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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002.


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .


COMMISSION FILE NUMBER 333-17865

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CENEX HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)

MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

5500 CENEX DRIVE, (651) 451-5151
INVER GROVE HEIGHTS, MN 55077 (Registrant's telephone number
(Address of principal executive offices including area code)
and zip code)

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Include by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

YES _X_ NO ___

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


(Number of shares outstanding at
(Class) May 31, 2002)
------- -------------
NONE NONE

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INDEX





PAGE
NO.
----

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of May 31, 2002 (unaudited), August 31, 2001 and
May 31, 2001 (unaudited) ........................................................... 2

Consolidated Statements of Operations for the three months and nine months ended
May 31, 2002 and 2001 (unaudited) .................................................. 3

Consolidated Statements of Cash Flows for the three months and nine months ended
May 31, 2002 and 2001 (unaudited) .................................................. 4

Notes to Consolidated Financial Statements (unaudited) ............................. 5

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ...................................................................... 10

Item 3. Quantitative and Qualitative Disclosures about Market Risk ................. 19

PART II. OTHER INFORMATION

Items 1 through 5 have been omitted since all items are inapplicable or answers
are negative

Item 6. Exhibits and Reports on Form 8-K ........................................... 20

SIGNATURE PAGE ...................................................................... 21



i



PART I. FINANCIAL INFORMATION


SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. These factors include those set forth in Exhibit 99,
under the caption "Cautionary Statement" to this Quarterly Report on Form 10-Q
for the quarter ended May 31, 2002.


1



CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS


CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS



MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
------------- ------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)

CURRENT ASSETS:
Cash and cash equivalents .................................. $ 107,324 $ 113,458 $ 84,114
Receivables ................................................ 659,994 686,140 684,086
Inventories ................................................ 596,046 510,443 495,170
Other current assets ....................................... 76,268 60,995 83,897
---------- ---------- ----------
Total current assets ...................................... 1,439,632 1,371,036 1,347,267
INVESTMENTS ................................................. 486,411 467,953 461,428
PROPERTY, PLANT AND EQUIPMENT ............................... 1,037,138 1,023,872 1,028,481
OTHER ASSETS ................................................ 215,350 194,458 191,060
---------- ---------- ----------
Total assets .............................................. $3,178,531 $3,057,319 $3,028,236
========== ========== ==========

LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 275,956 $ 97,195 $ 255,019
Current portion of long-term debt .......................... 88,676 17,754 26,517
Customer credit balances ................................... 37,975 38,486 44,550
Customer advance payments .................................. 98,177 109,135 58,929
Checks and drafts outstanding .............................. 63,314 87,808 61,058
Accounts payable ........................................... 394,609 495,198 401,854
Accrued expenses ........................................... 166,803 148,026 133,238
Patronage dividends and equity retirements payable ......... 52,343 72,154 59,530
---------- ---------- ----------
Total current liabilities ................................. 1,177,853 1,065,756 1,040,695
LONG-TERM DEBT .............................................. 486,674 542,243 545,541
OTHER LIABILITIES ........................................... 106,916 99,906 92,481
MINORITY INTERESTS IN SUBSIDIARIES .......................... 96,127 88,261 86,776
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,310,961 1,261,153 1,262,743
---------- ---------- ----------
Total liabilities and equities ............................ $3,178,531 $3,057,319 $3,028,236
========== ========== ==========



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


2



CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)




FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
----------------------------- -----------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001
------------- ------------- ------------- -------------

REVENUES:
Net sales .............................. $1,831,289 $1,894,573 $5,563,052 $5,952,759
Patronage dividends .................... 3,028 4,373 4,937 5,621
Other revenues ......................... 26,402 25,773 82,126 90,257
---------- ---------- ---------- ----------
1,860,719 1,924,719 5,650,115 6,048,637
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold ..................... 1,769,736 1,799,282 5,396,502 5,736,574
Marketing, general and administrative 50,745 54,324 140,020 135,199
Interest ............................... 10,866 16,211 31,930 49,283
Equity income from investments ......... (31,915) (27,012) (33,681) (13,519)
Minority interests ..................... 5,851 13,311 11,561 25,517
---------- ---------- ---------- ----------
1,805,283 1,856,116 5,546,332 5,933,054
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 55,436 68,603 103,783 115,583
INCOME TAXES ............................ 8,795 4,313 13,416 (34,701)
---------- ---------- ---------- ----------
NET INCOME .............................. $ 46,641 $ 64,290 $ 90,367 $ 150,284
========== ========== ========== ==========



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


3



CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)



FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------- -------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001
----------- ----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 46,641 $ 64,290 $ 90,367 $ 150,284
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 25,227 33,168 76,771 82,795
Noncash net income from equity investments ............... (31,915) (27,012) (33,681) (13,519)
Minority interests ....................................... 5,851 13,311 11,561 25,517
Adjustment of inventories to market value ................ (6,441)
Noncash portion of patronage dividends received .......... (2,014) (2,962) (3,750) (3,837)
Loss (gain) on sale of property, plant and equipment ..... 5 817 (2,738) (13,599)
Deferred tax benefit ..................................... (34,247)
Other, net ............................................... (408) 970 (287) (968)
Changes in operating assets and liabilities:
Receivables ............................................. (73,885) 47,978 23,831 150,657
Inventories ............................................. 12,045 127,040 (95,592) 52,816
Other current assets and other assets ................... 30,288 48,311 (11,334) (52,674)
Customer credit balances ................................ (25,269) (21,298) (511) 7,771
Customer advance payments ............................... 15,023 (83,870) (10,958) (73,006)
Accounts payable and accrued expenses ................... 82,481 (43,538) (87,115) (237,390)
Other liabilities ....................................... 1,196 2,133 7,010 5,045
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities ........................................... 78,825 159,338 (36,426) 45,645
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............... (32,840) (24,669) (84,745) (73,205)
Proceeds from disposition of property, plant and
equipment ................................................. 1,822 1,460 10,468 29,181
Investments ................................................ (9) (1,768) (6,185) (13,372)
Equity investments redeemed ................................ 6,767 12,632 28,141 20,836
Investments redeemed ....................................... 1,994 551 4,022 1,186
Changes in notes receivable ................................ 332 (1,251) 2,740 (1,643)
Acquisition of intangibles ................................. (440) (27,971) (7,038)
Distribution to minority owners ............................ (401) (583) (4,752) (13,108)
Other investing activities, net ............................ 21 (1,419) 1,082 4,190
--------- --------- --------- ---------
Net cash used in investing activities ................. (22,754) (15,047) (77,200) (52,973)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ................................... (22,288) (130,899) 178,761 37,093
Long-term debt borrowings .................................. 55,000 30,000 116,809
Principal payments on long-term debt ....................... (4,559) (41,425) (14,687) (55,251)
Changes in checks and drafts outstanding ................... (6,222) 16,486 (24,495) (23,028)
Proceeds from sale of preferred stock, net of expenses ..... 1,571 4,429
Preferred stock dividends paid ............................. (83) (93)
Retirements of equities .................................... (3,153) (6,533) (26,340) (14,444)
Cash patronage dividends paid .............................. (511) (154) (40,083) (26,130)
--------- --------- --------- ---------
Net cash (used in) provided by financing
activities ........................................... (35,245) (107,525) 107,492 35,049
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ 20,826 36,766 (6,134) 27,721
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .................................................. 86,498 47,348 113,458 56,393
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ..................................................... $ 107,324 $ 84,114 $ 107,324 $ 84,114
========= ========= ========= =========



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


4



CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)

NOTE 1. ACCOUNTING POLICIES

The unaudited consolidated balance sheets as of May 31, 2002 and 2001, and
the statements of operations and cash flows for the three months and nine months
ended May 31, 2002 and 2001 reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal recurring adjustments
necessary for a fair statement of the financial position and results of
operations and cash flows for the interim periods presented. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full fiscal year because of, among other things, the seasonal
nature of the Company's businesses. The consolidated balance sheet data as of
August 31, 2001 has been derived from audited consolidated financial statements
but does not include all disclosures required by accounting principles generally
accepted in the United States of America.

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

Certain reclassifications have been made to the prior period's financial
statements to conform to the current year presentation. These reclassifications
relate primarily to the classification of shipping and handling costs and had no
effect on previously reported net income or equities.

These statements should be read in conjunction with the consolidated
financial statements and footnotes for the year ended August 31, 2001, included
in the Company's Annual Report on Form 10-K previously filed with the Securities
and Exchange Commission on November 19, 2001.

GOODWILL AND OTHER INTANGIBLE ASSETS

Effective September 1, 2001 the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". This statement discontinued the amortization of goodwill and
indefinite-lived intangible assets, subject to periodic impairment testing.
Goodwill (net of accumulated amortization) at August 31, 2001 was $29.2 million
and was included as a component of other assets. The effect of adopting the new
standard will reduce goodwill amortization expense by approximately $2.0 million
annually. The Company has completed its transitional impairment testing and no
material changes to the carrying value of goodwill and other intangible assets
were made as a result of the adoption of SFAS No. 142. Subsequent impairment
testing will take place annually as well as when a triggering event indicating
impairment may have occurred. In addition, the classification of the intangible
assets was reviewed, along with the remaining useful lives of intangibles being
amortized, and no material changes were made.

Intangible assets subject to amortization at August 31, 2001 and May 31,
2002 were $10.1 million ($14.9 million net of accumulated amortization of $4.8
million) and $35.3 million ($42.9 million net of accumulated amortization of
$7.6 million), respectively. The intangible assets subject to amortization
primarily include trademarks, tradenames, customer lists and non-compete
agreements, and are amortized on a straight-line basis over the number of years
that approximate their respective useful lives (ranging from 5 to 15 years).
Total amortization expense for these intangible assets during the nine-month
period ended May 31, 2002 was approximately $2.8 million. For the next five
fiscal years the future estimated annual amortization expense related to
intangible assets being amortized approximates $4.0 million each year.

BUSINESS COMBINATIONS

Effective July 2001 the Company also adopted the provisions of SFAS No.
141, "Business Combinations", which requires all future acquisitions to be
accounted for under the purchase method.

During the nine months ended May 31, 2002 and 2001 the Company made various
acquisitions using the purchase method of accounting. Accordingly, the purchase
prices were allocated to assets acquired and liabilities assumed based on their
respective estimated fair values at the dates of


5



acquisition. These acquisitions individually and in aggregate are not material
to the Company's operations. Operations of the acquired companies have been
included in the operations of the Company since the date of the respective
acquisitions.

Through Country Energy, LLC, formerly a joint venture with Farmland
Industries, Inc. (Farmland), the Company marketed refined petroleum products
including gasoline, diesel fuel, propane and lubricants under the Cenex brand.
On November 30, 2001 the Company purchased the wholesale energy business of
Farmland, as well as all interest in Country Energy, LLC. The purchase price of
the acquisition was $39.0 million. Based on estimated fair values, $26.4 million
of the purchase price was allocated to intangible assets, primarily trademarks,
tradenames and non-compete agreements. The intangible assets have a weighted
average life of approximately 12 years. The balance of the purchase price was
allocated to inventory, real and personal property, and other assets and
liabilities. The Company also entered into a two-year supply agreement to
purchase Farmland's Coffeyville, Kansas refined fuels production at prevailing
market values. On May 31, 2002 Farmland filed for protection under Chapter 11 of
the United States Bankruptcy Code. While Farmland continues to perform under the
supply agreement, there is no guarantee they will continue to do so. The Company
believes, however, that alternate sources of supply would be available, and
rejection of the supply agreement by Farmland would not have a material adverse
affect on the Company.

In January 2002, the Company formed a limited liability company (LLC) with
Cargill, Incorporated to engage in wheat flour milling and processing. The
company holds a 24% interest in the entity, which is known as Horizon Milling,
LLC (Horizon). In connection with the formation of Horizon, the Company sold
inventories and related contracts and received cash of $13.1 million. The
Company also entered into certain leasing arrangements -- see Note 5.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is currently analyzing the effects of adoption
of this pronouncement.

The FASB also issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of by
sale. Generally, the provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. The Company is currently analyzing the
effects of adoption of this pronouncement.


NOTE 2. RECEIVABLES



MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
----------- ------------ -----------

Trade ......................................... $665,483 $682,593 $682,585
Other ......................................... 20,838 28,864 26,235
-------- -------- --------
686,321 711,457 708,820
Less allowances for doubtful accounts ......... 26,327 25,317 24,734
-------- -------- --------
$659,994 $686,140 $684,086
======== ======== ========



6



NOTE 3. INVENTORIES



MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
----------- ------------ -----------

Energy .............................. $245,603 $163,710 $207,149
Grain and oilseed ................... 233,496 237,498 176,656
Feed and farm supplies .............. 94,678 76,570 81,368
Processed grain and oilseed ......... 13,730 28,648 25,929
Other ............................... 8,539 4,017 4,068
-------- -------- --------
$596,046 $510,443 $495,170
======== ======== ========



NOTE 4. INVESTMENTS

The following provides summarized unaudited financial information for
Ventura Foods, LLC and Agriliance, LLC, of which the Company has a 50% and 25%
equity ownership, respectively, for the three-month and nine-month periods as
indicated below.

