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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number: 333–17865
Exchange Act filing number 0–50150
  

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

        Indicate 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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

   Yes [ ]   No [X]

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

INDEX

PART I. FINANCIAL INFORMATION

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

        This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. These factors include those set forth in Exhibit 99.1, under the caption “Cautionary Statement” to this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2003.

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ITEM 1. FINANCIAL STATEMENTS

CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

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

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CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

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CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

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CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(dollars in thousands)

Note 1. Accounting Policies

        The unaudited consolidated balance sheets as of May 31, 2003 and 2002, and the statements of operations and cash flows for the three and nine months ended May 31, 2003 and 2002 reflect, in the opinion of management of Cenex Harvest States Cooperatives (CHS or the Company), all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full fiscal year because of, among other things, the seasonal nature of the Company’s businesses. The consolidated balance sheet data as of August 31, 2002 has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

        These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2002, included in the Company's Annual Report on Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission on November 25, 2002 and June 27, 2003, respectively.

Goodwill and Other Intangible Assets

        The Company had $27.3 million of goodwill as of May 31, 2003. During the three months and nine months then ended, the Company sold certain businesses in the Energy segment and therefore reduced goodwill by $0.2 million and $0.6 million, respectively.

        Intangible assets subject to amortization primarily include trademarks, tradenames, customer lists and non-compete agreements, and are amortized on a straight-line basis over their respective useful lives ranging from 2 to 15 years. The gross carrying amount of these intangible assets is $43.2 million with total accumulated amortization of $10.6 million as of May 31, 2003. Intangible assets of $0.8 million were acquired during the nine months ended May 31, 2003. Total amortization expense for intangible assets during the three-month and nine-month periods ended May 31, 2003 was approximately $1.2 million and $3.5 million, respectively. The Company estimates amortization expense for the next five years will approximate $4.0 million annually.

Recent Accounting Pronouncements

        The Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is in the process of finalizing its analysis of adopting this standard. The Company’s Energy segment operates oil refineries and related pipelines for which the Company would be subject to Asset Retirement Obligations (ARO) if such assets were to be dismantled. The Company, however, expects to operate its refineries and related pipelines indefinitely. Since the time period to dismantle these assets is indeterminate, a corresponding ARO is not estimable and therefore has not been recorded. The Company continues to assess whether any other ARO’s exist related to its remaining operations, however, based on available information to date, no ARO’s have been identified. As such, the Company believes that the effects of adopting this standard do not have a material effect on the Company.

        In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”. The interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the

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entity to finance its activities without additional subordinated financial support from other parties. The interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company believes that the effects of adopting this standard will not have a material effect on the Company.

        On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company believes that the effects of adopting this standard will not have a material effect on the Company.

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

Note 2. Receivables

Note 3. Inventories

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Note 4. Investments

        Agriliance, LLC is owned and governed by Land O'Lakes, Inc. (50%) and United Country Brands, LLC (50%). United Country Brands, LLC is owned and governed 50% by the Company and 50% by Farmland Industries, Inc. (Farmland), and was formed solely to hold a 50% interest in Agriliance, LLC. Prior to the transaction described below, the Company's indirect share of earnings (economic interest) in Agriliance, LLC was 25%, which followed the Company's ownership interest. Subsequent to the transaction, the Company's indirect economic interest in Agriliance, LLC does not follow the Company's ownership interest.

        In April, 2003, the Company acquired an additional economic interest in the crop protection products business of Agriliance, LLC (the “CPP Business”), which constitutes only a part of Agriliance’s business operations. The Company acquired 13.1% of the CPP Business for a cash payment of $34.3 million. The economic interests in Agriliance, LLC are owned 50% by Land O’Lakes, Inc., 25% plus an additional 13.1% of the CPP Business by the Company and 25% less 13.1% of the CPP Business by Farmland. The governance interests in Agriliance, LLC did not change.

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

Ventura Foods, LLC

Agriliance, LLC

Note 5. Debt

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

        In May 2003, the Company established a new 364-day credit facility of $600.0 million committed with a syndication of banks, and on May 31, 2003, the total outstanding on this facility was $320.0 million. Also in May, the Company established a three-year revolving credit facility with a syndication of banks, with $100.0 million committed. There was no outstanding balance on the three-year facility on May 31, 2003.

Note 6. Equities

        In January 2003, the Board of Directors authorized the sale and issuance of up to 3,500,000 shares of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a price of $25.00 per share. The Company filed a registration statement on Form S-2 with the Securities and Exchange Commission registering 3,000,000 shares of the New Preferred (with an additional over-allotment option of 450,000

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shares granted to the underwriters), which was declared effective on January 27, 2003. The shares were subsequently sold for proceeds of $86.3 million (3,450,000 shares), and are listed on the Nasdaq National Market. Expenses related to the issuance of the New Preferred were $3.8 million.

        The Company had previously suspended sales of its 8% Preferred Stock (Old Preferred) after raising $9.5 million (9,454,874 shares), and on February 25, 2003 the Company filed a post-effective amendment to terminate the offering of the Old Preferred shares. On March 5, 2003, the Company’s Board of Directors authorized the redemption and conversion of the Old Preferred shares. A redemption notification and a conversion election form were sent to holders of the Old Preferred shares on March 21, 2003 explaining that on April 25, 2003 all shares of the Old Preferred would be redeemed by the Company for $1 per share unless they were converted into shares of the Company’s New Preferred. The conversion did not change the base liquidation amount or dividend amount of the Old Preferred, since 25 shares of the Old Preferred converted to 1 share of the New Preferred. The total Old Preferred converted to the New Preferred was $7.5 million (7,452,439 shares), and the balance of the Old Preferred (2,002,435 shares) was redeemed in cash at $1 per share. As of May 31, 2003 the Company had $93.7 million (3,748,099 shares) of the New Preferred outstanding.

Note 7. Comprehensive Income

        For the three months ended May 31, 2003 and 2002, total comprehensive income amounted to $53.3 million and $47.0 million, respectively. For the nine months ended May 31, 2003 and 2002, total comprehensive income amounted to $83.0 million and $91.0 million, respectively. Accumulated other comprehensive loss on May 31, 2003, August 31, 2002 and May 31, 2002 was $57.4 million, $51.9 million and $1.3 million, respectively. Other comprehensive loss for the nine months ended May 31, 2003 consisted of $6.0 million related to interest rate swap derivative instruments, partially offset by $0.6 million of other minor comprehensive income items.

Note 8. Non-Cash Financing Activities

        During the nine months ended May 31, 2003 and 2002 the Company accrued dividends and equities payable of $41.0 million and $45.2 million, respectively.

Note 9. Segment Reporting

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

        The column Reconciling Amounts in the table below represents the elimination of sales between segments. Such transactions are conducted at market prices to more accurately evaluate the profitability of the individual business segments.

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

        Expenses that are incurred at the corporate level for the purpose of the general operation of the Company are allocated to the segments based upon factors which management considers to be non-asymmetrical. Nevertheless, due to efficiencies in scale, cost allocations, and intersegment activity,

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management does not represent that these segments, if operated independently, would report the income before taxes and other financial information as presented.

        Segment information for the three months and nine months ended May 31, 2003 and 2002 is as follows: