645   |         |           |  | 94,877    |        
|Commitments and contingencies      |                                   |                                |           |            |           |              |           |         |           |  |           |        
|Equities                           |                                   |                                | 1,516,134 |            |           |              | 1,481,711 |         |           |  | 1,305,677 |        
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        
|                                   |                                   | Total liabilities and equities |           | $          | 4,156,283 |              |           | $       | 3,807,968 |  |           | $       | 3,835,688 | 
|                                   |                                   |                                |           |            |           |              |           |         |           |  |           |        

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

3



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##### Table of Contents



CHS INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                      |                     |                            |           |           |  |   |           |           | 
|------------------------------------- | ------------------- | -------------------------- | --------- | --------- |  | - | --------- | --------- | 
|                                      |                     |                           
|                                      |                     | For the Three Months Ended
|                                      |                     | November 30,              
|                                      |                     |                           
|                                      |                     | 2003                       |           | 2002     
|                                      |                     |                            |           |          
|                                      |                     |                           
|                                      |                     | (Unaudited)               
|                                      |                     | (Dollars in thousands)    
|REVENUES:                             |                     |                            |           |           |  |   |           |          
|                                      | Net sales           |                            | $         | 2,489,344 |  |   | $         | 2,400,596 | 
|                                      | Patronage dividends |                            |           | 320       |  |   |           | 166       | 
|                                      | Other revenues      |                            |           | 32,713    |  |   |           | 35,089    | 
|                                      |                     |                            |           |           |  |   |           |          
|                                      |                     |                            | 2,522,377 |           |  |   | 2,435,851 |          
|Cost of goods sold                    |                     |                            | 2,414,530 |           |  |   | 2,338,559 |          
|Marketing, general and administrative |                     |                            | 47,732    |           |  |   | 43,148    |          
|                                      |                     |                            |           |           |  |   |           |          
|Operating earnings                    |                     |                            | 60,115    |           |  |   | 54,144    |          
|Gain on legal settlements             |                     |                            |           |           |  |   | (1,797    | )        
|Interest                              |                     |                            | 11,540    |           |  |   | 12,813    |          
|Equity income from investments        |                     |                            | (13,707   | )         |  |   | (8,165    | )        
|Minority interests                    |                     |                            | 3,922     |           |  |   | 5,431     |          
|                                      |                     |                            |           |           |  |   |           |          
|Income before income taxes            |                     |                            | 58,360    |           |  |   | 45,862    |          
|Income taxes                          |                     |                            | 7,621     |           |  |   | 5,506     |          
|                                      |                     |                            |           |           |  |   |           |          
|Net income                            |                     | $                          | 50,739    |           |  | $ | 40,356    |          
|                                      |                     |                            |           |           |  |   |           |          

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

4



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CHS INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |         |        |          |         |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------- | ------------------------------------------------------- | ------- | -------- | -------- | ------- | ------ | -------- | ------- | -
|                                                         |                                                                                                 |                                                         
|                                                         |                                                                                                 | For the Three Months                                    
|                                                         |                                                                                                 | Ended November 30,                                      
|                                                         |                                                                                                 |                                                         
|                                                         |                                                                                                 | 2003                                                     |                                       | 2002                                                   
|                                                         |                                                                                                 |                                                          |                                       |                                                        
|                                                         |                                                                                                 |                                                         
|                                                         |                                                                                                 | (Unaudited)                                             
|                                                         |                                                                                                 | (Dollars in thousands)                                  
|Cash flows from operating activities:                    |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         | Net income                                                                                      |                                                          | $                                     | 50,739                                                  |         |          | $        | 40,356  |       
|                                                         | Adjustments to reconcile net income to net cash
    (used in) provided by operating activities: |                                                          |                                       |                                                         |         |          |          |         |       
|                                                         |                                                                                                 | Depreciation and amortization                            |                                       |                                                         | 26,815  |          |          |         | 25,866 |         
|                                                         |                                                                                                 | Noncash net income from equity investments               |                                       |                                                         | (13,707 | )        |          |         | (8,165 | )       
|                                                         |                                                                                                 | Minority interests                                       |                                       |                                                         | 3,922   |          |          |         | 5,431  |         
|                                                         |                                                                                                 | Noncash portion of patronage dividends received          |                                       |                                                         | (311    | )        |          |         | (184   | )       
|                                                         |                                                                                                 | (Gain) loss on sale of property, plant and
    equipment |                                       |                                                         | (57     | )        |          |         | 463    |         
|                                                         |                                                                                                 | Other, net                                               |                                       |                                                         | 227     |          |          |         | 446    |         
|                                                         |                                                                                                 | Changes in operating assets and liabilities:             |                                       |                                                         |         |          |          |         |        |         
|                                                         |                                                                                                 |                                                          | Receivables                           |                                                         |         | (45,022  | )        |         |        | (65,984  | )      
|                                                         |                                                                                                 |                                                          | Inventories                           |                                                         |         | (214,886 | )        |         |        | (161,877 | )      
|                                                         |                                                                                                 |                                                          | Other current assets and other assets |                                                         |         | (122,914 | )        |         |        | (66,771  | )      
|                                                         |                                                                                                 |                                                          | Customer credit balances              |                                                         |         | 12,838   |          |         |        | 65,331   |        
|                                                         |                                                                                                 |                                                          | Customer advance payments             |                                                         |         | 44,975   |          |         |        | 53,014   |        
|                                                         |                                                                                                 |                                                          | Accounts payable and accrued expenses |                                                         |         | 90,274   |          |         |        | 129,305  |        
|                                                         |                                                                                                 |                                                          | Other liabilities                     |                                                         |         | 6,649    |          |         |        | (2,136   | )      
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         |                                                                                                 |                                                          |                                       | Net cash (used in) provided by operating
    activities |         |          | (160,458 | )       |        |          | 15,095  |  
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|Cash flows from investing activities:                    |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         | Acquisition of property, plant and equipment                                                    |                                                          |                                       | (52,233                                                 | )       |          |          | (40,613 | )     
|                                                         | Proceeds from disposition of property, plant and
    equipment                                  |                                                          |                                       | 21,664                                                  |         |          |          | 4,748   |       
|                                                         | Investments                                                                                     |                                                          |                                       | (10                                                     | )       |          |          | (1,384  | )     
|                                                         | Equity investments redeemed                                                                     |                                                          |                                       | 27,493                                                  |         |          |          | 15,313  |       
|                                                         | Investments redeemed                                                                            |                                                          |                                       | 3,458                                                   |         |          |          | 1,713   |       
|                                                         | Changes in notes receivable                                                                     |                                                          |                                       | (6,144                                                  | )       |          |          | (11,241 | )     
|                                                         | Acquisitions of intangibles                                                                     |                                                          |                                       |                                                         |         |          |          | (379    | )     
|                                                         | Acquisitions of working capital, net                                                            |                                                          |                                       |                                                         |         |          |          | (13,030 | )     
|                                                         | Distribution to minority owners                                                                 |                                                          |                                       | (1,338                                                  | )       |          |          | (463    | )     
|                                                         | Other investing activities, net                                                                 |                                                          |                                       | 2,507                                                   |         |          |          | 444     |       
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         |                                                                                                 |                                                          |                                       | Net cash used in investing activities                   |         |          | (4,603   | )       |        |          | (44,892 | )
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|Cash flows from financing activities:                    |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         | Changes in notes payable                                                                        |                                                          |                                       | 125,715                                                 |         |          |          | (86,453 | )     
|                                                         | Long-term debt borrowings                                                                       |                                                          |                                       |                                                         |         |          |          | 175,000 |       
|                                                         | Principal payments on long-term debt                                                            |                                                          |                                       | (3,771                                                  | )       |          |          | (3,902  | )     
|                                                         | Payments on derivative instruments                                                              |                                                          |                                       |                                                         |         |          |          | (7,574  | )     
|                                                         | Changes in checks and drafts outstanding                                                        |                                                          |                                       | (2,904                                                  | )       |          |          | (14,101 | )     
|                                                         | Proceeds from sale of preferred stock, net of
    expenses                                      |                                                          |                                       |                                                         |         |          |          | 64      |       
|                                                         | Preferred stock dividends paid                                                                  |                                                          |                                       | (1,874                                                  | )       |          |          | (184    | )     
|                                                         | Retirements of equities                                                                         |                                                          |                                       | (1,268                                                  | )       |          |          | (2,422  | )     
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|                                                         |                                                                                                 |                                                          |                                       | Net cash provided by financing activities               |         |          | 115,898  |         |        |          | 60,428  |  
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|Net (decrease) increase in cash and cash
    equivalents |                                                                                                 |                                                          | (49,163                               | )                                                       |         |          | 30,631   |        
|Cash and cash equivalents at beginning of period         |                                                                                                 |                                                          | 168,249                               |                                                         |         |          | 108,192  |        
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        
|Cash and cash equivalents at end of period               |                                                                                                 | $                                                        | 119,086                               |                                                         |         | $        | 138,823  |        
|                                                         |                                                                                                 |                                                          |                                       |                                                         |         |          |          |        

