Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2019
or
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: 001-36079
CHS Inc.
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(Address of principal executive offices,
including zip code)
Securities registered pursuant to Section 12(b) of the Act:
41-0251095
(I.R.S. Employer
Identification Number)
(651) 355-6000
(Registrant’s telephone number,
including area code)
Title of each class
Trading Symbol(s) Name of each exchange on which registered
8% Cumulative Redeemable Preferred Stock
Class B Cumulative Redeemable Preferred Stock, Series 1
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3
Class B Cumulative Redeemable Preferred Stock, Series 4
CHSCP
CHSCO
CHSCN
CHSCM
CHSCL
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
NO
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
NO
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.
NO
YES
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant
was required to submit such files).
YES
NO
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES
NO
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
Registrant’s most recently completed second fiscal quarter:
The Registrant has no voting or non-voting common equity (the Registrant is a member cooperative).
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:
The Registrant has no common stock outstanding.
None.
DOCUMENTS INCORPORATED BY REFERENCE
INDEX
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
SIGNATURES
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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ITEM 1.
BUSINESS
PART I
THE COMPANY
CHS Inc. (referred to herein as "CHS," "we," "us" or "our") is the nation’s leading integrated agricultural cooperative,
providing grain, foods and energy resources to businesses and consumers on a global basis. As a cooperative, we are owned by
farmers and ranchers and their member cooperatives (referred to herein as "members") across the United States. We also have
preferred shareholders that own shares of our five series of preferred stock, which are each listed and traded on the Nasdaq
Global Select Market. We buy commodities from and provide products and services to individual agricultural producers, local
cooperatives and other companies (including our members and other non-member customers), both domestically and
internationally. We provide a wide variety of products and services, ranging from initial agricultural inputs such as fuels, farm
supplies, crop nutrients and crop protection products to agricultural outputs that include grains and oilseeds, grain and oilseed
processing, renewable fuels and food products. A portion of our operations are conducted through equity investments and joint
ventures whose operating results are not fully consolidated with our results; rather, a proportionate share of the income or loss
from those equity investments and joint ventures is included as a component of our net income using the equity method of
accounting. For the year ended August 31, 2019, our total revenues were $31.9 billion and net income attributable to CHS Inc.
was $829.9 million.
We have aligned our segments based on an assessment of how our businesses operate and the products and services
they sell. Our Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. Our Ag
segment derives its revenues through origination and marketing of grain, including service activities conducted at export
terminals; through wholesale agronomy sales of crop nutrient and crop protection products; from sales of soybean meal,
soybean refined oil and soyflour products; through the production and marketing of renewable fuels; and through retail sales of
petroleum and agronomy products, processed sunflowers, feed and farm supplies. Our Ag segment also records equity income
from our grain export joint venture and other investments. Our Nitrogen Production segment consists solely of our equity
method investment in CF Industries Nitrogen, LLC ("CF Nitrogen"). Our other business operations, primarily our financing
and hedging businesses, are included in Corporate and Other because of the nature of their products and services, as well as the
relative amount of revenues for those businesses. Prior to its sale on May 4, 2018, our insurance business was also included in
Corporate and Other. In addition, our non-consolidated wheat milling and food production and distribution joint ventures are
included in Corporate and Other.
Our earnings from cooperative business are allocated to members (and to a limited extent to non-members with which
we have agreed to do business on a patronage basis) based on the volume of business they do with us. We allocate these
earnings to our patrons in the form of patronage refunds (which are also called patronage dividends), which may be in cash,
patrons’ equities (in the form of capital equity certificates) or both. Patrons' equities may be redeemed over time solely at the
discretion of our Board of Directors. Earnings derived from non-members, which are not treated as patronage, are taxed at
federal and state statutory corporate rates and are retained by us as unallocated capital reserves. We also receive patronage
refunds from the cooperatives in which we are a member, if those cooperatives have earnings to distribute and if we qualify for
patronage refunds from them.
Our origins date back to the early 1930s with the founding of our predecessor companies, Cenex, Inc. and Harvest
States Cooperatives. CHS Inc. emerged as the result of the merger of those two entities in 1998, and is headquartered in Inver
Grove Heights, Minnesota.
Our internet address is www.chsinc.com. The information contained on our website is not part of, and is not
incorporated in, this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
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Overview
ENERGY
We are the nation's largest cooperative energy company based on revenues and identifiable assets, with operations that
include petroleum refining and pipelines; supply, marketing and distribution of refined fuels (gasoline, diesel fuel and other
energy products); blending, sale and distribution of lubricants; and wholesale supply of propane and other natural gas liquids.
Our Energy segment processes crude oil into refined petroleum products at our refineries in Laurel, Montana and McPherson,
Kansas and sells those products under the Cenex® brand to member cooperatives and other independent retailers through a
network of nearly 1,500 sites, the majority of which are convenience stores marketing Cenex branded fuels and owned by our
member cooperatives. For fiscal 2019, our Energy revenues, after elimination of intersegment revenues, were $7.1 billion and
were primarily from gasoline and diesel fuel.
