Edgar Filing: CENEX HARVEST STATES COOPERATIVES

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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 FEBRUARY 28,
2001.

[ ] 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
(Address of principal executive offices and zip code) number including
area 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.

NONE NONE
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(Class) (Number of shares outstanding at
November 30, 2000)

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INDEX

PAGE
NO.
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PART I. FINANCIAL INFORMATION

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 2001 (unaudited), August 31, 2000 and
February 29, 2000 (unaudited) ........................................................... 2
Consolidated Statements of Operations for the three months and six months ended
February 28, 2001 and February 29, 2000 (unaudited) ..................................... 3
Consolidated Statements of Cash Flows for the three months and six months ended
February 28, 2001 and February 29, 2000 (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 ...................... 17

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

Item 1. Financial Statements
Balance Sheets as of February 28, 2001 (unaudited), August 31, 2000 and
February 29, 2000 (unaudited) ........................................................... 18
Statements of Operations for the three months and six months ended
February 28, 2001 and February 29, 2000 (unaudited) ..................................... 19
Statements of Cash Flows for the three months and six months ended
February 28, 2001 and February 29, 2000 (unaudited) ..................................... 20
Notes to Financial Statements (unaudited) ............................................... 21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................... 22

WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

Item 1. Financial Statements
Balance Sheets as of February 28, 2001 (unaudited), August 31, 2000 and
February 29, 2000 (unaudited) ........................................................... 26
Statements of Operations for the three months and six months ended
February 28, 2001 and February 29, 2000 (unaudited) ..................................... 27
Statements of Cash Flows for the three months and six months ended
February 28, 2001 and February 29, 2000 (unaudited) ..................................... 28
Notes to Financial Statements (unaudited) ............................................... 29
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................... 30

PART II. OTHER INFORMATION
Items 1 through 3 have been omitted since all items are inapplicable or answers
are negative
Item 4. Submission of Matters to a Vote of Security Holders ............................. 33
Item 5 has been omitted since the answer is negative
Item 6. Exhibits and Reports on Form 8-K ................................................ 33

SIGNATURE PAGE ........................................................................... 34

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. Factors that might cause such differences include,
but are not limited to the following:

SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply
and demand relationships, both domestic and international. Supply may be
affected by weather conditions, disease, insect damage, acreage planted,
government regulation and policies and commodity price levels. The current short
supply and high demand of natural gas will impact the supply of fertilizer.
Demand may be affected by foreign governments and their programs, relationships
of foreign countries with the United States, the affluence of foreign countries,
acts of war, currency exchange fluctuations and substitution of commodities.
Reduced demand for U.S. agricultural products may also adversely affect the
demand for fertilizer, chemicals and petroleum products sold by the Company and
used to produce crops. Demand may also be affected by changes in eating habits,
population growth and increased or decreased per capita consumption of some
products.

PRICE RISKS. Upon purchase, the Company has risks of carrying grain and
petroleum, including price changes and performance risks (including delivery,
quality, quantity and shipment period), depending upon the type of purchase
contract. The Company is exposed to risk of loss in the market value of
positions held, consisting of grain and petroleum inventories and purchase
contracts at a fixed or partially fixed price, in the event market prices
decrease. The Company is also exposed to risk of loss on its fixed price or
partially fixed price sales contracts in the event market prices increase. To
reduce the price change risks associated with holding fixed priced positions,
the Company generally takes opposite and offsetting positions by entering into
commodity futures contracts (either a straight futures contract or an option
futures contract) on regulated commodity futures exchanges.

OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. This industry is
highly competitive. Competitors are adding new plants and expanding capacity of
existing plants. Unless exports increase or existing refineries are closed, this
extra capacity is likely to put additional pressure on prices and erode margins,
adversely affecting the profitability of the Oilseed Processing and Refining
Defined Business Unit.

MILLING BUSINESS COMPETITIVE TRENDS. Certain major durum milling
competitors of the Wheat Milling Defined Business Unit have developed long-term
relationships with customers by locating plants adjacent to pasta manufacturing
plants. This trend could potentially decrease the future demand for semolina
from nonintegrated millers. In addition, the growth in demand for baking and
bread flour is marginal during a period when the milling industry has been
expanding, which will continue to put pressure on gross margins.

The forward-looking statements herein are qualified in their entirety by
the cautions and risk factors set forth in Exhibit 99, under the caption
Cautionary Statement to this Quarterly Report on Form 10-Q for the quarter ended
February 28, 2001.

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)

CURRENT ASSETS
Cash and cash equivalents .................................. $ 47,348 $ 56,393 $ 55,234
Receivables ................................................ 732,010 834,743 707,434
Inventories ................................................ 622,210 602,385 670,549
Other current assets ....................................... 130,027 37,777 181,550
---------- ---------- ----------
Total current assets ...................................... 1,531,595 1,531,298 1,614,767
INVESTMENTS ................................................. 440,996 451,211 407,924
PROPERTY, PLANT AND EQUIPMENT ............................... 1,028,775 1,034,768 989,101
OTHER ASSETS ................................................ 201,146 155,403 125,132
---------- ---------- ----------
Total assets .............................................. $3,202,512 $3,172,680 $3,136,924
========== ========== ==========

LIABILITIES AND EQUITIES

CURRENT LIABILITIES
Notes payable .............................................. $ 385,918 $ 217,926 $ 225,475
Current portion of long-term debt .......................... 28,270 30,173 20,802
Customer credit balances ................................... 65,848 36,779 55,210
Customer advance payments .................................. 142,799 131,935 243,913
Checks and drafts outstanding .............................. 44,572 84,086 37,350
Accounts payable ........................................... 456,740 624,772 648,618
Accrued expenses ........................................... 121,890 147,710 129,650
Patronage dividends and equity retirements payable ......... 35,362 43,694 15,056
---------- ---------- ----------
Total current liabilities ................................. 1,281,399 1,317,075 1,376,074
LONG-TERM DEBT .............................................. 530,213 480,327 451,500
OTHER LIABILITIES ........................................... 89,768 84,929 78,366
MINORITY INTERESTS IN SUBSIDIARIES .......................... 74,242 125,923 108,938
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,226,890 1,164,426 1,122,046
---------- ---------- ----------
Total liabilities and equities ............................ $3,202,512 $3,172,680 $3,136,924
========== ========== ==========

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

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
2001 2000 2001 2000
(DOLLARS IN THOUSANDS) -------------- -------------- -------------- -------------

REVENUES:
Net sales ..................................... $1,853,239 $1,920,116 $4,022,021 $3,938,874
Patronage dividends ........................... 823 1,266 1,248 1,524
Other revenues ................................ 39,581 23,815 67,351 49,102
---------- ---------- ---------- ----------
1,893,643 1,945,197 4,090,620 3,989,500
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold ............................ 1,789,408 1,903,539 3,900,368 3,888,352
Marketing, general and administrative ......... 42,465 37,717 80,875 75,493
Interest ...................................... 17,500 14,001 33,072 26,957
Equity loss from investments .................. 15,853 7,787 13,493 8,610
Minority interests ............................ 8,473 (9,703) 12,206 (9,166)
---------- ---------- ---------- ----------
1,873,699 1,953,341 4,040,014 3,990,246
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE .......................... 19,944 (8,144) 50,606 (746)
Income taxes ................................... (6,528) (4,016) (38,651) (5,737)
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ............................. 26,472 (4,128) 89,257 4,991
Cumulative effect of accounting change,
net of income tax benefit ..................... (3,263)
---------- ---------- ---------- ----------
NET INCOME (LOSS) .............................. $ 26,472 $ (4,128) $ 85,994 $ 4,991
========== ========== ========== ==========

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

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 26,472 $ (4,128) $ 85,994 $ 4,991
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Cumulative effect of accounting change, net of
income tax benefit ................................. 3,263
Depreciation and amortization ....................... 24,872 21,795 49,627 43,973
Noncash net loss from equity investments ............ 15,853 7,787 13,493 8,610
Minority interests .................................. 8,473 (9,703) 12,206 (9,166)
Noncash portion of patronage dividends received ..... (724) (1,004) (875) (1,074)
Gain on sale of property, plant and equipment ....... (13,790) (756) (14,416) (832)
Other, net .......................................... (1,938) 378 (1,938) 378
Changes in operating assets and liabilities:
Receivables ........................................ 107,697 17,429 102,679 (97,863)
Inventories ........................................ 9,699 3,099 (74,224) (66,446)
Other current assets and other assets .............. (80,559) (148,822) (138,495) (149,890)
Customer credit balances ........................... (8,015) 7,571 29,069 10,240
Customer advance payments .......................... 13,722 (6,639) 10,864 116,158
Accounts payable and accrued expenses .............. (203,027) 171,716 (193,852) 208,766
Other liabilities .................................. (4,424) (1,331) 2,912 (9,807)
---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities ...................................... (105,689) 57,392 (113,693) 58,038
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment .......... (24,124) (28,690) (48,536) (60,544)
Proceeds from disposition of property, plant and
equipment ............................................ 26,206 939 27,721 1,395
Investments ........................................... (4,123) (104) (11,604) (1,663)
Investments redeemed from equity investments .......... 638 8,204 10,338
Investments redeemed .................................. 468 1,437 635 2,688
Changes in notes receivable ........................... (360) (1,634) (392) (1,581)
Acquisition of intangibles ............................ (7,038) (7,038)
Distribution to minority owners ....................... (8,537) (3,779) (12,525) (5,027)
Other investing activities, net ....................... 4,533 1,306 5,609 390
---------- ---------- ---------- ----------
Net cash used in investing activities ............ (12,337) (30,525) (37,926) (54,004)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable .............................. 77,863 (3,879) 167,992 28,489
Long-term debt borrowings ............................. 61,244 61,809
Principal payments on long-term debt .................. (4,718) (4,795) (13,826) (10,639)
Changes in checks and drafts outstanding .............. (28,202) 450 (39,514) (11,255)
Retirements of equities ............................... (2,374) (1,581) (7,911) (13,092)
Cash patronage dividends paid ......................... (25,976) (17,970) (25,976) (17,970)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities ...................................... 77,837 (27,775) 142,574 (24,467)
---------- ---------- ---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ........................................... (40,189) (908) (9,045) (20,433)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ................................... 87,537 56,142 56,393 75,667
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ............................................. $ 47,348 $ 55,234 $ 47,348 $ 55,234
========== ========== ========== ==========

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

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 February 28, 2001 and
February 29, 2000, and the statements of operations and cash flows for the three
months and six months ended February 28, 2001 and February 29, 2000 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. The
results of operations and cash flows for interim periods are not necessarily
indicative of results for a full year. The consolidated balance sheet data as of
August 31, 2000 was 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 unaudited 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 year's financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported net income or equity.

