##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | for the quarterly period ended February 28, 2005.                                           
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | for the transition period
    from           to           .                                 

Commission File Number 0-50150


CHS Inc.


(Exact name of registrant as specified in its charter)


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

þ o


o þ




|      |  |                             
|----- |  | ----------------------------
|      |  | Number of Shares Outstanding
|Class |  | at February 28, 2005        
|      |  |                             
|NONE  |  | NONE                        









---










INDEX


|                                      |  |                                                                                                                                             |    |          |    | 
|------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|                                      |  |                                                                                                                                             |    | Page No. |   
|                                      |  |                                                                                                                                             |    |          |   
|PART I. FINANCIAL
    INFORMATION    
|Item 1.                               |  | Financial Statements                                                                                                                        |    |          | 3  | 
|                                      |  | Consolidated Balance Sheets as of
    February 28, 2005, August 31, 2004 and
    February 29, 2004 (unaudited)                              |    |          | 3  | 
|                                      |  | Consolidated Statements of Operations for
    the three months and six months ended February 28, 2005 and
    February 29, 2004 (unaudited) |    |          | 4  | 
|                                      |  | Consolidated Statements of Cash Flows for
    the three months and six months ended February 28, 2005 and
    February 29, 2004 (unaudited) |    |          | 5  | 
|                                      |  | Notes to Consolidated Financial Statements
    (unaudited)                                                                                  |    |          | 6  | 
|                                     
|Item 2.                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                                   |    |          | 16 | 
|                                     
|Item 3.                               |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                                              |    |          | 36 | 
|                                     
|Item 4.                               |  | Controls and Procedures                                                                                                                     |    |          | 36 | 
|                                     
|PART II. OTHER INFORMATION           
|                                     
|Item 4.                               |  | Submission of Matters to a Vote of Security
    Holders                                                                                     |    |          | 37 | 
|                                     
|Item 6.                               |  | Exhibits and Reports on Form 8-K                                                                                                            |    |          | 37 | 
|                                     
|SIGNATURE PAGE                        |  |                                                                                                                                             | 38 |         
|Certification Pursuant to Section 302
|Certification Pursuant to Section 302
|Certification Pursuant to Section 906
|Certification Pursuant to Section 906



1



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##### Table of Contents






PART I. FINANCIAL INFORMATION


SAFE HARBOR STATEMENT UNDER THE PRIVATE


SECURITIES LITIGATION REFORM ACT OF 1995




2



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##### Table of Contents






Item 1.     Financial
Statements


CHS INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(Unaudited)


|                                   |                                   |                                |           |         |            |  |           |              |           |  |           |           |           | 
|---------------------------------- | --------------------------------- | ------------------------------ | --------- | ------- | ---------- |  | --------- | ------------ | --------- |  | --------- | --------- | --------- | 
|                                   |                                   | February 28,                   |           |         | August 31, |  |           | February 29, |          
|                                   |                                   | 2005                           |           |         | 2004       |  |           | 2004         |          
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                   |                                   | (dollars in thousands)         |          
|ASSETS                            
|Current assets:                    |                                   |                                |           |         |            |  |           |              |           |  |           |          
|                                   | Cash and cash equivalents         |                                | $         | 193,533 |            |  | $         | 136,491      |           |  | $         | 98,506    |          
|                                   | Receivables                       |                                |           | 740,389 |            |  |           | 834,965      |           |  |           | 762,892   |          
|                                   | Inventories                       |                                |           | 935,788 |            |  |           | 723,893      |           |  |           | 1,001,276 |          
|                                   | Other current assets              |                                |           | 316,753 |            |  |           | 273,355      |           |  |           | 493,864   |          
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                   |                                   | Total current assets           |           |         | 2,186,463  |  |           |              | 1,968,704 |  |           |           | 2,356,538 | 
|Investments                        |                                   |                                | 516,785   |         |            |  | 575,816   |              |           |  | 522,340   |          
|Property, plant and equipment      |                                   |                                | 1,310,581 |         |            |  | 1,249,655 |              |           |  | 1,156,256 |          
|Other assets                       |                                   |                                | 233,419   |         |            |  | 237,117   |              |           |  | 250,420   |          
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                   |                                   | Total assets                   |           | $       | 4,247,248  |  |           | $            | 4,031,292 |  |           | $         | 4,285,554 | 
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                  
|LIABILITIES AND EQUITIES          
|Current liabilities:               |                                   |                                |           |         |            |  |           |              |           |  |           |          
|                                   | Notes payable                     |                                | $         | 354,116 |            |  | $         | 116,115      |           |  | $         | 600,836   |          
|                                   | Current portion of long-term debt |                                |           | 34,704  |            |  |           | 35,117       |           |  |           | 18,606    |          
|                                   | Customer credit balances          |                                |           | 115,045 |            |  |           | 88,686       |           |  |           | 126,653   |          
|                                   | Customer advance payments         |                                |           | 79,319  |            |  |           | 64,042       |           |  |           | 111,317   |          
|                                   | Checks and drafts outstanding     |                                |           | 67,918  |            |  |           | 64,584       |           |  |           | 102,304   |          
|                                   | Accounts payable                  |                                |           | 597,443 |            |  |           | 717,501      |           |  |           | 502,322   |          
|                                   | Accrued expenses                  |                                |           | 302,642 |            |  |           | 305,650      |           |  |           | 383,242   |          
|                                   | Dividends and equities payable    |                                |           | 30,165  |            |  |           | 83,569       |           |  |           | 36,058    |          
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                   |                                   | Total current liabilities      |           |         | 1,581,352  |  |           |              | 1,475,264 |  |           |           | 1,881,338 | 
|Long-term debt                     |                                   |                                | 750,123   |         |            |  | 648,701   |              |           |  | 636,964   |          
|Other liabilities                  |                                   |                                | 139,703   |         |            |  | 148,526   |              |           |  | 123,273   |          
|Minority interests in subsidiaries |                                   |                                | 139,838   |         |            |  | 130,715   |              |           |  | 119,769   |          
|Commitments and contingencies      |                                   |                                |           |         |            |  |           |              |           |  |           |          
|Equities                           |                                   |                                | 1,636,232 |         |            |  | 1,628,086 |              |           |  | 1,524,210 |          
|                                   |                                   |                                |           |         |            |  |           |              |          
|                                   |                                   | Total liabilities and equities |           | $       | 4,247,248  |  |           | $            | 4,031,292 |  |           | $         | 4,285,554 | 
|                                   |                                   |                                |           |         |            |  |           |              |          



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CHS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


|                                      |                |                            |           |           |                          |   |           |              |  |   |              |           |  |   |           |           | 
|------------------------------------- | -------------- | -------------------------- | --------- | --------- | ------------------------ | - | --------- | ------------ |  | - | ------------ | --------- |  | - | --------- | --------- | 
|                                      |                | For the Three Months Ended |           |           | For the Six Months Ended |  
|                                      |                |                            |           |           |                          |  
|                                      |                | February 28,               |           |           | February 29,             |   |           | February 28, |  |   | February 29, |          
|                                      |                | 2005                       |           |           | 2004                     |   |           | 2005         |  |   | 2004         |          
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          
|                                      |                | (dollars in thousands)     |          
|Revenues:                             |                |                            |           |           |                          |   |           |              |  |   |              |           |  |   |           |          
|                                      | Net sales      |                            | $         | 2,407,805 |                          |   | $         | 2,654,596    |  |   | $            | 5,345,053 |  |   | $         | 5,143,940 | 
|                                      | Other revenues |                            |           | 34,759    |                          |   |           | 34,410       |  |   |              | 79,283    |  |   |           | 67,443    | 
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          
|                                      |                |                            | 2,442,564 |           |                          |   | 2,689,006 |              |  |   | 5,424,336    |           |  |   | 5,211,383 |          
|Cost of goods sold                    |                |                            | 2,354,277 |           |                          |   | 2,630,264 |              |  |   | 5,227,010    |           |  |   | 5,046,977 |          
|Marketing, general and administrative |                |                            | 58,293    |           |                          |   | 51,050    |              |  |   | 106,209      |           |  |   | 96,886    |          
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          
|Operating earnings                    |                |                            | 29,994    |           |                          |   | 7,692     |              |  |   | 91,117       |           |  |   | 67,520    |          
|Gain on sale of investment            |                |                            | (3,448    | )         |                          |   |           |              |  |   | (3,448       | )         |  |   |           |          
|Gain on legal settlements             |                |                            |           |           |                          |   | (405      | )            |  |   |              |           |  |   | (692      | )        
|Interest                              |                |                            | 13,042    |           |                          |   | 13,482    |              |  |   | 24,636       |           |  |   | 25,022    |          
|Equity loss (income) from investments |                |                            | 154       |           |                          |   | (18,080   | )            |  |   | (16,529      | )         |  |   | (31,787   | )        
|Loss on impairments of assets         |                |                            | 13,397    |           |                          |   |           |              |  |   | 48,397       |           |  |   |           |          
|Minority interests                    |                |                            | 4,726     |           |                          |   | 3,220     |              |  |   | 12,915       |           |  |   | 7,142     |          
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          
|Income before income taxes            |                |                            | 2,123     |           |                          |   | 9,475     |              |  |   | 25,146       |           |  |   | 67,835    |          
|Income taxes                          |                |                            | (6,600    | )         |                          |   | 964       |              |  |   | (1,573       | )         |  |   | 8,585     |          
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          
|Net income                            |                | $                          | 8,723     |           |                          | $ | 8,511     |              |  | $ | 26,719       |           |  | $ | 59,250    |          
|                                      |                |                            |           |           |                          |   |           |              |  |   |              |          



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CHS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |          |         |          |          |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------- | ----------------------------------------- | ------------------------ | -------- | -------- | ------------ | ------- | -------- | ------------ | -------- | ------- | -------- | -------- | -------- | ------- | -------- | -------- | -
|                                                     |                                                                                   | For the Three Months Ended                           |                                       |                                           | For the Six Months Ended |         
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |         
|                                                     |                                                                                   | February 28,                                         |                                       |                                           | February 29,             |          |          | February 28, |         |          | February 29, |         
|                                                     |                                                                                   | 2005                                                 |                                       |                                           | 2004                     |          |          | 2005         |         |          | 2004         |         
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|                                                     |                                                                                   | (dollars in thousands)                               |                                      
|Cash flows from operating activities:                |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |         
|                                                     | Net income                                                                        |                                                      | $                                     | 8,723                                     |                          |          | $        | 8,511        |         |          | $            | 26,719   |         |          | $        | 59,250   |        
|                                                     | Adjustments to reconcile net income to net cash used in
    operating activities: |                                                      |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |          |        
|                                                     |                                                                                   | Depreciation and amortization                        |                                       |                                           | 27,326                   |          |          |              | 27,045  |          |              |          | 54,444  |          |          |          | 53,860  |         
|                                                     |                                                                                   | Noncash loss (income) from equity investments        |                                       |                                           | 154                      |          |          |              | (18,080 | )        |              |          | (16,529 | )        |          |          | (31,787 | )       
|                                                     |                                                                                   | Noncash loss on impairments of assets                |                                       |                                           | 13,397                   |          |          |              |         |          |              |          | 48,397  |          |          |          |         |         
|                                                     |                                                                                   | Minority interests                                   |                                       |                                           | 4,726                    |          |          |              | 3,220   |          |              |          | 12,915  |          |          |          | 7,142   |         
|                                                     |                                                                                   | Noncash portion of patronage dividends received      |                                       |                                           | (216                     | )        |          |              | (2,519  | )        |              |          | (437    | )        |          |          | (2,830  | )       
|                                                     |                                                                                   | (Gain) loss on sale of property, plant and equipment |                                       |                                           | (1,027                   | )        |          |              | 198     |          |              |          | (2,236  | )        |          |          | 141     |         
|                                                     |                                                                                   | Gain on sale of investment                           |                                       |                                           | (3,448                   | )        |          |              |         |          |              |          | (3,448  | )        |          |          |         |         
|                                                     |                                                                                   | Other, net                                           |                                       |                                           | 265                      |          |          |              | 313     |          |              |          | 555     |          |          |          | 540     |         
|                                                     |                                                                                   | Changes in operating assets and liabilities:         |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |          |         |         
|                                                     |                                                                                   |                                                      | Receivables                           |                                           |                          | 99,852   |          |              |         | 56,820   |              |          |         | 84,614   |          |          |         | 11,798   |         
|                                                     |                                                                                   |                                                      | Inventories                           |                                           |                          | (94,307  | )        |              |         | 25,773   |              |          |         | (211,687 | )        |          |         | (189,113 | )       
|                                                     |                                                                                   |                                                      | Other current assets and other assets |                                           |                          | (56,532  | )        |              |         | (200,256 | )            |          |         | (46,866  | )        |          |         | (323,170 | )       
|                                                     |                                                                                   |                                                      | Customer credit balances              |                                           |                          | 21,950   |          |              |         | 52,768   |              |          |         | 26,359   |          |          |         | 65,606   |         
|                                                     |                                                                                   |                                                      | Customer advance payments             |                                           |                          | (33,238  | )        |              |         | (57,054  | )            |          |         | 15,277   |          |          |         | (12,079  | )       
|                                                     |                                                                                   |                                                      | Accounts payable and accrued expenses |                                           |                          | (201,765 | )        |              |         | (106,537 | )            |          |         | (124,666 | )        |          |         | (16,263  | )       
|                                                     |                                                                                   |                                                      | Other liabilities                     |                                           |                          | (9,105   | )        |              |         | 5,069    |              |          |         | (8,248   | )        |          |         | 11,718   |         
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|                                                     |                                                                                   |                                                      |                                       | Net cash used in operating activities     |                          |          | (223,245 | )            |         |          | (204,729     | )        |         |          | (144,837 | )        |         |          | (365,187 | )
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|Cash flows from investing activities:                |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |         
|                                                     | Acquisition of property, plant and equipment                                      |                                                      |                                       | (59,007                                   | )                        |          |          | (49,989      | )       |          |              | (122,863 | )       |          |          | (102,222 | )      
|                                                     | Proceeds from disposition of property, plant and equipment                        |                                                      |                                       | 2,082                                     |                          |          |          | 8,078        |         |          |              | 7,953    |         |          |          | 29,742   |        
|                                                     | Investments                                                                       |                                                      |                                       | (2,184                                    | )                        |          |          | (1,012       | )       |          |              | (2,230   | )       |          |          | (1,022   | )      
|                                                     | Equity investments redeemed                                                       |                                                      |                                       | 14,425                                    |                          |          |          | 16,010       |         |          |              | 36,945   |         |          |          | 43,503   |        
|                                                     | Investments redeemed                                                              |                                                      |                                       | 1,110                                     |                          |          |          | 2,657        |         |          |              | 2,093    |         |          |          | 6,115    |        
|                                                     | Proceeds from sale of investment                                                  |                                                      |                                       | 7,420                                     |                          |          |          |              |         |          |              | 7,420    |         |          |          |          |        
|                                                     | Changes in notes receivable                                                       |                                                      |                                       | 8,498                                     |                          |          |          | 248          |         |          |              | 9,116    |         |          |          | (5,896   | )      
|                                                     | Distribution to minority owners                                                   |                                                      |                                       | (1,906                                    | )                        |          |          |              |         |          |              | (4,966   | )       |          |          | (1,338   | )      
|                                                     | Other investing activities, net                                                   |                                                      |                                       | 177                                       |                          |          |          | 696          |         |          |              | 1,371    |         |          |          | 3,203    |        
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|                                                     |                                                                                   |                                                      |                                       | Net cash used in investing activities     |                          |          | (29,385  | )            |         |          | (23,312      | )        |         |          | (65,161  | )        |         |          | (27,915  | )
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|Cash flows from financing activities:                |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |          |         |          |          |         
|                                                     | Changes in notes payable                                                          |                                                      |                                       | 353,033                                   |                          |          |          | 223,990      |         |          |              | 238,001  |         |          |          | 349,705  |        
|                                                     | Long-term debt borrowings                                                         |                                                      |                                       |                                           |                          |          |          | 445          |         |          |              | 125,000  |         |          |          | 445      |        
|                                                     | Principal payments on long-term debt                                              |                                                      |                                       | (17,647                                   | )                        |          |          | (4,500       | )       |          |              | (24,195  | )       |          |          | (8,271   | )      
|                                                     | Changes in checks and drafts outstanding                                          |                                                      |                                       | 16,690                                    |                          |          |          | 19,194       |         |          |              | 3,334    |         |          |          | 16,290   |        
|                                                     | Expenses incurred  capital equity certificates
    redeemed for preferred stock  |                                                      |                                       | (78                                       | )                        |          |          | (53          | )       |          |              | (78      | )       |          |          | (53      | )      
|                                                     | Preferred stock dividends paid                                                    |                                                      |                                       | (2,113                                    | )                        |          |          | (1,874       | )       |          |              | (4,226   | )       |          |          | (3,748   | )      
|                                                     | Retirements of equities                                                           |                                                      |                                       | (19,058                                   | )                        |          |          | (1,583       | )       |          |              | (19,285  | )       |          |          | (2,851   | )      
|                                                     | Cash patronage dividends paid                                                     |                                                      |                                       | (51,511                                   | )                        |          |          | (28,158      | )       |          |              | (51,511  | )       |          |          | (28,158  | )      
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|                                                     |                                                                                   |                                                      |                                       | Net cash provided by financing activities |                          |          | 279,316  |              |         |          | 207,461      |          |         |          | 267,040  |          |         |          | 323,359  |  
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                      | 26,686                                |                                           |                          |          | (20,580  | )            |         |          | 57,042       |          |         |          | (69,743  | )       
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                      | 166,847                               |                                           |                          |          | 119,086  |              |         |          | 136,491      |          |         |          | 168,249  |         
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         
|Cash and cash equivalents at end of period           |                                                                                   | $                                                    | 193,533                               |                                           |                          | $        | 98,506   |              |         | $        | 193,533      |          |         | $        | 98,506   |         
|                                                     |                                                                                   |                                                      |                                       |                                           |                          |          |          |              |         |          |              |         



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CHS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


(dollars in thousands)




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









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







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





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CHS INC. AND SUBSIDIARIES


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










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





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

|                                      |  |              |         |  |            |   |         |              |  |   |         | 
|------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- | ------------ |  | - | ------- | 
|                                      |  | February 28, |         |  | August 31, |   |         | February 29, | 
|                                      |  | 2005         |         |  | 2004       |   |         | 2004         | 
|                                      |  |              |         |  |            |   |         |              | 
|Trade                                 |  | $            | 754,251 |  |            | $ | 835,066 |              |  | $ | 743,714 | 
|Other                                 |  |              | 42,384  |  |            |   | 55,708  |              |  |   | 52,921  | 
|                                      |  |              |         |  |            |   |         |              | 
|                                      |  |              | 796,635 |  |            |   | 890,774 |              |  |   | 796,635 | 
|Less allowances for doubtful accounts |  |              | 56,246  |  |            |   | 55,809  |              |  |   | 33,743  | 
|                                      |  |              |         |  |            |   |         |              | 
|                                      |  | $            | 740,389 |  |            | $ | 834,965 |              |  | $ | 762,892 | 
|                                      |  |              |         |  |            |   |         |              | 