VENTURA FOODS, LLC



FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -------------

Net sales ............ $253,525 $226,932 $750,144 $ 686,367
Gross profit ......... 52,536 44,165 130,634 109,697
Net income ........... 24,434 20,566 50,262 42,980


AGRILIANCE, LLC



FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -------------

Net sales ............ $1,454,818 $1,750,489 $2,694,676 $3,079,767
Gross profit ......... 145,495 153,229 230,826 262,590
Net income ........... 70,856 53,836 17,748 5,069



NOTE 5. PROPERTY, PLANT AND EQUIPMENT



MAY 31, AUGUST 31, MAY 31,
2002 2001 2001
------------- ------------ ------------

Property, plant and equipment ...... $1,802,492 $1,894,511 $1,870,795
Milling leased facilities .......... 129,836 -- --
Construction in progress ........... 73,309 38,723 54,515
---------- ---------- ----------
2,005,637 1,933,234 1,925,310
Less accumulated depreciation ...... 968,499 909,362 896,829
---------- ---------- ----------
$1,037,138 $1,023,872 $1,028,481
========== ========== ==========


In connection with the formation of Horizon, the Company is leasing the
majority of its wheat milling facilities and related equipment to Horizon. The
related assets, pursuant to these lease arrangements, have been classified as
milling leased facilities within Property, Plant and Equipment.


NOTE 6. EQUITIES

The Board of Directors has authorized the sale and issuance of up to
50,000,000 shares of 8% Preferred Stock at a price of $1.00 per share. The
Company filed a registration statement on Form S-2 with the Securities and
Exchange Commission registering the Preferred Stock. The registration statement
was declared effective on October 31, 2001 and sales of the Preferred Stock were
$7.0 million through May 31, 2002. Expenses related to the issuance of the
Preferred Stock were $2.6 million through the same period.


7



NOTE 7. COMPREHENSIVE INCOME

During the three months ended May 31, 2002 and 2001, total comprehensive
income amounted to $47.0 million and $63.8 million, respectively. For the nine
months ended May 31, 2002 and 2001, total comprehensive income amounted to $91.0
million and $152.2 million, respectively. Accumulated other comprehensive loss
on May 31, 2002, August 31, 2001 and May 31, 2001 was $1.3 million, $1.9 million
and $0.5 million, respectively.


NOTE 8. NON-CASH FINANCING ACTIVITIES

During the nine months ended May 31, 2002 and 2001 the Company accrued
patronage dividends and equity retirements payable of $45.2 million and $56.5
million, respectively.


NOTE 9. SEGMENT REPORTING

Segments, which are based on products and services, include Agronomy,
Energy, Grain Marketing, Country Operations and Processed Grains and Foods.
Reconciling Amounts represent the elimination of intracompany sales between
segments. Due to cost allocations and intersegment activity, management does not
represent that these segments, if operated independently, would report the
income before income taxes and other financial information as presented.

Segment information for the three months and nine months ended May 31, 2002
and 2001 is as follows:



PROCESSED
GRAIN COUNTRY GRAINS AND RECONCILING
AGRONOMY ENERGY MARKETING OPERATIONS FOODS OTHER AMOUNTS TOTAL
--------- --------- --------- ---------- ---------- --------- ----------- ----------

FOR THE THREE MONTHS ENDED
MAY 31, 2002
Net sales ....................... $ 714,280 $ 741,712 $ 409,723 $ 105,021 $(139,447) $1,831,289
Patronage dividends ............. $ (64) 459 176 2,185 252 $ 20 3,028
Other revenues .................. 449 1,294 23,468 992 199 26,402
--------- --------- --------- --------- --------- --------- --------- ----------
(64) 715,188 743,182 435,376 106,265 219 (139,447) 1,860,719
Cost of goods sold .............. 668,075 737,079 408,570 95,459 (139,447) 1,769,736
Marketing, general and
administrative ................. 3,921 18,844 6,179 11,358 9,424 1,019 50,745
Interest ........................ (330) 4,377 871 4,202 2,339 (593) 10,866
Equity income from investments .. (17,732) (64) (740) (83) (13,296) (31,915)
Minority interests .............. 5,687 164 5,851
--------- --------- --------- --------- --------- --------- --------- ----------
Income (loss) before
income taxes ................... $ 14,077 $ 18,269 $ (207) $ 11,165 $ 12,339 $ (207) $ -- $ 55,436
========= ========= ========= ========= ========= ========= ========= ==========
Capital expenditures ............ $ -- $ 11,706 $ 7,733 $ 5,478 $ 7,770 $ 153 $ 32,840
========= ========= ========= ========= ========= ========= ==========
Depreciation and amortization ... $ 312 $ 14,155 $ 1,474 $ 5,156 $ 3,361 $ 769 $ 25,227
========= ========= ========= ========= ========= ========= ==========
FOR THE THREE MONTHS ENDED
MAY 31, 2001
Net sales ....................... $ 615,658 $ 828,083 $ 463,070 $ 166,421 $(178,659) $1,894,573
Patronage dividends ............. $ (72) 626 255 3,066 339 $ 159 4,373
Other revenues .................. 313 5,288 18,590 25 1,557 25,773
--------- --------- --------- --------- --------- --------- --------- ----------
(72) 616,597 833,626 484,726 166,785 1,716 (178,659) 1,924,719
Cost of goods sold .............. 534,342 830,363 457,162 156,074 (178,659) 1,799,282
Marketing, general and
administrative ................. 2,565 13,211 6,381 13,285 18,085 797 54,324
Interest ........................ (1,131) 6,215 2,124 4,444 3,369 1,190 16,211
Equity (income) loss from
investments .................... (18,070) (515) (594) (296) (10,085) 2,548 (27,012)
Minority interests .............. 13,215 96 13,311
--------- --------- --------- --------- --------- --------- --------- ----------
Income (loss) before
income taxes ................... $ 16,564 $ 50,129 $ (4,648) $ 10,035 $ (658) $ (2,819) $ -- $ 68,603
========= ========= ========= ========= ========= ========= ========= ==========
Capital expenditures ............ $ -- $ 11,049 $ 1,185 $ 7,531 $ 4,413 $ 491 $ 24,669
========= ========= ========= ========= ========= ========= ==========
Depreciation and amortization ... $ 312 $ 13,826 $ 1,340 $ 5,225 $ 11,517 $ 948 $ 33,168
========= ========= ========= ========= ========= ========= ==========