Operations
Laurel refinery. Our Laurel, Montana, refinery processes medium- and high-sulfur crude oil into refined petroleum
products that primarily include gasoline, diesel fuel, petroleum coke and asphalt. Our Laurel refinery sources approximately
93% of its crude oil supply from Canada, with the remaining balance obtained from domestic sources, and we have access to
Canadian and northwest Montana crude oil through our wholly-owned Front Range Pipeline, LLC and other common carrier
pipelines. Our Laurel refinery also has access to Wyoming crude oil via common carrier pipelines from the south.
Our Laurel refinery processes approximately 61,000 barrels of crude oil per day to produce refined products that
consist of approximately 43% gasoline, 41% diesel fuel and other distillates, 8% asphalt, 7% petroleum coke and 1% other
products. Refined fuels produced at our Laurel refinery are available via rail cars and via the Yellowstone Pipeline to western
Montana terminals and to Spokane, Washington; south via common carrier pipelines to Wyoming terminals and Denver,
Colorado; and east via our wholly-owned Cenex Pipeline, LLC, to Glendive, Montana, and Minot, Prosper and Fargo, North
Dakota.
McPherson refinery. Our McPherson, Kansas, refinery processes approximately 61% low- and medium-sulfur crude
oil and approximately 39% heavy-sulfur crude oil into gasoline, diesel fuel and other distillates, propane and other products.
The refinery sources its crude oil through its own pipelines, as well as common carrier pipelines. Low- and medium-sulfur
crude oil is sourced from Kansas, Colorado, North Dakota, Oklahoma and Texas, and heavy-sulfur crude oil is sourced from
Canada and Wyoming.
Our McPherson refinery processes approximately 110,000 barrels of crude oil per day to produce refined products that
consist of approximately 52% gasoline, 42% diesel fuel and other distillates, 2% propane and 4% other products. These
products are loaded into trucks at the McPherson refinery or shipped via common carrier pipelines to other markets.
Other energy operations. We operate six propane terminals, four asphalt terminals, seven refined product terminals
and three lubricants blending and packaging facilities. We also own and lease a fleet of liquid and pressure trailers and tractors,
which transport refined fuels, propane, anhydrous ammonia and other products.
Products and Services
Our Energy segment produces and sells (primarily wholesale) gasoline, diesel fuel, propane, asphalt, lubricants and
other related products, and also provides transportation services. In addition to selling products refined at our Laurel and
McPherson refineries, we purchase refined petroleum products from third parties. For fiscal 2019, we obtained approximately
70% of the refined petroleum products we sold from our Laurel and McPherson refineries and approximately 30% from third
parties.
Sales and Marketing; Customers
We market approximately 80% of our refined fuel products to members, with the balance sold to non-members. Sales
are made wholesale to member cooperatives and through a network of independent retailers that operate convenience stores
under the Cenex brand. We sold approximately 1.5 billion gallons of gasoline and approximately 1.7 billion gallons of diesel
fuel in fiscal 2019. We also blend, package and wholesale auto and farm machinery lubricants to both members and non-
members. We are one of the nation’s largest propane wholesalers based on revenues. Most of the propane sold in rural areas is
for heating and agricultural usage. Annual sales volumes of propane vary greatly depending on weather patterns and crop
conditions.
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Industry; Competition
The petroleum business is highly cyclical. Demand for crude oil and energy products is driven by the condition of
local and worldwide economies, local and regional weather patterns and taxation relative to other energy sources, which can
significantly affect the price of refined fuel products. Our Energy segment generally experiences higher volumes and
profitability in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel
fuel usage by our agricultural customers is highest and is subject to domestic supply and demand forces. Other energy products,
such as propane, generally experience higher volumes and profitability during the winter heating and crop-drying seasons.
More fuel-efficient equipment, reduced crop tillage, depressed prices for crops, weather conditions and government programs
that encourage idle acres may all reduce demand for our energy products.
Regulation. Governmental regulations and policies, particularly in the areas of taxation, energy and the environment,
have a significant impact on our Energy segment. Our Energy segment’s operations are subject to laws and related regulations
and rules designed to protect the environment that are administered by the U.S. Environmental Protection Agency ("EPA"), the
Department of Transportation ("DOT"), the U.S. Department of Transportation Pipeline and Hazardous Materials Safety
Administration, the Federal Energy Regulatory Commission and similar government agencies. These laws, regulations and
rules govern, among other things, discharge of materials into the environment, including air and water; reporting storage of
hazardous wastes and other hazardous materials; transportation, handling and disposal of wastes and other materials; labeling
of pesticides and similar substances; and investigation and remediation of releases of hazardous materials. Failure to comply
with these laws, regulations and rules could subject us to administrative penalties, injunctive relief, civil remedies and possible
recalls of products. Our hedging transactions and activities are subject to the rules and regulations of the exchanges we use and
governing bodies, such as the Chicago Mercantile Exchange ("CME"), the New York Mercantile Exchange ("NYMEX") and
the U.S. Commodity Futures Trading Commission ("CFTC").