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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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




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

|                            |  |              |         |  |            |   |         |              |  |   |           | 
|--------------------------- |  | ------------ | ------- |  | ---------- | - | ------- | ------------ |  | - | --------- | 
|                            |  | February 28, |         |  | August 31, |   |         | February 29, | 
|                            |  | 2005         |         |  | 2004       |   |         | 2004         | 
|                            |  |              |         |  |            |   |         |              | 
|Grain and oilseed           |  | $            | 416,141 |  |            | $ | 308,207 |              |  | $ | 543,781   | 
|Energy                      |  |              | 302,643 |  |            |   | 277,801 |              |  |   | 245,909   | 
|Feed and farm supplies      |  |              | 183,606 |  |            |   | 110,885 |              |  |   | 166,191   | 
|Processed grain and oilseed |  |              | 32,084  |  |            |   | 25,740  |              |  |   | 44,210    | 
|Other                       |  |              | 1,314   |  |            |   | 1,260   |              |  |   | 1,185     | 
|                            |  |              |         |  |            |   |         |              | 
|                            |  | $            | 935,788 |  |            | $ | 723,893 |              |  | $ | 1,001,276 | 
|                            |  |              |         |  |            |   |         |              | 



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





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









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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 Six Months Ended |  
|             |  |                            |         |  |                          |  
|             |  | February 28,               |         |  | February 29,             |   |         | February 28, |  |   | February 29, | 
|             |  | 2005                       |         |  | 2004                     |   |         | 2005         |  |   | 2004         | 
|             |  |                            |         |  |                          |   |         |              |  |   |              | 
|Net sales    |  | $                          | 327,042 |  |                          | $ | 330,432 |              |  | $ | 712,221      |  |  | $ | 674,551 | 
|Gross profit |  |                            | 41,991  |  |                          |   | 52,414  |              |  |   | 89,957       |  |  |   | 105,322 | 
|Net income   |  |                            | 10,246  |  |                          |   | 23,696  |              |  |   | 30,092       |  |  |   | 47,312  | 

|                        |  |              |         |  |            |   |         |              |  |   |         | 
|----------------------- |  | ------------ | ------- |  | ---------- | - | ------- | ------------ |  | - | ------- | 
|                        |  | February 28, |         |  | August 31, |   |         | February 29, | 
|                        |  | 2005         |         |  | 2004       |   |         | 2004         | 
|                        |  |              |         |  |            |   |         |              | 
|Current assets          |  | $            | 307,389 |  |            | $ | 286,613 |              |  | $ | 310,774 | 
|Non-current assets      |  |              | 258,370 |  |            |   | 258,270 |              |  |   | 238,052 | 
|Current liabilities     |  |              | 156,879 |  |            |   | 171,269 |              |  |   | 154,945 | 
|Non-current liabilities |  |              | 199,711 |  |            |   | 194,547 |              |  |   | 196,077 | 



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

|             |  |                            |         |   |                          |   |         |              |  |   |              |   |  |   |           |  
|------------ |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | - | --------- | -
|             |  | For the Three Months Ended |         |   | For the Six Months Ended |  
|             |  |                            |         |   |                          |  
|             |  | February 28,               |         |   | February 29,             |   |         | February 28, |  |   | February 29, |  
|             |  | 2005                       |         |   | 2004                     |   |         | 2005         |  |   | 2004         |  
|             |  |                            |         |   |                          |   |         |              |  |   |              |  
|Net sales    |  | $                          | 507,851 |   |                          | $ | 475,273 |              |  | $ | 1,106,013    |   |  | $ | 1,078,863 |  
|Gross profit |  |                            | 41,662  |   |                          |   | 49,677  |              |  |   | 99,280       |   |  |   | 100,886   |  
|Net loss     |  |                            | (21,421 | ) |                          |   | (4,885  | )            |  |   | (26,639      | ) |  |   | (19,327   | )

|                        |  |              |           |  |            |   |           |              |  |   |           | 
|----------------------- |  | ------------ | --------- |  | ---------- | - | --------- | ------------ |  | - | --------- | 
|                        |  | February 28, |           |  | August 31, |   |           | February 29, | 
|                        |  | 2005         |           |  | 2004       |   |           | 2004         | 
|                        |  |              |           |  |            |   |           |              | 
|Current assets          |  | $            | 1,566,572 |  |            | $ | 1,123,671 |              |  | $ | 1,440,998 | 
|Non-current assets      |  |              | 127,045   |  |            |   | 123,106   |              |  |   | 117,403   | 
|Current liabilities     |  |              | 1,376,875 |  |            |   | 878,814   |              |  |   | 1,247,764 | 
|Non-current liabilities |  |              | 128,346   |  |            |   | 128,780   |              |  |   | 125,811   | 



|        |                              
|------- | -----------------------------
|Note 6. | Property, Plant and Equipment





|        |                                 
|------- | --------------------------------
|Note 7. | Notes Payable and Long-term Debt



9



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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




|        |         
|------- | --------
|Note 8. | Equities



|                                                     |  |              |           |   |              |   |           |  
|---------------------------------------------------- |  | ------------ | --------- | - | ------------ | - | --------- | -
|                                                     |  | February 28, |           |   | February 29, |  
|                                                     |  | 2005         |           |   | 2004         |  
|                                                     |  |              |           |   |              |  
|Balances, September 1, 2004 and 2003                 |  | $            | 1,628,086 |   |              | $ | 1,481,711 |  
|Net income                                           |  |              | 26,719    |   |              |   | 59,250    |  
|Other comprehensive income                           |  |              | 1,162     |   |              |   | 2,304     |  
|Patronage distribution                               |  |              | (169,437  | ) |              |   | (93,445   | )
|Patronage accrued 2004 and 2003                      |  |              | 166,850   |   |              |   | 90,000    |  
|Equities retired                                     |  |              | (19,285   | ) |              |   | (2,851    | )
|Equity retirements accrued 2004 and 2003             |  |              | 19,285    |   |              |   | 2,851     |  
|Equities issued in exchange for elevator properties  |  |              | 1,375     |   |              |   | 13,363    |  
|Preferred stock dividends                            |  |              | (4,226    | ) |              |   | (3,748    | )
|Preferred stock dividends accrued 2004 and 2003      |  |              | 1,409     |   |              |   | 1,249     |  
|Accrued dividends and equities payable 2005 and 2004 |  |              | (17,350   | ) |              |   | (28,109   | )
|Other, net                                           |  |              | 1,644     |   |              |   | 1,635     |  
|                                                     |  |              |           |   |              |  
|Balances, February 28, 2005 and February 29, 2004    |  | $            | 1,636,232 |   |              | $ | 1,524,210 |  
|                                                     |  |              |           |   |              |  





|        |                     
|------- | --------------------
|Note 9. | Comprehensive Income