8





PROCESSED
GRAIN COUNTRY GRAINS AND RECONCILING
AGRONOMY ENERGY MARKETING OPERATIONS FOODS OTHER AMOUNTS TOTAL
-------- ---------- ---------- ---------- ---------- -------- ----------- ----------

FOR THE NINE MONTHS ENDED
MAY 31, 2002
Net sales ...................... $1,857,086 $2,730,289 $1,096,478 $394,213 $(515,014) $5,563,052
Patronage dividends ............ $ (64) 907 528 3,193 252 $ 121 4,937
Other revenues ................. 3,888 15,584 59,750 1,555 1,349 82,126
-------- ---------- ---------- ---------- -------- -------- --------- ----------
(64) 1,861,881 2,746,401 1,159,421 396,020 1,470 (515,014) 5,650,115
Cost of goods sold ............. 1,729,198 2,722,757 1,092,377 367,184 (515,014) 5,396,502
Marketing, general and
administrative ................ 6,725 49,511 17,246 35,763 27,397 3,378 140,020
Interest ....................... (1,063) 12,677 3,898 10,006 7,328 (916) 31,930
Equity (income) loss from
investments ................... (6,126) 1,469 (2,705) 130 (26,449) (33,681)
Minority interests ............. 11,044 517 11,561
-------- ---------- ---------- ---------- -------- -------- --------- ----------
Income (loss) before
income taxes .................. $ 400 $ 57,982 $ 5,205 $ 20,628 $ 20,560 $ (992) $ -- $ 103,783
======== ========== ========== ========== ======== ======== ========= ==========
Capital expenditures ........... $ -- $ 37,356 $ 11,461 $ 16,016 $ 19,255 $ 657 $ 84,745
======== ========== ========== ========== ======== ======== ==========
Depreciation and amortization .. $ 935 $ 43,829 $ 4,165 $ 15,699 $ 9,790 $ 2,353 $ 76,771
======== ========== ========== ========== ======== ======== ==========
Total identifiable assets at
May 31, 2002 .................. $235,241 $1,301,003 $ 292,199 $ 750,993 $396,376 $202,719 $3,178,531
======== ========== ========== ========== ======== ======== ==========
FOR THE NINE MONTHS ENDED
MAY 31, 2001
Net sales ...................... $2,185,794 $2,684,984 $1,192,002 $481,661 $(591,682) $5,952,759
Patronage dividends ............ $ 196 666 756 3,412 339 $ 252 5,621
Other revenues ................. 1,731 16,708 63,787 35 7,996 90,257
-------- ---------- ---------- ---------- -------- -------- --------- ----------
196 2,188,191 2,702,448 1,259,201 482,035 8,248 (591,682) 6,048,637
Cost of goods sold ............. 2,008,429 2,685,745 1,182,895 451,187 (591,682) 5,736,574
Marketing, general and
administrative ................ 6,281 34,465 17,982 38,928 34,304 3,239 135,199
Interest ....................... (3,713) 20,117 6,449 12,192 10,541 3,697 49,283
Equity loss (income) from
investments ................... 259 (859) (3,120) (45) (21,425) 11,671 (13,519)
Minority interests ............. 25,301 216 25,517
-------- ---------- ---------- ---------- -------- -------- --------- ----------
(Loss) income before
income taxes .................. $ (2,631) $ 100,738 $ (4,608) $ 25,015 $ 7,428 $(10,359) $ -- $ 115,583
======== ========== ========== ========== ======== ======== ========= ==========
Capital expenditures ........... $ -- $ 28,964 $ 2,942 $ 24,836 $ 14,951 $ 1,512 $ 73,205
======== ========== ========== ========== ======== ======== ==========
Depreciation and amortization .. $ 938 $ 41,073 $ 3,371 $ 16,077 $ 18,509 $ 2,827 $ 82,795
======== ========== ========== ========== ======== ======== ==========
Total identifiable assets at
May 31, 2001 .................. $223,789 $1,194,434 $ 251,774 $ 721,028 $410,229 $226,982 $3,028,236
======== ========== ========== ========== ======== ======== ==========



9



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Through Country Energy, LLC, a joint venture formerly with Farmland
Industries, Inc. (Farmland), the Company marketed refined petroleum products
including gasoline, diesel fuel, propane and lubricants under the Cenex brand.
On November 30, 2001 the Company purchased the wholesale energy business of
Farmland, as well as all interest in Country Energy, LLC. The purchase price of
the acquisition was $39.0 million. Based on estimated fair values, $26.4 million
of the purchase price was allocated to intangible assets, primarily trademarks,
tradenames and non-compete agreements. The intangible assets have a weighted
average life of approximately 12 years. The balance of the purchase price was
allocated to inventory, real and personal property, and other assets and
liabilities. The Company also entered into a two-year supply agreement to
purchase Farmland's Coffeyville, Kansas refined fuels production at prevailing
market values. On May 31, 2002 Farmland filed for protection under Chapter 11 of
the United States Bankruptcy Code. While Farmland continues to perform under the
supply agreement, there is no guarantee they will continue to do so. The Company
believes, however, that alternate sources of supply would be available, and
rejection of the supply agreement by Farmland would not have a material adverse
affect on the Company.

In January 2002, the Company formed a limited liability company (LLC) with
Cargill, Incorporated to engage in wheat flour milling and processing. The
company holds a 24% interest in the entity, which is known as Horizon Milling,
LLC (Horizon). In connection with the formation of Horizon, the Company sold
inventories and related contracts and received cash of $13.1 million. The
Company is leasing the majority of its wheat milling facilities and related
equipment to Horizon.


RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MAY 31, 2002 AND 2001
Consolidated net income for the three months ended May 31, 2002 was $46.6
million compared to $64.3 million for the same three-month period in 2001, which
represents a $17.7 million (27%) decrease. This decrease in profitability is
primarily attributable to decreased earnings in the Company's Energy segment.

Consolidated net sales of $1.8 billion for the three months ended May 31,
2002 decreased $63.3 million (3%) compared to the same three months ended in
2001.