Competition. The petroleum refining and wholesale fuels business is very competitive. Among our competitors are
some of the world’s largest integrated petroleum companies, which have their own crude oil supplies, distribution and
marketing systems. We also compete with smaller domestic refiners and marketers in the midwestern and northwestern United
States, with foreign refiners who import products into the United States and with producers and marketers in other industries
supplying other forms of energy and fuels to consumers. Given the commodity nature of the end products, profitability in the
industry depends largely on margins, as well as operating efficiency, product mix and costs of product distribution and
transportation. The retail gasoline market is highly competitive, with competitors that are much larger than us and that have
greater brand recognition and distribution outlets throughout the country and the world than we do. We are also experiencing
increased competition from regional and unbranded retailers. Our owned and non-owned retail outlets are located primarily in
the northwestern, midwestern and southern United States.
We market refined fuel products in five principal geographic areas. The first area includes the Midwest and Northern
Plains. Competition at the wholesale level in this area includes major oil companies, as well as independent refiners and
wholesale brokers/suppliers. This area has a robust spot market and is influenced by the large refinery center along the Gulf
Coast.
To the east of the Midwest and Northern Plains is another unique marketing area. This area centers near Chicago,
Illinois, and includes eastern Wisconsin, Illinois and Indiana. In this area, we principally compete with the major oil companies,
as well as independent refiners and wholesale brokers/suppliers.
Another market area includes Arkansas, Missouri and the northern part of Texas. Competition in this area includes the
major oil companies and independent refiners. This area is principally supplied from the Gulf Coast refinery center and is also
driven by a strong spot market that reacts quickly to changes in the international and national supply balance.
Another geographic area includes Montana, western North Dakota, Wyoming, Utah, Idaho, Colorado and western
South Dakota. Competition at the wholesale level in this area includes the major oil companies and independent refiners.
The last area includes much of Washington and Oregon. We compete with the major oil companies in this area. This
area is known for volatile prices and an active spot market.
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Overview
AG
Our Ag segment includes our global grain marketing, country operations, wholesale agronomy, processing and food
ingredients and renewable fuels businesses. These businesses work together to facilitate the production, purchase, sale and
eventual use of grain and other agricultural products within the United States, as well as internationally. In fiscal 2019,
revenues in our Ag segment were $24.7 billion after elimination of intersegment revenues, consisting principally of grain sales.
Operations
Global grain marketing. We are the nation’s largest cooperative marketer of grain and oilseed based on grain sales.
Our global grain marketing operations purchase grain directly from agricultural producers and elevator operators primarily in
the midwestern and western United States and indirectly through our country operations business. The purchased grain is
typically contracted for sale for future delivery at a specified location, and we are responsible for handling the grain and either
arranging for or facilitation of its transportation to that location. We own and operate export terminals, river terminals and
elevators throughout the United States to handle and transport grain and grain products. We also maintain locations in Europe,
the Middle East, the Pacific Rim and South America for the marketing, merchandising and/or sourcing of grains and crop
nutrients. We primarily conduct our global grain marketing operations directly, but do conduct some of our operations through
joint ventures, including TEMCO, LLC, a 50% owned joint venture with Cargill, Incorporated ("Cargill"), focused on exports,
primarily to Asia.
Country operations. Our country operations business operates 470 agri-operations locations through 43 business units
dispersed throughout the midwestern and western United States. Most of these locations purchase grain from farmers and sell
agronomy, energy, feed and seed products to those same producers and others, although not all locations provide every product
and service. We also manufacture animal feed through eight owned plants and three limited liability companies.
Wholesale agronomy. Our wholesale agronomy business includes our wholesale crop nutrients and wholesale crop
protection businesses. Our wholesale crop nutrients business delivers products directly to our customers and our country
operations business from the manufacturer or through our 18 inland and river warehouse terminals and other non-owned
storage facilities located throughout the United States. To supplement what is purchased domestically, our Galveston, Texas,
deep-water port and terminal receives fertilizer by vessel from origins such as Asia and the Caribbean Basin where significant
volumes of urea are produced. The fertilizer is then shipped by rail to destinations within crop-producing regions of the United
States. Our wholesale crop protection business operates out of our network of 32 warehouses from which we deliver products
directly to our member cooperatives and independent retailers. We also operate a bulk chemical rail terminal in Brooten,
Minnesota, where we handle and store bulk crop protection products for some of the crop protection industry’s largest chemical
manufacturers. This facility has approximately 6 million gallons of chemical storage capacity.
Processing and food ingredients. Our processing and food ingredients operations are conducted at facilities that can
crush approximately 128 million bushels of oilseeds on an annual basis, producing approximately 2.8 million short tons of
meal/flour and 1.5 billion pounds of edible oil annually. We purchase our oilseeds from members, other CHS businesses and
third parties that have tightly integrated connections with our global grain marketing operations and country operations
business.
Renewable fuels. Our renewable fuels business produces 266 million gallons of fuel grade ethanol and 662 thousand
tons of dried distillers grains with solubles ("DDGS") annually. Renewable fuels produced by our production plants are
marketed by our global grain marketing business, along with more than 520 million gallons of ethanol and 4.5 million tons of
DDGS annually under marketing agreements with ethanol production plants.
