##### 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 1934for the quarterly period ended
    May 31, 2006.o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934for the transition period from
    to
    .   Commission File Number 0-50150
   CHS Inc.
 (Exact name of registrant as
    specified in its charter )
   Minnesota

41-0251095(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)5500 Cenex Drive
    Inver Grove Heights, MN 55077(Address of principal
    executive offices,
    including zip code)

(651) 355-6000(Registrants
    telephone number,
    including area code)   þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
     Number of Shares OutstandingClass

at May 31, 2006NONE

NONE




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##### 



INDEX
  Page No.PART I.FINANCIAL INFORMATIONItem 1.

Financial
    Statements (unaudited)


3Consolidated
    Balance Sheets as of May 31, 2006, August 31, 2005 and
    May 31, 2005


3Consolidated
    Statements of Operations for the three months and nine months
    ended May 31, 2006 and 2005


4Consolidated
    Statements of Cash Flows for the three months and nine months
    ended May 31, 2006 and 2005


5Notes to
    Consolidated Financial Statements


6Item 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


17Item 3.

Quantitative and
    Qualitative Disclosures about Market Risk


37Item 4.

Controls and
    Procedures


37PART II.
    OTHER INFORMATIONItem 5.

Other
    Information


38Item 6.

Exhibits and
    Reports on
    Form 8-K


38SIGNATURE
    PAGE


392006 Amended and Restated Credit Agreement (Revolving Loan)Ninth Amendment to Credit Agreement (Term Loan)Amendment No. 3 to the Supplemental Savings PlanAmendment No. 4 to the Supplemental Executive Retirement PlanSecond Amendment of Deferred Compensation PlanCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  SAFE
    HARBOR STATEMENT UNDER THE PRIVATE
    SECURITIES LITIGATION REFORM ACT OF 1995
  Form 10-Q Form 10-Q
 2




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##### Table of Contents



Item 1.
    Financial
    Statements  CHS INC.
    AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

(Unaudited)  May 31,


August 31,


May 31,2006


2005


2005(dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
136,927


$
241,018


$
234,469Receivables


1,083,000



1,093,986



987,561Inventories


1,024,093



914,182



890,533Other current assets


413,067



367,306



257,399Total current assets


2,657,087



2,616,492



2,369,962Investments


599,856



520,970



560,162Property, plant and equipment


1,433,414



1,359,535



1,322,872Other assets


230,637



229,940



222,040Total assets

$
4,920,994


$
4,726,937


$
4,475,036LIABILITIES AND
    EQUITIESCurrent liabilities:Notes payable

$
140,048


$
61,147


$
426,983Current portion of long-term debt


40,419



35,340



34,561Customer credit balances


74,302



91,902



55,550Customer advance payments


104,175



126,815



109,012Checks and drafts outstanding


53,954



67,398



49,377Accounts payable


877,885



945,737



691,206Accrued expenses


382,686



397,044



293,215Dividends and equities payable


184,640



132,406



73,580Total current liabilities


1,858,109



1,857,789



1,733,484Long-term debt


703,421



737,734



743,469Other liabilities


269,837



229,322



148,605Minority interests in subsidiaries


162,361



144,195



154,724Commitments and contingenciesEquities


1,927,266



1,757,897



1,694,754Total liabilities and equities

$
4,920,994


$
4,726,937


$
4,475,036    3




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##### Table of Contents



CHS INC.
    AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)




|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|---------------------------------------------------------- |  | -------------------------- | --------- |  | ------------------------- | ----- | --------- | ---------- | - | - | ---------- | - | ------ | ------ | --------- | 
|                                                           |  | For the Three Months Ended |           |  | For the Nine Months Ended |      
|                                                           |  | May 31,                    |           |  | May 31,                   |      
|                                                           |  | 2006                       |           |  | 2005                      |       |           | 2006       |   |   | 2005       |  
|                                                           |  | (dollars in thousands)     |          
|                                                          
|Revenues:                                                  |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|Net sales                                                  |  | $                          | 3,692,498 |  |                           | $     | 3,088,403 |            |   | $ | 10,224,261 |   |        | $      | 8,400,736 | 
|Other revenues                                             |  | 53,854                     |           |  | 49,090                    |       |           | 141,349    |   |   | 128,355    |  
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|                                                           |  | 3,746,352                  |           |  | 3,137,493                 |       |           | 10,365,610 |   |   | 8,529,091  |  
|Cost of goods sold                                         |  | 3,527,072                  |           |  | 2,984,898                 |       |           | 9,771,155  |   |   | 8,179,002  |  
|Marketing, general and
    administrative                  |  | 62,555                     |           |  | 46,241                    |       |           | 166,325    |   |   | 145,856    |  
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|Operating earnings                                         |  | 156,725                    |           |  | 106,354                   |       |           | 428,130    |   |   | 204,233    |  
|Gain on sale of investment                                 |  |                            |           |  |                           |       |           |            |   |   |            |   |        | (3,448 | )        
|Interest                                                   |  | 12,935                     |           |  | 15,795                    |       |           | 38,346     |   |   | 38,757     |  
|Equity income from investments                             |  | (43,930                    | )         |  | (57,610                   | )     |           | (58,292    | ) |   | (74,139    | )
|Loss on impairments of assets                              |  |                            |           |  |                           | 2,478 |           |            |   |   |            |   | 37,478 |       
|Minority interests                                         |  | 28,717                     |           |  | 17,958                    |       |           | 70,084     |   |   | 30,873     |  
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|Income from continuing operations
    before income taxes  |  | 159,003                    |           |  | 127,733                   |       |           | 377,992    |   |   | 174,712    |  
|Income taxes                                               |  | 22,440                     |           |  | 17,872                    |       |           | 47,156     |   |   | 24,792     |  
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|Income from continuing operations                          |  | 136,563                    |           |  | 109,861                   |       |           | 330,836    |   |   | 149,920    |  
|(Income) loss on discontinued
    operations, net of taxes |  | (30                        | )         |  | 2,915                     |       |           | (139       | ) |   | 16,255     |  
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 
|Net income                                                 |  | $                          | 136,593   |  |                           | $     | 106,946   |            |   | $ | 330,975    |   |        | $      | 133,665   | 
|                                                           |  |                            |           |  |                           |       |           |            |   |   |            |   |        |        |           | 