Company-wide grain and oilseed net sales of $808.8 million decreased $76.8
million (9%) during the three months ended May 31, 2002 compared to the same
three months ended in 2001. Sales for the three months ended May 31, 2002 were
$741.7 million and $188.5 million from Grain Marketing and Country Operations
segments, respectively. Sales for the three months ended May 31, 2001 were
$828.1 million and $220.1 million from Grain Marketing and Country Operations
segments, respectively. The Company eliminated all intracompany sales from the
Country Operations segment to the Grain Marketing segment, of $121.4 million and
$162.6 million, for the three months ended May 31, 2002 and 2001, respectively.
The net decrease in sales was primarily due to a decrease in grain volume of
15%, which was partially offset by an increase of $0.23 per bushel in the
average sales price of all grains and oilseed marketed by the Company compared
to the same three months ended in 2001.

Energy net sales of $696.3 million increased $96.7 million (16%) during the
three months ended May 31, 2002 compared to the same period in 2001. Sales for
the three months ended May 31, 2002 and 2001 were $714.3 million and $615.6
million, respectively. The Company eliminated all intracompany sales from the
Energy segment to the Country Operations segment of $18.0 million and $16.0
million, respectively. The net increase in sales is primarily attributable to a
refined fuels volume increase of 51%, which was partially offset by a decrease
in the average sales price of refined fuels of $0.19 per gallon compared to the
same three months ended in 2001. In addition, the average sales price of propane
decreased by $0.22 per gallon, which was partially offset by a volume increase
of 25% compared to the same three months ended in 2001. Refined fuels and
propane volume increases were primarily a result of acquisitions.

Country Operations farm supply sales of $221.2 million decreased by $21.8
million (9%) during the three months ended May 31, 2002 compared to the same
three months ended in 2001. The decrease is


10



primarily due to a reduction in the average retail sales price of energy
and crop nutrients products compared to the same three months ended in 2001.

Processed Grains and Foods sales of $105.0 million decreased $61.4 million
(37%) during the three months ended May 31, 2002 compared to the same three
months ended in 2001. The decrease is primarily due to the formation of Horizon,
the wheat milling LLC described earlier. As of January 2002, the Company no
longer recorded sales of processed wheat and accounts for operating results
under the equity method of accounting.

Patronage dividends of $3.0 million decreased $1.3 million (31%) during the
three months ended May 31, 2002 compared to the same three months ended in 2001.

Other revenues of $26.4 million increased $0.6 million (2%) during the
three months ended May 31, 2002 compared to the same three months ended in 2001.
The most significant change was within the Country Operations segment.

Cost of goods sold of $1.8 billion decreased $29.5 million (2%) during the
three months ended May 31, 2002, compared to the same three months ended in
2001. The decrease is primarily due to a 15% volume decrease of grain bushels,
which was partially offset by $0.20 increase in the average cost per bushel of
all grains and oilseed procured by the Company through its Grain Marketing and
Country Operations segments compared to the same three months ended in 2001.
Processed Grains and Foods segment cost of goods sold decreased by 39% primarily
due to the formation of Horizon, the wheat milling LLC described earlier. As of
January 2002, the Company no longer recorded cost of goods sold of processed
wheat. Country Operations farm supply cost of goods sold decreased by 10%
primarily due to the reduced cost of energy and crop nutrients products compared
to the same three months ended in 2001. These decreases were partially offset by
increased cost of goods sold in the Energy segment. Cost of goods sold increased
25% on refined fuels primarily due to a 51% volume increase, which was partially
offset by a $0.16 per gallon decrease in the average cost of refined fuels
compared to the same three months ended in 2001. In addition, the average cost
of propane decreased by $0.20 per gallon, which was partially offset by a 25%
volume increase compared to the same three months ended in 2001.

Marketing, general and administrative expenses of $50.7 million for the
three months ended May 31, 2002 decreased by $3.6 million (7%) compared to the
same three months ended in 2001. This decrease is primarily due to Horizon, the
wheat milling LLC described earlier, which was partially offset by additional
expenses resulting from an Energy segment acquisition.

Interest expense of $10.9 million for the three months ended May 31, 2002
decreased by $5.3 million (33%) compared to the same three months ended in 2001.
The average level of short-term borrowings decreased by 29% and the average
short-term interest rate decreased by 3.2% during the three months ended in 2002
compared to the same three months ended in 2001.

Equity income from investments of $31.9 million for the three months ended
May 31, 2002 increased by $4.9 million (18%) compared to the same three months
ended in 2001. The increase was primarily attributable to increased earnings
from a Processed Grains and Foods segment investment compared to the same three
months ended in 2001.

Minority interests of $5.9 million for the three months ended May 31, 2002
decreased by $7.5 million (56%) compared to the same three months ended in 2001.
This net change in minority interests during the three months ended May 31, 2002
compared to the same three months ended in 2001 was primarily a result of less
profitable operations within the Company's majority-owned subsidiaries.
Substantially all minority interests relate to National Cooperative Refinery
Association (NCRA).

Income tax expense of $8.8 million and $4.3 million for the three months
ended May 31, 2002 and May 31, 2001, respectively, resulted in effective tax
rates of 15.9% and 6.3%, respectively. The federal and state statutory rate
applied to nonpatronage business activity was 38.9% for the three months ended
May 31, 2002 and 2001. Income taxes and effective tax rates vary each period
based upon profitability and nonpatronage business activity during each of the
comparable periods.


11



COMPARISON OF NINE MONTHS ENDED MAY 31, 2002 AND 2001
Consolidated net income for the nine months ended May 31, 2002 was $90.4
million compared to $150.3 million for the same nine months ended in 2001, which
represents a $59.9 million (40%) decrease. This decrease in profitability is
primarily attributable to a tax benefit of $34.2 million in the prior year and
decreased earnings in the Company's Energy segment compared to the same nine
months ended in 2001.

Consolidated net sales of $5.6 billion for the nine months ended May 31,
2002 decreased $389.7 million (7%) compared to the same nine months ended in
2001.

Company-wide grain and oilseed net sales of $2.9 billion increased $72.0
million (3%) during the nine months ended May 31, 2002 compared to the same nine
months ended in 2001. Sales for the nine months ended May 31, 2002 were $2,730.3
million and $648.1 million from Grain Marketing and Country Operations segments,
respectively. Sales for the nine months ended May 31, 2001 were $2,685.0 million
and $691.9 million from Grain Marketing and Country Operations segments,
respectively. The Company eliminated all intracompany sales from the Country
Operations segment to the Grain Marketing segment, of $467.0 million and $537.5
million, for the nine months ended May 31, 2002 and 2001, respectively. The net
increase in sales was primarily due to an increase of $0.42 per bushel in the
average sales price of all grains and oilseed marketed by the Company which was
partially offset by a decrease in grain volume of 9%, compared to the same nine
months ended in 2001.