Products and Services
Our Ag segment provides local cooperatives and farmers with the inputs and services they need to produce grain and
raise livestock. These include seed, crop nutrients, crop protection products, animal feed, animal health products, refined fuels
and propane. We also buy and merchandise grain in both domestic and international markets. With a portion of the grain we
purchase we produce renewable fuels, including ethanol and DDGS. We also produce refined oils, meal and soyflour at our
processing facilities.
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Sales and Marketing; Customers
Our Ag segment provides products and services to a wide range of customers, primarily in the United States. These
customers include member and non-member producers, local cooperatives, elevators, grain dealers, grain processors and crop
nutrient retailers. We sell our edible oils and soyflour to food companies. The meal we produce is sold to integrated livestock
producers and feed mills. The ethanol and DDGS we produce are sold throughout the United States and to various international
locations.
Industry; Competition
Many of the business activities in our Ag segment are highly seasonal and, consequently, the operating results for our
Ag segment will typically vary throughout the year. For example, our country operations business generally experiences higher
volumes and income during the fall harvest and spring planting seasons and our agronomy business generally experiences
higher volumes and income during the spring planting season. In addition, our Ag segment operations may be adversely
affected by relative levels of supply and demand, both domestic and international, commodity price levels and transportation
costs and conditions. Supply is affected by weather conditions, plant disease, insect damage, acreage planted and government
regulations and policies. Demand may be affected by foreign governments and their programs, relationships of foreign
countries with the United States, affluence of foreign countries, acts of war, currency exchange fluctuations and substitution of
commodities. Demand may also be affected by changes in eating habits, population growth, per capita consumption of some
products and renewable fuels production levels.
Regulation. Our Ag operations are subject to laws and related regulations and rules designed to protect the
environment that are administered by the EPA, the DOT and similar government agencies. These laws, regulations and rules
govern, among other things, discharge of materials into the environment, including air and water; reporting storage of
hazardous wastes and other hazardous materials; transportation, handling and disposal of wastes and other materials; labeling
of pesticides and similar substances; and investigation and remediation of releases of hazardous materials. In addition,
environmental laws impose a liability on owners and operators for investigation and remediation of contaminated property and
on a party who sends hazardous materials to those contaminated properties for treatment, storage, disposal or recycling. In
some instances, that liability exists regardless of fault. Our global grain marketing operations, country operations business,
processing and food ingredient operations and renewable fuel operations are also subject to laws and related regulations and
rules administered by the U.S. Department of Agriculture ("USDA"), the U.S. Food and Drug Administration ("FDA") and
other federal, state, local and foreign governmental agencies that govern processing, packaging, storage, distribution,
advertising, labeling, quality and safety of feed and grain products. Failure to comply with these laws, regulations and rules
could subject us to administrative penalties, injunctive relief, civil remedies and possible recalls of products. The hedging
transactions and activities of our global grain marketing, country operations, processing and food ingredient and renewable
fuels businesses are subject to the rules and regulations of the exchanges we use and governing bodies, such as the CME, the
Chicago Board of Trade ("CBOT"), the Minneapolis Grain Exchange ("MGEX") and the CFTC.
Competition. In our Ag segment, we have significant competition in the businesses in which we operate based
principally on price, services, quality, patronage and alternative products. Our businesses depend on relationships with local
cooperatives and private retailers, proximity to customers and producers, and competitive pricing. We compete with other large
distributors of agricultural products, as well as other regional or local distributors, local cooperatives, retailers and
manufacturers.
Overview
NITROGEN PRODUCTION
Our Nitrogen Production segment consists solely of our approximate 10% membership interest (based on product
tons) in CF Nitrogen, our strategic venture with CF Industries Holdings, Inc. ("CF Industries"). In February 2016, in connection
with our investment in CF Nitrogen, we entered into an 80-year supply agreement with CF Nitrogen that entitles us to purchase
up to 1.1 million tons of granular urea and 580,000 tons of urea ammonium nitrate ("UAN") annually for ratable delivery. We
account for our CF Nitrogen investment using the hypothetical liquidation at book value method and on August 31, 2019, our
investment was approximately $2.7 billion.
Our investment in CF Nitrogen positions us and our members for long-term dependable fertilizer supply, supply chain
efficiency and production economics. In addition, the ability to source product from CF Nitrogen production facilities under
our supply agreement benefits our members and customers through strategically positioned access to essential fertilizer
products.
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Operations
CF Nitrogen has four production facilities located in Donaldsonville, Louisiana, Port Neal, Iowa, Yazoo City,
Mississippi, and Woodward, Oklahoma. Natural gas is the principal raw material and primary fuel source used in the ammonia
production process. CF Nitrogen has access to competitively priced natural gas through a reliable network of pipelines
connected to major natural gas trading hubs near its production facilities.
Products and Services
CF Nitrogen produces nitrogen-based products, including methanol, UAN and urea and related products.
Sales and Marketing; Customers
CF Nitrogen has three customers, including CHS and two consolidated subsidiaries of CF Industries.