These statements should be read in conjunction with the consolidated
financial statements and footnotes for the year ended August 31, 2000, included
in the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 2000.

EQUITIES

Effective September 1, 2000, the Company's Board of Directors approved a
resolution to compute patronage distributions based on audited earnings for
financial statement purposes rather than tax basis earnings. On December 1,
2000, the resolution was ratified by the Company's members and beginning in
fiscal year 2001 patronage distributions will be based on audited financial
statement earnings.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

All of the Company's derivatives are designated as non-hedge derivatives.
The futures, options, and forward contracts utilized by the Company are
discussed below. Although the contracts are effective economic hedges of
specified risks, they are not designated as and accounted for as hedging
instruments.

The Company, as part of its trading activity, utilizes futures and option
contracts offered through regulated commodity exchanges to reduce risk. The
Company is exposed to risk of loss in the market value of inventories and fixed
or partially fixed purchase and sale contracts. To reduce that risk, the Company
generally takes opposite and offsetting positions using future contracts or
options.

Certain commodities cannot be hedged with future or option contracts
because such contracts are not offered for these commodities by regulated
commodity exchanges. Inventories and purchase contracts for those commodities
are hedged with forward sales contracts to the extent practical so as to arrive
at a net commodity position within the formal position limits set by the Company
and deemed prudent for each of those commodities. Commodities for which future
contracts and options are available are also typically hedged first in this
manner, with futures and options used to hedge within position limits that
portion not covered by forward contracts.

Unrealized gains and losses on futures and options contracts used to hedge
grain, oilseed and certain energy inventories, and fixed priced contracts, are
recognized for financial reporting. Grain and oilseed inventories and fixed
priced contracts are marked to market so that gains and losses on the

derivative contracts are offset by gains and losses on inventories and fixed
priced contracts during the same accounting period. Energy inventories are
valued at the lower of cost or market, and energy fixed price contracts are
marked to market.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101 "Revenue Recognition in Financial Statements". The
SAB summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B,
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
does not believe that adoption of this SAB will materially impact its financial
statements.

Emerging Issues Task Force (EITF) Issue 00-10 "Accounting for Shipping and
Handling Fees and Costs", is effective for all fiscal years beginning after
December 15, 1999. EITF 00-10 states that all amounts billed to a customer in a
sale transaction related to shipping and handling represent revenues earned for
the goods provided and should be classified as revenue. The Company does not
believe that adoption of EITF 00-10 will materially impact the financial
statements.

NOTE 2. RECEIVABLES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Trade ......................................... $725,411 $834,349 $715,390
Other ......................................... 30,404 23,643 15,657
-------- -------- --------
755,815 857,992 731,047
Less allowances for doubtful accounts ......... 23,805 23,249 23,613
-------- -------- --------
$732,010 $834,743 $707,434
======== ======== ========

NOTE 3. INVENTORIES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Energy .............................. $229,714 $286,276 $299,316
Grain and oilseed ................... 251,209 215,570 202,497
Feed and farm supplies .............. 104,583 63,909 64,930
Processed grain and oilseed ......... 32,755 32,993 14,612
Agronomy ............................ -- -- 86,153
Other ............................... 3,949 3,637 3,041
-------- -------- --------
$622,210 $602,385 $670,549
======== ======== ========

NOTE 4. INVESTMENTS

The following provides summarized unaudited financial information for
Ventura Foods, LLC and Agriliance, LLC for the three-month and six-month periods
as indicated below.

VENTURA FOODS, LLC

FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------- ------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
2001 2000 2001 2000
-------------- -------------- -------------- -------------

Net sales ............ $229,427 $216,237 $459,435 $446,267
Gross profit ......... 31,655 27,147 65,532 62,891
Net income ........... 10,950 5,844 22,414 18,631

Effective January 1, 2000, Cenex Harvest States Cooperatives, Farmland
Industries, Inc. and Land O'Lakes, Inc. created Agriliance, a distributor of
crop nutrients, crop protection products and other agronomy inputs and
services. At formation, Agriliance managed the agronomy marketing operations of
Cenex Harvest States Cooperatives, Farmland Industries, Inc. and Land O'Lakes,
Inc. with the Company exchanging the right to use its agronomy operations for
26.455% of the results of the jointly managed operations.

In March 2000, the Company sold 1.455% of its economic interest in
Agriliance, resulting in a gain of approximately $7.4 million. In July 2000, the
Company exchanged its ownership in the Cenex/Land O'Lakes Agronomy Company and
in Agro Distribution, LLC for a 25% equity interest in Agriliance. The interests
of the Company and Farmland Industries, Inc. are held through equal ownership in
United Country Brands, LLC, a joint venture holding company whose sole
operations consist of the ownership of a 50% interest in Agriliance.

In July 2000, Agriliance secured its own financing, which is without
recourse to the Company. Agriliance then purchased the net working capital
related to agronomy operations from each of its member owners, consisting
primarily of trade accounts receivable and inventories, net of accounts payable.

As of July 31, 2000, the Company recorded the results of its 25% ownership
in Agriliance on the equity method.

AGRILIANCE, LLC

FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
2001 2001
--------------- -------------
Net sales ............ $ 668,397 $1,329,278
Gross profit ......... 52,363 109,361
Net loss ............. (26,130) (48,767)

NOTE 5. COMPREHENSIVE INCOME

During the three months ended February 28, 2001 and February 29, 2000,
total comprehensive income (loss) amounted to $27.4 million income and $5.3
million loss, respectively. For the six months ended February 28, 2001 and
February 29, 2000, total comprehensive income amounted to $88.4 million and $3.9
million, respectively. Accumulated other comprehensive loss on February 28,
2001, August 31, 2000 and February 29, 2000 was $0.1 million, $2.4 million and
$2.3 million, respectively.

NOTE 6. SEGMENT REPORTING

Effective September 1, 2000, the Company's management reorganized the way
its businesses are managed and internally reported. A new segment named Country
Operations was created. This new segment includes the former Farm Marketing &
Supply business previously included in the Grain Marketing and Farm Marketing &
Supply segment, and also the Country Services, hedging and insurance services
formerly included in Other. With the reorganization there are five business
segments. These segments, which are based on products and services, include
Agronomy, Energy, Grain Marketing, Country Operations, and Processed Grain and
Consumer Products. Reconciling items represent the eliminations of intracompany
sales between segments. Intracompany sales from Country Operations to Grain
Marketing were $169.3 million and $163.1 million for the three months ended
February 28, 2001 and February 29, 2000, respectively, and $374.8 million and
$345.5 million for the six months ended February 28, 2001 and February 29, 2000,
respectively. Intra-company sales from Energy to Country Operations were $18.2
million and $10.9 million for the three months ended February 28, 2001 and
February 29, 2000, respectively, and $38.2 million and $22.3 million for the six
months ended February 28, 2001 and February 29, 2000, respectively. The prior
year's segment information has been restated to reflect the change in 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 six months ended February 28,
2001 and February 29, 2000 is as follows:

GRAIN
AGRONOMY ENERGY MARKETING
---------- ---------- ----------

FOR THE THREE MONTHS ENDED
FEBRUARY 28, 2001:
Net sales ....................... $ 696,740 $ 872,897
Patronage dividends ............. 31 444
Other revenues (losses) ......... 671 5,979
---------- ---------- ----------
697,442 879,320
Cost of goods sold .............. 640,075 873,566
Marketing, general
and administrative ............. $ 1,926 11,504 5,148
Interest ........................ (1,411) 6,822 2,160
Equity loss (income)
from investments ............... 13,100 (189) (707)
Minority interests .............. 8,356
---------- ---------- ----------
(Loss) income before
income taxes ................... $ (13,615) $ 30,874 $ (847)
========== ========== ==========
FOR THE THREE MONTHS ENDED
FEBRUARY 29, 2000
Net sales ....................... $ 126,957 $ 663,713 $ 892,348
Patronage dividends ............. 72 518
Other revenues .................. 473 5,080
---------- ---------- ----------
126,957 664,258 897,946
Cost of goods sold .............. 114,619 670,863 889,300
Marketing, general
and administrative ............. 2,803 12,280 4,890
Interest ........................ (1,584) 7,367 2,349
Equity loss (income)
from investments ............... 12,835 (412) (2,338)
Minority interests .............. (9,732)
---------- ---------- ----------
(Loss) income before
income taxes ................... $ (1,716) $ (16,108) $ 3,745
========== ========== ==========
FOR THE SIX MONTHS ENDED
FEBRUARY 28, 2001
Net sales ....................... $1,570,136 $1,840,387
Patronage dividends ............. $ 268 40 501
Other revenues .................. 1,418 11,420
---------- ---------- ----------
268 1,571,594 1,852,308
Cost of goods sold .............. 1,470,461 1,838,868
Marketing, general
and administrative ............. 3,716 21,254 10,656
Interest ........................ (2,582) 13,902 4,325
Equity loss (income)
from investments ............... 18,329 (344) (2,526)
Minority interests .............. 12,086
---------- ---------- ----------
(Loss) income before
income taxes and
cumulative effect of
accounting change .............. $ (19,195) $ 54,235 $ 985
========== ========== ==========
Total identifiable
assets ........................ $ 207,572 $1,212,305 $ 360,507
========== ========== ==========

[WIDE TABLE CONTINUED]