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

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CHS INC. AND SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(Dollars in thousands)




|        |                    
|------- | -------------------
|Note 1. | Accounting Policies

The unaudited consolidated balance sheets as of
November 30, 2003 and 2002, and the statements of
operations and cash flows for the three months ended
November 30, 2003 and 2002 reflect, in the opinion of
management of CHS Inc. (CHS or the Company), all normal
recurring adjustments necessary for a fair presentation 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 the Companys businesses. The
consolidated balance sheet data as of August 31, 2003 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 the
accounts of the Company and all of its 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, 2003, included in the
Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission on November 21, 2003.



| |                                         
| | ----------------------------------------
| | Goodwill and Other Intangible
    Assets

The Company had $27.1 million of goodwill as
of November 30, 2003, and during the three months then
ended, the Company had no additions or disposals of goodwill.

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 3 to 15 years). The gross
carrying amount of these intangible assets is $35.3 million
with total accumulated amortization of $10.7 million as of
November 30, 2003. Intangible assets of $0.2 million
(non-cash acquisition) and $0.4 million were acquired
during the three months ended November 30, 2003 and 2002,
respectively. Total amortization expense for intangible assets
during the three-month periods ended November 30, 2003 and
2002, was approximately $1.3 million and $1.2 million,
respectively. The estimated amortization expense related to
intangible assets subject to amortization for the next five
years will approximate $2.8 million annually.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In December 2003, the FASB revised FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. The interpretation addresses
consolidation of certain entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. It also requires consolidation by
the primary beneficiary. For public entities the interpretation
applies to interests in variable interest entities for periods
ending after December 15, 2003. The Company has not yet
determined what the effects of adopting this standard will have
on the Company.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in certain circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The Statement is to be
implemented

6



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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

by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Adoption of this
standard did not have any effect on the Company.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to prior
years amounts to conform to current year classifications.
In addition, the Company previously amended its Quarterly Report
on Form 10-Q for the three months ended November 30,
2002 to restate its financial statements for such period. The
restatement reduced previously reported net sales and cost of
goods sold to eliminate intercompany sales. These
reclassifications and restatement had no effect on previously
reported net income, equities and comprehensive income, or cash
flows.

Note 2.     Receivables

|                                      |  |              |         |            |  |              |         |  |  |   |         | 
|------------------------------------- |  | ------------ | ------- | ---------- |  | ------------ | ------- |  |  | - | ------- | 
|                                      |  | November 30, |         | August 31, |  | November 30,
|                                      |  | 2003         |         | 2003       |  | 2002        
|                                      |  |              |         |            |  |             
|Trade                                 |  | $            | 798,238 |            |  | $            | 748,398 |  |  | $ | 797,559 | 
|Other                                 |  |              | 53,029  |            |  |              | 47,000  |  |  |   | 53,992  | 
|                                      |  |              |         |            |  |              |         |  |  |   |         | 
|                                      |  |              | 851,267 |            |  |              | 795,398 |  |  |   | 851,551 | 
|Less allowances for doubtful accounts |  |              | 32,635  |            |  |              | 31,618  |  |  |   | 26,652  | 
|                                      |  |              |         |            |  |              |         |  |  |   |         | 
|                                      |  | $            | 818,632 |            |  | $            | 763,780 |  |  | $ | 824,899 | 
|                                      |  |              |         |            |  |              |         |  |  |   |         | 



|        |            
|------- | -----------
|Note 3. | Inventories

|                            |  |              |           |            |  |              |         |  |  |   |         | 
|--------------------------- |  | ------------ | --------- | ---------- |  | ------------ | ------- |  |  | - | ------- | 
|                            |  | November 30, |           | August 31, |  | November 30,
|                            |  | 2003         |           | 2003       |  | 2002        
|                            |  |              |           |            |  |             
|Grain and oilseed           |  | $            | 553,784   |            |  | $            | 370,381 |  |  | $ | 556,962 | 
|Energy                      |  |              | 322,417   |            |  |              | 292,095 |  |  |   | 217,155 | 
|Feed and farm supplies      |  |              | 113,784   |            |  |              | 95,589  |  |  |   | 102,553 | 
|Processed grain and oilseed |  |              | 31,396    |            |  |              | 42,688  |  |  |   | 44,904  | 
|Other                       |  |              | 1,142     |            |  |              | 1,130   |  |  |   | 8,421   | 
|                            |  |              |           |            |  |              |         |  |  |   |         | 
|                            |  | $            | 1,022,523 |            |  | $            | 801,883 |  |  | $ | 929,995 | 
|                            |  |              |           |            |  |              |         |  |  |   |         | 



|        |            
|------- | -----------
|Note 4. | Investments

In April, 2003, the Company acquired an
additional economic interest in the wholesale crop protection
products business of Agriliance, LLC (the CPP
Business), which constitutes only a part of
Agriliances business operations. The Company acquired
13.1% of the CPP Business for a cash payment of
$34.3 million. The economic interests in Agriliance, LLC
are owned 50% by Land OLakes, 25% plus an additional 13.1%
of the CPP Business by the Company and 25% less 13.1% of the CPP
Business by Farmland. The ownership or governance interests in
Agriliance, LLC did not change with the purchase of this
additional economic interest. Agriliance, LLC earnings are split
among the members based upon the respective economic interests
of each member.

The following provides summarized unaudited
financial information for the Companys unconsolidated
significant equity investments in Ventura Foods, LLC (50% equity
ownership) and Agriliance, LLC, for the three-month periods as
indicated below.

7



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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



| |                   
| | ------------------
| | Ventura Foods, LLC

|             |  |                      |         |      |  |   |         | 
|------------ |  | -------------------- | ------- | ---- |  | - | ------- | 
|             |  |                     
|             |  | For the Three Months
|             |  | Ended November 30,  
|             |  |                     
|             |  | 2003                 |         | 2002
|             |  |                      |         |     
|Net sales    |  | $                    | 344,119 |      |  | $ | 287,025 | 
|Gross profit |  |                      | 52,908  |      |  |   | 49,728  | 
|Net income   |  |                      | 23,616  |      |  |   | 20,791  | 

|                        |  |              |         |      |  |   |         | 
|----------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                        |  |             
|                        |  | November 30,
|                        |  |             
|                        |  | 2003         |         | 2002
|                        |  |              |         |     
|Current assets          |  | $            | 192,103 |      |  | $ | 184,362 | 
|Non-current assets      |  |              | 235,236 |      |  |   | 232,264 | 
|Current liabilities     |  |              | 216,754 |      |  |   | 148,808 | 
|Non-current liabilities |  |              | 21,738  |      |  |   | 85,050  | 



| |                
| | ---------------
| | Agriliance, LLC

|             |  |                      |         |      |  |   |         |  
|------------ |  | -------------------- | ------- | ---- |  | - | ------- | -
|             |  |                     
|             |  | For the Three Months
|             |  | Ended November 30,  
|             |  |                     
|             |  | 2003                 |         | 2002
|             |  |                      |         |     
|Net sales    |  | $                    | 605,253 |      |  | $ | 592,730 |  
|Gross profit |  |                      | 51,218  |      |  |   | 48,522  |  
|Net loss     |  |                      | (14,442 | )    |  |   | (20,110 | )