Industry; Competition
Regulation. CF Nitrogen is subject to laws and related regulations and rules designed to protect the environment that
are administered by the EPA and similar government agencies. These laws, regulations and rules govern, among other things,
discharge of materials into the environment, including air and water; reporting storage of hazardous wastes and other hazardous
materials; handling and disposal of wastes and other materials; and investigation and remediation of releases of hazardous
materials. In addition, environmental laws impose a liability on owners and operators for investigation and remediation of
contaminated property and on a party who sends hazardous materials to those contaminated properties for treatment, storage,
disposal or recycling. In some instances, that liability exists regardless of fault.
Competition. CF Nitrogen competes primarily on delivered price and, to a lesser extent, on customer service and
product quality. CF Nitrogen competes domestically with a variety of large companies in the fertilizer industry. There is also
significant competition from products sourced from other regions of the world.
CORPORATE AND OTHER
CHS Capital. Our wholly-owned financing subsidiary, CHS Capital, LLC ("CHS Capital"), provides cooperative
associations with a variety of loans that meet commercial agriculture needs. These loans include operating, term, revolving and
other short- and long-term options. CHS Capital also provides loans to individual producers for crop inputs, feed and hedging-
related margin calls. Producer operating loans are also offered in strategic geographic regions.
CHS Hedging. Our wholly-owned commodity brokerage subsidiary, CHS Hedging, LLC ("CHS Hedging"), is a
registered futures commission merchant and a clearing member of the CBOT, the CME and the MGEX. CHS Hedging provides
consulting services and commodity risk management services primarily in the grains, oilseeds, fertilizer, livestock, dairy and
energy markets.
Wheat milling. Ardent Mills, LLC ("Ardent Mills"), the largest flour miller in the United States, was formed as a joint
venture with CHS, Cargill and ConAgra Foods, Inc., which combined the North American flour milling operations of its three
parent companies, including assets from our existing joint venture milling operations Horizon Milling, LLC, Horizon Milling,
ULC, and CHS-owned mills. In connection with the formation of Ardent Mills, the joint venture parties entered into various
ancillary and non-compete agreements including, among other things, an agreement for us to supply Ardent Mills with certain
wheat and durum products. We hold a 12% interest in Ardent Mills and account for our investment as an equity method
investment due to our ability to exercise significant influence through our ability to appoint a member of the Board of
Shareholders and Board of Managers. On August 31, 2019, our investment in Ardent Mills was $209.0 million.
Foods. Ventura Foods, LLC ("Ventura Foods") is a joint venture between CHS and Wilsey Foods, Inc., a majority-
owned subsidiary of MBK USA Holdings, Inc., with each parent company owning a 50% interest. Ventura Foods produces
vegetable oil-based products, such as packaged frying oils, margarine, mayonnaise, salad dressings and other food products,
and currently has 16 manufacturing and distribution locations across the United States and Canada. Ventura Foods sources its
raw materials, which consist primarily of soybean oil, canola oil, palm/coconut oil, peanut oil and other ingredients and
supplies, from various domestic and overseas suppliers, including our oilseed processing operations. We account for our
investment in Ventura Foods using the equity method of accounting and, on August 31, 2019, our investment was $374.5
million.
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EMPLOYEES
On August 31, 2019, we had 10,703 full-time, part-time, temporary and seasonal employees. Of that total, 2,522 were
employed in our Energy segment, 7,418 were employed in our Ag segment and 763 were employed in Corporate and Other. In
addition to those individuals directly employed by us, many individuals work for joint ventures in which we have a 50% or less
ownership interest, including employees of CF Nitrogen and Ventura Foods in our Nitrogen Production segment and Corporate
and Other categories, respectively, and are not included in these totals.
Labor Relations
As of August 31, 2019, we had 12 collective bargaining agreements with unions covering approximately 8% of our
employees in the United States. These collective bargaining agreements expire on various dates through November 1, 2023,
except for one collective bargaining agreement covering 24 pipeline employees, which renews automatically every September
1, unless 60 days’ notice of termination is given.
We are an agricultural membership cooperative organized under Minnesota cooperative law to do business with
member and non-member patrons.
CHS AUTHORIZED CAPITAL
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ITEM 1A.
RISK FACTORS
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains and our other publicly available documents may contain, and our officers,
directors and other representatives may from time to time make, "forward-looking statements" within the meaning of the safe
harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by
words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future,"
"likely," "may," "should," "will" and similar references to future periods. Forward-looking statements are neither historical
facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions
regarding the future of our businesses, financial condition and results of operations, future plans and strategies, projections,
anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of
which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the
forward-looking statements. Therefore, you should not place undue reliance on any forward-looking statements. Important
factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-
looking statements are discussed or identified in our public filings made with the U.S. Securities and Exchange Commission,
including in this "Risk Factors" discussion. Any forward-looking statements made by us in this Annual Report on Form 10-K
are based only on information currently available to us and speak only as of the date on which the statement is made. We
undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time
to time, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Reference to this Cautionary Statement in the context of a forward-looking statement shall be deemed to be a
statement that any one or more of the following factors may cause actual results to differ materially from those indicated in the
forward-looking statement.
The following risk factors are in addition to any other cautionary statements, written or oral, which may be made or
referred to in connection with any particular forward-looking statement. The following risk factors should not be construed as
exhaustive.