Energy net sales of $1.8 billion decreased $322.5 million (15%) during the
nine months ended May 31, 2002 compared to the same period in 2001. Sales for
the nine months ended May 31, 2002 and 2001 were $1,857.1 million and $2,185.8
million, respectively. The Company eliminated all intracompany sales from the
Energy segment to the Country Operations segment of $48.0 million and $54.2
million, respectively. The decrease in sales is primarily attributable to a net
volume decrease compared to the same nine months ended in 2001 due to the
dissolution of Cooperative Refining LLC (CRLLC) effective December 31, 2000. The
Company owned 58% of CRLLC through its 75% ownership in NCRA and therefore
consolidated CRLLC business activity up to the time of dissolution. In addition,
the volume of refined fuels rack sales increased by 43%, which was partially
offset by a sales price decrease of $0.25 per gallon on refined fuels rack sales
compared to the same nine months ended in 2001. The average sales price of
propane decreased by $0.22 per gallon, which was partially offset by a volume
increase of 25% compared to the same nine months ended in 2001. Refined fuels
and propane volume increases were primarily a result of acquisitions.

Country Operations farm supply sales of $448.3 million decreased by $52.0
million (10%) during the nine months ended May 31, 2002 compared to the same
nine months ended in 2001. The decrease is primarily due to a reduction in the
average retail sales price of energy products compared to the same nine months
ended in 2001.

Processed Grains and Foods sales of $394.2 million decreased $87.4 million
(18%) during the nine months ended May 31, 2002 compared to the same nine months
ended in 2001. The decrease in sales is primarily due to the formation of
Horizon, the wheat milling LLC described earlier. As of January 2002, the
company no longer recorded sales of processed wheat and accounts for operating
results under the equity method of accounting.

Patronage dividends of $4.9 million decreased $0.7 million (12%) during the
nine months ended May 31, 2002 compared to the same nine months ended in 2001.

Other revenues of $82.1 million decreased $8.1 million (9%) during the nine
months ended May 31, 2002 compared to the same nine months ended in 2001. The
most significant changes were within the Country Operations and Other segments
compared to the same nine months ended in 2001.

Cost of goods sold of $5.4 billion decreased $340.1 million (6%) during the
nine months ended May 31, 2002, compared to the same nine months ended in 2001.
The decrease is primarily due to an Energy segment decrease in volume as a
result of the dissolution of CRLLC, which was previously discussed. In addition,
the volume of refined fuels increased by 43%, which was partially offset by an
average cost of refined fuels rack purchases decrease of $0.22 per gallon
compared to the same nine months ended in 2001. The average cost of propane
decreased by $0.20 per gallon, which was partially


12



offset by a 25% volume increase compared to the same nine months ended in 2001.
Country Operations farm supply cost of goods sold decreased by 11% primarily due
to the reduced cost of energy products compared to the same nine months ended in
2001. The cost of all grains and oilseed procured by the Company through its
Grain Marketing and Country Operations segments increased 4% compared to the
same nine-month period ended in 2001 primarily due to a $0.41 average cost per
bushel increase, which was partially offset by a 9% decrease in volume.
Processed Grains and Foods segment cost of goods sold decreased by 19% compared
to the same nine months ended in 2001, primarily due to the formation of
Horizon, the wheat milling LLC described earlier. As of January 2002, the
company no longer recorded cost of goods sold of processed wheat.

Marketing, general and administrative expenses of $140.0 million for the
nine months ended May 31, 2002 increased by $4.8 million (4%) compared to the
same nine months ended in 2001. This increase is primarily due to additional
expenses resulting from an Energy segment acquisition, which was partially
offset by reduced expenses within the Processed Grains and Foods segment due to
Horizon milling, the wheat milling LLC described earlier.

Interest expense of $31.9 million for the nine months ended May 31, 2002
decreased by $17.4 million (35%) compared to the same nine months ended in 2001.
The average level of short-term borrowings decreased by 39% and the average
short-term interest rate decreased by 3.9% during the nine months ended in 2002
compared to the same nine months ended in 2001. These decreases in interest
expense were partially offset by an increase due to an additional $80.0 million
of long-term debt from a private placement, of which $25.0 million and $55.0
million were issued in January 2001 and March 2001, respectively.

Equity income from investments of $33.7 million for the nine months ended
May 31, 2002 increased by $20.2 million (149%) compared to the same nine months
ended in 2001. The increase was primarily attributable to decreased losses
compared to 2001 from Other segment investments of $11.7 million and increased
2002 earnings from Agronomy and Processed Grains and Foods segments investments
of $6.4 million and $5.0 million, respectively compared to the same nine months
ended in 2001. These increases were partially offset by losses within the Energy
segment investments of $2.3 million compared to the same nine months ended in
2001.

Minority interests of $11.6 million for the nine months ended May 31, 2002
decreased by $14.0 million (55%) compared to the same nine months ended in 2001.
This net change in minority interests during the nine months ended May 31, 2002
compared to the same nine months ended in 2001 was primarily a result of the
dissolution of CRLLC and less profitable operations within the Company's
majority-owned subsidiaries. Substantially all minority interests relates to
NCRA.

Income tax expense of $13.4 million for the nine months ended May 31, 2002
compares to a tax benefit of $34.7 million for the nine months ended May 31,
2001. The federal and state statutory rate applied to nonpatronage business
activity was 38.9% for the nine months ended May 31, 2002 and 2001. An income
tax benefit of $34.2 million for the nine months ended May 31, 2001 resulted
from a change in the tax rate applied to the Company's cumulative temporary
differences between income for financial statement purposes and income used for
tax reporting purposes. The Company's calculation of its patronage distribution
using earnings for financial statement purposes rather than tax basis earnings
prompted the rate change. The Company recorded income tax expense of $13.4
million for the nine months ended May 31, 2002, which compares to a $0.5 million
tax benefit for the nine months ended February 2001, exclusive of the $34.2
million benefit related to the change in patronage determination described
above. The income taxes and effective tax rate varies from period to period
based upon profitability and nonpatronage business activity during each of the
comparable periods.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM OPERATIONS
Operating activities of the Company provided net cash of $78.8 million and
$159.3 million for the three months ended May 31, 2002 and 2001, respectively.
For the three-month period ended in 2002, net income of $46.6 million and
decreased working capital requirements of $41.9 million were partially offset by
net non-cash revenue of $9.7 million. For the three-month period ended in 2001,
net income of


13



$64.3 million, net non-cash expenses of $18.3 million and decreased working
capital requirements of $76.7 million provided cash from operating activities.