|                        |  |              |           |      |  |   |           | 
|----------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                        |  |             
|                        |  | November 30,
|                        |  |             
|                        |  | 2003         |           | 2002
|                        |  |              |           |     
|Current assets          |  | $            | 1,389,626 |      |  | $ | 1,153,138 | 
|Non-current assets      |  |              | 120,055   |      |  |   | 133,474   | 
|Current liabilities     |  |              | 1,268,587 |      |  |   | 970,562   | 
|Non-current liabilities |  |              | 26,784    |      |  |   | 107,820   | 



|        |         
|------- | --------
|Note 5. | Equities

In January 2003, the Board of Directors
authorized the sale and issuance of up to 3,500,000 shares
of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a
price of $25.00 per share. The Company filed a registration
statement on Form S-2 with the Securities and Exchange
Commission registering 3,000,000 shares of the New
Preferred (with an additional over-allotment option of
450,000 shares granted to the underwriters), which was
declared effective on January 27, 2003. The shares were
subsequently sold for proceeds of $86.3 million
(3,450,000 shares), and are listed on the Nasdaq National
Market. Expenses related to the issuance of the New Preferred
were $3.8 million.

The Company had previously suspended sales of its
8% Preferred Stock (Old Preferred) after raising
$9.5 million (9,454,874 shares), and on
February 25, 2003 the Company filed a post-effective
amendment to terminate the offering of the Old Preferred shares.
On March 5, 2003, the Companys Board of Directors
authorized the redemption and conversion of the Old Preferred
shares. A redemption notification and a conversion election form
were sent to holders of the Old Preferred shares on
March 21, 2003 explaining that on April 25, 2003 all
shares of the Old Preferred would be redeemed by the Company for
$1 per share unless they were converted into shares of the
Companys New Preferred. The conversion did not change the
base liquidation amount or dividend amount of the Old Preferred,
since 25 shares of the Old Preferred converted to
1 share of the New Preferred. The total Old Preferred
converted to the New Preferred was $7.5 million
(7,452,439 shares), and the balance of the Old Preferred
(2,002,435 shares)

8



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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

was redeemed in cash at $1 per share. As of
November 30, 2003 the Company had $93.7 million
(3,748,099 shares) of the New Preferred outstanding.

The Companys Board of Directors authorized
the issuance of up to $13.0 million of the New Preferred in
exchange for capital equity certificates. On November 26,
2003 the Company filed a registration statement on Form S-2
with the Securities and Exchange Commission registering the
additional New Preferred, however, the registration statement is
pending review and approval by the Securities and Exchange
Commission and is not yet effective.



|        |                     
|------- | --------------------
|Note 6. | Comprehensive Income

For the three months ended November 30, 2003
and 2002, total comprehensive income amounted to
$51.3 million and $34.6 million, respectively.
Accumulated other comprehensive loss on November 30, 2003,
August 31, 2003 and November 30, 2002 was
$17.8 million, $18.3 million and $57.7 million,
respectively.



|        |                    
|------- | -------------------
|Note 7. | Non-Cash Activities

During the three months ended November 30,
2003 and 2002 the Company accrued dividends and equities payable
of $26.5 million and $18.0 million, respectively.

During the three months ended November 30,
2003 the Company issued capital equity certificates in the
amount of $10.0 million in exchange for elevator properties.



|        |                  
|------- | -----------------
|Note 8. | Segment Reporting

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

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

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

Expenses that are incurred at the corporate level
for the purpose of the general operation of the Company are
allocated to the segments based upon factors which management
considers to be non-asymmetrical. Nevertheless, due to
efficiencies in scale, cost allocations, and intersegment
activity, management does not represent that these segments, if
operated independently, would report the income before income
taxes and other financial information as presented.

9



---



##### Table of Contents



CHS INC. AND SUBSIDIARIES


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

Segment information for the three months ended
November 30, 2003 and 2002 is as follows:

|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |           |  
|------------------------------------------------ | -------------------------------------------------- | -------- | - | ------- | - | ------------ | ------- | --------- | - | ---------- | ------- | --------- | - | ----------- | --------- | --------- | - |  | ------- | ------- | - |  | ----- | ------- | - |  | -------- | -------- | - |  | --------- | --------- | -
|                                                 |                                                    |          |   |         |   | Country      |         |           |   | Processed  |         |           |   |             |           |          
|                                                 |                                                    |          |   |         |   | Operations   |         | Grain     |   | Grains and |         |           |   | Reconciling |           |          
|                                                 |                                                    | Agronomy |   | Energy  |   | and Services |         | Marketing |   | Foods      |         | Other     |   | Amounts     |           | Total    
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |          
|For the Three Months Ended November 30,
    2003 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Net sales                                          |          |   |         |   |              | $       | 916,040   |   |            | $       | 502,944   |   |             | $         | 1,205,217 |   |  | $       | 150,625 |   |  |       |         |   |  | $        | (285,482 | ) |  | $         | 2,489,344 |  
|                                                 | Patronage dividends                                |          |   |         |   |              |         | 15        |   |            |         | 20        |   |             |           | 261       |   |  |         |         |   |  | $     | 24      |   |  |          |          |   |  |           | 320       |  
|                                                 | Other revenues                                     |          |   |         |   |              |         | 2,854     |   |            |         | 21,078    |   |             |           | 6,920     |   |  |         | 812     |   |  |       | 1,049   |   |  |          |          |   |  |           | 32,713    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 |                                                    |          |   |         |   |              | 918,909 |           |   |            | 524,042 |           |   |             | 1,212,398 |           |   |  | 151,437 |         |   |  | 1,073 |         |   |  | (285,482 | )        |   |  | 2,522,377 |          
|                                                 | Cost of goods sold                                 |          |   |         |   |              |         | 859,948   |   |            |         | 496,202   |   |             |           | 1,203,596 |   |  |         | 140,266 |   |  |       |         |   |  |          | (285,482 | ) |  |           | 2,414,530 |  
|                                                 | Marketing, general and administrative              |          | $ | 1,314   |   |              |         | 14,566    |   |            |         | 15,151    |   |             |           | 6,189     |   |  |         | 9,105   |   |  |       | 1,407   |   |  |          |          |   |  |           | 47,732    |  
|                                                 | Interest                                           |          |   | (83     | ) |              |         | 3,799     |   |            |         | 3,245     |   |             |           | 1,154     |   |  |         | 3,516   |   |  |       | (91     | ) |  |          |          |   |  |           | 11,540    |  
|                                                 | Equity loss (income) from investments              |          |   | 3,131   |   |              |         | (296      | ) |            |         | (25       | ) |             |           | (1,975    | ) |  |         | (14,542 | ) |  |       |        |   |  |          |          |   |  |           | (13,707   | )
|                                                 | Minority interests                                 |          |   |         |   |              |         | 3,689     |   |            |         | 233       |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 3,922     |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | (Loss) income before income taxes                  |          | $ | (4,362  | ) |              | $       | 37,203    |   |            | $       | 9,236     |   |             | $         | 3,434     |   |  | $       | 13,092  |   |  | $     | (243    | ) |  | $        |         |   |  | $         | 58,360    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Intersegment sales                                 |          |   |         |   |              | $       | (27,136   | ) |            | $       | (247,981  | ) |             | $         | (10,365   | ) |  |         |         |   |  |       |         |   |  | $        | 285,482  |   |  | $         |          |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Goodwill assets                                    |          |   |         |   |              | $       | 3,185     |   |            | $       | 262       |   |             |           |           |   |  | $       | 23,605  |   |  |       |         |   |  |          |          |   |  | $         | 27,052    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Capital expenditures                               |          |   |         |   |              | $       | 32,389    |   |            | $       | 8,633     |   |             | $         | 2,998     |   |  | $       | 7,861   |   |  | $     | 352     |   |  |          |          |   |  | $         | 52,233    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Depreciation and amortization                      |          | $ | 312     |   |              | $       | 14,413    |   |            | $       | 5,220     |   |             | $         | 2,277     |   |  | $       | 3,816   |   |  | $     | 777     |   |  |          |          |   |  | $         | 26,815    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Total identifiable assets at November 30,
    2003 |          | $ | 269,320 |   |              | $       | 1,386,239 |   |            | $       | 1,113,530 |   |             | $         | 597,638   |   |  | $       | 508,118 |   |  | $     | 281,438 |   |  |          |          |   |  | $         | 4,156,283 |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|For the Three Months Ended November 30,
    2002 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Net sales                                          |          |   |         |   |              | $       | 911,589   |   |            | $       | 489,066   |   |             | $         | 1,161,554 |   |  | $       | 113,833 |   |  |       |         |   |  | $        | (275,446 | ) |  | $         | 2,400,596 |  
|                                                 | Patronage dividends                                |          |   |         |   |              |         | 13        |   |            |         | 51        |   |             |           | 78        |   |  |         |         |   |  | $     | 24      |   |  |          |          |   |  |           | 166       |  
|                                                 | Other revenues                                     |          |   |         |   |              |         | 2,736     |   |            |         | 24,537    |   |             |           | 6,604     |   |  |         | 909     |   |  |       | 303     |   |  |          |          |   |  |           | 35,089    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 |                                                    |          |   |         |   |              | 914,338 |           |   |            | 513,654 |           |   |             | 1,168,236 |           |   |  | 114,742 |         |   |  | 327   |         |   |  | (275,446 | )        |   |  | 2,435,851 |          
|                                                 | Cost of goods sold                                 |          |   |         |   |              |         | 860,329   |   |            |         | 487,910   |   |             |           | 1,159,447 |   |  |         | 106,319 |   |  |       |         |   |  |          | (275,446 | ) |  |           | 2,338,559 |  
|                                                 | Marketing, general and administrative              |          | $ | 1,140   |   |              |         | 14,185    |   |            |         | 12,603    |   |             |           | 6,071     |   |  |         | 8,088   |   |  |       | 1,061   |   |  |          |          |   |  |           | 43,148    |  
|                                                 | Gain on legal settlement                           |          |   |         |   |              |         |           |   |            |         | (1,797    | ) |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | (1,797    | )
|                                                 | Interest                                           |          |   | (298    | ) |              |         | 4,010     |   |            |         | 5,388     |   |             |           | 1,858     |   |  |         | 2,346   |   |  |       | (491    | ) |  |          |          |   |  |           | 12,813    |  
|                                                 | Equity loss (income) from investments              |          |   | 4,018   |   |              |         | (320      | ) |            |         | (215      | ) |             |           | (814      | ) |  |         | (10,834 | ) |  |       |         |   |  |          |          |   |  |           | (8,165    | )
|                                                 | Minority interests                                 |          |   |         |   |              |         | 5,135     |   |            |         | 296       |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           | 5,431     |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | (Loss) income before income taxes                  |          | $ | (4,860  | ) |              | $       | 30,999    |   |            | $       | 9,469     |   |             | $         | 1,674     |   |  | $       | 8,823   |   |  | $     | (243    | ) |  | $        |         |   |  | $         | 45,862    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Intersegment sales                                 |          |   |         |   |              | $       | (24,010   | ) |            | $       | (251,128  | ) |             | $         | (308      | ) |  |         |         |   |  |       |         |   |  | $        | 275,446  |   |  | $         |          |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Goodwill assets                                    |          |   |         |   |              | $       | 3,667     |   |            | $       | 262       |   |             |           |           |   |  | $       | 23,605  |   |  |       |         |   |  |          |          |   |  | $         | 27,534    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Capital expenditures                               |          |   |         |   |              | $       | 17,959    |   |            | $       | 10,322    |   |             | $         | 517       |   |  | $       | 11,156  |   |  | $     | 659     |   |  |          |          |   |  | $         | 40,613    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Depreciation and amortization                      |          | $ | 312     |   |              | $       | 14,538    |   |            | $       | 5,421     |   |             | $         | 1,605     |   |  | $       | 3,135   |   |  | $     | 855     |   |  |          |          |   |  | $         | 25,866    |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          
|                                                 | Total identifiable assets at November 30,
    2002 |          | $ | 232,942 |   |              | $       | 1,311,583 |   |            | $       | 1,035,287 |   |             | $         | 594,278   |   |  | $       | 457,480 |   |  | $     | 204,118 |   |  |          |          |   |  | $         | 3,835,688 |  
|                                                 |                                                    |          |   |         |   |              |         |           |   |            |         |           |   |             |           |           |   |  |         |         |   |  |       |         |   |  |          |          |   |  |           |          

10



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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



|        |                              
|------- | -----------------------------
|Note 9. | Commitments and Contingencies



| |              
| | -------------
| | Environmental

The Company, including NCRA, expects to incur
capital expenditures related to 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 the Companys Laurel,
Montana refinery and $324.0 million for NCRAs
McPherson, Kansas refinery, of which $13.4 million has been
spent at the Laurel refinery and $53.7 million has been
spent by NCRA at the McPherson refinery as of November 30,
2003. The Company expects all of these compliance capital
expenditures at the refineries to be complete by
December 31, 2005, and anticipates funding these projects
with a combination of cash flows from operations and debt
proceeds.



| |           
| | ----------
| | Guarantees

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation
addresses the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under guarantees. The interpretation also clarifies the
requirements related to the recognition of a liability by a
guarantor at the inception of the guarantee for obligations the
guarantor has undertaken in issuing the guarantee.

The Company makes seasonal and term loans to
member cooperatives, and its wholly-owned subsidiary, Fin-Ag,
Inc., makes loans for agricultural purposes to individual
producers. Some of these loans are sold to CoBank, ACB, and the
Company guarantees a portion of the loans sold. In addition, the
Company also guarantees certain debt and obligations under
contracts for its subsidiaries and members.

11



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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

The Companys obligations pursuant to its
guarantees as of November 30, 2003 are as follows:

|                                                                      |  |                        |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                            |  |                                                 |  |                                                                                                                      
|--------------------------------------------------------------------- |  | ---------------------- | ------ | ------------ |  | --------- | ------ | --------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ |  | ----------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|                                                                      |  | Guarantee/             |        | Exposure on  |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                           
|                                                                      |  | Maximum                |        | November 30, |  | Nature of |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  | Assets Held                               
|Entities                                                              |  | Exposure               |        | 2003         |  | Guarantee |        | Expiration Date |  | Triggering Event                                                                                                                                                      |  | Recourse Provisions                                                                                                                                                                        |  | as Collateral                             
|                                                                      |  |                        |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                           
|                                                                      |  |                        |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                           
|                                                                      |  | (Dollars in thousands) |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                           
|The Companys financial services cooperative
    loans sold to CoBank |  |                        | *      |              |  | $         | 6,694  |                 |  | 10% of the obligations of borrowers (agri-
    cultural 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                        |  |                        | *      |              |  |           | 35,597 |                 |  | 15% of the obligations of borrowers under credit
    agreements for some of the loans sold, and 100% of the
    obligations of borrowers for the remaining loans sold |  | None stated, but may be terminated by either
    party upon 90 days prior notice in regard to future
    obligations                                                                       |  | Credit agreement default                   |  | Subrogation against borrower                    |  | Some or all assets of borrower are held as
    collateral and should be sufficient to cover guarantee exposure       
|Horizon Milling, LLC                                                  |  | $                      | 5,000  |              |  |           |       |                 |  | Indemnification and reimbursement of 24% of
    damages related to Horizon Milling LLCs performance under
    a flour sales agreement                                |  | None stated, but may be terminated by any party
    upon 90 days prior notice in regard to future obligations                                                                              |  | Non-performance under flour sale agreement |  | Subrogation against Horizon Milling, LLC        |  | None                                                                                                                 
|TEMCO, LLC                                                            |  | $                      | 15,000 |              |  |           | 9,687  |                 |  | Obligations by TEMCO, LLC under credit agreement                                                                                                                      |  | None stated                                                                                                                                                                                |  | Credit agreement default                   |  | Subrogation against TEMCO, LLC                  |  | None                                                                                                                 
|North Valley Petroleum, LLC                                           |  | $                      | 194    |              |  |           | 177    |                 |  | Obligations by North Valley Petroleum, LLC under
    credit agreement                                                                                                 |  | None stated                                                                                                                                                                                |  | Credit agreement default                   |  | Subrogation against North Valley Petroleum, LLC |  | None                                                                                                                 
|Third parties                                                         |  |                        | *      |              |  |           | 4,514  |                 |  | Surety for, or indemnification of surety for
    sales contracts between affiliates and sellers of grain under
    deferred payment contracts                         |  | Annual renewal on December 1st in regard to
    surety for one third party, otherwise none stated and may be
    terminated by the Company at any time in regard to future
    obligations |  | Nonpayment                                 |  | Subrogation against affiliates                  |  | Some or all assets of borrower are held as
    collateral but might not be sufficient to cover guarantee
    exposure
|                                                                      |  |                        |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                            |  |                                                 |  |                                                                                                                      
|                                                                      |  |                        |        |              |  | $         | 56,669 |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                            |  |                                                 |  |                                                                                                                      
|                                                                      |  |                        |        |              |  |           |        |                 |  |                                                                                                                                                                       |  |                                                                                                                                                                                            |  |                                            |  |                                                 |  |                                                                                                                      