Our revenues, results of operations and cash flows could be materially and adversely affected by changes in commodity
prices.
Our revenues, results of operations and cash flows are affected by market prices for commodities such as crude oil,
natural gas, ethanol, fertilizer, grain, oilseed, flour, and crude and refined vegetable oils. Commodity prices generally are
affected by a wide range of factors beyond our control, including weather, plant disease, insect damage, drought, availability
and adequacy of supply, government regulation and policies, and general political and economic conditions. We are also
exposed to fluctuating commodity prices as the result of our inventories of commodities, typically grain, fertilizer and
petroleum products, and purchase and sale contracts at fixed or partially fixed prices. At any time, our inventory levels and
unfulfilled fixed or partially fixed price contract obligations may be substantial. We have processes in place to monitor
exposures to these risks and engage in strategies, such as hedging, to manage these risks. If these controls and strategies are not
successful in mitigating our exposure to these fluctuations, we could be materially and adversely affected. Changes in market
prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect
revenues and operating earnings. Similarly, increased or decreased sales volumes without a corresponding change in the
purchase and selling prices of those products can affect revenues and operating earnings.
For example, in our energy operations, profitability depends largely on the margin between the cost of crude oil that
we refine and the selling prices that we obtain for our refined products. The prices for crude oil and for gasoline, diesel fuel and
other refined petroleum products fluctuate widely. Factors influencing these prices, many of which are beyond our control,
include:
•
•
•
levels of worldwide and domestic supplies;
capacities of domestic and foreign refineries;
ability of members of the Organization of Petroleum Exporting Countries ("OPEC") to agree to and maintain oil price
and production controls, and price and level of imports;
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•
•
•
•
•
•
disruption in supply;
political instability or conflict in oil-producing regions;
level of demand from consumers, agricultural producers and other customers;
price and availability of alternative fuels;
availability of pipeline capacity; and
domestic and foreign governmental regulations and taxes.
The long-term effects of these and other conditions on the prices of crude oil and refined petroleum products are
uncertain and ever-changing. Increases in crude oil prices without a corresponding increase in the prices of our refined
petroleum products, and decreases in crude oil prices with larger corresponding decreases in the prices of our refined petroleum
products, would reduce our net income. Accordingly, we expect our margins and the profitability of our energy business to
fluctuate, possibly significantly, over time.
Government policies, mandates, regulations and trade agreements could adversely affect our operations and
profitability.
Our business is subject to numerous government policies, mandates and regulations that could have an adverse effect
on our operations or profitability. For example, government policies, mandates and regulations related to genetically modified
organisms, traceability standards, product safety and labeling and renewable and low carbon fuels could have an adverse effect
on our operations or profitability by, among other things, influencing planting of certain crops, location and size of crop
production, trade of processed and unprocessed commodity products, volumes and types of imports and exports, the availability
and competitiveness of feedstocks as raw materials and viability and volume of certain of our products. In our Energy segment,
government policies, mandates and regulations designed to stop or impede the development or production of oil, such as those
limiting or banning use of hydraulic fracturing, drilling or oilsands production, could adversely affect our operations and
profitability.
In addition, changes in international trade agreements and trade disputes can adversely affect commodity trade flows
by limiting or disrupting trade between countries or regions. In many countries around the world, historical free trade
relationships are being challenged. For example, the U.S. government has imposed tariffs on certain products imported into the
United States, which has resulted in reciprocal tariffs from other countries, including countries where we operate and/or into
which we import products, such as imports of U.S. soybeans into China. In addition, the U.S. government has indicated its
intent to renegotiate or potentially terminate certain existing international trade agreements and it is unclear what changes, if
any, will be made to international trade agreements that are relevant to our business activities. These actions have created
uncertainty between the United States and other nations, including countries where we operate, and have led to significant
volatility in commodity prices, disruptions in historical trade flows and shifts in planting patterns in the United States and
South America, all of which have resulted in reduced volumes of grain exports overall and have presented challenges and
uncertainties for our business. Changes in trade policy, withdrawals from or material modifications to relevant international
trade agreements and continued uncertainty could depress economic activity and restrict our access to suppliers and customers.
Tariffs and trade restrictions that are implemented on products that we buy and/or sell could increase the cost of those products
or adversely affect the availability of market access. These cost increases and market changes could adversely affect demand
for our products and reduce margins, which could have a material adverse effect on our business and our earnings. In addition,
the U.S. government can prevent or restrict us from doing business in or with other countries. These restrictions and those of
other governments could limit our ability to gain access to business opportunities in various countries.
We are subject to political, economic, legal and other risks of doing business globally.
We are a global business and are exposed to risks associated with having global operations. These risks include, but
are not limited to, risks relating to terrorism, war, civil unrest, changes in a country's or region's social, economic or political
conditions, changes in local labor conditions and regulations, changes in safety and environmental regulations, changes in
regulatory or legal environments, restrictions on currency exchange activities, currency exchange fluctuations, price controls on
commodities, taxes and doing business in countries or regions with inadequate infrastructure and logistics challenges. In
particular, some countries where we operate lack well-developed legal systems or have not adopted clear legal and regulatory
frameworks. This lack of legal certainty exposes our operations to increased risks, including increased difficulty in enforcing
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our agreements in those jurisdictions and increased risk of adverse actions by local government authorities, such as unilateral or
forced renegotiation, modification or nullification of existing agreements or expropriations.