Operating activities of the Company used net cash of $36.4 million and
provided cash of $45.6 million for the nine months ended May 31, 2002 and 2001,
respectively. For the nine-month period ended in 2002, net income of $90.4
million and net non-cash expenses of $47.9 million were offset by increased
working capital requirements of $174.7 million. For the nine-month period ended
in 2001, net income of $150.3 million and net non-cash expenses of $42.1 million
were partially offset by increased working capital requirements of $146.8
million.

CASH FLOWS FROM INVESTING
Investing activities of the Company used net cash of $22.8 million during
the three-month period ended May 31, 2002. Expenditures for the acquisition of
property, plant and equipment of $32.8 million, which includes $27.3 million of
expenditures for the construction of an oilseed processing facility in Fairmont,
Minnesota, acquisitions of intangibles of $0.4 million and distributions to
minority owners of $0.4 million were the primary uses of cash for investing
activities and were partially offset by investments redeemed of $8.8 million,
proceeds from the disposition of property, plant and equipment of $1.8 million
and changes in notes receivable of $0.3 million. For the year ended August 31,
2002 the Company expects to spend approximately $179.8 million for the
acquisition of property, plant and equipment. Total expenditures related to the
construction of the oilseed processing facility are projected to be
approximately $90.0 million upon completion in fiscal 2003. Capital expenditures
at NCRA, primarily related to the EPA low sulfur fuel regulations required by
2006, are expected to be approximately $250.0 million over the next five years.

Investing activities of the Company used net cash of $15.0 million during
the three-month period ended May 31, 2001. Expenditures for the acquisition of
property, plant and equipment of $24.7 million, investments of $1.8 million,
changes in notes receivable of $1.2 million, distributions to minority owners of
$0.6 million and other investing activities of $1.4 million were partially
offset by proceeds from the disposition of property, plant and equipment of $1.5
million and investments redeemed of $13.2 million.

Investing activities of the Company used net cash of $77.2 million during
the nine-month period ended May 31, 2002. Expenditures for the acquisition of
property, plant and equipment of $84.7 million, acquisitions of intangibles of
$28.0 million, investments of $6.2 million and distributions to minority owners
of $4.8 million were partially offset by investments redeemed of $32.2 million,
proceeds from the disposition of property, plant and equipment of $10.5 million,
changes in notes receivable of $2.7 million and other investing activities.
Acquisitions of intangibles during the nine-month period ended May 31, 2002, is
primarily related to the purchase of Farmland's interest in a jointly owned
wholesale energy business, as previously discussed, and represents trademarks,
tradenames and non-compete agreements.

Investing activities of the Company used net cash of $53.0 million during
the nine-month period ended May 31, 2001. Expenditures for the acquisition of
property, plant and equipment of $73.2 million, investments of $13.4 million,
acquisitions of intangibles of $7.0 million, distributions to minority owners of
$13.1 million and changes in notes receivable of $1.7 million were partially
offset by proceeds from the disposition of property, plant and equipment of
$29.2 million, investments redeemed of $22.0 million and other investing
activities of $4.2 million. Acquisition of intangibles during the nine-month
period ended May 31, 2001, is related to the asset purchase of Rodriguez Festive
Foods, Inc., a manufacturer of Mexican foods. The proceeds from the disposition
of property, plant and equipment were primarily from the sale of feed plants and
other assets in the Country Operations segment.

CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2002, the Company renewed its 364-day
credit facility of $550.0 million committed. In addition to these lines of
credit, the Company has a 364-day credit facility dedicated to NCRA, with a
syndication of banks in the amount of $30.0 million committed. On May 31, 2002,
August 31, 2001 and May 31, 2001, the Company had total short-term indebtedness
outstanding on these various facilities and other short-term notes payable
totaling $276.0 million, $97.2 million and $255.0 million, respectively.


14



In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200.0 million committed. On May 31, 2002,
August 31, 2001 and May 31, 2001 the Company had outstanding balances on this
facility of $75.0 million, $45.0 million and $45.0 million, respectively. The
outstanding balance on May 31, 2002 includes $30.0 million which was drawn
during the first quarter of the current fiscal year. The outstanding balance on
this credit facility was categorized as long-term debt until May 2002, when it
was reclassified to a current liability. The Company intends to refinance this
debt within the next nine months, at which time it will be reclassified to a
non-current liability.

The Company has financed its long-term capital needs in the past, primarily
for the acquisition of property, plant and equipment, with long-term agreements
through the banks for cooperatives. In June 1998, the Company established a
long-term credit agreement through the banks for cooperatives with repayments
through fiscal year 2009. The amount outstanding on this credit facility was
$146.0 million, $150.9 million and $152.5 million on May 31, 2002, August 31,
2001 and May 31, 2001, respectively. Repayments of approximately $1.6 million
and $4.9 million were made on this facility during each of the three months and
nine months ended May 31, 2002 and 2001, respectively.

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

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

On May 31, 2002, the Company had total long-term debt outstanding of $575.4
million, of which $259.6 million was bank financing, $305.0 million was private
placement debt and $10.8 million was industrial development revenue bonds and
other notes and contracts payable. Long-term debt of NCRA represented $22.0
million of the total long-term debt outstanding on May 31, 2002. On August 31,
2001 and May 31, 2001, the Company had long-term debt outstanding of $560.0
million and $572.1 million, respectively. The aggregate amount of long-term debt
payable as of August 31, 2001 was as follows (dollars in thousands):

2002 $ 17,754
2003 59,083
2004 15,119
2005 34,553
2006 34,984
Thereafter 398,504
--------
$559,997
========

During the three-month periods ended May 31, 2002 and 2001, the Company
repaid long-term debt of $4.6 million and $41.4 million, respectively, and had
additional long-term borrowings of $55.0 million during the three-month period
ended in 2001.

During the nine-month periods ended May 31, 2002 and 2001, the Company
repaid long-term debt of $14.7 million and $55.3 million, respectively, and had
additional long-term borrowings of $30.0 million and $116.8 million,
respectively, for the same nine-month periods.