4



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##### Table of Contents



CHS INC.
    AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|----------------------------------------------------------------------------------------------- |  | -------------------------- | ------- |  | ------------------------- | ------ | ------- | -------- | ------ | - | -------- | - | ------ | ------- | ------- | 
|                                                                                                |  | For the Three Months Ended |         |  | For the Nine Months Ended |       
|                                                                                                |  | May 31,                    |         |  | May 31,                   |       
|                                                                                                |  | 2006                       |         |  | 2005                      |        |         | 2006     |        |   | 2005     |  
|                                                                                                |  | (dollars in thousands)     |        
|                                                                                               
|Cash flows from operating
    activities:                                                       |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Net income                                                                                      |  | $                          | 136,593 |  |                           | $      | 106,946 |          |        | $ | 330,975  |   |        | $       | 133,665 | 
|Adjustments to reconcile net income
    to net cash provided by (used in) operating activities: |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Depreciation and amortization                                                                   |  | 33,379                     |         |  | 26,745                    |        |         | 92,271   |        |   | 81,189   |  
|Noncash income from equity
    investments                                                      |  | (43,930                    | )       |  | (57,610                   | )      |         | (58,292  | )      |   | (74,139  | )
|Noncash loss on impairments of
    assets                                                       |  |                            |         |  |                           | 2,478  |         |          |        |   |          |   | 37,478 |        
|Minority interests                                                                              |  | 28,717                     |         |  | 17,958                    |        |         | 70,084   |        |   | 30,873   |  
|Noncash patronage dividends received                                                            |  | (359                       | )       |  | (755                      | )      |         | (1,139   | )      |   | (1,192   | )
|(Gain) loss on sale of property,
    plant and equipment                                        |  | (1,826                     | )       |  | 912                       |        |         | (1,983   | )      |   | (1,324   | )
|Loss on sale of business                                                                        |  |                            |         |  |                           | 6,163  |         |          |        |   |          |   | 6,163  |        
|Gain on sale of investment                                                                      |  |                            |         |  |                           |        |         |          |        |   |          |   |        | (3,448  | )      
|Deferred tax (benefit) expense                                                                  |  | (298                       | )       |  |                           |        |         |          | 44,549 |   |          |   |        |        
|Other, net                                                                                      |  | 227                        |         |  | 244                       |        |         | 242      |        |   | 799      |  
|Changes in operating assets and
    liabilities:                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Receivables                                                                                     |  | (197,297                   | )       |  | (213,074                  | )      |         | 61,841   |        |   | (128,460 | )
|Inventories                                                                                     |  | 1,216                      |         |  | 45,255                    |        |         | (100,560 | )      |   | (166,432 | )
|Other current assets and other
    assets                                                       |  | (28,635                    | )       |  | 49,894                    |        |         | (37,403  | )      |   | 16,777   |  
|Customer credit balances                                                                        |  | 26,254                     |         |  | (59,495                   | )      |         | (18,082  | )      |   | (33,136  | )
|Customer advance payments                                                                       |  | (65,092                    | )       |  | 29,693                    |        |         | (23,274  | )      |   | 44,970   |  
|Accounts payable and accrued
    expenses                                                       |  | 302,857                    |         |  | 84,337                    |        |         | (131,940 | )      |   | (40,329  | )
|Other liabilities                                                                               |  | 8,045                      |         |  | 9,299                     |        |         | (263     | )      |   | 1,051    |  
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Net cash provided by (used in)
    operating activities                                         |  | 199,851                    |         |  | 48,990                    |        |         | 227,026  |        |   | (95,495  | )
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Cash flows from investing
    activities:                                                       |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Acquisition of property, plant and
    equipment                                                |  | (47,106                    | )       |  | (64,541                   | )      |         | (161,027 | )      |   | (187,404 | )
|Proceeds from disposition of
    property, plant and equipment                                  |  | 2,469                      |         |  | 1,476                     |        |         | 8,993    |        |   | 9,429    |  
|Proceeds from sale of business                                                                  |  |                            |         |  |                           | 38,286 |         |          |        |   |          |   | 38,286 |        
|Investments                                                                                     |  | (35,975                    | )       |  | (2,696                    | )      |         | (72,990  | )      |   | (4,926   | )
|Equity investments redeemed                                                                     |  | 12,494                     |         |  | 15,657                    |        |         | 53,340   |        |   | 52,602   |  
|Investments redeemed                                                                            |  | 937                        |         |  | 1,021                     |        |         | 4,155    |        |   | 3,114    |  
|Proceeds from sale of investment                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        | 7,420   |        
|Changes in notes receivable                                                                     |  | (53,881                    | )       |  | (34,780                   | )      |         | (5,723   | )      |   | (25,664  | )
|Other investing activities, net                                                                 |  | (2,318                     | )       |  | (4,395                    | )      |         | (1,743   | )      |   | (3,024   | )
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Net cash used in investing
    activities                                                       |  | (123,380                   | )       |  | (49,972                   | )      |         | (174,995 | )      |   | (110,167 | )
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Cash flows from financing
    activities:                                                       |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Changes in notes payable                                                                        |  | 11,036                     |         |  | 72,867                    |        |         | 64,623   |        |   | 310,868  |  
|Borrowings on long-term debt                                                                    |  |                            |         |  |                           |        |         |          |        |   |          |   |        | 125,000 |        
|Principal payments on long-term debt                                                            |  | (14,706                    | )       |  | (6,807                    | )      |         | (30,375  | )      |   | (31,002  | )
|Payments for bank fees on debt                                                                  |  | (1,971                     | )       |  | (2,122                    | )      |         | (1,971   | )      |   | (2,474   | )
|Changes in checks and drafts
    outstanding                                                    |  | (1,087                     | )       |  | (18,541                   | )      |         | (13,643  | )      |   | (15,207  | )
|Distribution to minority owners                                                                 |  | (8,618                     | )       |  |                           |        |         | (51,599  | )      |   | (4,966   | )
|Payments of fees incurred on
    capital equity certificates redeemed                           |  | (2                         | )       |  | (9                        | )      |         | (88      | )      |   | (87      | )
|Preferred stock dividends paid                                                                  |  | (2,932                     | )       |  | (2,476                    | )      |         | (7,884   | )      |   | (6,702   | )
|Retirements of equities                                                                         |  | (994                       | )       |  | (986                      | )      |         | (52,670  | )      |   | (20,271  | )
|Cash patronage dividends paid                                                                   |  | (13                        | )       |  | (8                        | )      |         | (62,515  | )      |   | (51,519  | )
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Net cash (used in) provided by
    financing activities                                         |  | (19,287                    | )       |  | 41,918                    |        |         | (156,122 | )      |   | 303,640  |  
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Net increase (decrease) in cash and
    cash equivalents                                        |  | 57,184                     |         |  | 40,936                    |        |         | (104,091 | )      |   | 97,978   |  
|Cash and cash equivalents at
    beginning of period                                            |  | 79,743                     |         |  | 193,533                   |        |         | 241,018  |        |   | 136,491  |  
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 
|Cash and cash equivalents at end of
    period                                                  |  | $                          | 136,927 |  |                           | $      | 234,469 |          |        | $ | 136,927  |   |        | $       | 234,469 | 
|                                                                                                |  |                            |         |  |                           |        |         |          |        |   |          |   |        |         |         | 