PROCESSED
GRAIN AND
COUNTRY CONSUMER RECONCILING
OPERATIONS PRODUCTS OTHER AMOUNTS TOTAL
------------ ------------ ------------- -------------- -------------

FOR THE THREE MONTHS ENDED
FEBRUARY 28, 2001:
Net sales ....................... $324,161 $ 146,936 $ (187,495) $1,853,239
Patronage dividends ............. 313 $ 35 823
Other revenues (losses) ......... 27,488 (15) 5,458 39,581
-------- --------- --------- ---------- ----------
351,962 146,921 5,493 (187,495) 1,893,643
Cost of goods sold .............. 324,735 138,527 (187,495) 1,789,408
Marketing, general
and administrative ............. 14,323 7,518 2,046 42,465
Interest ........................ 4,011 3,464 2,454 17,500
Equity loss (income)
from investments ............... 158 (5,632) 9,123 15,853
Minority interests .............. 117 8,473
-------- --------- --------- ---------- ----------
(Loss) income before
income taxes ................... $ 8,618 $ 3,044 $ (8,130) $ -- $ 19,944
======== ========= ========= ========== ==========
FOR THE THREE MONTHS ENDED
FEBRUARY 29, 2000
Net sales ....................... $280,759 $ 130,335 $ (173,996) $1,920,116
Patronage dividends ............. 603 $ 73 1,266
Other revenues .................. 16,032 4 2,226 23,815
-------- --------- --------- ---------- ----------
297,394 130,339 2,299 (173,996) 1,945,197
Cost of goods sold .............. 279,840 122,913 (173,996) 1,903,539
Marketing, general
and administrative ............. 12,334 3,870 1,540 37,717
Interest ........................ 2,414 1,909 1,546 14,001
Equity loss (income)
from investments ............... (332) (1,966) 7,787
Minority interests .............. 29 (9,703)
-------- --------- --------- ---------- ----------
(Loss) income before
income taxes ................... $ 3,109 $ 3,613 $ (787) $ -- $ (8,144)
======== ========= ========= ========== ==========
FOR THE SIX MONTHS ENDED
FEBRUARY 28, 2001
Net sales ....................... $726,046 $ 298,475 $ (413,023) $4,022,021
Patronage dividends ............. 346 $ 93 1,248
Other revenues .................. 48,007 10 6,496 67,351
-------- --------- --------- ---------- ----------
774,399 298,485 6,589 (413,023) 4,090,620
Cost of goods sold .............. 725,714 278,348 (413,023) 3,900,368
Marketing, general
and administrative ............. 26,531 14,895 3,823 80,875
Interest ........................ 7,748 7,172 2,507 33,072
Equity loss (income)
from investments ............... 251 (11,340) 9,123 13,493
Minority interests .............. 120 12,206
-------- --------- --------- ---------- ----------
(Loss) income before
income taxes and
cumulative effect of
accounting change .............. $ 14,035 $ 9,410 $ (8,864) $ -- $ 50,606
======== ========= ========= ========== ==========
Total identifiable
assets ........................ $790,555 $ 429,935 $ 201,638 $ -- $3,202,512
======== ========= ========= ========== ==========

GRAIN COUNTRY
AGRONOMY ENERGY MARKETING OPERATIONS
------------ ------------- ------------- ------------

FOR THE SIX MONTHS ENDED
FEBRUARY 29, 2000
Net sales ................... $229,020 $1,334,332 $1,848,691 $628,139
Patronage dividends ......... 111 87 547 647
Other revenues .............. 947 9,514 34,725
-------- ---------- ---------- --------
229,131 1,335,366 1,858,752 663,511
Cost of goods sold .......... 210,189 1,326,214 1,843,159 627,775
Marketing, general
and administrative ......... 5,700 23,914 10,346 24,163
Interest .................... (253) 12,582 4,568 4,538
Equity loss (income)
from investments ........... 22,160 (577) (5,187) (726)
Minority interests .......... (9,217) 51
-------- ---------- ---------- --------
(Loss) income before
income taxes ............... $ (8,665) $ (17,550) $ 5,866 $ 7,710
======== ========== ========== ========
Total identifiable
assets .................... $502,030 $1,263,845 $ 230,094 $638,156
======== ========== ========== ========

[WIDE TABLE CONTINUED]

PROCESSED
GRAIN AND
CONSUMER RECONCILING
PRODUCTS OTHER AMOUNTS TOTAL
------------ ------------ -------------- -------------

FOR THE SIX MONTHS ENDED
FEBRUARY 29, 2000
Net sales ................... $266,487 $ (367,795) $3,938,874
Patronage dividends ......... $ 132 1,524
Other revenues .............. 135 3,781 49,102
-------- -------- ---------- ----------
266,622 3,913 (367,795) 3,989,500
Cost of goods sold .......... 248,810 (367,795) 3,888,352
Marketing, general
and administrative ......... 8,505 2,865 75,493
Interest .................... 3,445 2,077 26,957
Equity loss (income)
from investments ........... (7,081) 21 8,610
Minority interests .......... (9,166)
-------- -------- ---------- ----------
(Loss) income before
income taxes ............... $ 12,943 $ (1,050) $ -- $ (746)
======== ======== ========== ==========
Total identifiable
assets .................... $304,589 $198,210 $ -- $3,136,924
======== ======== ========== ==========

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

The Company adopted SFAS No. 133, as amended, a standard related to the
accounting for derivative transactions and hedging activities, effective
September 1, 2000. The effect of adoption was a loss of $3.6 million ($3.3
million net of income tax benefit) related to the energy business segment. All
of the Company's derivatives are designated as non-hedge derivatives. The
Company utilizes futures, options and forward contracts related to grain and
certain energy inventories. Although the contracts are effective economic hedges
of specified risks, they are not designated as and accounted for as hedging
instruments.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

Consolidated net income for the three months ended February 28, 2001 was
$26.5 million compared to a net loss of $4.1 million for the same three-month
period in 2000, which represents a $30.6 million increase. This increase in
profitability is primarily attributable to an increase in net income from the
Company's Energy and Country Operations segments of $47.0 million and $5.5
million, respectively. These increases were partially offset by decreases from
the Agronomy and Grain Marketing segments of $11.9 million and $4.6 million,
respectively. As a greater than 20% owner in two technology companies, the
Company recognized its pro-rata share of those entities' operating losses, which
also partially offset the increases from the Energy and Country Operations
segments. The Company's pro-rata share of the entities' operating losses were
$9.1 million.

Consolidated net sales of $1.9 billion for the three months ended February
28, 2001 decreased $66.9 million (3%) compared to the same three months ended in
2000.

Company-wide grain and oilseed net sales of $916.9 million decreased $3.7
million during the three months ended February 28, 2001 compared to the same
three months ended in 2000. Sales for the three months ended February 28, 2001
were $872.9 million and $213.4 million from Grain Marketing and Country
Operations, respectively. Sales for the three months ended February 29, 2000
were $892.3 million and $191.4 million from Grain Marketing and Country
Operations, respectively. The Company eliminated all intracompany sales from
Country Operations to its Grain Marketing segment, of $169.3 million and $163.1
million, for the three months ended February 28, 2001 and February 29, 2000,
respectively. The decrease in sales was primarily due to a decrease in grain
volume of approximately 4%, which was partially offset by an increase of $0.13
per bushel in the average sales price of all grain and oilseed marketed by the
Company compared to the same three months ended in 2000.

Energy net sales of $678.5 million increased $25.7 million (4%) during the
three months ended February 28, 2001 compared to the same period in 2000. Sales
for the three months ended February 28, 2001 and February 29, 2000 were $696.7
million and $663.7 million, respectively. The Company eliminated all
intracompany sales from the Energy segment to the Country Operations segment of
$18.2 million and $10.9 million, respectively. This increase is primarily
attributable to an increase in the average sales price of refined fuels of $0.14
per gallon, which was partially offset by a volume decrease of 3% compared to
the same three months ended in 2000. Effective December 31, 2000, Cooperative
Refining, LLC (CRLLC) was dissolved through mutual agreement of its members. The
Company owned 58% of CRLLC through its 75% ownership in National Cooperative
Refining Association (NCRA) and therefore consolidated CRLLC business activity
up to the time of dissolution. The average sales price of propane increased by
$0.35 per gallon and volume increased by 44% compared to the same three months
ended in 2000. These propane increases were primarily due to cold weather in the
northern regions of the United States creating a high demand which affected both
volume and price, in addition to increased volumes due to an acquisition in May
2000.

The Company did not record Agronomy sales during the three months ended
February 28, 2001 compared to $127.0 million for the same three-month period in
2000. Effective January 1, 2000, the

Company exchanged its agronomy operations for an ownership interest in
Agriliance, LLC (owned indirectly through United Country Brands, LLC). As of
July 31, 2000, the Company recorded the results of its 25% ownership in
Agriliance, LLC on the equity method, and as such, income or losses are
reflected in equity loss from investments.

Country Operations farm supply sales of $110.8 million increased by $21.4
million (24%) during the three months ended February 28, 2001 compared to the
same three months ended in 2000. This increase is primarily due to additional
volume from acquisitions and price increases primarily in agronomy and energy
products.

Processed Grain and Consumer Products sales of $146.9 million increased
$16.6 million (13%) during the three months ended February 28, 2001 compared to
the same three months ended in 2000. Sales of processed oilseed decreased by
$2.2 million due to volume and price decreases compared to the same three months
ended in 2000. Sales of processed wheat increased by $7.7 million compared to
the same three months ended in 2000, primarily due to increased volume from an
acquisition. The addition of tortilla operations as the result of the
acquisition of Sparta Foods, Inc. in June 2000 and the assets of Rodriguez
Festive Foods, Inc. in February 2001, added $11.1 million of sales to the second
quarter of fiscal year 2001.

Other revenues of $39.6 million increased $15.8 million (66%) during the
three months ended February 28, 2001 compared to the same three months ended in
2000. The most significant change was revenues from the sale of feed plants and
other assets within the Country Operations segment.

Cost of goods sold of $1.8 billion decreased $114.1 million (6%) during the
three months ended February 28, 2001, compared to the same three months ended in
2000. The decrease was primarily attributable to the impact of recording the
Company's share of its agronomy operation on the equity method as previously
discussed, which caused a reduction in cost of good sold of $114.6 million
compared to the three months ended in 2000. In addition, during the three months
ended February 28, 2001 the cost of goods of the Energy segment decreased by
$30.8 million (5%) primarily due to a drop in volume from the dissolution of
CRLLC which was partially offset by price increases. The cost of all grains and
oilseed procured by the Company through its Grain Marketing and Country
Operations segments during the current three-month period was essentially
unchanged compared to the same three-month period ended in 2000. The cost of
grain and oilseed increased by $0.13 per bushel, which was offset by a 4%
decrease in volume. Country Operations farm supply cost of goods sold increased
by 22% during the current three-month period compared to the three-month period
in the prior year, primarily due to increased purchases related to acquisitions,
and cost increases primarily in agronomy and energy products. Within the
Company's Processed Grain and Consumer Products segment cost of goods increased
by $15.6 million (13%). The volumes of processed soybeans decreased and wheat
increased and additional costs were reported due to the addition of the tortilla
operation compared to the same three months ended in 2000.

Marketing, general and administrative expenses of $42.5 million for the
three months ended February 28, 2001 increased by $4.7 million (13%) compared to
the same three months ended in 2000 primarily due to additional expenses from
the tortilla operations.

Interest expense of $17.5 million for the three months ended February 28,
2001 increased by $3.5 million (25%) compared to the same three months ended in
2000. The average level of short-term borrowings increased by approximately 67%
during the three months ended February 28, 2001 compared to the same period of a
year ago and such borrowings were at a .30% higher average interest rate than a
year ago.

Equity losses from investments of $15.9 million for the three months ended
February 28, 2001 increased by $8.1 million compared to the same three months
ended in 2000. The losses were primarily attributable to technology investments
of $9.1 million and decreased earnings of $1.3 million from a grain marketing
joint venture. These losses were partially offset by an increase in earnings of
a consumer products packaging joint venture of $3.7 million.

Minority interests in operations of $8.5 million for the three months ended
February 28, 2001 increased by $18.2 million compared to the same three months
ended in 2000. Substantially all minority

interests is related to NCRA. This net change in minority interests during the
current year was reflective of more profitable operations within the Company's
majority-owned subsidiaries as compared to the same three months ended in 2000.

Income tax benefits of $6.5 million and $4.0 million were reported for the
three months ended February 28, 2001 and February 29, 2000, respectively. The
income tax benefit or expense and effective tax rate varies from period to
period based upon the profitability and non-patronage business activity during
each of the comparable periods. During the three-month period ended February 28,
2001 the income tax benefit was primarily due to non-patronage business losses.

COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

Consolidated net income for the six months ended February 28, 2001 was
$86.0 million compared to net income of $5.0 million for the same six-month
period in 2000, which represents an $81.0 million increase. The increase in
profitability is primarily attributable to an increase in net income from the
Company's Energy and Country Operations segments of $71.8 million and $6.3
million, respectively. In addition, a change in the tax rate applied to the
Company's cumulative temporary differences between earnings for financial
statement purposes and tax basis earnings resulted in an increase in deferred
tax assets of approximately $34.2 million during the current six-month period.
The Company's calculation of its patronage distribution using audited earnings
for financial statement purposes rather than tax earnings prompted the rate
change. These increases were partially offset by increased losses from the
Agronomy segment of $10.5 million. As a greater than 20% owner in two technology
companies, the Company recognized its pro-rata share of those entities'
operating losses, which also partially offset the increases mentioned above. The
Company's pro-rata share of the entities' operating losses were $9.1 million.

Consolidated net sales of $4.0 billion for the six months ended February
28, 2001 increased $83.1 million (2%) compared to the same six months ended in
2000.

Company-wide grain and oilseed net sales of $1.9 billion increased $13.8
million (1%) during the six months ended February 28, 2001 compared to the same
six months ended in 2000. Sales for the six months ended February 28, 2001 were
$1,840.4 million and $471.9 million from Grain Marketing and Country Operations,
respectively. Sales for the six months ended February 29, 2000 were $1,848.7
million and $420.3 million from Grain Marketing and Country Operations,
respectively. The Company eliminated all intracompany sales from Country
Operations to its Grain Marketing segments, of $374.8 million and $345.5
million, for the six months ended February 28, 2001 and February 29, 2000,
respectively. The increase in sales was primarily due to an increase in grain
volume of approximately 3%, which was partially offset by a decrease of $0.06
per bushel in the average sales price of all grain and oilseed marketed by the
Company compared to the same six months ended in 2000.

Energy net sales of $1.5 billion increased $220.0 million (17%) during the
six months ended February 28, 2001 compared to the same period in 2000. Sales
for the six months ended February 28, 2001 and February 29, 2000 were $1.6
billion and $1.3 billion, respectively. The Company eliminated all intracompany
sales from the Energy segment to the Country Operations segment of $38.2 million
and $22.3 million, respectively. This increase is primarily attributable to an
increase in the average sales price of refined fuels of $0.24 per gallon, which
was partially offset by a volume decrease of 6% compared to the same six months
ended in 2000 due to the dissolution of CRLLC, as previously discussed. In
addition, the average sales price of propane increased by $0.30 per gallon and
volume increased by 41% compared to the same six months ended in 2000. These
propane increases were primarily due to cold weather in the northern regions of
the United States creating a high demand which affected both volume and price,
in addition to increased volumes due to an acquisition in May 2000.

The Company did not record Agronomy sales during the six months ended
February 28, 2001 compared to $229.0 million for the same six-month period in
2000. Effective January 1, 2000, the Company exchanged its agronomy operations
for an ownership interest in Agriliance, LLC (owned indirectly through United
Country Brands, LLC). As of July 31, 2000, the Company recorded the results of
its 25% ownership in Agriliance, LLC on the equity method, and as such, income
or losses are reflected in equity loss from investments.

Country Operations farm supply sales of $254.3 million increased by $46.4
million (22%) during the six months ended February 28, 2001 compared to the same
six months ended in 2000. This increase is primarily due to additional volume
from acquisitions and price increases primarily in agronomy and energy products.

Processed Grain and Consumer Products sales of $298.5 million increased
$32.0 million (12%) during the six months ended February 28, 2001 compared to
the same six months ended in 2000. Sales of processed oilseed increased by $2.4
million due to volume and price increases compared to the same six months ended
in 2000. Sales of processed wheat increased by $9.5 million compared to the same
six months ended in 2000, primarily due to increased volume primarily from an
acquisition. The addition of tortilla operations as the result of the
acquisition of Sparta Foods, Inc. in June 2000 and the assets of Rodriguez
Festive Foods, Inc. in February 2001 added $20.1 million of sales to the six
months of fiscal year 2001.

Other revenues of $67.4 million increased $18.2 million (37%) during the
six months ended February 28, 2001 compared to the same six months ended in
2000. The most significant change was revenues from the sale of feed plants and
other assets within the Country Operations segment.

Cost of goods sold of $3.9 billion increased $12.0 million during the six
months ended February 28, 2001, compared to the same six months ended in 2000.
During the six months ended February 28, 2001 the average cost of refined fuels
and propane increased by $0.20 and $0.29 per gallon, respectively compared to
the same six months ended in 2000. The cost of all grains and oilseed procured
by the Company through its Grain Marketing and Country Operations segments
during the current six-month period was essentially unchanged compared to the
same six-month period ended in 2000. The cost of grain and oilseed decreased by
$0.06 per bushel, which was offset by a 3% increase in volume. Country
Operations farm supply cost of goods sold increased by 23% during the current
six-month period compared to the six-month period in the prior year, primarily
due to increased purchases related to acquisitions, and cost increases primarily
in agronomy and energy products. Processed Grain and Consumer Products cost of
goods increase $29.5 million (12%). The volumes of processed soybeans and wheat
increased and additional costs were reported due to the addition of the tortilla
operation compared to the same six months ended in 2000. These increases were
partially offset by the impact of recording the Company's share of its agronomy
operation on the equity method as described previously, which caused a reduction
in cost of good sold of $210.2 million compared to the same six months ended in
2000.

Marketing, general and administrative expenses of $80.9 million for the six
months ended February 28, 2001 increased by $5.4 million (7%) compared to the
same three months ended in 2000 primarily due to additional expenses from the
tortilla operations.

Interest expense of $33.1 million for the six months ended February 28,
2001 increased by $6.1 million (23%) compared to the same six months ended in
2000. The average level of short-term borrowings increased by approximately 28%
during the three months ended February 28, 2001 compared to the same period of a
year ago and such borrowings were at a .80% higher average interest rate than a
year ago.

Equity loss from investments of $13.5 million for the six months ended
February 28, 2001 increased by $4.9 million (57%) compared to the same three
months ended in 2000. The losses were primarily attributable to technology
investments of $9.1 million and decreased earnings of $2.4 million from a grain
marketing joint venture. These losses were partially offset by an increase in
earnings of a consumer products packaging joint venture of $4.3 million and
decreased losses from the Agronomy segment of $3.8 million. The Company records
its 25% share of Agriliance, LLC, on the equity method as previously discussed.

Minority interests in operations of $12.2 million for the six months ended
February 28, 2001 increased by $21.4 million compared to the same six months
ended in 2000. Substantially all minority interests is related to NCRA. This net
change in minority interests during the current year was reflective of more
profitable operations within the Company's majority-owned subsidiaries as
compared to the same six months ended in 2000.

Income tax benefits of $38.7 million and $5.7 million were reported for the
six months ended February 28, 2001 and February 29, 2000, respectively. An
income tax benefit of $34.2 million for the six-month period ended February 28,
2001 resulted due to 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 audited earnings for financial statement purposes
rather than tax basis earnings prompted the rate change. The Company also
recorded an income tax benefit for the six months ended February 28, 2001 of
$4.5 million, which compares to a $5.7 million tax benefit for the same period
in 2000. The income tax benefit and effective tax rate varies from period to
period based upon the profitability and non-patronage business activity during
each of the comparable periods. During the six-month period ended February 28,
2001 the income tax benefit was primarily due to non-patronage business losses.