10



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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




|         |                       
|-------- | ----------------------
|Note 10. | Employee Benefit Plans





| |                       
| | ----------------------
| | Employer contributions

|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -------------- |  | - | ----- |  |  | ---- | ----- |  | ---- | - | ----- | - |  | - | ----- | -
|                                                                                                                |  | Qualified        |         |   | Non-Qualified    |   |         |               
|                                                                                                                |  | Pension Benefits |         |   | Pension Benefits |   |         | Other Benefits | 
|                                                                                                                |  |                  |         |   |                  |   |         |                | 
|                                                                                                                |  | 2005             |         |   | 2004             |   |         | 2005           |  |   | 2004  |  |  | 2005 |       |  | 2004 |  
|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |  
|Components of net periodic benefit cost for the three months
    ended February 28, 2005 and February 29, 2004: |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   |       |   |  |   |       |  
|Service cost                                                                                                    |  | $                | 3,054   |   |                  | $ | 2,887   |                |  | $ | 165   |  |  | $    | 150   |  |      | $ | 190   |   |  | $ | 189   |  
|Interest cost                                                                                                   |  |                  | 4,536   |   |                  |   | 4,301   |                |  |   | 219   |  |  |      | 206   |  |      |   | 401   |   |  |   | 439   |  
|Return on plan assets                                                                                           |  |                  | (6,839  | ) |                  |   | (6,872  | )              |  |   |       |  |  |      |       |  |      |   |       |   |  |   |       |  
|Prior service cost amortization                                                                                 |  |                  | 198     |   |                  |   | 211     |                |  |   | 128   |  |  |      | 132   |  |      |   | (72   | ) |  |   | (43   | )
|Actuarial loss (gain) amortization                                                                              |  |                  | 1,173   |   |                  |   | 1,037   |                |  |   | 30    |  |  |      | 26    |  |      |   | (21   | ) |  |   | 27    |  
|Transition amount amortization                                                                                  |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   | 51    |   |  |   | 234   |  
|Recognized net actuarial loss                                                                                   |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   | 184   |   |  |   |       |  
|Other adjustments                                                                                               |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      | 251   |  |      |   |       |   |  |   |       |  
|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |  
|Net periodic benefit cost                                                                                       |  | $                | 2,122   |   |                  | $ | 1,564   |                |  | $ | 542   |  |  | $    | 765   |  |      | $ | 733   |   |  | $ | 846   |  
|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |  
|Components of net periodic benefit cost for the six months
    ended February 28, 2005 and February 29, 2004:   |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   |       |   |  |   |       |  
|Service cost                                                                                                    |  | $                | 6,108   |   |                  | $ | 5,774   |                |  | $ | 330   |  |  | $    | 300   |  |      | $ | 380   |   |  | $ | 377   |  
|Interest cost                                                                                                   |  |                  | 9,071   |   |                  |   | 8,602   |                |  |   | 438   |  |  |      | 411   |  |      |   | 802   |   |  |   | 879   |  
|Return on plan assets                                                                                           |  |                  | (13,678 | ) |                  |   | (13,745 | )              |  |   |       |  |  |      |       |  |      |   |       |   |  |   |       |  
|Prior service cost amortization                                                                                 |  |                  | 396     |   |                  |   | 422     |                |  |   | 257   |  |  |      | 263   |  |      |   | (144  | ) |  |   | (87   | )
|Actuarial loss (gain) amortization                                                                              |  |                  | 2,345   |   |                  |   | 2,074   |                |  |   | 59    |  |  |      | 52    |  |      |   | (41   | ) |  |   | 54    |  
|Transition amount amortization                                                                                  |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   | 101   |   |  |   | 468   |  
|Recognized net actuarial loss                                                                                   |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |   | 367   |   |  |   |       |  
|Other adjustments                                                                                               |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      | 502   |  |      |   |       |   |  |   |       |  
|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |  
|Net periodic benefit cost                                                                                       |  | $                | 4,242   |   |                  | $ | 3,127   |                |  | $ | 1,084 |  |  | $    | 1,528 |  |      | $ | 1,465 |   |  | $ | 1,691 |  
|                                                                                                                |  |                  |         |   |                  |   |         |                |  |   |       |  |  |      |       |  |      |  





|         |                  
|-------- | -----------------
|Note 11. | Segment Reporting



11



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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