5



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##### Table of Contents



CHS INC.
    AND SUBSIDIARIES




NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


(dollars in thousands)




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











Form 10-K,




Goodwill
    and Other Intangible Assets












Recent
    Accounting Pronouncements






6



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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








Reclassifications








|        |            
|------- | -----------
|Note 2. | Receivables



|                                          |  |           |           |  |            |   |           |           |  |   |         | 
|----------------------------------------- |  | --------- | --------- |  | ---------- | - | --------- | --------- |  | - | ------- | 
|                                          |  | May 31,   |           |  | August 31, |   |           | May 31,   | 
|                                          |  | 2006      |           |  | 2005       |   |           | 2005      | 
|                                         
|Trade                                     |  | $         | 1,054,063 |  |            | $ | 1,069,020 |           |  | $ | 965,012 | 
|Other                                     |  | 83,258    |           |  | 85,007     |   |           | 78,756    | 
|                                          |  |           |           |  |            |   |           |           |  |   |         | 
|                                          |  | 1,137,321 |           |  | 1,154,027  |   |           | 1,043,768 | 
|Less allowances for doubtful
    accounts |  | 54,321    |           |  | 60,041     |   |           | 56,207    | 
|                                          |  |           |           |  |            |   |           |           |  |   |         | 
|                                          |  | $         | 1,083,000 |  |            | $ | 1,093,986 |           |  | $ | 987,561 | 
|                                          |  |           |           |  |            |   |           |           |  |   |         | 





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



|                            |  |         |           |  |            |   |         |         |  |   |         | 
|--------------------------- |  | ------- | --------- |  | ---------- | - | ------- | ------- |  | - | ------- | 
|                            |  | May 31, |           |  | August 31, |   |         | May 31, | 
|                            |  | 2006    |           |  | 2005       |   |         | 2005    | 
|                           
|Grain and oilseed           |  | $       | 402,313   |  |            | $ | 387,820 |         |  | $ | 347,349 | 
|Energy                      |  | 421,939 |           |  | 377,076    |   |         | 347,755 | 
|Feed and farm supplies      |  | 171,598 |           |  | 121,721    |   |         | 162,658 | 
|Processed grain and oilseed |  | 26,723  |           |  | 26,195     |   |         | 31,415  | 
|Other                       |  | 1,520   |           |  | 1,370      |   |         | 1,356   | 
|                            |  |         |           |  |            |   |         |         |  |   |         | 
|                            |  | $       | 1,024,093 |  |            | $ | 914,182 |         |  | $ | 890,533 | 
|                            |  |         |           |  |            |   |         |         |  |   |         | 





|        |                                      
|------- | -------------------------------------
|Note 4. | Derivative
    Assets and Liabilities







|        |            
|------- | -----------
|Note 5. | Investments





7



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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




















Lock-up














8



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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 |         |  | For the Nine Months Ended |  
|             |  | May 31,                    |         |  | May 31,                   |  
|             |  | 2006                       |         |  | 2005                      |   |         | 2006    |  |   | 2005      | 
|            
|Net sales    |  | $                          | 366,271 |  |                           | $ | 348,740 |         |  | $ | 1,097,036 |  |  | $ | 1,060,961 | 
|Gross profit |  | 46,491                     |         |  | 52,780                    |   |         | 149,683 |  |   | 142,737   | 
|Net income   |  | 15,173                     |         |  | 23,337                    |   |         | 47,420  |  |   | 53,429    | 





|                        |  |         |         |  |            |   |         |         |  |   |         | 
|----------------------- |  | ------- | ------- |  | ---------- | - | ------- | ------- |  | - | ------- | 
|                        |  | May 31, |         |  | August 31, |   |         | May 31, | 
|                        |  | 2006    |         |  | 2005       |   |         | 2005    | 
|                       
|Current assets          |  | $       | 208,987 |  |            | $ | 198,576 |         |  | $ | 294,856 | 
|Non-current assets      |  | 441,199 |         |  | 455,715    |   |         | 259,322 | 
|Current liabilities     |  | 122,077 |         |  | 146,035    |   |         | 153,865 | 
|Non-current liabilities |  | 308,346 |         |  | 307,027    |   |         | 192,243 | 





Agriliance,
    LLC




|             |  |                            |           |  |                           |   |           |         |  |   |           |  |  |   |           | 
|------------ |  | -------------------------- | --------- |  | ------------------------- | - | --------- | ------- |  | - | --------- |  |  | - | --------- | 
|             |  | For the Three Months Ended |           |  | For the Nine Months Ended |  
|             |  | May 31,                    |           |  | May 31,                   |  
|             |  | 2006                       |           |  | 2005                      |   |           | 2006    |  |   | 2005      | 
|            
|Net sales    |  | $                          | 1,590,542 |  |                           | $ | 1,591,535 |         |  | $ | 2,780,539 |  |  | $ | 2,697,548 | 
|Gross profit |  | 147,600                    |           |  | 161,771                   |   |           | 257,802 |  |   | 261,051   | 
|Net income   |  | 59,613                     |           |  | 83,266                    |   |           | 27,011  |  |   | 56,627    | 





|                        |  |           |           |  |            |   |           |           |  |   |           | 
|----------------------- |  | --------- | --------- |  | ---------- | - | --------- | --------- |  | - | --------- | 
|                        |  | May 31,   |           |  | August 31, |   |           | May 31,   | 
|                        |  | 2006      |           |  | 2005       |   |           | 2005      | 
|                       
|Current assets          |  | $         | 1,818,164 |  |            | $ | 1,337,908 |           |  | $ | 1,559,267 | 
|Non-current assets      |  | 159,723   |           |  | 148,611    |   |           | 151,632   | 
|Current liabilities     |  | 1,580,681 |           |  | 1,064,423  |   |           | 1,311,225 | 
|Non-current liabilities |  | 125,692   |           |  | 119,794    |   |           | 117,065   | 





|        |                            
|------- | ---------------------------
|Note 6. | Discontinued
    Operations





9



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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










|                                               |  |                            |     |   |                           |        |        |      |     |      |         |       |        |   |         |  
|---------------------------------------------- |  | -------------------------- | --- | - | ------------------------- | ------ | ------ | ---- | --- | ---- | ------- | ----- | ------ | - | ------- | -
|                                               |  | For the Three Months Ended |     |   | For the Nine Months Ended |       
|                                               |  | May 31,                    |     |   | May 31,                   |       
|                                               |  | 2006                       |     |   | 2005                      |        |        | 2006 |     |      | 2005    |      
|                                              
|Sales                                          |  |                            |     |   |                           | $      | 15,029 |      |     |      |         |       |        | $ | 47,767  |  
|Cost of goods sold                             |  |                            |     |   |                           | 15,207 |        |      |     |      |         |       | 48,113 |  
|Marketing, general and
    administrative *    |  | $                          | (50 | ) |                           | 10,609 |        |      | $   | (373 | )       |       | 17,203 |  
|Interest                                       |  |                            |     |   |                           | 941    |        |      | 145 |      |         | 2,615 |       
|(Gain) loss on sales/impairment of
    assets  |  |                            |     |   |                           | (6,957 | )      |      |     |      |         |       | 6,440  |  
|Income tax expense (benefit)                   |  | 20                         |     |   | (1,856                    | )      |        | 89   |     |      | (10,349 | )    
|                                               |  |                            |     |   |                           |        |        |      |     |      |         |       |        |   |         |  
|Income (loss) from discontinued
    operations |  | $                          | 30  |   |                           | $      | (2,915 | )    |     | $    | 139     |       |        | $ | (16,255 | )
|                                               |  |                            |     |   |                           |        |        |      |     |      |         |       |        |   |         |  









|  |  |                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|* |  | The nine months ended May 31, 2006 includes a gain of
    $0.8 million on the sale of a facility during our first
    fiscal quarter ended November 30, 2005.



|        |         
|------- | --------
|Note 7. | Equities



C




|                                                        |  |          |           |  |          |   |           | 
|------------------------------------------------------- |  | -------- | --------- |  | -------- | - | --------- | 
|                                                        |  | May 31,  |           |  | May 31,  |  
|                                                        |  | 2006     |           |  | 2005     |  
|                                                       
|Balances, September 1, 2005
    and 2004                |  | $        | 1,757,897 |  |          | $ | 1,628,086 | 
|Net income                                              |  | 330,975  |           |  | 133,665  |  
|Other comprehensive income                              |  | 10,844   |           |  | 878      |  
|Patronage distribution                                  |  | (207,842 | )         |  | (171,119 | )
|Patronage accrued                                       |  | 203,000  |           |  | 166,850  |  
|Equities retired                                        |  | (52,670  | )         |  | (20,271  | )
|Equity retirements accrued                              |  | 51,676   |           |  | 19,285   |  
|Equities issued in exchange for
    elevator properties |  | 6,342    |           |  | 1,375    |  
|Preferred stock dividends                               |  | (7,884   | )         |  | (6,702   | )
|Preferred stock dividends accrued                       |  | 1,650    |           |  | 1,409    |  
|Accrued dividends and equities
    payable              |  | (167,455 | )         |  | (61,750  | )
|Other, net                                              |  | 733      |           |  | 3,048    |  
|                                                        |  |          |           |  |          |   |           | 
|Balances, May 31, 2006 and
    2005                     |  | $        | 1,927,266 |  |          | $ | 1,694,754 | 
|                                                        |  |          |           |  |          |   |           | 









|        |                         
|------- | ------------------------
|Note 8. | Comprehensive
    Income





10



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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








|        |                           
|------- | --------------------------
|Note 9. | Employee
    Benefit Plans







|                                                                               |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|------------------------------------------------------------------------------ |  | ---------------- | ------ |  | ---------------- | - | ----- | -------------- |  | - | ----- |  |  | ----- | ----- |  | ----- | --- | ----- |  | --- | - | ----- | 
|                                                                               |  | Qualified        |        |  | Non-Qualified    |   |       |                | 
|                                                                               |  | Pension Benefits |        |  | Pension Benefits |   |       | Other Benefits | 
|                                                                               |  | 2006             |        |  | 2005             |   |       | 2006           |  |   | 2005  |  |  | 2006  |       |  | 2005  |    
|                                                                              
|Components of net periodic
    benefit cost for the three months ended May 31: |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|Service cost                                                                   |  | $                | 3,792  |  |                  | $ | 3,187 |                |  | $ | 560   |  |  | $     | 247   |  |       | $   | 242   |  |     | $ | 219   | 
|Interest cost                                                                  |  | 4,227            |        |  | 4,510            |   |       | 352            |  |   | 294   |  |  | 392   |       |  | 444   |    
|Return on plan assets                                                          |  | (7,086           | )      |  | (6,912           | ) |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |  
|Prior service cost amortization                                                |  | 213              |        |  | 198              |   |       | 129            |  |   | 130   |  |  | (75   | )     |  | (74   | )  
|Actuarial loss amortization                                                    |  | 1,811            |        |  | 1,440            |   |       | 68             |  |   | 31    |  |  | 25    |       |  | 11    |    
|Transition amount amortization                                                 |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       | 234 |       |  | 234 |  
|                                                                               |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|Net periodic benefit cost                                                      |  | $                | 2,957  |  |                  | $ | 2,423 |                |  | $ | 1,109 |  |  | $     | 702   |  |       | $   | 818   |  |     | $ | 834   | 
|                                                                               |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|Components of net periodic
    benefit cost for the nine months ended May 31:  |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|Service cost                                                                   |  | $                | 11,170 |  |                  | $ | 9,562 |                |  | $ | 1,646 |  |  | $     | 743   |  |       | $   | 768   |  |     | $ | 656   | 
|Interest cost                                                                  |  | 12,777           |        |  | 13,529           |   |       | 1,026          |  |   | 882   |  |  | 1,176 |       |  | 1,332 |    
|Return on plan assets                                                          |  | (21,272          | )      |  | (20,736          | ) |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |  
|Prior service cost amortization                                                |  | 641              |        |  | 594              |   |       | 387            |  |   | 389   |  |  | (229  | )     |  | (221  | )  
|Actuarial loss amortization                                                    |  | 5,635            |        |  | 4,319            |   |       | 158            |  |   | 93    |  |  | 13    |       |  | 32    |    
|Transition amount amortization                                                 |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       | 702 |       |  | 702 |  
|                                                                               |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 
|Net periodic benefit cost                                                      |  | $                | 8,951  |  |                  | $ | 7,268 |                |  | $ | 3,217 |  |  | $     | 2,107 |  |       | $   | 2,430 |  |     | $ | 2,501 | 
|                                                                               |  |                  |        |  |                  |   |       |                |  |   |       |  |  |       |       |  |       |     |       |  |     |   |       | 