A cumulative effect of an accounting change was incurred due to the
adoption of SFAS No. 133, as amended, related to the energy segment. The loss
incurred was $3.6 million ($3.3 million net of income tax benefit).

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM OPERATIONS

Operating activities of the Company used net cash of $105.7 million and
provided net cash of $57.4 million for the three months ended February 28, 2001
and February 29, 2000, respectively. For the three-month period ended in 2001,
net income of $26.5 million and net non-cash income and expenses of $32.7
million were offset by increased working capital requirements of $164.9 million.
For the three-month period ended February 29, 2000, a net loss of $4.1 million
was offset by net non-cash income and expenses of approximately $18.5 million
and decreased working capital requirements of approximately $43.0 million.

Operating activities of the Company used net cash of $113.7 million and
provided net cash of $58.0 million for the six months ended February 28, 2001
and February 29, 2000, respectively. For the six-month period ended in 2001, net
income of $86.0 million and net non-cash income and expenses of $61.4 million
were offset by increased working capital requirements of $261.1 million. For the
six-month period ended February 29, 2000, net income of $5.0 million, net
non-cash income and expenses of approximately $41.9 million and decreased
working capital requirements of approximately $11.1 million provided the cash
from operating activities.

CASH FLOWS FROM INVESTING

Investing activities of the Company used net cash of $12.3 million during
the three-month period ended February 28, 2001. Expenditures for the acquisition
of property, plant and equipment of $24.1 million, investments of $4.1 million,
acquisition of intangibles of $7.0 million, distributions to minority owners of
$8.5 million and the net change in notes receivable were partially offset by
proceeds from the disposition of property, plant and equipment of $26.2 million,
investments redeemed of $1.1 million and other investing activities. The
acquisition of intangibles relates 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. For the fiscal year ending
August 31, 2001, the Company projects that total expenditures for the
acquisition of property, plant and equipment will be approximately $104.3
million.

Investing activities of the Company used net cash of $30.5 million during
the three months ended February 29, 2000. Expenditures for the acquisition of
property, plant and equipment of $28.7 million, distributions to minority owners
of $3.8 million, investments and the net change in notes receivable were
partially offset by, investments redeemed of $1.4 million, proceeds from the
disposition of property, plant and equipment of $0.9 million and other investing
activities.

Investing activities of the Company used net cash of $37.9 million during
the six-month period ended February 28, 2001. Expenditures for the acquisition
of property, plant and equipment of $48.5 million, investments of $11.6 million,
acquisition of intangibles of $7.0 million, distributions to

minority owners of $12.5 million and the net change in notes receivable were
partially offset by, proceeds from the disposition of property, plant and
equipment of $27.7 million, investments redeemed of $8.8 million and other
investing activities. 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.

Investing activities of the Company used net cash of $54.0 million during
the six months ended February 29, 2000. Expenditures for the acquisition of
property, plant and equipment of $60.5 million, investments of $1.7 million,
distributions to minority owners of $5.0 million and the net change in notes
receivable were partially offset by investments redeemed of $13.0 million,
proceeds from the disposition of property, plant and equipment of $1.4 million,
and other investing activities.

CASH FLOWS FROM FINANCING

The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2000, the Company renewed and
expanded its 364-day credit facility from $400.0 million to $500.0 million
committed. In addition to this short-term line of credit, the Company has a
364-day credit facility dedicated to NCRA, with a syndication of banks in the
amount of $50.0 million, all of which is committed. On February 28, 2001, August
31, 2000 and February 29, 2000, the Company had total short-term indebtedness on
these various facilities and other short-term notes payable totaling $385.9
million, $217.9 million and $225.5 million, respectively.

In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200.0 million committed. On February 28, 2001
and August 31, 2000 the Company had outstanding balances of $80.0 million and
$45.0 million, respectively, categorized as long-term debt. The amount
outstanding at August 31, 2000 was drawn during the third quarter of the fiscal
year then ended. In January 2001, an additional $35.0 million was drawn, with
the proceeds used to repay debt drawn on the 364-day facility.

The Company has financed its long-term capital needs, primarily for the
acquisition of property, plant and equipment, with long-term loan agreements
through the banks for cooperatives. In June 1998, the Company established a
long-term credit agreement through the banks for cooperatives. This facility
committed $200.0 million of long-term borrowing capacity to the Company, with
repayments through fiscal year 2009. The commitment expired on May 31, 1999. The
amount outstanding on this credit facility was $154.2 million on February 28,
2001, $157.4 million on August 31, 2000 and $160.7 million on February 29, 2000,
respectively, with zero remaining available. Repayments of approximately $1.6
million and $3.3 million were made on this facility during each of the three
months and six months ended February 28, 2001 and February 29, 2000,
respectively.

Also in June 1998, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of $225.0 million.
Repayments will be made in equal 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. Proceeds from the note were used to
repay debt on the 364-day facility. A subsequent note for $55.0 million was
issued in March 2001, related to the private shelf facility for the same dollar
amount. The $55.0 million note will be repaid in equal annual installments of
approximately $7.9 million, in the years 2005 through 2011. Proceeds from the
March note were used to repay debt of $35.0 million on the five-year revolver
and $20.0 million on the 364-day facility.

On February 28, 2001 the Company had total long-term debt outstanding of
$558.5 million, of which approximately $288.4 million was bank financing, $250.0
million was private placement proceeds and $20.1 million was industrial revenue
bonds, capitalized leases and other notes payable. Long-term debt of NCRA
represented $42.6 million of the total long-term debt outstanding on February
28, 2001. On August 31, 2000 and February 29, 2000, the Company had long-term
debt outstanding of $510.5 million and $472.3 million, respectively.

During the three-month periods ended February 28, 2001 and February 29,
2000, the Company repaid long-term debt of $4.7 million and $4.8 million,
respectively, and had additional long-term borrowings of $61.2 million during
the three months ended February 28, 2001.

During the six-month periods ended February 28, 2001 and February 29, 2000,
the Company repaid long-term debt of $13.8 million and $10.6 million,
respectively, and had additional long-term borrowings of $61.8 million during
the six months ended February 28, 2001.

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 year. Effective September 1, 2000, patronage refunds
are calculated based on audited 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 this 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, 2000 were distributed
in January 2001. The cash portion of this distribution, deemed by the Board of
Directors to be 75% for Equity Participation Units and 30% for other patronage
earnings was $26.0 million. During the three-month period ended February 29,
2000, the Company distributed cash patronage of $18.0 million from the patronage
earnings of the fiscal year ended August 31, 1999.

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 members and patrons at age 72 or
death that were age 61 or older on June 1, 1998. For active direct members and
patrons who were age 60 or younger on June 1, 1998 and member cooperatives,
equities 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 held by
such eligible members and patrons. Total redemptions related to the year ended
August 31, 2000, to be distributed in the current fiscal year, are expected to
be approximately $17.7 million, of which approximately $7.9 million was redeemed
during the six months ended February 28, 2001. During the six months ended
February 29, 2000 the Company redeemed $13.1 million of equity. Redemptions of
equity by the Company during the three-month periods ended February 28, 2001 and
February 29, 2000 were $2.4 million and $1.6 million, respectively.

During the year ended May 31, 1997, the Company offered securities in the
form of Equity Participation Units (EPUs) in its Wheat Milling and Oilseed
Processing and Refining Defined Business Units. These EPUs give the holder the
right and obligation to deliver to the Company a stated number of bushels in
return for a prorata share of the undiluted grain based patronage earnings of
these respective Defined Business Units. The offering resulted in the issuance
of such equity with a stated value of $13,870,000 and generated additional
capital and cash of $10,837,000, after issuance cost and conversion privileges.
Conversion privileges allowed a member to elect to use outstanding patrons'
equities for the payment of up to one-sixth the purchase price of the EPUs.

The Company's Board of Directors adopted a resolution to issue, at no
charge, to each Defined Member of the Oilseed Processing and Refining Defined
Business Unit an additional 1/4 Equity Participation Unit (EPU) for each EPU
held, due to increased crush volume. At the time of issuance, the Oilseed
Processing and Refining EPUs were based on a normal annual crush of 30,500,000
bushels, and since the date of issuance, the actual crush has expanded and is
projected to be 38,100,000 bushels in the fiscal year ending August 31, 2001.

Holders of the EPUs will not be entitled to payment of dividends by virtue
of holding such units. However, holders of the units will be entitled to receive
patronage refunds attributable to the patronage-sourced income from operations
of the applicable defined business unit on the basis of wheat or soybeans
delivered pursuant to the Member Marketing Agreement. The Board of Directors'
goal is to distribute patronage refunds attributable to the EPUs in the form of
75% cash and 25% capital equity certificates, and to retire that capital equity
certificates on a revolving basis seven years after declaration. However, the
decision as to the percentage of cash patronage will be made each fiscal year by
the Board of Directors and will depend upon the cash and capital needs of the
respective Defined Business Units and is subject to the discretion of the Board
of Directors. The redemption policy will also be subject to change at the
discretion of the Board of Directors.

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

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements".
The SAB summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B,
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
does not believe that adoption of this SAB will materially impact its financial
statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Effective September 1, 2000, unrealized gains and losses on futures
contracts and options used to hedge certain energy inventories and fixed priced
contracts are recognized for financial reporting. The inventories hedged with
these derivatives are valued at the lower of cost or market, and the fixed
priced contracts are marked to market. The effect of this change was a loss of
$3.6 million ($3.3 million net of income tax benefit).

There have been no other changes since the Company's fiscal year-end August
31, 2000 that are considered material.

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

BALANCE SHEETS

ASSETS
FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)

CURRENT ASSETS
Receivables ................................................. $28,249 $30,011 $24,634
Inventories ................................................. 21,882 25,449 17,405
Other current assets ........................................ 649 18 23
------- ------- -------
Total current assets ....................................... 50,780 55,478 42,062
PROPERTY, PLANT AND EQUIPMENT ................................ 42,307 40,270 39,329
OTHER ASSETS ................................................. 378
------- ------- -------
Total assets ............................................... $93,465 $95,748 $81,391
======= ======= =======

LIABILITIES AND DEFINED BUSINESS UNIT EQUITY

CURRENT LIABILITIES
Due to Cenex Harvest States Cooperatives .................... $10,382 $15,891 $ 1,119
Accounts payable ............................................ 5,841 9,028 4,928
Accrued expenses ............................................ 6,272 5,976 5,289
------- ------- -------
Total current liabilities .................................. 22,495 30,895 11,336
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY ................................. 70,970 64,853 70,055
------- ------- -------
Total liabilities and Defined Business Unit Equity ......... $93,465 $95,748 $81,391
======= ======= =======

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

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

STATEMENTS OF OPERATIONS
(UNAUDITED)

REVENUES:
Processed oilseed sales ....................... $76,988 $79,199 $165,181 $162,756
Other revenues ................................ 3 250 17 579
------- ------- -------- --------
76,991 79,449 165,198 163,335
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 72,730 74,057 156,332 151,421
Marketing, general and administrative ......... 1,626 1,182 2,972 2,538
Interest ...................................... 143 432
------- ------- -------- --------
74,499 75,239 159,736 153,959
------- ------- -------- --------
INCOME BEFORE INCOME TAXES ..................... 2,492 4,210 5,462 9,376
Provision (benefit) for income taxes ........... 216 215 (655) 515
------- ------- -------- --------
NET INCOME ..................................... $ 2,276 $ 3,995 $ 6,117 $ 8,861
======= ======= ======== ========

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

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

STATEMENTS OF CASH FLOWS
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 2,276 $ 3,995 $ 6,117 $ 8,861
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .......................................... 696 621 1,388 1,245
Loss on sale of property, plant and equipment ......... 35
Changes in operating assets and liabilities:
Receivables .......................................... 12,034 2,242 1,762 16
Inventories .......................................... 576 (1,389) 3,567 (321)
Other current assets and other assets ................ 2 2 (1,009) (23)
Accounts payable and accrued expenses ................ 317 (1,029) (2,891) 222
--------- -------- -------- --------
Net cash provided by operating activities .......... 15,901 4,442 8,934 10,035
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............ (2,237) (890) (3,425) (1,608)
--------- -------- -------- --------
Net cash used in investing activities .............. (2,237) (890) (3,425) (1,608)
--------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in due to Cenex Harvest States

Cooperatives ........................................... (13,664) (3,552) (5,509) (8,427)
--------- -------- -------- --------
Net cash used in financing activities .............. (13,664) (3,552) (5,509) (8,427)
--------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH .......................... -- -- -- --
CASH AT BEGINNING OF PERIOD .............................. -- -- -- --
--------- -------- -------- --------
CASH AT END OF PERIOD .................................... $ -- $ -- $ -- $ --
========= ======== ======== ========

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

OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

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

NOTE 1. ACCOUNTING POLICIES

The unaudited balance sheets as of February 28, 2001 and February 29, 2000,
and the statements of operations and cash flows for the three months and six
months ended February 28, 2001 and February 29, 2000 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. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full year. The balance sheet data as of August 31, 2000 was
derived from audited financial statements but does not include all disclosures
required by accounting principles generally accepted in the United States of
America.

These statements should be read in conjunction with the financial
statements and footnotes included in the Oilseed Processing and Refining Defined
Business Unit financial statements for the year ended August 31, 2000, which are
included in the Company's Report on Form 10-K previously filed with the
Securities and Exchange Commission on November 22, 2000.

NOTE 2. RECEIVABLES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Trade ......................................... $28,644 $30,406 $25,029
Less allowances for doubtful accounts ......... 395 395 395
------- ------- -------
$28,249 $30,011 $24,634
======= ======= =======

NOTE 3. INVENTORIES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Processed oilseed products ......... $19,967 $22,075 $10,811
Oilseed ............................ 1,915 3,374 6,594
------- ------- -------
$21,882 $25,449 $17,405
======= ======= =======

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

See the Management's Discussion and Analysis for the Company in regard to
new accounting pronouncements.

RESULTS OF OPERATIONS

Effective September 1, 2000, patronage distributions from the Oilseed
Processing and Refining Defined Business Unit are calculated on the basis of
audited financial statement earnings per bushel. Prior to September 1, 2000,
patronage refunds from the Oilseed Processing and Refining Defined Business Unit
were calculated on the basis of tax earnings per bushel. The Company believes
the calculation below is an important measure of the Defined Business Unit's
performance.

(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
Income before income taxes ................. $2,492 $ 4,210 $ 5,462 $ 9,376
Income from purchased oil .................. (466) (1,275) (1,076) (2,816)
Non-patronage joint venture ................ -- -- -- (153)
Book to tax differences .................... -- 23 -- 47
------ -------- -------- --------
Patronage income from processed
soybeans .................................. $2,026 $ 2,958 $ 4,386 $ 6,454
====== ======== ======== ========
Bushels processed .......................... 9,808 10,018 19,678 19,245
Patronage income per bushel ................ $ 0.207 $ 0.295 $ 0.223 $ 0.335

Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of processed
oilseed sales, except processing margins. Because of the volatility of commodity
prices, the Company believes that processing margins are a better measure of the
Oilseed Processing and Refining Defined Business Unit's performance than gross
margin percentages.

Gross margin .................................. 5.53% 6.49% 5.36% 6.96%
Marketing, general and administrative ......... 2.11% 1.49% 1.80% 1.56%
Interest ...................................... 0.19% -- 0.26% --
Processing margins
Crushing/bushel .............................. $ 0.15 $ 0.16 $ 0.15 $ 0.16
Refining/pound ............................... $ .0116 $ .0142 $ .0109 $ .0157

COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

The Oilseed Processing and Refining Defined Business Unit net income of
$2.3 million for the three months ended February 28, 2001 represents a $1.7
million decrease (43%) compared to the three-month period ended February 29,
2000. An increase in plant expenses of $1.5 million, primarily related to higher
energy prices, was the main factor in this unfavorable variance in net income
for the three-month period ended February 28, 2001, compared to the three-month
period ended February 29, 2000.

Processed oilseed sales of $77.0 million for the three months ended
February 28, 2001 decreased by $2.2 million (3%) compared to the three months
ended February 29, 2000. Decreases in sales volumes

for refined oil of 3% and processed soybean products of 3%, and $0.005 per pound
reduction in the sales price for refined oil were partially offset by an
increase in the sales price for processed soybeans of approximately $6 per ton
during the three-month period compared to the same period of a year ago.

Other revenues decreased $247 thousand during the three months ended
February 28, 2001 compared to the three months ended February 29, 2000. During
the three months ended February 29, 2000, the Defined Business Unit recognized
interest income of $247 thousand, accounting for this decrease.

Cost of goods sold of $72.7 million for the three months ended February 28,
2001 decreased $1.3 million (2%) compared to the three months ended February 29,
2000. Decreases in cost for soybeans averaging $0.23 per bushel, crush volume
(209 thousand bushels) and refining volume (6.2 million pounds), were partially
offset by higher plant expense of $1.5 million and an increase in the cost of
crude soybean oil averaging $0.01 per pound during the three months ended
February 28, 2001 compared to the three months ended February 29, 2000.

Marketing, general and administrative expenses of $1.6 million for the
three months ended February 28, 2001 increased $444 thousand (38%) compared to
the three months ended February 29, 2000, and is primarily related to increases
in administrative and technology expenses.

The Oilseed Processing and Refining Defined Business Unit incurred $143
thousand of interest expense for the three-month period ended February 28, 2001,
compared to interest income, included with other revenue, for the same period
ended in 2000. This unfavorable variance is primarily attributable to additional
borrowings due to increased working capital needs during this period in 2001, as
compared to the same period in 2000.

Income taxes of $216 thousand and $215 thousand for the three-month periods
ended February 28, 2001 and February 29, 2000, respectively, resulted in
effective tax rates of 8.7% and 5.1%, respectively. The income tax benefit or
expense and effective tax rate varies from period to period based upon the
Defined Business Unit's profitability and non-patronage business activity during
each of the comparable periods.

COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

The Oilseed Processing and Refining Defined Business Unit net income of
$6.1 million for the six months ended February 28, 2001 represents a $2.7
million decrease (31%) compared to the six-month period ended February 29, 2000.
A $2.5 million increase in plant expenses, primarily related to higher energy
prices, was the main factor in this unfavorable variance in net income for the
six-month period ended February 28, 2001, compared to the same period ended
February 29, 2000. During the six-month period ending February 28, 2001 there
was also a change in the tax rate applied to the Oilseed Processing and Refining
Defined Business Unit's cumulative temporary differences between earnings for
financial statement purposes and tax basis earnings which resulted in an
increase in deferred tax assets of $1.0 million. The Oilseed Processing and
Refining Defined Business Unit's calculation of its patronage distribution using
audited earnings for financial statement purposes rather than tax basis earnings
prompted this rate change. Effective September 1, 2000, the Company's Board of
Directors approved a resolution to compute patronage distributions based on
audited earnings for financial statement purposes rather than tax basis
earnings. The resolution was ratified by the members at the Company's December
2000, annual meeting.

Processed oilseed sales of $165.2 million for the six months ended February
28, 2001 increased by $2.4 million (1%) compared to the six months ended
February 29, 2000. An increase in the sales price for processed soybeans of
approximately $14 per ton, sales volume increases of 1% for refined oil and 1%
for processed soybean products, was partially offset by $0.01 per pound
reduction in the sales price for refined oil during the six-month period
compared to the same period of a year ago.

Other revenues decreased approximately $562 thousand during the six months
ended February 28, 2001 compared to the six months ended February 29, 2000.
During the six months ended February 29, 2000, the Defined Business Unit
recognized interest income of $444 thousand, accounting for most of this
decrease.