In accordance with the by-laws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each fiscal year. Effective September 1, 2000, patronage
refunds are calculated based on earnings for financial statement purposes rather
than based on amounts reportable for federal income tax purposes as had been the
Company's practice prior to that date. This change was authorized through a
by-law amendment at the Company's annual meeting on December 1, 2000. The
patronage earnings from the fiscal year ended August 31,


15



2001 were distributed during the second quarter of the current fiscal year. The
cash portion of this distribution, deemed by the Board of Directors to be 100%
for Equity Participation Units and 30% for other patronage earnings, was $40.1
million. During the prior fiscal year, the Company distributed cash patronage of
$26.1 million from the patronage earnings of the fiscal year ended August 31,
2000.

The current equity redemption policy, as authorized by the Board of
Directors, allows for the redemption of capital equity certificates held by
inactive direct members and patrons and active direct members and patrons at age
72 or death that were of age 61 or older on June 1, 1998. For active direct
members and patrons who were of age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years will be redeemed annually based on a
prorata formula where the numerator is dollars available for such purpose as
determined by the Board of Directors, and the denominator is the sum of the
patronage certificates older than 10 years held by such eligible members and
patrons. Total redemptions related to the year ended August 31, 2001, to be
distributed in the current fiscal year, are expected to be approximately $29.0
million, of which $26.3 million was redeemed during the nine months ended May
31, 2002. During the nine months ended May 31, 2001 the Company redeemed $14.4
million of equity. Redemptions of equity by the Company during the three-month
periods ended May 31, 2002 and 2001 were $3.2 million and $6.5 million,
respectively.

The Board of Directors has authorized the sale and issuance of up to
50,000,000 shares of 8% Preferred Stock at a price of $1.00 per share. The
Company filed a registration statement on Form S-2 with the Securities and
Exchange Commission registering the Preferred Stock. The registration statement
was declared effective on October 31, 2001 and sales of the Preferred Stock were
$7.0 million through May 31, 2002. Expenses related to the issuance of the
Preferred Stock were $2.6 million through the same period.

OFF BALANCE SHEET FINANCING ARRANGEMENTS

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

Total rental expense for all operating leases, net of rail car mileage
credits received from the railroad and sublease income for the three and nine
months ended May 31, 2002 was approximately $9.0 million and $27.0 million,
respectively. For the three and nine months ended May 31, 2001, total rental
expense was approximately $8.5 million and $26.0 million, respectively.

Minimum future lease payments, required under noncancellable operating
leases as of August 31, 2001, were as follows:

(DOLLARS IN MILLIONS) TOTAL
--------------------- -------
2002 $ 35.4
2003 26.3
2004 16.8
2005 7.5
2006 5.0
Thereafter 12.8
-------
Total minimum future
lease payments $ 103.8
=======

GUARANTEES:
The Company is a guarantor for lines of credit for related companies of
which approximately $39.0 million was outstanding as of May 31, 2002. The
Company's bank covenants allow maximum guarantees of $100.0 million. All
outstanding loans with respective creditors are current as of May 31, 2002.

DEBT:
There is no material off balance sheet debt.


16



CRITICAL ACCOUNTING POLICIES

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

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

INVENTORY VALUATION AND RESERVES
Grain, processed grain, oilseed and processed oilseed are stated at net
realizable values, which approximates market values. All other inventories are
stated at the lower of cost or market. The cost of certain energy inventories
(wholesale refined products, crude oil and asphalt) are determined on the
last-in, first-out (LIFO) method; all other energy inventories are valued on the
first-in, first-out (FIFO) and average cost methods. Estimates are used in
determining the net realizable value of grain and oilseed and processed grain
and oilseed inventories. These estimates include the measurement of grain in
bins and other storage facilities, which use formulas in addition to actual
measurements taken to arrive at appropriate quantity. Other determinations made
by management include quality of the inventory and estimates for freight. Grain
shrink reserves and other reserves that account for spoilage also affect
inventory valuation. If estimates regarding the valuation of inventory or the
adequacy of reserves are less favorable than management's assumptions, then
additional reserves or write-downs of inventory may be required.

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

The Company adopted Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 133, as amended, a standard related
to the accounting for derivative transactions and hedging activities, effective
September 1, 2000. Such accounting is complex, evidenced by significant
interpretations of the primary accounting standard, which continues to evolve.

PENSION AND POSTRETIREMENT BENEFITS
Pension and other postretirement benefits costs and obligations are
dependent on assumptions used in calculating such amounts. These assumptions
include discount rates, health care cost trend rates, benefits earned, interest
cost, expected return on plan assets, mortality rates, and other factors. In


17



accordance with accounting principles generally accepted in the United States of
America, actual results that differ from the assumptions are accumulated and
amortized over future periods and, therefore, generally affect recognized
expense and the recorded obligation in future periods. While management believes
that the assumptions used are appropriate, differences in actual experience or
changes in assumptions may affect the Company's pension and other postretirement
obligations and future expense.

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

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

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

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

EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS

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

RECENT ACCOUNTING PRONOUNCEMENTS

Effective September 1, 2001 the Company adopted the provisions of Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets". The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial statements.

The FASB recently issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is currently
analyzing the effects of adoption of this pronouncement.


18



The FASB also recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived asset to be disposed of by sale.
Generally, the provisions of SFAS No. 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company is currently analyzing the effects of
adoption of this pronouncement.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For the period ended May 31, 2002 the Company did not experience any
adverse changes in market risk exposures that materially affect the quantitative
and qualitative disclosures presented in the Company's Annual Report on Form
10-K for the year ended August 31, 2001.


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PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT DESCRIPTION
------- -----------

10.1 Fourth Amendment to Credit Agreement (Revolving Loan) dated
May 22, 2002 among Cenex Harvest States Cooperatives, CoBank,
ACB, Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
SunTrust Bank, Deere Credit, Inc., Credit Lyonnais Chicago
Branch and the Syndication Parties

10.2 Fourth Amendment to Credit Agreement (Term Loan) dated May 22,
2002 among Cenex Harvest States Cooperatives, CoBank, ACB and
the Syndication Parties

10.3 Syndication Adoption Agreement dated May 22, 2002 between
CoBank, ACB and the Adopting Parties

99 Cautionary Statement

(b) Reports on Form 8-K

None.


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SIGNATURES

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



CENEX HARVEST STATES COOPERATIVES
---------------------------------
(Registrant)


DATE SIGNATURE
---- ---------

July 3, 2002 /s/ JOHN SCHMITZ
------------------------- -------------------------------------
(Date) John Schmitz
Executive Vice President and
Chief Financial Officer


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