---



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

12



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##### Table of Contents





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

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

The Company has five distinct business segments:
Agronomy, Energy, Country Operations and Services, Grain
Marketing and Processed Grains and Foods. Summary data for each
of these segments for the three months ended November 30,
2003 and 2002 is shown in Note 8 to the Consolidated
Financial Statements.

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

The Companys revenue can be significantly
affected by global market prices for commodities such as
petroleum products, natural gas, grain, oilseeds and flour.
Changes in market prices for commodities that the Company
purchases without a corresponding change in the selling prices
of those products can affect revenues and operating earnings.
Commodity prices are affected by a wide range of factors beyond
the Companys control, including the weather, crop damage
due to disease or insects, drought, the availability and
adequacy of supply, government regulation and policies, world
events, and general political and economic conditions.

While the Companys sales and operating
results are derived from businesses and operations which are
wholly-owned and majority-owned, a portion of business
operations are conducted through companies in which the Company
holds ownership interests of 50% or less and does not control
the operations. The Company accounts for these investments
primarily using the equity method of accounting, wherein CHS
records as equity income from investments its proportionate
share of income or loss reported by the entity, without
consolidating the revenues and expenses of the entity in the
Companys consolidated statements of operations. These
investments principally include the Companys 25% ownership
in Agriliance, LLC (Agriliance), the 50% ownership in TEMCO,
LLC, the 50% ownership in United Harvest, LLC, the 24% ownership
in Horizon Milling, LLC (Horizon) and the 50% ownership in
Ventura Foods, LLC (Ventura).

Agriliance is owned and governed by Land
OLakes, Inc. (50%) and United Country Brands, LLC (50%).
United Country Brands, LLC is owned and governed 50% by the
Company and 50% by Farmland Industries, Inc. (Farmland), and was
formed solely to hold a 50% interest in Agriliance. Prior to the
transaction described below, the Companys indirect share
of earnings (economic interest) in Agriliance was 25%, which was
the same as the Companys ownership or governance interest.
Subsequent to the transaction, the Companys indirect
economic interest in Agriliance is no longer the same as the
Companys ownership or governance interest.

In April 2003, the Company acquired an additional
economic interest in the Agriliance wholesale crop protection
business (the CPP Business), which constitutes only
a part of the Agriliance business operations. The Company
acquired 13.1% of the CPP Business for a cash payment of
$34.3 million. The economic interests in Agriliance are
owned 50% by Land OLakes, 25% plus an additional 13.1% of
the CPP Business by the Company and 25% less 13.1% of the CPP
Business by Farmland. The ownership or

13



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##### Table of Contents



governance interests in Agriliance did not change
with the purchase of this additional economic interest.
Agriliances earnings are split among the members based
upon the respective economic interests of each member.


Results of Operations



| |                                                                    
| | -------------------------------------------------------------------
| | Comparison of the Three Months Ended
    November 30, 2003 and 2002

Net Income.Consolidated net income for the three months ended November 30,
2003 was $50.7 million compared to $40.4 million for
the three months ended November 30, 2002, which represents
a $10.3 million (26%) increase. The most significant
increases in earnings, when comparing the three months ended
November 30, 2003 with the same period of a year ago, were
generated with the Companys Energy and Processed Grains
and Foods segments. The Energy segment generated increased
earnings of $6.2 million, primarily as the result of strong
refining margins. The Processed Grains and Foods segment
earnings increased $4.3 million, primarily the result of
improved margins within the soybean crushing and oil packaging
complex. Stronger soymeal margins resulted in the geographical
area of the Companys plants primarily because a
competitors facility was inoperative during much of the
period. Refined soybean oil-based products generated improved
margins primarily due to increased volumes.

Net Sales.Consolidated net sales of $2.5 billion for the three months
ended November 30, 2003 increased $88.7 million (4%)
compared to the three months ended November 30, 2002.

Company-wide grain and oilseed net sales of
$1.3 billion increased $31.9 million (3%) during the
three months ended November 30, 2003 compared with that
sales activity during the three months ended November 30,
2002. Sales consummated by the Grain Marketing segment totaled
$1,205.1 million and $1,161.6 million during the
periods ended November 30, 2003 and 2002, respectively.
Grain sales for the Country Operations and Services segment to
outside customers during these same periods were
$71.4 million and $83.0 million, respectively. Sales
of grain between the Country Operations and Services segment and
the Grain Marketing segment during those periods were
$258.3 million and $251.4 million, respectively. These
intersegment sales are included for segment reporting purposes,
but the Company eliminates all intersegment sales on a
consolidated basis. The net sales increase of $31.9 million
is attributable to higher grain prices during the three month
period ended November 30, 2003 compared to those prevailing
during the same period a year earlier. In an analysis of this
increase in net sales, the weighted average sale price of all
grain and oilseed commodities sold reflected an increase of
$0.22 per bushel (5%) which contributed $63.0 million to
the increase. Volume decreased about 2% during the three month
period ended November 30, 2003 compared with the same three
month period of a year ago, and had the affect of reducing sales
by $31.1 million. Soybeans reflected the largest price
increase, and corn reflected the largest volume decrease.

Energy net sales of $888.9 million increased
$1.3 million (less than 1%) during the three months ended
November 30, 2003 compared with that sales activity during
the three months ended November 30, 2002. During the three
months ended November 30, 2003 and 2002, respectively, the
Energy segment had sales to the Country Operations and Services
segment of $27.1 million and $24.0 million,
respectively. Those intersegment sales are eliminated in
deriving consolidated sales but are included for segment
reporting purposes. The net sales increase of $1.3 million
is comprised of an increase of $72.5 million related to
price appreciation and a decrease in sales of $71.2 million
because of lower sales volume. On a more product-specific basis,
refined fuels prices increased $0.05 per gallon and volumes
decreased 2% comparing the three months ended November 30,
2003 with the same period a year ago. Propane prices increased
$0.15 per gallon and sales volume decreased 19% in
comparison of the same two periods. Refined fuel prices are
generally reflective of crude oil prices. The higher propane
prices reflect lower industry stocks in 2003 as the result of a
cold winter earlier in the calendar year. The lower sales volume
for propane during the three months ended November 30, 2003
is primarily reflective of a dry autumn which offered minimal
opportunity for corn drying (propane is used as the fuel for
corn dryers at grain elevators) and a relatively warm fall
season which reduces its demand for home heating.

14



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##### Table of Contents



Country operations non-grain net sales of
$173.3 million increased by $18.8 million (12%) during
the three months ended November 30, 2003 compared to the
three months ended November 30, 2002, primarily in agronomy
and energy products compared to November 30, 2002.
Fertilizer volume and the net average sales price increased
compared to the previous year. Energy product sales increased
primarily as the result of an increase in the average selling
price of propane compared to the previous year.