|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |           |  
|-------------------------------------------- | ------------------------------------- | ------ | --------- | --------- | -------- |  | --------- | ---------- | --- |  | ------- | ----------- | - | ------- | ------ | ------- | ----- |  | ------- | ------- | - |  | --------- | --------- | -
|                                             |                                       |        |           |           |          |  |           | Corporate  |     |  |         |             |  
|                                             |                                       |        |           | Ag        |          |  |           |            | and |  |         | Reconciling |   |         |       
|                                             |                                       | Energy |           |           | Business |  |           | Processing |     |  | Other   |             |   | Amounts |        |         | Total | 
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|For the Three Months Ended February 28, 2005 |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |          
|                                             | Net sales                             |        | $         | 1,161,979 |          |  | $         | 1,135,715  |     |  | $       | 132,542     |   |         | $      | 15,363  |       |  | $       | (37,794 | ) |  | $         | 2,407,805 |  
|                                             | Other revenues                        |        |           | 1,936     |          |  |           | 23,323     |     |  |         | 903         |   |         |        | 8,597   |       |  |         |         |   |  |           | 34,759    |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             |                                       |        | 1,163,915 |           |          |  | 1,159,038 |            |     |  | 133,445 |             |   |         | 23,960 |         |       |  | (37,794 | )       |   |  | 2,442,564 |          
|                                             | Cost of goods sold                    |        |           | 1,121,460 |          |  |           | 1,123,747  |     |  |         | 131,019     |   |         |        | 15,845  |       |  |         | (37,794 | ) |  |           | 2,354,277 |  
|                                             | Marketing, general and administrative |        |           | 16,425    |          |  |           | 25,618     |     |  |         | 5,555       |   |         |        | 10,695  |       |  |         |         |   |  |           | 58,293    |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Operating earnings (losses)           |        |           | 26,030    |          |  |           | 9,673      |     |  |         | (3,129      | ) |         |        | (2,580  | )     |  |         |        |   |  |           | 29,994    |  
|                                             | Gain on sale of investment            |        |           |           |          |  |           |            |     |  |         |             |   |         |        | (3,448  | )     |  |         |         |   |  |           | (3,448    | )
|                                             | Interest                              |        |           | 3,199     |          |  |           | 4,649      |     |  |         | 3,234       |   |         |        | 1,960   |       |  |         |         |   |  |           | 13,042    |  
|                                             | Equity (income) loss from investments |        |           | (739      | )        |  |           | 6,858      |     |  |         | (5,922      | ) |         |        | (43     | )     |  |         |         |   |  |           | 154       |  
|                                             | Loss on impairments of assets         |        |           |           |          |  |           |            |     |  |         |             |   |         |        | 13,397  |       |  |         |         |   |  |           | 13,397    |  
|                                             | Minority interests                    |        |           | 4,517     |          |  |           | (24        | )   |  |         |             |   |         |        | 233     |       |  |         |         |   |  |           | 4,726     |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Income (loss) before income taxes     |        | $         | 19,053    |          |  | $         | (1,810     | )   |  | $       | (441        | ) |         | $      | (14,679 | )     |  | $       |        |   |  | $         | 2,123     |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Intersegment sales                    |        | $         | (34,484   | )        |  | $         | (3,035     | )   |  | $       | (275        | ) |         |        |         |       |  | $       | 37,794  |   |  | $         |          |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Capital expenditures                  |        | $         | 51,652    |          |  | $         | 4,189      |     |  | $       | 1,388       |   |         | $      | 1,778   |       |  |         |         |   |  | $         | 59,007    |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Depreciation and amortization         |        | $         | 14,779    |          |  | $         | 7,513      |     |  | $       | 3,489       |   |         | $      | 1,545   |       |  |         |         |   |  | $         | 27,326    |  
|                                             |                                       |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 

12



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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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


|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |           |  
|-------------------------------------------- | ---------------------------------------------- | ------ | --------- | --------- | -------- |  | --------- | ---------- | --- |  | ------- | ----------- | - | ------- | ------ | ------- | ----- |  | ------- | ------- | - |  | --------- | --------- | -
|                                             |                                                |        |           |           |          |  |           | Corporate  |     |  |         |             |  
|                                             |                                                |        |           | Ag        |          |  |           |            | and |  |         | Reconciling |   |         |       
|                                             |                                                | Energy |           |           | Business |  |           | Processing |     |  | Other   |             |   | Amounts |        |         | Total | 
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|For the Three Months Ended February 29, 2004 |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |          
|                                             | Net sales                                      |        | $         | 906,251   |          |  | $         | 1,586,249  |     |  | $       | 176,482     |   |         | $      | 16,775  |       |  | $       | (31,161 | ) |  | $         | 2,654,596 |  
|                                             | Other revenues                                 |        |           | 875       |          |  |           | 22,532     |     |  |         | 975         |   |         |        | 10,028  |       |  |         |         |   |  |           | 34,410    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             |                                                |        | 907,126   |           |          |  | 1,608,781 |            |     |  | 177,457 |             |   |         | 26,803 |         |       |  | (31,161 | )       |   |  | 2,689,006 |          
|                                             | Cost of goods sold                             |        |           | 892,386   |          |  |           | 1,582,081  |     |  |         | 171,950     |   |         |        | 15,008  |       |  |         | (31,161 | ) |  |           | 2,630,264 |  
|                                             | Marketing, general and administrative          |        |           | 16,716    |          |  |           | 20,560     |     |  |         | 4,942       |   |         |        | 8,832   |       |  |         |         |   |  |           | 51,050    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Operating (losses) earnings                    |        |           | (1,976    | )        |  |           | 6,140      |     |  |         | 565         |   |         |        | 2,963   |       |  |         |        |   |  |           | 7,692     |  
|                                             | Gain on legal settlements                      |        |           |           |          |  |           | (405       | )   |  |         |             |   |         |        |         |       |  |         |         |   |  |           | (405      | )
|                                             | Interest                                       |        |           | 3,714     |          |  |           | 4,497      |     |  |         | 3,252       |   |         |        | 2,019   |       |  |         |         |   |  |           | 13,482    |  
|                                             | Equity loss (income) from investments          |        |           | 7         |          |  |           | (4,233     | )   |  |         | (13,802     | ) |         |        | (52     | )     |  |         |         |   |  |           | (18,080   | )
|                                             | Minority interests                             |        |           | 2,707     |          |  |           |            |     |  |         |             |   |         |        | 513     |       |  |         |         |   |  |           | 3,220     |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | (Loss) income before income taxes              |        | $         | (8,404    | )        |  | $         | 6,281      |     |  | $       | 11,115      |   |         | $      | 483     |       |  | $       |        |   |  | $         | 9,475     |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Intersegment sales                             |        | $         | (28,309   | )        |  | $         | (2,852     | )   |  |         |             |   |         |        |         |       |  | $       | 31,161  |   |  | $         |          |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Capital expenditures                           |        | $         | 36,089    |          |  | $         | 6,337      |     |  | $       | 811         |   |         | $      | 6,752   |       |  |         |         |   |  | $         | 49,989    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Depreciation and amortization                  |        | $         | 14,434    |          |  | $         | 7,839      |     |  | $       | 3,343       |   |         | $      | 1,429   |       |  |         |         |   |  | $         | 27,045    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|For the Six Months Ended February 28, 2005   |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |          
|                                             | Net sales                                      |        | $         | 2,579,144 |          |  | $         | 2,541,468  |     |  | $       | 274,918     |   |         | $      | 32,720  |       |  | $       | (83,197 | ) |  | $         | 5,345,053 |  
|                                             | Other revenues                                 |        |           | 4,625     |          |  |           | 57,194     |     |  |         | 1,815       |   |         |        | 15,649  |       |  |         |         |   |  |           | 79,283    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             |                                                |        | 2,583,769 |           |          |  | 2,598,662 |            |     |  | 276,733 |             |   |         | 48,369 |         |       |  | (83,197 | )       |   |  | 5,424,336 |          
|                                             | Cost of goods sold                             |        |           | 2,477,836 |          |  |           | 2,528,414  |     |  |         | 271,051     |   |         |        | 32,906  |       |  |         | (83,197 | ) |  |           | 5,227,010 |  
|                                             | Marketing, general and administrative          |        |           | 30,403    |          |  |           | 46,105     |     |  |         | 9,673       |   |         |        | 20,028  |       |  |         |         |   |  |           | 106,209   |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Operating earnings (losses)                    |        |           | 75,530    |          |  |           | 24,143     |     |  |         | (3,991      | ) |         |        | (4,565  | )     |  |         |        |   |  |           | 91,117    |  
|                                             | Gain on sale of investment                     |        |           |           |          |  |           |            |     |  |         |             |   |         |        | (3,448  | )     |  |         |         |   |  |           | (3,448    | )
|                                             | Interest                                       |        |           | 6,371     |          |  |           | 8,882      |     |  |         | 6,266       |   |         |        | 3,117   |       |  |         |         |   |  |           | 24,636    |  
|                                             | Equity (income) loss from investments          |        |           | (1,468    | )        |  |           | 2,873      |     |  |         | (17,436     | ) |         |        | (498    | )     |  |         |         |   |  |           | (16,529   | )
|                                             | Loss on impairments of assets                  |        |           |           |          |  |           | 35,000     |     |  |         |             |   |         |        | 13,397  |       |  |         |         |   |  |           | 48,397    |  
|                                             | Minority interests                             |        |           | 12,462    |          |  |           | (24        | )   |  |         |             |   |         |        | 477     |       |  |         |         |   |  |           | 12,915    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Income (loss) before income taxes              |        | $         | 58,165    |          |  | $         | (22,588    | )   |  | $       | 7,179       |   |         | $      | (17,610 | )     |  | $       |        |   |  | $         | 25,146    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Intersegment sales                             |        | $         | (79,551   | )        |  | $         | (3,305     | )   |  | $       | (341        | ) |         |        |         |       |  | $       | 83,197  |   |  | $         |          |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Goodwill                                       |        | $         | 3,041     |          |  | $         | 250        |     |  |         |             |   |         | $      | 15,169  |       |  |         |         |   |  | $         | 18,460    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Capital expenditures                           |        | $         | 105,129   |          |  | $         | 12,573     |     |  | $       | 2,320       |   |         | $      | 2,841   |       |  |         |         |   |  | $         | 122,863   |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Depreciation and amortization                  |        | $         | 29,516    |          |  | $         | 14,813     |     |  | $       | 6,919       |   |         | $      | 3,196   |       |  |         |         |   |  | $         | 54,444    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Total identifiable assets at February 28, 2005 |        | $         | 1,741,443 |          |  | $         | 1,673,294  |     |  | $       | 418,371     |   |         | $      | 414,140 |       |  |         |         |   |  | $         | 4,247,248 |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|For the Six Months Ended February 29, 2004   |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       |  |         |         |   |  |           |          
|                                             | Net sales                                      |        | $         | 1,822,291 |          |  | $         | 3,038,819  |     |  | $       | 309,028     |   |         | $      | 34,854  |       |  | $       | (61,052 | ) |  | $         | 5,143,940 |  
|                                             | Other revenues                                 |        |           | 3,744     |          |  |           | 44,257     |     |  |         | 1,782       |   |         |        | 17,660  |       |  |         |         |   |  |           | 67,443    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             |                                                |        | 1,826,035 |           |          |  | 3,083,076 |            |     |  | 310,810 |             |   |         | 52,514 |         |       |  | (61,052 | )       |   |  | 5,211,383 |          
|                                             | Cost of goods sold                             |        |           | 1,752,334 |          |  |           | 3,026,575  |     |  |         | 298,123     |   |         |        | 30,997  |       |  |         | (61,052 | ) |  |           | 5,046,977 |  
|                                             | Marketing, general and administrative          |        |           | 31,282    |          |  |           | 39,514     |     |  |         | 9,491       |   |         |        | 16,599  |       |  |         |         |   |  |           | 96,886    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Operating earnings                             |        |           | 42,419    |          |  |           | 16,987     |     |  |         | 3,196       |   |         |        | 4,918   |       |  |         |        |   |  |           | 67,520    |  
|                                             | Gain on legal settlements                      |        |           |           |          |  |           | (692       | )   |  |         |             |   |         |        |         |       |  |         |         |   |  |           | (692      | )
|                                             | Interest                                       |        |           | 7,513     |          |  |           | 8,351      |     |  |         | 6,149       |   |         |        | 3,009   |       |  |         |         |   |  |           | 25,022    |  
|                                             | Equity income from investments                 |        |           | (289      | )        |  |           | (3,046     | )   |  |         | (28,344     | ) |         |        | (108    | )     |  |         |         |   |  |           | (31,787   | )
|                                             | Minority interests                             |        |           | 6,396     |          |  |           |            |     |  |         |             |   |         |        | 746     |       |  |         |         |   |  |           | 7,142     |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Income before income taxes                     |        | $         | 28,799    |          |  | $         | 12,374     |     |  | $       | 25,391      |   |         | $      | 1,271   |       |  | $       |        |   |  | $         | 67,835    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Intersegment sales                             |        | $         | (55,445   | )        |  | $         | (5,607     | )   |  |         |             |   |         |        |         |       |  | $       | 61,052  |   |  | $         |          |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Goodwill                                       |        | $         | 3,185     |          |  | $         | 262        |     |  |         |             |   |         | $      | 23,605  |       |  |         |         |   |  | $         | 27,052    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Capital expenditures                           |        | $         | 68,478    |          |  | $         | 17,927     |     |  | $       | 6,459       |   |         | $      | 9,358   |       |  |         |         |   |  | $         | 102,222   |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Depreciation and amortization                  |        | $         | 28,847    |          |  | $         | 15,521     |     |  | $       | 6,533       |   |         | $      | 2,959   |       |  |         |         |   |  | $         | 53,860    |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 
|                                             | Total identifiable assets at February 29, 2004 |        | $         | 1,336,458 |          |  | $         | 1,924,871  |     |  | $       | 491,343     |   |         | $      | 532,882 |       |  |         |         |   |  | $         | 4,285,554 |  
|                                             |                                                |        |           |           |          |  |           |            |     |  |         |             |   |         |        |         |       | 

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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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




|         |                              
|-------- | -----------------------------
|Note 12. | Commitments and Contingencies