Cost of goods sold of $156.3 million for the six months ended February 28,
2001 increased $4.9 million (3%) compared to the six months ended February 29,
2000. An increase in plant expense of $2.5 million and volume increases in
soybean crush of 2% (433 thousand bushels) and refining volume of 4% (10.9
million pounds), was partially offset by a decrease in crude soybean oil
averaging $0.005 per pound during the six months ended February 28, 2001,
compared to the six months ended February 29, 2000.

Marketing, general and administrative expenses of $3.0 million for the six
months ended February 28, 2001 increased $434 thousand (17%) compared to the six
months ended February 29, 2000, and is primarily related to increases in
administrative and technology expenses.

The Oilseed Processing and Refining Defined Business Unit incurred $432
thousand of interest expense for the six-month period ended February 28, 2001,
compared to interest income, included with other revenue, for the same period
ended in 2000. This unfavorable variance is primarily attributable to additional
borrowings due to increased working capital needs during this period in 2001 as
compared to the same period in 2000.

Income tax benefit of $655 thousand for the six-month period ended February
28, 2001 was primarily due to a change in the tax rate applied to the Oilseed
Processing and Refining Defined Business Unit's cumulative temporary differences
between income for financial statement purposes and income used for tax
reporting purposes. The Oilseed Processing and Refining Defined Business Unit's
calculation of its patronage distribution using audited earnings for financial
statement purposes rather than tax basis earnings prompted this rate change. The
benefit was partially offset with tax expense for the six-month period ending
February 28, 2001 of $359 thousand, which compares to $515 thousand for the same
period in 2000. The effective tax rates exclusive of the tax benefit during the
six-month period ended February 28, 2001 were 6.6% as compared to 5.5% for the
six-month period ended February 29, 2000. The income tax benefit or expense and
effective tax rate varies from period to period based upon the Defined Business
Unit's profitability and non-patronage business activity during each of the
comparable periods.

LIQUIDITY AND CAPITAL RESOURCES

The Oilseed Processing and Refining Defined Business Unit's cash
requirements result from capital improvements and a need to finance inventories
and receivables based on raw material costs and levels. These cash needs are
expected to be fulfilled by the Company.

CASH FLOWS FROM OPERATIONS

Operating activities for the three months ended February 28, 2001 provided
net cash of $15.9 million. Net income of $2.3 million, decreased working capital
requirements $12.9 million and non-cash expenses of $0.7 million generated this
net cash provided by operating activities. For the three-month period ended
February 29, 2000, operating activities provided net cash of $4.4 million.
During that period, net income of $4.0 million and non-cash expenses of $0.6
million were partially offset by increased working capital requirements of $0.2
million, and resulted in this net cash from operating activities.

Operating activities for the six months ended February 28, 2001 provided
net cash of $8.9 million. Net income of $6.1 million, non-cash expenses of $1.4
million and a decrease in working capital requirements of $1.4 million resulted
in this net cash from operating activities. For the six-month period ended
February 29, 2000, operating activities provided net cash of $10.0 million.
During that period, net income of $8.9 million, non-cash expenses of $1.2
million were slightly offset by an increase in working capital requirements of
$0.1 million provided this net cash from operating activities.

CASH FLOWS FROM INVESTING

During the three-month periods ended February 28, 2001 and February 29,
2000, the Oilseed Processing and Refining Defined Business Unit used cash for
investing activities of $2.2 million and $0.9 million, respectively, for the
acquisition of property, plant and equipment.

During the six-month periods ended February 28, 2001 and February 29, 2000,
the Oilseed Processing and Refining Defined Business Unit used cash for
investing activities of $3.4 million and $1.6 million, respectively, for the
acquisition of property, plant and equipment.

CASH FLOWS FROM FINANCING

The Oilseed Processing and Refining Defined Business Unit's financing
activities are coordinated through the Company's cash management department.
Cash from all of the Company's operations is deposited with the Company's cash
management department and disbursements are made centrally. As a result, the
Oilseed Processing and Refining Defined Business Unit has a zero cash position.
Financing is available from the Company to the extent of the Company's working
capital position and corporate loan agreements with various banks, and the cash
requirements of all other Company operations.

Working capital requirements for a Defined Business Unit of the Company are
reviewed on a periodic basis, and could potentially be restricted based upon
management's evaluation of the prevailing business conditions and availability
of funds.

The Oilseed Processing and Refining Defined Business Unit had debt
outstanding to the Company of $10.4 million on February 28, 2001 compared to
$15.9 million on August 31, 2000 and $1.1 million on February 29, 2000. These
interest-bearing balances reflect working capital and fixed asset financing
requirements at the end of the respective periods.

WHEAT MILLING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS

WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

BALANCE SHEETS

ASSETS
FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)

CURRENT ASSETS
Receivables .................................................. $ 33,306 $ 33,737 $ 36,821
Inventories .................................................. 23,009 19,537 18,107
Other current assets ......................................... 443 83 139
-------- -------- --------
Total current assets ........................................ 56,758 53,357 55,067
PROPERTY, PLANT AND EQUIPMENT ................................. 126,778 128,151 108,860
OTHER ASSETS .................................................. 8,249 8,348 8,881
-------- -------- --------
Total assets ................................................ $191,785 $189,856 $172,808
======== ======== ========

LIABILITIES AND DEFINED BUSINESS UNIT EQUITY

CURRENT LIABILITIES
Due to Cenex Harvest States Cooperatives ..................... $ 71,512 $ 67,956 $ 60,634
Current portion of long-term debt ............................ 7,304 7,410 10,005
Accounts payable ............................................. 9,284 5,201 9,386
Accrued expenses ............................................. 3,374 3,462 4,076
-------- -------- --------
Total current liabilities ................................... 91,474 84,029 84,101
LONG-TERM DEBT ................................................ 37,051 40,100 23,633
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY .................................. 63,260 65,727 65,074
-------- -------- --------
Total liabilities and Defined Business Unit Equity ......... $191,785 $189,856 $172,808
======== ======== ========

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

WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

STATEMENTS OF OPERATIONS
(UNAUDITED)

REVENUES:
Processed grain sales ......................... $ 58,894 $ 51,136 $113,189 $103,730
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 57,990 48,422 107,961 97,388
Marketing, general and administrative ......... 1,778 2,369 4,425 4,669
Interest ...................................... 2,018 1,574 4,095 3,069
-------- -------- -------- --------
61,786 52,365 116,481 105,126
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES ....................... (2,892) (1,229) (3,292) (1,396)
Income tax benefit ............................. (367) (115) (825) (130)
-------- -------- -------- --------
NET LOSS ....................................... $ (2,525) $ (1,114) $ (2,467) $ (1,266)
======== ======== ======== ========

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

WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

STATEMENTS OF CASH FLOWS
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (2,525) $ (1,114) $ (2,467) $ (1,266)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization ......................... 1,997 1,688 3,992 3,378
Loss on sale of property, plant and equipment ......... 36 36
Changes in operating assets and liabilities:
Receivables .......................................... 7,279 1,294 431 (5,861)
Inventories .......................................... (776) 3,279 (3,472) (3,768)
Other current assets and other assets ................ (212) 128 (794) 71
Accounts payable and accrued expenses ................ (8,808) (6,468) 3,995 1,784
-------- -------- -------- --------
Net cash (used in) provided by operating
activities ........................................ (3,009) (1,193) 1,721 (5,662)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............ (834) (712) (2,122) (1,157)
-------- -------- -------- --------
Net cash used in investing activities .............. (834) (712) (2,122) (1,157)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in due to Cenex Harvest States

Cooperatives ........................................... 5,394 4,344 3,556 11,696
Long-term debt borrowings ............................... 436
Principal payments on long-term debt .................... (1,551) (2,439) (3,591) (4,877)
-------- -------- -------- --------
Net cash provided by financing activities .......... 3,843 1,905 401 6,819
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH .......................... -- -- -- --
CASH AT BEGINNING OF PERIOD .............................. -- -- -- --
-------- -------- -------- --------
CASH AT END OF PERIOD .................................... $ -- $ -- $ -- $ --
======== ======== ======== ========

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

WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)

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

NOTE 1. ACCOUNTING POLICIES

These statements should be read in conjunction with the financial
statements and footnotes included in the Wheat Milling Defined Business Unit
financial statements for the year ended August 31, 2000, which are included in
the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 2000.

NOTE 2. RECEIVABLES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Trade ......................................... $34,215 $34,576 $37,012
Other ......................................... 860 810 969
------- ------- -------
35,075 35,386 37,981
Less allowances for doubtful accounts ......... 1,769 1,649 1,160
------- ------- -------
$33,306 $33,737 $36,821
======= ======= =======

NOTE 3. INVENTORIES

FEBRUARY 28, AUGUST 31, FEBRUARY 29,
2001 2000 2000
-------------- ------------ -------------

Grain ............................ $12,325 $ 9,610 $14,306
Processed grain products ......... 9,844 9,288 3,242
Other ............................ 840 639 559
------- ------- -------
$23,009 $19,537 $18,107
======= ======= =======

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

See the Management's Discussion and Analysis for the Company in regard to
new accounting pronouncements.

RESULTS OF OPERATIONS

Effective September 1, 2000, patronage distributions from the Wheat Milling
Defined Business Unit are calculated on the basis of audited financial statement
earnings per bushel. Prior to September 1, 2000, patronage refunds from the
Wheat Milling Defined Business Unit were calculated on the basis of tax earnings
per bushel. The Company believes the calculation below is an important measure
of the Defined Business Units performance.

(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
Loss before income taxes ................... $ (2,892) $ (1,229) $ (3,292) $ (1,396)
Book to tax differences .................... -- 101 -- 202
-------- -------- -------- --------
Patronage loss ............................. $ (2,892) $ (1,128) $ (3,292) $ (1,194)
======== ======== ======== ========
Bushels processed .......................... 11,125 10,893 23,134 20,828
Patronage loss per bushel .................. $ (0.260) $ (0.104) $ (0.142) $ (0.057)

Certain operating information pertaining to the Wheat Milling Defined
Business Unit is set forth below, as a percentage of sales.