Employer
    Contributions:








|         |                      
|-------- | ---------------------
|Note 10. | Segment
    Reporting





11



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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
































12



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##### Table of Contents





CHS INC.
    AND SUBSIDIARIES




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










|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|--------------------------------------------------------- |  | --------- | --------- | - | --------- | - | --------- | ---------- | - | ----- | --------- | ------ |  | ----------- | ------- | - | --------- | --------- | ------- | ------ | ----- | - | --------- | 
|                                                          |  |           |           |   | Ag        |   |           |            |   |       | Corporate |        |  | Reconciling |         |   |           |          
|                                                          |  | Energy    |           |   | Business  |   |           | Processing |   |       | and Other |        |  | Amounts     |         |   | Total     |          
|                                                         
|For the Three Months Ended
    May 31, 2006               |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Net sales                                                 |  | $         | 1,842,181 |   |           | $ | 1,759,566 |            |   | $     | 156,059   |        |  |             |         |   |           | $         | (65,308 | )      |       | $ | 3,692,498 | 
|Other revenues                                            |  | 3,023     |           |   | 37,871    |   |           | 1,088      |   |       | $         | 11,872 |  |             |         |   |           |           | 53,854  |       
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|                                                          |  | 1,845,204 |           |   | 1,797,437 |   |           | 157,147    |   |       | 11,872    |        |  | (65,308     | )       |   | 3,746,352 |          
|Cost of goods sold                                        |  | 1,695,536 |           |   | 1,742,972 |   |           | 153,872    |   |       |           |        |  |             | (65,308 | ) |           | 3,527,072 |        
|Marketing, general and
    administrative                 |  | 19,370    |           |   | 29,319    |   |           | 5,553      |   |       | 8,313     |        |  |             |         |   |           | 62,555    |        
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Operating earnings (losses)                               |  | 130,298   |           |   | 25,146    |   |           | (2,278     | ) |       | 3,559     |        |  |            |         |   | 156,725   |          
|Interest                                                  |  | 3,288     |           |   | 7,311     |   |           | 2,916      |   |       | (580      | )      |  |             |         |   |           | 12,935    |        
|Equity income from investments                            |  | (1,010    | )         |   | (31,898   | ) |           | (9,738     | ) |       | (1,284    | )      |  |             |         |   |           | (43,930   | )      
|Minority interests                                        |  | 28,691    |           |   | 26        |   |           |            |   |       |           |        |  |             |         |   |           |           |         | 28,717 |      
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Income from continuing operations
    before income taxes |  | $         | 99,329    |   |           | $ | 49,707    |            |   | $     | 4,544     |        |  | $           | 5,423   |   |           | $         |        |        |       | $ | 159,003   | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Intersegment sales                                        |  | $         | (63,581   | ) |           | $ | (1,650    | )          |   | $     | (77       | )      |  |             |         |   |           | $         | 65,308  |        |       | $ |          | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Capital expenditures                                      |  | $         | 33,995    |   |           | $ | 10,263    |            |   | $     | 2,089     |        |  | $           | 759     |   |           |           |         |        |       | $ | 47,106    | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Depreciation and amortization                             |  | $         | 20,312    |   |           | $ | 7,718     |            |   | $     | 3,556     |        |  | $           | 1,793   |   |           |           |         |        |       | $ | 33,379    | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|For the Three Months Ended
    May 31, 2005               |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Net sales                                                 |  | $         | 1,449,989 |   |           | $ | 1,524,913 |            |   | $     | 154,471   |        |  |             |         |   |           | $         | (40,970 | )      |       | $ | 3,088,403 | 
|Other revenues                                            |  | 2,859     |           |   | 31,342    |   |           | 1,135      |   |       | $         | 13,754 |  |             |         |   |           |           | 49,090  |       
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|                                                          |  | 1,452,848 |           |   | 1,556,255 |   |           | 155,606    |   |       | 13,754    |        |  | (40,970     | )       |   | 3,137,493 |          
|Cost of goods sold                                        |  | 1,357,798 |           |   | 1,514,276 |   |           | 153,794    |   |       |           |        |  |             | (40,970 | ) |           | 2,984,898 |        
|Marketing, general and
    administrative                 |  | 16,384    |           |   | 18,949    |   |           | 4,457      |   |       | 6,451     |        |  |             |         |   |           | 46,241    |        
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Operating earnings (losses)                               |  | 78,666    |           |   | 23,030    |   |           | (2,645     | ) |       | 7,303     |        |  |            |         |   | 106,354   |          
|Interest                                                  |  | 3,663     |           |   | 6,632     |   |           | 3,235      |   |       | 2,265     |        |  |             |         |   |           | 15,795    |        
|Equity (income) loss from
    investments                 |  | (762      | )         |   | (43,713   | ) |           | (13,150    | ) |       | 15        |        |  |             |         |   |           | (57,610   | )      
|Loss on impairments of assets                             |  |           |           |   |           |   |           |            |   | 2,478 |           |        |  |             |         |   |           |           |         |        | 2,478 |  
|Minority interests                                        |  | 17,417    |           |   | (18       | ) |           |            |   |       |           | 559    |  |             |         |   |           |           | 17,958  |       
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Income from continuing operations
    before income taxes |  | $         | 58,348    |   |           | $ | 60,129    |            |   | $     | 4,792     |        |  | $           | 4,464   |   |           | $         |        |        |       | $ | 127,733   | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Intersegment sales                                        |  | $         | (37,609   | ) |           | $ | (3,275    | )          |   | $     | (86       | )      |  |             |         |   |           | $         | 40,970  |        |       | $ |          | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Capital expenditures                                      |  | $         | 43,037    |   |           | $ | 4,529     |            |   | $     | 841       |        |  | $           | 16,134  |   |           |           |         |        |       | $ | 64,541    | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 
|Depreciation and amortization                             |  | $         | 14,509    |   |           | $ | 7,225     |            |   | $     | 3,475     |        |  | $           | 1,536   |   |           |           |         |        |       | $ | 26,745    | 
|                                                          |  |           |           |   |           |   |           |            |   |       |           |        |  |             |         |   |           |           |         |        |       |   |           | 

13



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##### Table of Contents



CHS INC.
    AND SUBSIDIARIES




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




|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|--------------------------------------------------------- |  | --------- | --------- | - | --------- | ------ | --------- | ---------- | ----- | - | --------- | ------ |  | ----------- | -------- | - | ---------- | --------- | -------- | ------ | ------ | - | ---------- | 
|                                                          |  |           |           |   | Ag        |        |           |            |       |   | Corporate |        |  | Reconciling |          |   |            |          
|                                                          |  | Energy    |           |   | Business  |        |           | Processing |       |   | and Other |        |  | Amounts     |          |   | Total      |          
|                                                         
|For the Nine Months Ended
    May 31, 2006                |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Net sales                                                 |  | $         | 5,296,808 |   |           | $      | 4,645,125 |            |       | $ | 456,200   |        |  |             |          |   |            | $         | (173,872 | )      |        | $ | 10,224,261 | 
|Other revenues                                            |  | 10,311    |           |   | 95,465    |        |           | 2,932      |       |   | $         | 32,641 |  |             |          |   |            |           | 141,349  |       
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|                                                          |  | 5,307,119 |           |   | 4,740,590 |        |           | 459,132    |       |   | 32,641    |        |  | (173,872    | )        |   | 10,365,610 |          
|Cost of goods sold                                        |  | 4,896,351 |           |   | 4,608,002 |        |           | 440,674    |       |   |           |        |  |             | (173,872 | ) |            | 9,771,155 |         
|Marketing, general and
    administrative                 |  | 53,003    |           |   | 75,416    |        |           | 16,199     |       |   | 21,707    |        |  |             |          |   |            | 166,325   |         
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Operating earnings                                        |  | 357,765   |           |   | 57,172    |        |           | 2,259      |       |   | 10,934    |        |  |            |          |   | 428,130    |          
|Interest                                                  |  | 10,633    |           |   | 14,545    |        |           | 8,028      |       |   | 5,140     |        |  |             |          |   |            | 38,346    |         
|Equity income from investments                            |  | (2,946    | )         |   | (24,648   | )      |           | (27,558    | )     |   | (3,140    | )      |  |             |          |   |            | (58,292   | )       
|Minority interests                                        |  | 69,976    |           |   | 108       |        |           |            |       |   |           |        |  |             |          |   |            |           |          | 70,084 |       
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Income from continuing operations
    before income taxes |  | $         | 280,102   |   |           | $      | 67,167    |            |       | $ | 21,789    |        |  | $           | 8,934    |   |            | $         |         |        |        | $ | 377,992    | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Intersegment sales                                        |  | $         | (167,238  | ) |           | $      | (6,383    | )          |       | $ | (251      | )      |  |             |          |   |            | $         | 173,872  |        |        | $ |           | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Goodwill                                                  |  | $         | 3,654     |   |           | $      | 250       |            |       |   |           |        |  |             |          |   |            |           |          |        |        | $ | 3,904      | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Capital expenditures                                      |  | $         | 123,447   |   |           | $      | 30,140    |            |       | $ | 5,853     |        |  | $           | 1,587    |   |            |           |          |        |        | $ | 161,027    | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Depreciation and amortization                             |  | $         | 54,223    |   |           | $      | 23,233    |            |       | $ | 10,496    |        |  | $           | 4,319    |   |            |           |          |        |        | $ | 92,271     | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Total identifiable assets at
    May 31, 2006             |  | $         | 2,136,804 |   |           | $      | 1,819,540 |            |       | $ | 503,551   |        |  | $           | 461,099  |   |            |           |          |        |        | $ | 4,920,994  | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|For the Nine Months Ended
    May 31, 2005                |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Net sales                                                 |  | $         | 4,029,133 |   |           | $      | 4,066,381 |            |       | $ | 429,389   |        |  |             |          |   |            | $         | (124,167 | )      |        | $ | 8,400,736  | 
|Other revenues                                            |  | 7,484     |           |   | 88,536    |        |           | 2,950      |       |   | $         | 29,385 |  |             |          |   |            |           | 128,355  |       
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|                                                          |  | 4,036,617 |           |   | 4,154,917 |        |           | 432,339    |       |   | 29,385    |        |  | (124,167    | )        |   | 8,529,091  |          
|Cost of goods sold                                        |  | 3,835,634 |           |   | 4,042,690 |        |           | 424,845    |       |   |           |        |  |             | (124,167 | ) |            | 8,179,002 |         
|Marketing, general and
    administrative                 |  | 46,787    |           |   | 65,054    |        |           | 14,130     |       |   | 19,885    |        |  |             |          |   |            | 145,856   |         
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Operating earnings (losses)                               |  | 154,196   |           |   | 47,173    |        |           | (6,636     | )     |   | 9,500     |        |  |            |          |   | 204,233    |          
|Gain on sale of investment                                |  |           |           |   |           |        |           |            |       |   |           |        |  | (3,448      | )        |   |            |           |          |        | (3,448 | )
|Interest                                                  |  | 10,034    |           |   | 15,514    |        |           | 9,501      |       |   | 3,708     |        |  |             |          |   |            | 38,757    |         
|Equity income from investments                            |  | (2,230    | )         |   | (40,840   | )      |           | (30,586    | )     |   | (483      | )      |  |             |          |   |            | (74,139   | )       
|Loss on impairments of assets                             |  |           |           |   |           | 35,000 |           |            | 2,478 |   |           |        |  |             |          |   |            |           |          | 37,478 |       
|Minority interests                                        |  | 29,879    |           |   | (42       | )      |           |            |       |   |           | 1,036  |  |             |          |   |            |           | 30,873   |       
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Income from continuing operations
    before income taxes |  | $         | 116,513   |   |           | $      | 37,541    |            |       | $ | 11,971    |        |  | $           | 8,687    |   |            | $         |         |        |        | $ | 174,712    | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Intersegment sales                                        |  | $         | (117,160  | ) |           | $      | (6,580    | )          |       | $ | (427      | )      |  |             |          |   |            | $         | 124,167  |        |        | $ |           | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Goodwill                                                  |  | $         | 3,041     |   |           | $      | 250       |            |       |   |           |        |  |             |          |   |            |           |          |        |        | $ | 3,291      | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Capital expenditures                                      |  | $         | 148,166   |   |           | $      | 17,102    |            |       | $ | 3,161     |        |  | $           | 18,975   |   |            |           |          |        |        | $ | 187,404    | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Depreciation and amortization                             |  | $         | 44,025    |   |           | $      | 22,038    |            |       | $ | 10,394    |        |  | $           | 4,732    |   |            |           |          |        |        | $ | 81,189     | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 
|Total identifiable assets at
    May 31, 2005             |  | $         | 1,945,394 |   |           | $      | 1,709,885 |            |       | $ | 430,458   |        |  | $           | 389,299  |   |            |           |          |        |        | $ | 4,475,036  | 
|                                                          |  |           |           |   |           |        |           |            |       |   |           |        |  |             |          |   |            |           |          |        |        |   |            | 