Processed Grains and Foods segment net sales of
$150.6 million increased $36.8 million (32%) during
the three months ended November 30, 2003 compared to the
three months ended November 30, 2002. Oilseed processing
net sales increased $37.6 million primarily due to
additional volumes at a new crushing plant in Fairmont,
Minnesota that began operations during the first quarter of
fiscal year 2004 and an average selling price increase of
$0.04 per bushel in refined oilseed products.

Patronage Dividends.Patronage dividends received of $0.3 million increased
$0.2 million during the three months ended
November 30, 2003 compared to the three months ended
November 30, 2002.

Other Revenues.Other revenues of $32.7 million decreased $2.4 million
(7%) during the three months ended November 30, 2003
compared to the three months ended November 30, 2002. The
most significant decrease was in the Country Operations and
Services segment compared to the prior year.

Cost of Goods Sold.Cost of goods sold of $2.4 billion increased $76.0 million
(3%) during the three months ended November 30, 2003
compared to the three months ended November 30, 2002. The
cost of all grains and oilseed procured by the Company through
its Grain Marketing and Country Operations and Services segments
increased 2% compared to the three months ended
November 30, 2002 primarily due to a $0.21 (5%) average
cost per bushel increase, which was partially offset by a 2%
decrease in volumes compared to the prior year. This increase in
cost of goods sold was primarily the result of higher commodity
prices. The Energy segment cost of goods sold decreased by
$0.4 million during the three months ended
November 30, 2003 compared to the same period of the prior
year, primarily due to reduced volumes, which was partially
offset by increased average costs. On a more product-specific
basis, refined fuels volumes decreased by 2%, which was
partially offset by an average cost increase of $0.05 per gallon
compared to the three months ended November 30, 2002. The
average cost increase on refined fuels is reflective of crude
oil prices. Propane volumes decreased 19%, which was partially
offset by an increased average cost of $0.15 per gallon compared
to the three months ended November 30, 2002. Volumes of
propane products were reduced due to a dry autumn, which was
partially offset by an average cost increase due to higher input
costs compared to the three months ended November 30, 2002.
Country operations non-grain cost of goods sold increased by 12%
during the three months ended November 30, 2003 compared to
the three months ended November 30, 2002 due to an
increased average cost per unit on fertilizer and propane
products. The Processed Grains and Foods segment cost of goods
sold increased by $33.9 million (32%) compared to the three
months ended November 30, 2002, which was primarily due to
increased volumes at the new crushing plant in Fairmont,
Minnesota and increased cost of raw materials in oilseed
processing.

Marketing, General and
Administrative.Marketing, general and
administrative expenses of $47.7 million for the three
months ended November 30, 2003 increased by
$4.6 million (11%) compared to the three months ended
November 30, 2002. The net increase is primarily due to
additional expenses within the Country Operations and Services
segment related to acquisitions during 2003.

Gain on Legal
Settlements.The Country Operations
and Services segment received cash of $1.8 million during
the three months ended November 30, 2002 from a class
action lawsuit alleging illegal price fixing against various
feed vitamin product suppliers.

Interest.Interest
expense of $11.5 million for the three months ended
November 30, 2003 decreased by $1.3 million (10%)
compared to the three months ended November 30, 2002. The
average level of short-term borrowings decreased
$76.5 million primarily due to financing lower average
working capital needs and an average short-term interest rate
decrease of 0.7% during the three months ended November 30,
2003 compared to the three months ended November 30, 2002.

15



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##### Table of Contents



Equity income from investments.Equity income from investments of
$13.7 million for the three months ended November 30, 2003
increased $5.5 million (68%) compared to the three months
ended November 30, 2002. This increase is primarily
attributable to improved earnings within the Grain Marketing
segments two exporting joint ventures, improved earnings
by Horizon Milling and improved earnings by Ventura.

A weaker U.S. dollar and poor weather conditions
in certain competing grain exporting countries contributed to a
$0.8 million increase in equity income from the
Companys investment in TEMCO, LLC, a joint venture which
exports corn and soybeans. These same conditions contributed to
a $0.4 million improvement in equity income from the
Companys investment in United Harvest, LLC, a joint
venture which exports wheat. Improved margins resulting
primarily from a reduction in industry supply contributed to a
$2.3 million improvement in equity income derived from the
Companys investment in Horizon Milling. The Companys
equity income from its investment in Ventura improved $1.4
million in comparison to the prior year, primarily due to
increased volumes.

Minority Interests.Minority interests of $3.9 million for the three months
ended November 30, 2003 decreased by $1.5 million
(28%) compared to the three months ended November 30, 2002.
The net change in minority interests during the three months
ended November 30, 2003 compared to the prior year was
primarily a result of more profitable operations within the
Companys majority-owned subsidiaries. Substantially all
minority interests relate to National Cooperative Refinery
Association (NCRA) an approximately 74.5% owned subsidiary.

Income Taxes.Income
tax expense of $7.6 million for the three months ended
November 30, 2003 compares to $5.5 million for the
three months ended November 30, 2002, resulting in
effective tax rates of 13.1% and 12.0%, respectively. The
federal and state statutory rate applied to nonpatronage
business activity was 38.9% for the periods ended
November 30, 2003 and 2002. The income taxes and effective
tax rate vary each period based upon profitability and
nonpatronage business activity during each of the comparable
periods.

Liquidity and Capital Resources

On November 30, 2003 the Company had working
capital, defined as current assets less current liabilities, of
$489.3 million and a current ratio, defined as current
assets divided by current liabilities, of 1.3 to 1.0
compared to working capital of $458.7 million and a current
ratio of 1.3 to 1.0 on August 31, 2003. On
November 30, 2002, the Company had working capital of
$431.8 million and a current ratio of 1.3 to 1.0,
compared to working capital of $249.1 million and a current
ratio of 1.2 to 1.0 on August 31, 2002. In
October 2002, the Company borrowed $175.0 million from a
group of insurance companies on a long-term basis and in January
2003 received net proceeds of $82.5 million from the sale
of preferred stock to the general public. This financing was
initiated in part to fund capital expenditures related to the
low sulfur fuel regulations discussed below in Cash Flows from
Investing Activities. The Company has committed lines of
revolving credit totaling $730.0 million, of which
$376.0 million was drawn on November 30, 2003,
primarily for the purpose of financing receivables and
inventories. These receivables and inventories are highly
liquid. The Company believes that its liquidity is adequate to
cover any increase in net operating assets and liabilities.



| |                           
| | --------------------------
| | 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 Exhibit 99.1 Cautionary
Statement and may affect net operating assets and liabilities
and liquidity.

Cash flows provided by (used in) operating
activities were $(160.5) million and $15.1 million for
the three months ended November 30, 2003 and 2002,
respectively. Volatility in cash flows from operations for these
periods is primarily the result of changing grain prices. On
November 30, 2003, the market price per

16



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##### Table of Contents



bushel of spring wheat, soybeans and corn, were
$0.30 (8%), $1.85 (31%), and $.01 (0%) greater than their
respective values on August 31, 2003. These increases in
grain prices, in combination with larger inventory quantities
due to fall harvest, had the affect of contributing
significantly to an increase in net operating assets and
liabilities values compared with those on August 31, 2003,
thus using cash resources. In contrast, on November 30,
2002, the market price per bushel of spring wheat, soybeans and
corn were $1.35 (26%), $0.35 (6%) and $0.28 (11%) lower than
their respective values on August 31, 2002. While inventory
quantities increased somewhat due to fall harvest, these
declining commodity prices partially mitigated that factor and
net operating assets and liabilities increased only moderately
when compared with those on August 31, 2002.


Operating activities of the Company used net cash
of $160.5 million during the three months ended
November 30, 2003. Net income of $50.7 million and net
non-cash expenses of $16.9 million were offset by an
increase in net operating assets and liabilities of
$228.1 million. The primary components of net non-cash
expenses included depreciation and amortization of
$26.8 million and a partial offset of net income from
equity investments of $13.7 million. The increase in net
operating assets and liabilities was caused primarily by
increases in the prices of the three primary grain commodities
handled by the Company, as explained in the preceding paragraph.
Factors contributing to this price appreciation included a
shortage of transportation and a perceived future shortage of
soybeans due to poor late season growing conditions for that
crop. These and other less significant factors increased net
operating assets and liabilities $228.1 million and was the
largest use of cash from operations. A major part of this
increase in net operating assets and liabilities was financed
with short-term notes payable. Because the change in short-term
notes payable is shown in cash flows from financing activities,
this source of cash does not offset the corresponding use of
cash as part of the cash flows from operating activities in the
Consolidated Statements of Cash Flows.