Gross margin .................................. 1.53% 5.31% 4.62% 6.11%
Marketing, general and administrative ......... 3.02% 4.63% 3.91% 4.50%
Interest ...................................... 3.43% 3.08% 3.62% 2.96%

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

The Wheat Milling Defined Business Unit incurred a net loss of $2.5
million for the three months ended February 28, 2001 compared to a net loss of
$1.1 million for the three months ended February 29, 2000, which resulted in a
net loss variance of $1.4 million. This net loss variance in operating results
is primarily attributable to $0.31 per hundred weight decline in gross margin
during the three months ended February 28, 2001 as compared to the previous year
three-month period.

Net sales of $58.9 million for the three months ended February 28, 2001
increased $7.8 million (15%) compared to the three months ended February 29,
2000. This increase is attributable to a 10% increase in volume, resulting
primarily through business generated at the Fairmount, North Dakota mill, which
was acquired in April 2000. The average sales price per hundred-weight of all
products increased $0.37 per hundred weight in the three months ended February
28, 2001 compared to the same period in 2000.

Cost of goods sold of $58.0 million for the three months ended February 28,
2001 increased $9.6 million (20%) compared to the three months ended February
29, 2000. An increase in bushel volume of 232 thousand (2%) and a $0.69 per
bushel increase in the average price for these bushels, compared with the
business activity conducted during the three months ended February 29, 2000
produced this increase.

Marketing, general and administrative expenses of $1.8 million for the
three months ended February 28, 2001 decreased $591 thousand (25%) compared to
the same period ended in 2000.

Interest expense of $2.0 million for the three months ended February 28,
2001 increased $444 thousand (28%) compared to the three months ended February
29, 2000. Most of this increase is attributable to

the acquisition of the Fairmount mill, purchased in April 2000 for approximately
$19.9 million and 0.30% increase in the short-term borrowing rates.

An income tax benefit of $367 thousand for the three months ended February
28, 2001 is based upon an effective tax rate of 12.7% applied to the pretax loss
of $2.9 million. For the three months ended February 29, 2000 an income tax
benefit of $115 thousand was based on an effective tax rate of 9.4% applied to
the pretax loss of $1.2 million. The income tax benefit or expense and effective
tax rate varies from period to period based upon the Defined Business Unit's
profitability and non-patronage business activity during each of the comparable
periods.

COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

The Wheat Milling Defined Business Unit reported a net loss of $2.5 million
for the six months ended February 28, 2001 compared to a net loss of $1.3
million for the six months ended February 29, 2000, for a net loss variance of
$1.2 million. This net loss variance is primarily attributable to a 18% decline
in gross margins and an increase of interest expense as compared to the previous
year six-month period. During the six-month period ending February 28, 2001
there was also a change in the tax rate applied to the Wheat Milling Defined
Business Unit's cumulative temporary differences between earnings for financial
statement purposes and tax basis earnings which resulted in an increase in
deferred tax assets of $406 thousand. The Wheat Milling Defined Business Unit's
calculation of its patronage distribution using audited earnings for financial
statement purposes rather than tax basis earnings prompted this rate change.
Effective September 1, 2000, the Company's Board of Directors approved a
resolution to compute patronage distributions based on audited earnings for
financial statement purposes rather than tax basis earnings. The resolution was
ratified by the members at the Company's December 2000, annual meeting.

Net sales of $113.2 million for the six months ended February 28, 2001
increased $9.5 million (9%) compared to the six months ended February 29, 2000.
This increase is attributable to a 10% increase in volume, resulting primarily
through business generated at the Fairmount, North Dakota mill, which was
acquired in April 2000. The average sales price per hundred-weight of all
products decreased $0.08 per hundred weight in the six months ended February 28,
2001 compared to the same period in 2000.

Cost of goods sold of $108.0 million for the six months ended February 28,
2001 increased $10.6 million (11%) compared to the six months ended February 29,
2000. An increase in bushel volume of 2.3 million (11%) was partially offset by
a $0.04 per bushel decline in the average price for these bushels, compared with
the business activity conducted during the six months ended February 29, 2000.
Milling expense attributable to this additional volume increased $2.1 million in
the six months ended February 28, 2001 compared to the same period in 2000,
primarily attributable to the operation of the Fairmount mill.

Marketing, general and administrative expenses of $4.4 million for the six
months ended February 28, 2001 decreased $244 thousand (5%) compared to the same
period ended in 2000.

Interest expense of $4.1 million for the six months ended February 28, 2001
increased $1.0 million (33%) compared to the six months ended February 29, 2000.
Most of this increase is attributable to the acquisition of the Fairmount mill,
purchased in April 2000 for $19.9 million and 0.80% increase in short-term
borrowing rates.

The income tax benefit of $825 thousand for the six months ended February
28, 2001 included a change in the tax rate applied to the Wheat Milling Defined
Business Unit cumulative temporary differences between income for financial
statement purposes and income used for tax reporting purposes. The Wheat Milling
Defined Business Unit's calculation of its patronage distribution using audited
financial statement earnings rather than tax basis earnings prompted this rate
change. An additional tax benefit for the six-month period in 2001 of $419
thousand was recorded based on a pretax loss of $3.3 million. This compares to a
$130 thousand tax benefit for the same period in 2000 on a pretax loss of $1.4
million. The effective tax rates, without the method of patronage calculation
rate change, of the income tax benefit for the six months ended February 28,
2001 and February 29, 2000 were 12.7% and 9.3%, respectively. The income tax
benefit or expense and effective tax rate varies from period to period based
upon the Defined Business Unit's profitability and non-patronage business
activity during each of the comparable periods.

LIQUIDITY AND CAPITAL RESOURCES

The Wheat Milling Defined Business Unit's cash requirements result from
capital improvements and a need to finance inventories and receivables based on
raw material costs and levels. These cash needs are expected to be fulfilled by
the Company.

CASH FLOWS FROM OPERATIONS

Operating activities for the three months ended February 28, 2001 used net
cash of $3.0 million. Net loss of $2.5 million and an increase in working
capital requirements of $2.5 million were partially offset by non-cash expenses
of $2.0 million to generate this net use of cash. For the three-month period
ended February 29, 2000, operating activities used net cash of $1.2 million.
During that period, net loss of $1.1 million and increased working capital
requirements of $1.8 million were partially offset by non-cash expenses of $1.7
million resulting in net cash used in operating activities.

Operating activities for the six months ended February 28, 2001 provided
net cash of $1.7 million. Net loss of $2.5 million, was offset by non-cash
expenses of $4.0 million and a decrease in working capital requirements of $0.2
million to generate this net cash provided by operating activities. For the
six-month period ended February 29, 2000, operating activities used net cash of
$5.7 million. During that period, net loss of $1.3 million and increased working
capital requirements of $7.8 million were partially offset by non-cash expenses
of $3.4 million which resulted in this net cash used in operating activities.

CASH FLOWS FROM INVESTING

During the three-month periods ended February 28, 2001 and February 29,
2000, the Wheat Milling Defined Business Unit used cash for investing activities
of $0.8 million and $0.7 million, respectively, for the acquisition of property,
plant and equipment.

During the six-month periods ended February 28, 2001 and February 29, 2000,
the Wheat Milling Defined Business Unit used cash for investing activities of
$2.1 million and $1.2 million, respectively, for the acquisition of property,
plant and equipment.

CASH FLOWS FROM FINANCING

The Wheat Milling Defined Business Unit's financing activities are
coordinated through the Company's cash management department. Cash from all of
the Company's operations is deposited with the Company's cash management
department and disbursements are made centrally. As a result, the Wheat Milling
Defined Business Unit has a zero cash position. Financing is available from the
Company to the extent of the Company's working capital position and corporate
loan agreements with various banks, and the cash requirements of all other
Company operations.

The Wheat Milling Defined Business Unit had short-term debt outstanding and
payable to the Company of $71.5 million, $68.0 million and $60.6 million on
February 28, 2001, August 31, 2000 and February 29, 2000, respectively. This
increase is primarily attributable to the Wheat Milling Defined Business Unit
operating loss in combination with increased working capital requirements.

The Wheat Milling Defined Business Unit had long-term debt outstanding to
the Company of $44.4 million on February 28, 2001 compared with $47.5 million on
August 31, 2000 and $33.6 million on February 29, 2000. On February 28, 2001,
the Defined Business Unit had $7.3 million due to the Company within the next
twelve months. During the three-month and six-month periods ended February 28,
2001 the Wheat Milling Defined Business Unit made principal payments to the
Company of $1.6 million and $3.6 million, respectively. During this same period
the Company, on behalf of the Wheat Milling Defined Business Unit assumed an
'interest free' Rural Economic Development Loan in conjunction with the
Fairmount, North Dakota mill acquisition totaling $450 thousand. This
non-interest bearing loan, payable in monthly installments over nine years, has
been discounted at 8% to reflect a present value principal balance due of $320
thousand and an interest discount of $130 thousand. The Company also incurred
long-term debt during the first quarter of 2001 on behalf of the Defined
Business Unit in the amount of $116 thousand, payable to the Minnesota
Department of Transportation quarterly over 120 months at 5.7% interest for the
purpose of rail track rehabilitation at the Rush City mill.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Reference is made to Item 4 of the Company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 2000 for a description of the results of
votes at the Company's Annual Meeting of Members held on November 30, 2000 and
December 1, 2000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

10.1a Note Purchase and Private Shelf Agreement dated as of January 10,
2001 between Cenex Harvest States Cooperatives and The Prudential
Insurance Company of America

10.1b Amendment No. 1 to Note Purchase and Private Shelf Agreement,
dated as of March 2, 2001

10.2 Agreement of Dissolution dated as of December 31, 2000 among
National Cooperative Refinery Association, Farmland Industries,
Inc. and Cooperative Refining, LLC.

99 Cautionary Statement

(b) Reports on Form 8-K

None.

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)

NAME TITLE DATE
---- ----- ----

/S/ JOHN SCHMITZ Senior Vice President and Chief April 10, 2001
---------------- Financial Officer
John Schmitz