Our business and operations and demand for our products are highly dependent on certain global and regional factors
that are outside our control and that could adversely impact our business.
The level of demand for our products is affected by global and regional demographics and macroeconomic conditions,
including population growth rates and changes in standards of living. A significant downturn in global economic growth or
recessionary conditions in major geographic regions may lead to a reduced demand for agricultural commodities, which could
have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Weak global
economic conditions and adverse conditions in financial and capital markets may adversely impact the financial condition and
liquidity of some of our customers, suppliers and other counterparties, which could have a material adverse effect on our
customers' ability to pay for our products and on our business, financial condition, liquidity, results of operations and prospects.
Additionally, planted acreage and consequently the volume of fertilizer and crop protection products applied, is
partially dependent on government programs, grain prices and the perception held by producers of demand for production, all
of which are outside our control. Moreover, our business and operations may be affected by weather conditions that are outside
our control. For example:
• Weather conditions during the spring planting season and early summer crop nutrient and crop protection application
season affect agronomy product volumes and profitability.
• Adverse weather conditions, such as heavy snow or rainfall and any flooding as a result thereof, may cause
transportation delays and increased transportation costs, or damage physical assets, especially facilities in low-lying
areas near coasts and river banks or situated in hurricane-prone and rain-susceptible regions.
• Changes in weather patterns may shift periods of demand for products or even regions in which our products are
produced or distributed, which could require us to evolve our procurement and distribution processes.
•
Significant changes in water levels (up or down, as a result of flooding, drought or otherwise) may cause changes in
agricultural activity, which could require changes to our operating and distribution activities, as well as significant
capital improvements to our facilities.
• We may experience increased insurance premiums and deductibles, or decreases in available coverage, for our assets
in areas subject to adverse weather conditions.
Emerging sustainability and other environmental priorities outside our control could also affect agricultural practices
and future demand for agronomy products applied to crops and the volume of any such application. Accordingly, factors
outside our control could materially and adversely affect our revenues, results of operations and cash flows.
Our revenues, margins, results of operations and cash flows could be materially and adversely affected if our members
were to do business with others rather than with us.
We do not have an exclusive relationship with our members and our members are not obligated to supply us with their
products or purchase products from us. Our members often have a variety of distribution outlets and product sources available
to them. If our members were to sell their products to other purchasers or purchase products from other sellers, our revenues
and margins would decline and our results of operations and cash flows could be materially and adversely affected.
We are exposed to risk of nonperformance and nonpayment by counterparties.
We are exposed to risk of nonperformance and nonpayment by counterparties, whether pursuant to contracts or
otherwise. Risk of nonperformance and nonpayment by counterparties includes inability or refusal of a counterparty to pay us,
inability or refusal to perform because of a counterparty's financial condition and liquidity or for any other reason, and risk that
the counterparty will refuse to perform a contract during a period of price fluctuations where contract prices are significantly
different than current market prices. In the event we experience significant nonperformance or nonpayment by counterparties,
our financial condition, results of operations and cash flows could be materially and adversely affected. For example, we store
inventory in third-party warehouses, and the operators of these warehouses may not adequately store or secure our inventory, or
they may improperly sell that inventory to someone else, which could expose us to a loss of the value of that inventory. In the
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event we experience any such nonperformance by a third-party warehouse operator, our financial condition, results of
operations and cash flows could be materially and adversely affected.
We participate in highly competitive business markets and we may not be able to continue to compete successfully,
which could have a material adverse effect on us.
We operate in several highly competitive business segments and our competitors may succeed in developing new or
enhanced products that are better than ours, may be more successful in marketing and selling their products than we are, or may
have more effective supply chain capability than we have. Competitive factors include price, service level, proximity to
markets, access to transportation, product quality and marketing. In our business segments, we compete with certain companies
that are larger and better known than we are and that have greater marketing, financial, personnel and other resources than we
do. As a result, we may not be able to continue to compete successfully, which could have a material adverse effect on our
business, financial condition, liquidity, results of operations and prospects.
Our business, profitability and liquidity may be adversely affected by the deterioration in the credit quality of, or
defaults by, third parties who owe us money.
We extend credit to, make loans to and engage in other financing arrangements with individual producers, local
cooperatives and other third parties around the world. We incur credit risk and the risk of losses if our borrowers and others to
which we extend credit do not repay their loans or perform their obligations to pay us the money they owe. These parties may
default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or for other reasons. If these
counterparties do not pay us back, such that we experience significant defaults on their payment obligations to us, our financial
condition, results of operations or cash flows could be materially and adversely affected.