14



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CHS INC.
    AND SUBSIDIARIES




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






|         |                                  
|-------- | ---------------------------------
|Note 11. | Commitments
    and Contingencies



Environmental








Guarantees












wholly-owned Fin-Ag,








|                                                                      |  |            |  |             |   |                     |  |            |                                                                                                                  |            |                                                                                                                      |            |                          |               |                              |  |                                                                                                                     | 
|--------------------------------------------------------------------- |  | ---------- |  | ----------- | - | ------------------- |  | ---------- | ---------------------------------------------------------------------------------------------------------------- | ---------- | -------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------ | ------------- | ---------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | 
|                                                                      |  | Guarantee/ |  | Exposure on |   |                     |  |            |                                                                                                                  |            |                                                                                                                      |            |                          |              
|                                                                      |  | Maximum    |  | May 31,     |   |                     |  | Expiration |                                                                                                                  | Triggering |                                                                                                                      | Recourse   |                          | Assets Held  
|Entities                                                              |  | Exposure   |  | 2006        |   | Nature of Guarantee |  | Date       |                                                                                                                  | Event      |                                                                                                                      | Provisions |                          | as Collateral
|                                                                     
|The Companys financial
    services cooperative loans sold to CoBank |  | *          |  |             | $ | 5,653               |  |            | 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

15



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CHS INC.
    AND SUBSIDIARIES




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




|                                                   |  |            |        |             |        |                     |        |                                                                                                                                                                                                                                     |                                                                                                                                         |                                                                                                                                                                                          |                                                                                                                   |                          |                                                |                                |                                              |                                                                                                                       |                                                                                                                       | 
|-------------------------------------------------- |  | ---------- | ------ | ----------- | ------ | ------------------- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------ | ---------------------------------------------- | ------------------------------ | -------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | 
|                                                   |  | Guarantee/ |        | Exposure on |        |                     |        |                                                                                                                                                                                                                                     |                                                                                                                                         |                                                                                                                                                                                          |                                                                                                                   |                          |                                                |                               
|                                                   |  | Maximum    |        | May 31,     |        |                     |        | Expiration                                                                                                                                                                                                                          |                                                                                                                                         | Triggering                                                                                                                                                                               |                                                                                                                   | Recourse                 |                                                | Assets Held                   
|Entities                                           |  | Exposure   |        | 2006        |        | Nature of Guarantee |        | Date                                                                                                                                                                                                                                |                                                                                                                                         | Event                                                                                                                                                                                    |                                                                                                                   | Provisions               |                                                | as Collateral                 
|                                                  
|Fin-Ag, Inc. agricultural loans
    sold to CoBank |  | *          |        |             | 22,425 |                     |        | 15% of the obligations of borrowers
    under credit agreements for some of the loans sold, 50% of the
    obligations of borrowers for other loans sold, and 100% of the
    obligations of borrowers for the remaining loans sold |                                                                                                                                         | None stated, but may be terminated
    by either party upon 90 days prior notice in regard to
    future obligations                                                                     |                                                                                                                   | Credit agreement default |                                                | Subrogation against borrower   |                                              | Some or all assets of borrower are
    held as collateral and  should be sufficient to cover guarantee
    exposure  
|Horizon Milling, LLC                               |  | $          | 5,000  |             |        |                    |        |                                                                                                                                                                                                                                     | Indemnification and reimbursement
    of 24% of damages related to Horizon Milling, LLCs
    performance under a flour sales agreement |                                                                                                                                                                                          | None stated, but may be terminated
    by any party upon 90 days prior notice in regard to future
    obligations |                          | Non-performance under flour sale
    agreement |                                | Subrogation against Horizon
    Milling, LLC |                                                                                                                       | None                                                                                                                 
|TEMCO, LLC                                         |  | $          | 25,000 |             |        | 5,625               |        |                                                                                                                                                                                                                                     | Obligations by TEMCO, LLC under
    credit agreement                                                                                    |                                                                                                                                                                                          | None stated                                                                                                       |                          | Credit agreement default                       |                                | Subrogation against TEMCO, LLC               |                                                                                                                       | None                                                                                                                 
|Third parties                                      |  | *          |        |             | 797    |                     |        | Surety for, or indemnificaton of
    surety for sales contracts between affiliates and sellers of
    grain under deferred payment contracts                                                                                        |                                                                                                                                         | Annual renewal on December 1
    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
|Cofina Financial, LLC                              |  | $          | 8,145  |             |        | 4,423               |        |                                                                                                                                                                                                                                     | Guaranteed loans which were made by
    the Company under financing programs and contributed by the
    Company to Cofina               |                                                                                                                                                                                          | Loans contributed mature at various
    times. Guarantee of a particular loan terminates on maturity date         |                          | Credit agreement default                       |                                | Subrogation against borrower                 |                                                                                                                       | Some or all assets of borrower are
    held as collateral but might not be sufficient to cover
    guarantee exposure
|                                                   |  |            |        |             |        |                     |        |                                                                                                                                                                                                                                     |                                                                                                                                         |                                                                                                                                                                                          |                                                                                                                   |                          |                                                |                                |                                              |                                                                                                                       |                                                                                                                       | 
|                                                   |  |            |        |             |        | $                   | 38,923 |                                                                                                                                                                                                                                     |                                                                                                                                         |                                                                                                                                                                                          |                                                                                                                   |                          |                                                |                                |                                              |                                                                                                                       |                                                                                                                       | 
|                                                   |  |            |        |             |        |                     |        |                                                                                                                                                                                                                                     |                                                                                                                                         |                                                                                                                                                                                          |                                                                                                                   |                          |                                                |                                |                                              |                                                                                                                       |                                                                                                                       | 









|  |  |                                                                                                                                                                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* |  | 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.

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



Cautionary
    Statement Regarding Forward-Looking Statements




The information in this Quarterly Report on
    Form 10-Q
    for the quarter ended May 31, 2006, includes
    forward-looking statements within the meaning of the
    Private Securities Litigation Reform Act of 1995 with respect to
    the Company. In addition, the Company and its representatives
    and agents may from time to time make other written or oral
    forward-looking statements, including statements contained in
    its filings with the Securities and Exchange Commission and its
    reports to its members and securityholders. Words and phrases
    such as will likely result, are expected
    to, is anticipated, estimate,
    project and similar expressions identify
    forward-looking statements. We wish to caution readers not to
    place undue reliance on any forward-looking statements, which
    speak only as of the date made.




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




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




We undertake no obligation to revise any forward-looking
    statements to reflect future events or circumstances.




Our revenues and operating results could be adversely
    affected by changes in commodity prices.








| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | levels of worldwide and domestic supplies;                                                                                                        
|
| |  | capacities of domestic and foreign refineries;                                                                                                    
|
| |  | the ability of the members of OPEC to agree to and maintain oil
    price and production controls, and the price and level of
    foreign imports;
|
| |  | disruption in supply;                                                                                                                             
|
| |  | political instability or armed conflict in oil-producing regions;                                                                                 
|
| |  | the level of consumer demand;                                                                                                                     
|
| |  | the price and availability of alternative fuels;                                                                                                  

17



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
    the availability of pipeline capacity; and
    domestic and foreign governmental regulations and taxes.    Our operating results could be adversely affected if our
    members were to do business with others rather than with
    us.
  We participate in highly competitive business markets in
    which we may not be able to continue to compete
    successfully.
  Changes in federal income tax laws or in our tax status could
    increase our tax liability and reduce our net
    income.
  We incur significant costs in complying with applicable laws
    and regulations. any failure to make the capital investments
    necessary to comply with these laws and regulations could expose
    us to financial liability.
    Environmental liabilities could adversely affect our results
    and financial condition.
 18




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Actual or perceived quality, safety or health risks
    associated with our products could subject us to liability and
    damage our business and reputation.
  Our operations are subject to business interruptions and
    casualty losses; we do not insure against all potential losses
    and could be seriously harmed by unexpected
    liabilities.
  
    our oil refineries and other facilities are potential targets
    for terrorist attacks that could halt or discontinue production;
    our inability to negotiate acceptable contracts with unionized
    workers in our operations could result in strikes or work
    stoppages; and
    the significant inventories that we carry or the facilities we
    own could be damaged or destroyed by catastrophic events,
    extreme weather conditions or contamination.    Our cooperative structure limits our ability to access equity
    capital.
  Consolidation among the producers of products we purchase and
    customers for products we sell could adversely affect our
    revenues and operating results.
   19




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If our customers chose alternatives to our refined petroleum
    products our revenues and profits may
    decline.
  Operating results from our agronomy business could be
    volatile and are dependent upon certain factors outside of our
    control.
  Technological improvements in agriculture could decrease the
    demand for our agronomy and energy
    products.
  We operate some of our business through joint ventures in
    which our rights to control business decisions are
    limited.
  General
  Form 10-Q, Form 10-K, Form 10-Q.
    ®
     20




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21




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Results
    of Operations
  Comparison
    of the three months ended May 31, 2006 and
    2005
  General.
          Net Income.
  Net Sales.
   22




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Other Revenues.
 23




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Cost of Goods Sold.
        Marketing, General and
    Administrative.
  Interest.
  Equity Income from Investments.
 24




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Loss on Impairments of Assets.
  Minority Interests.
  Income Taxes.
  Discontinued Operations.
 25




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Comparison
    of the nine months ended May 31, 2006 and
    2005




General.






















26



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Net Income.




Net Sales.














27



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Other Revenues.
  Cost of Goods Sold.
       28




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Marketing, General and
    Administrative.
  Gain on Sale of Investment.
  Interest.
  Equity Income from Investments.
         29




---



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Loss on Impairments of Assets.
  Minority Interests.
  Income Taxes.
  Discontinued Operations.
  Liquidity
    and Capital Resources
    364-day
 30




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Cash
    Flows from Operations
           31




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Cash
    Flows from Investing Activities
         32




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33




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Cash
    Flows from Financing Activities
  364-day 364-day
               34




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Form 10-K
               35




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Off
    Balance Sheet Financing Arrangements
  Lease
    Commitments:
  Form 10-K
  Guarantees:
    Debt:
    Contractual
    Obligations
  Form 10-K
  Critical
    Accounting Policies
  Form 10-K
  Effect of
    Inflation and Foreign Currency Transactions
    Recent
    Accounting Pronouncements
   36




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Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-K
  Item 4.
    Controls
    and Procedures  Rule 13a-15(e)
  Rule 13a-15(f)
 37




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PART II.
    OTHER INFORMATION  Item 1.
    Not
    applicable  Item 1A.
    Not
    applicable  Item 2.
    Not
    applicable  Item 3.
    Not
    applicable  Item 4.
    Not
    applicable  Item 5.
    Other
    Information        Form 10-Q.
  Item 6.
    Exhibits  Exhibit

Description10
.1

2006 Amended and Restated Credit
    Agreement (Revolving Loan) by and between CHS Inc. and the
    Syndication Parties dated as of May 18, 200610
.2

Ninth Amendment to Credit
    Agreement (Term Loan) dated as of May 18, 2006 by and among
    CHS Inc., CoBank, ACB, and the Syndication Parties10
.3

Amendment No. 3 to the CHS
    Inc. Supplemental Savings Plan.10
.4

Amendment No. 4 to the CHS
    Inc. Supplemental Executive Retirement Plan.10
.5

Second Amendment of CHS Inc.
    Deferred Compensation Plan.31
.1

Certification Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Certification Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1

Certification Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2

Certification Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002  38




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SIGNATURES    CHS Inc.
  John
    Schmitz
   Executive Vice President and
 Chief Financial Officer
   
 39