Operating activities of the Company provided net
cash of $15.1 million during the three months ended
November 30, 2002. Net income of $40.4 million and net
non-cash expenses of $23.8 million were partially offset by
an increase in net operating assets and liabilities
$49.1 million. The primary components of net non-cash
expenses included depreciation and amortization of
$25.9 million and a partial offset of net income from
equity investments of $8.2 million. The increase in net
operating assets and liabilities was primarily due to the
seasonality of grain harvest, with the affect of greater volume
partially offset by lower grain prices. This increase in net
operating assets and liabilities of $49.1 million
represented the largest use of cash generated through operations.

The Company expects that railcars will continue
to be in short supply during the next quarter to transport grain
from its country elevator locations to sale destinations.
Inventories at most of the Companys country operations
elevators are already at near maximum capacity; consequently
this situation is likely not to contribute to an increase in net
operating assets and liabilities, but rather these inventories
will not be reduced at the pace normally experienced. The
Company also expects to increase crop nutrient and crop
protection product inventories and prepayments to suppliers of
these products at its country operations locations during the
next fiscal quarter. At the same time the Company expects this
increase in net operating assets and liabilities to be partially
offset by the collection of prepayments from its own customers
for these products. Prepayments are used frequently for agronomy
products to assure supply, and at times to guarantee price. The
Company believes that it has adequate capacity through its
committed credit facility to meet any likely increase in net
operating assets and liabilities.



| |                                         
| | ----------------------------------------
| | Cash Flows from Investing
    Activities

For the three months ended November 30, 2003
and 2002, the net cash flows used in the Companys
investing activities totaled $4.6 million and
$44.9 million, respectively.

The acquisition of property, plant and equipment
comprised the primary use of cash totaling $52.2 million
and $40.6 million for the three months ended
November 30, 2003 and 2002, respectively. For the three
months ended November 30, 2002, the acquisitions of
property, plant and equipment included $8.5 million
acquired as part of a business. Capital expenditures during the
three months ended

17



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##### Table of Contents



November 30, 2003 included $7.7 million
for the construction of an oilseed processing facility in
Fairmont, Minnesota, with total expenditures for the project at
$76.6 million through November 30, 2003. The Fairmont
facility was essentially complete and operational during the
three months ended November 30, 2003, and during the same
quarter, the Company entered into a sale leaseback transaction
for the facility equipment and received cash proceeds of
$19.8 million from the sale. For the year ended
August 31, 2004 the Company expects to spend approximately
$252.7 million for the acquisition of property, plant and
equipment. Capital expenditures started in fiscal 2002,
primarily related to the U.S. Environmental Protection
Agency (EPA) low sulfur fuel regulations required by 2006,
are expected to be approximately $87.0 million for the
Companys Laurel, Montana refinery and $324.0 million
for NCRAs McPherson, Kansas refinery, of which
$13.4 million has been spent at the Laurel refinery and
$53.7 million has been spent by NCRA at the McPherson
refinery as of November 30, 2003. The Company expects all
of these compliance capital expenditures at the refineries to be
completed by December 31, 2005, and anticipates funding
these projects with a combination of cash flows from operations
and debt proceeds.


Investments made during the three months ended
November 30, 2003 and 2002 totaled $10 thousand and
$1.4 million, respectively.

Acquisitions of intangibles were
$0.4 million for the three months ended November 30,
2002, and net working capital acquired in business acquisitions
was $13.0 million during the same period.

During the three months ended November 30,
2003 and 2002 the changes in notes receivable resulted in
decreases in cash flows of $6.1 million and
$11.2 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 three
months ended November 30, 2003 and 2002 were
$1.3 million and $0.5 million, respectively, and were
primarily related to NCRA. Cash distributions NCRA has made to
its members decreased in 2003 and 2002, due to the funding
requirements for environmental capital expenditures previously
discussed.

Partially offsetting cash outlays in investing
activities were proceeds from the disposition of property, plant
and equipment of $21.7 million and $4.7 million for
the three months ended November 30, 2003 and 2002,
respectively. During the three months ended November 30,
2003, proceeds of $19.8 million were from a sale leaseback
transaction previously discussed. Also partially offsetting cash
usages were distributions received from joint ventures and
investments totaling $31.0 million and $17.0 million
for the three months ended November 30, 2003 and 2002,
respectively.



| |                                         
| | ----------------------------------------
| | Cash Flows from Financing
    Activities

The Company finances its working capital needs
through short-term lines of credit with a syndication of banks.
In May 2003, the Company entered into a 364-day credit facility
of $600.0 million committed. In addition to these lines of
credit, the Company has a 364-day credit facility dedicated to
NCRA, with a syndication of banks in the amount of
$30.0 million committed. On November 30, 2003,
August 31, 2003 and November 30, 2002, the Company had
total short-term indebtedness outstanding on these various
facilities and other short-term notes payable totaling
$376.8 million, $251.1 million and
$246.1 million, respectively. The increase in short-term
notes payable on November 30, 2003 was primarily due to
increased grain prices on November 30, 2003 as compared to
August 31, 2003. The increase in grain prices is related to
a decrease in supply related to poor late summer growing
conditions, as well as increased inventories at country elevator
facilities due to harvest and a shortage of railcars available
to transport the grain to sale destinations. In October 2002,
$175.0 million received from private placement proceeds was
used to pay down the Companys 364-day credit facility.

In June 1998, the Company established a five-year
revolving credit facility with a syndication of banks, with
$200.0 million committed, which expired in May 2003. The
Company had a previous outstanding balance on this facility of
$75.0 million on November 30, 2002.

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In May 2003, the Company established a three-year
revolving credit facility with a syndication of banks, with
$100.0 million committed. There was no outstanding balance
on this new credit facility on November 30, 2003 or
August 31, 2003.

The Company finances its long-term capital needs,
primarily for the acquisition of property, plant and equipment,
with long-term agreements with various insurance companies and
banks. In June 1998, the Company established a long-term credit
agreement through the cooperative banks. This facility committed
$200.0 million of long-term borrowing capacity to the
Company, with repayments through fiscal year 2009. The amount
outstanding on this credit facility was $136.1 million,
$137.8 million and $142.7 million on November 30,
2003, August 31, 2003 and November 30, 2002,
respectively. Interest rates on November 30, 2003 ranged
from 2.04% to 13.0%. Repayments of approximately
$1.6 million were made on this facility during each of the
three months ended November 30, 2003 and 2002.

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

In January 2001, the Company entered into a note
purchase and private shelf agreement with Prudential Insurance
Company. The long-term note in the amount of $25.0 million
has an interest rate of 7.9% and will be repaid in equal annual
installments of approximately $3.6 million, in the years
2005 through 2011. A subsequent note for $55.0 million was
issued in March 2001, related to the private shelf facility. The
$55.0 million note has an interest rate of 7.43% and will
be repaid in equal annual installments of approximately
$7.9 million, in the years 2005 through 2011.

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

The Company, through NCRA, had revolving term
loans outstanding of $14.3 million, $15.0 million and
$17.3 million on November 30, 2003, August 31,
2003 and November 30, 2002, respectively. Interest rates on
November 30, 2003 ranged from 6.48% to 6.99%. Repayments of
approximately $0.8 million were made during each of the
three months ended November 30, 2003 and 2002.

On November 30, 2003, the Company had total
long-term debt outstanding of $659.6 million, of which
$164.3 million was bank financing, $480.0 million was
private placement proceeds and $15.3 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 the Companys
Annual Report on Form 10-K for the year ended
August 31, 2003 has not materially changed during the three
months ended November 30, 2003. The Companys
long-term debt is unsecured except for industrial revenue bonds
and other notes and contracts in the amount of
$7.0 million, however restrictive covenants under various
agreements have requirements for maintenance of minimum working
capital levels and other financial ratios. The Company is in
compliance with all debt covenants and restrictions as of
November 30, 2003.