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





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







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##### Table of Contents



CHS INC. AND SUBSIDIARIES


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




|                                                        |  |                        |        |  |              |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                          |  |                                                                                                                  
|------------------------------------------------------- |  | ---------------------- | ------ |  | ------------ | - | ------ | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | ---------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|                                                        |  | Guarantee/             |        |  | Exposure on  |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                         
|                                                        |  | Maximum                |        |  | February 28, |   |        | Nature of |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  | Assets Held                             
|Entities                                                |  | Exposure               |        |  | 2005         |   |        | Guarantee |  | Expiration Date                                                                                                                                                                                                                     |  | Triggering Event                                                                                                 |  | Recourse Provisions                       |  | as Collateral                           
|                                                        |  |                        |        |  |              |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                         
|                                                        |  | (dollars in thousands) |        |  |              |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  | 
|Our financial services cooperative loans sold to CoBank |  |                        | *      |  |              | $ | 10,660 |           |  | 10% of the obligations of borrowers (agri- cultural
    cooperatives) under credit agreements for loans sold                                                                                                                        |  | None stated, but may be terminated by either party upon
    60 days prior notice in regard to future obligations |  | Credit agreement default                  |  | Subrogation against borrower             |  | Some or all assets of borrower are held as collateral and should
    be sufficient to cover guarantee exposure   
|Fin-Ag, Inc. agricultural loans sold to CoBank          |  |                        | *      |  |              |   | 18,141 |           |  | 15% of the obligations of borrowers under credit agreements for
    some of the loans sold, 50% of the obligations of borrowers for
    other loans sold, and 100% of the obligations of borrowers for
    the remaining loans sold |  | None stated, but may be terminated by either party upon
    90 days prior notice in regard to future obligations |  | Credit agreement default                  |  | Subrogation against borrower             |  | Some or all assets of borrower are held as collateral and should
    be sufficient to cover guarantee exposure   
|Horizon Milling, LLC                                    |  | $                      | 5,000  |  |              |   |       |           |  | Indemnification and reimbursement of 24% of damages related to
    Horizon Milling, LLCs performance under a flour sales
    agreement                                                                                             |  | None stated, but may be terminated by any party upon
    90 days prior notice in regard to future obligations    |  | Nonperformance under flour sale agreement |  | Subrogation against Horizon Milling, LLC |  | None                                                                                                             
|TEMCO, LLC                                              |  | $                      | 25,000 |  |              |   | 2,350  |           |  | Obligations by TEMCO, LLC under credit agreement                                                                                                                                                                                    |  | None stated                                                                                                      |  | Credit agreement default                  |  | Subrogation against TEMCO, LLC           |  | None                                                                                                             
|Third parties                                           |  |                        | *      |  |              |   | 637    |           |  | Surety for, or indemnification of surety for sales contracts
    between affiliates and sellers of grain under deferred payment                                                                                                     |  | None stated, but may be terminated by us at any time in regard
    to future obligations                         |  | Nonpayment                                |  | Subrogation against affiliates           |  | Some or all assets of borrower are held as collateral but might
    not be sufficient to cover guarantee exposure
|                                                        |  |                        |        |  |              |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                         
|                                                        |  |                        |        |  |              | $ | 31,788 |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                          |  |                                                                                                                  
|                                                        |  |                        |        |  |              |   |        |           |  |                                                                                                                                                                                                                                     |  |                                                                                                                  |  |                                           |  |                                         






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

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

Cautionary Statement Regarding Forward-Looking Statements


The information in this Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 2005, includes
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. In addition,
we and our representatives and agents may from time to time make
other written or oral forward-looking statements, including
statements contained in our filings with the Securities and
Exchange Commission and our reports to our members and
securityholders. Words and phrases such as will likely
result, are expected to, is
anticipated, estimate, project and
similar expressions identify forward-looking statements. We wish
to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date
made.


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


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


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


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






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

16



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##### Table of Contents





| |   |                                                         
| | - | --------------------------------------------------------
| |  | 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.


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##### Table of Contents





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 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.




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##### Table of Contents





If our customers chose alternatives to our refined petroleum
products our revenues and profits may decline.


Our agronomy business is depressed and could continue to
underperform in the future.


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






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Recent Developments




Results of Operations




| |                                                                                 
| | --------------------------------------------------------------------------------
| | Comparison of the three months ended February 28,
    2005 and February 29, 2004

General.










21



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Net Income.


Net Sales.






22



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Other Revenues.


Cost of Goods Sold.






23



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Marketing, General and Administrative.


Gain on Sale of Investment.


Gain on Legal Settlements.


Interest.


Equity Loss (Income) from Investments.






24



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Loss on Impairments of Assets.


Minority Interests.


Income Taxes.




| |                                                                               
| | ------------------------------------------------------------------------------
| | Comparison of the six months ended February 28, 2005
    and February 29, 2004

General.






25



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Net Income.


Net Sales.




26



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Other Revenues.


Cost of Goods Sold.




27



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Marketing, General and Administrative.


Gain on Sale of Investment.


Gain on Legal Settlements.


Interest.


Equity Loss (Income) from Investments.


28



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Loss on Impairments of Assets.


Minority Interests.


Income Taxes.


Liquidity and Capital Resources




29



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| |                           
| | --------------------------
| | Cash Flows from Operations









30



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







31



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



32



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33



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Off Balance Sheet Financing Arrangements




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





| |            
| | -----------
| | Guarantees:





| |      
| | -----
| | Debt:



Critical Accounting Policies




Contractual Obligations




Effect of Inflation and Foreign Currency Transactions




Recent Accounting Pronouncements






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








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures





Exhibits


|        |    |             |  |                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|        |    |            
|        | 31 | .1          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                   
|        | 31 | .2          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                   
|        | 32 | .1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002
|        | 32 | .2          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002

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PART II. OTHER INFORMATION




|        |               
|------- | --------------
|Item 1. | Not applicable



|        |               
|------- | --------------
|Item 2. | Not applicable



|        |               
|------- | --------------
|Item 3. | Not applicable






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











|        |               
|------- | --------------
|Item 5. | Not applicable






|        |         
|------- | --------
|Item 6. | Exhibits

|        |    |             |  |                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|        |    |            
|        | 31 | .1          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                   
|        | 31 | .2          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                   
|        | 32 | .1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002
|        | 32 | .2          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002

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SIGNATURES






| |                             
| | ----------------------------
| | CHS Inc.                    
| | (Registrant)                
|
| | /s/ John Schmitz            
| |                             
| | John Schmitz                
| | Executive Vice President and
| | Chief Financial Officer     





38