During the three months ended November 30,
2003 and 2002, the Company borrowed on a long-term basis no
dollars and $175.0 million, respectively, and during the
same periods repaid long-term debt of $3.8 million and
$3.9 million, respectively.

In accordance with the bylaws and by action of
the Board of Directors, annual net earnings from patronage
sources are distributed to consenting patrons following the
close of each fiscal year. Patronage refunds are calculated
based on amounts using financial statement earnings. The cash
portion of the patronage distribution is determined annually by
the Board of Directors, with the balance issued in the form of
capital equity certificates. The patronage earnings from the
fiscal year ended August 31, 2003 are expected to be
distributed during the second quarter of the fiscal year 2004.
The cash portion of this

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distribution, deemed by the Board of Directors to
be 30% is expected to be approximately $27.0 million, and
is classified as a current liability on the November 30,
2003 and the August 31, 2003 consolidated balance sheets.


The current equity redemption policy, as
authorized by the Board of Directors, allows for the redemption
of capital equity certificates held by inactive direct members
and patrons and active direct members and patrons at age 72
or death that were of age 61 or older on June 1, 1998.
Such redemptions are at the discretion of the Board of
Directors. For active direct members and patrons who were of
age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years may be redeemed
annually based on a prorata formula where the numerator is
dollars available for such purpose as determined by the Board of
Directors, and the denominator is the sum of the patronage
certificates older than 10 years held by such eligible
members and patrons. Total cash redemptions related to the year
ended August 31, 2003, to be distributed in fiscal year
2004, are expected to be approximately $10.8 million, of
which $1.3 million was redeemed during the three months
ended November 30, 2003 compared to $2.4 million
during the three months ended November 30, 2002. An
additional $13 million of capital equity certificates are
expected to be redeemed in fiscal year 2004 in exchange for
shares of the Companys 8% Cumulative Redeemable Preferred
Stock.

In 2001 and 2002 the Company issued approximately
$9.5 million (9,454,874 shares) of 8% Preferred Stock
(Old Preferred). In late 2002, the Company suspended sales of
the Old Preferred, and on February 25, 2003 the Company
filed a post-effective amendment to terminate the offering of
the Old Preferred shares. In January 2003, the Board of
Directors authorized the sale and issuance of up to
3,500,000 shares of 8% Cumulative Redeemable Preferred
Stock (New Preferred) at a price of $25.00 per share. The
Company filed a registration statement on Form S-2 with the
Securities and Exchange Commission registering
3,000,000 shares of the New Preferred (with an additional
over-allotment option of 450,000 shares granted to the
underwriters), which was declared effective on January 27,
2003. The shares were subsequently sold for proceeds of
$86.3 million (3,450,000 shares), and are listed on
the NASDAQ National Market. The Board of Directors intent is to
pay quarterly dividends. Expenses related to the issuance of the
New Preferred were $3.8 million.

On March 5, 2003, the Companys Board
of Directors authorized the redemption and conversion of the Old
Preferred shares. A redemption notification and a conversion
election form were sent to holders of the Old Preferred shares
on March 21, 2003 explaining that on April 25, 2003
all shares of the Old Preferred would be redeemed by the Company
for $1.00 per share unless they were converted into shares
of the Companys New Preferred. The conversion did not
change the base liquidation amount or dividend amount of the Old
Preferred, since 25 shares of the Old Preferred converted
to 1 share of the New Preferred. The total Old Preferred
converted to the New Preferred was $7.5 million
(7,452,439 shares), and the balance of the Old Preferred
(2,002,435 shares) was redeemed in cash at $1.00 per
share. As of November 30, 2003 the Company had
$93.7 million (3,748,099 shares) of the New Preferred
outstanding.

The Companys Board of Directors authorized
the issuance of up to $13.0 million of the New Preferred in
exchange for capital equity certificates. On November 26,
2003 the Company filed a registration statement on Form S-2
with the Securities and Exchange Commission registering the
additional New Preferred, however, the registration statement is
pending review and approval by the Securities and Exchange
Commission and is not yet effective.

Off Balance Sheet Financing
Arrangements



| |                  
| | -----------------
| | Lease Commitments

The Companys lease commitments presented in
Managements Discussion and Analysis in the Companies
Annual Report on Form 10-K for the year ended
August 31, 2003 have not materially changed during the
three months ended November 30, 2003.

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| |           
| | ----------
| | Guarantees

The Company is a guarantor for lines of credit
for related companies of which $56.7 million was
outstanding on November 30, 2003. The Companys bank
covenants allow maximum guarantees of $150.0 million. In
addition, the Companys bank covenants allow for guarantees
dedicated solely for NCRA in the amount of $125.0 million.
All outstanding loans with respective creditors are current as
of November 30, 2003.



| |     
| | ----
| | Debt

There is no material off balance sheet debt.

Critical Accounting Policies

The Companys Critical Accounting Policies
are presented in the Companys Annual Report on
Form 10-K for the year ended August 31, 2003. There
have been no changes to these policies during the three months
ended November 30, 2003.

Effect of Inflation and Foreign Currency
Transactions

The Company believes that inflation and foreign
currency fluctuations have not had a significant effect on its
operations. During fiscal 2003, the Company opened a grain
marketing office in Brazil that will impact its exposure to
foreign currency fluctuations, but to date, there has been no
material effect.

Recent Accounting Pronouncements

In December 2003, the FASB revised FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. the interpretation addresses
consolidation of certain entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. It also requires consolidation by
the primary beneficiary. For public entities the interpretation
applies to interests in variable interest entities for periods
ending after December 15, 2003. The Company has not yet
determined what the effects of adopting this standard will have
on the Company.

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



|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    about Market Risk

For the period ended November 30, 2003 the
Company did not experience any adverse changes in market risk
exposures that materially affect the quantitative and
qualitative disclosures presented in the Companys Annual
Report on Form 10-K for the year ended August 31, 2003.



|        |                        
|------- | -----------------------
|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 the
design and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act)) as of
November 30, 2003. Based on that evaluation, our Chief
Executive

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Officer and Chief Financial Officer concluded
that, as of that date, our disclosure controls and procedures
were effective in timely making known to them the material
information relating to us (including our consolidated
subsidiaries) required to be included in the reports we file or
submit under the Exchange Act.


During the first quarter ended November 30,
2003, we determined that certain sales and transfers within our
Grain Marketing business segment and also between the Grain
Marketing segment and the Processed Grains and Foods segment had
not been properly identified and eliminated in our consolidated
financial statements for certain periods prior to that fiscal
quarter. Following this determination, we restated our
consolidated statements of operations for the fiscal years ended
August 31, 2002, 2001 and 2000 and for the first three
fiscal quarters of the fiscal year ended August 31, 2003.
These changes had no effect on our financial condition, or
changes in cash flows, and no effect on reported gross profit or
net income for the periods stated above. In response, we changed
our internal control over financial reporting to include
additional processes that are intended to ensure the proper
identification and reporting of intra-company transactions and
enable us to eliminate those transactions in the preparation of
our consolidated financial statements.

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PART II. OTHER INFORMATION



|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

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



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

At the Companys Annual Meeting held on
December 4-5, 2003, the following directors were re-elected
to the Board of Directors: Robert Elliott, James Kile, Duane
Stenzel and Merlin Van Walleghen. The following directors were
newly elected to the Board of Directors: Steve Fritel, replacing
Leonard Larsen; and Michael Mulcahey, replacing Elroy Webster.
The following directors terms of office continued after
the meeting: Bruce Anderson, Robert Bass, David Bielenberg,
Dennis Carlson, Curt Eischens, Robert Grabarski, Jerry Hasnedl,
Glen Keppy, Randy Knecht, Richard Owen and Michael Toelle.



|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

|        |    |             |  |                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|        |    |            
|        | 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
|        | 99 | .1          |  | Cautionary Statement                                                                                                          

(b) Reports on Form 8-K

None.

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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     

January 12, 2004

(Date)


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