We are also subject to the risk that our rights against borrowers and other third parties that owe us money may not be
enforceable in all circumstances. For example, a borrower or third party may declare bankruptcy. In addition, due to
implications of the overall agricultural sector's extended period of depressed commodity prices and margins and weather-
related impacts on production in 2019, among other factors, the credit quality of borrowers and other third parties whose
obligations we hold could deteriorate, including a deterioration in the value of collateral posted by those parties to secure their
obligations to us pursuant to purchase contracts, loan agreements or other contracts. If that deterioration occurs, the material
adverse effects of third parties not performing their repayment obligations may be exacerbated if the collateral held by us
cannot be realized or is liquidated at prices not sufficient to recover the full amount owed to us. For example, certain loans and
other financing arrangements we undertake with agricultural producers are typically secured by the counterparty's crops that are
planted in the current year. There is a risk that the value of the crop will not be sufficient to satisfy the counterparty’s repayment
obligations under the financing arrangement as a result of weather, crop growing conditions, other factors that influence the
price, supply and demand for agricultural commodities or for other reasons.
In addition, disputes may arise as to the amount of collateral we are entitled to receive and the value of pledged assets.
Termination of contracts and foreclosure on collateral may subject us to claims for improper exercise of our rights. Default
rates, downgrades and disputes with counterparties as to the valuation of collateral increase significantly in times of market
stress and illiquidity.
In respect to our lending activity, we evaluate collectability of both commercial and producer loans on a specific
identification basis, based on the amount and quality of the collateral obtained, and record specific loan loss reserves when
appropriate. Consistent with accounting principles generally accepted in the United States ("U.S. GAAP"), a general reserve is
also maintained based on historical loss experience and various qualitative factors. For other forms of credit, we establish
reserves as appropriate and consistent with U.S. GAAP. The reserves represent our best estimate based on current facts and
circumstances. Future developments or changes in assumptions may cause us to record adjustments to the reserves that could
materially and adversely affect our results of operations.
Changes in federal income tax laws or in our tax status could increase our tax liability and reduce our net income
significantly.
Current federal income tax laws, regulations and interpretations regarding the taxation of cooperatives allow us to
exclude income generated through business with or for a member (patronage income) from our taxable income. If any changes
are made to such federal income tax laws, regulations or interpretations, or if in the future we were not eligible to be taxed as a
cooperative, our tax liability would significantly increase and our net income would significantly decrease.
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We incur significant costs in complying with applicable laws and regulations. Any failure to comply with these laws and
regulations, or make capital or other investments necessary to comply with these laws and regulations, could expose us
to unanticipated expenditures and liabilities.
We are subject to numerous federal, state and local provisions regulating our business and operations. We incur and
expect to incur significant capital and operating expenses to comply with these laws and regulations. We may be unable to pass
on those expenses to customers without experiencing volume and margin losses. For example, the compliance burden and
impact on our operations and profitability as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer
Protection Act ("Dodd-Frank") and related regulations continue to evolve, as federal agencies have implemented and continue
to implement its many provisions through regulation. These efforts to change the regulation of financial markets subject users
of derivatives, such as CHS, to extensive oversight and regulation by the CFTC. Such initiatives have imposed and may
continue to impose additional costs on us, including operating and compliance costs, and the cost of fines or penalties in the
event we do not comply, and could materially affect the availability, as well as the cost and terms, of certain transactions.
Certain federal regulations, studies and reports addressing Dodd-Frank, including the regulation of swaps and derivatives, are
still being implemented and others are being finalized. We will continue to monitor these developments. Any of these matters
could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
We establish reserves for the future cost of known compliance obligations, such as remediation of identified
environmental issues. However, these reserves may prove inadequate to meet our actual liability. Moreover, amended, new or
more stringent requirements, stricter interpretations of existing requirements or the future discovery of currently unknown
compliance issues may require us to make material expenditures or subject us to liabilities that we currently do not anticipate.
Furthermore, our failure to comply with applicable laws and regulations could subject us to administrative penalties and
injunctive relief, civil remedies, including fines and injunctions, criminal fines and penalties, and recalls of our products. For
example, we regularly maintain hedges to manage the price risks associated with our commercial operations. These transactions
typically take place on exchanges such as the CME. Our hedging transactions and activities are subject to the rules and
regulations of the exchanges we use and governing bodies, including the CME, the NYMEX, the CBOT, the MGEX and the
CFTC. All exchanges have broad powers to review required records, to investigate and enforce compliance and to punish
noncompliance by entities subject to their jurisdiction. Failure to comply with such rules and regulations could lead to
restrictions on our trading activities or subject us to enforcement action by the CFTC or a disciplinary action by the exchanges,
which could lead to substantial fines or penalties or limitations on our related operations. In addition, any investigation or
proceeding by an exchange or the CFTC, whether successful or unsuccessful, could result in substantial costs, diversion of
resources, including management time, and potential harm to our reputation, all of which could have a material adverse effect
on our business financial condition, liquidity, results of operations and prospects.
The consequences of any U.S. Securities and Exchange Commission ("SEC") or other governmental authority's
investigation with respect to certain rail freight contracts purchased in connection with our North American grain
marketing operations could have a material adverse effect on our business.
In connection with the preparation of our Annual Report on Form 10-K for the year ended August 31, 2018, our
management noted potentially excessive valuations in net derivative asset valuations relating to certain rail freight contracts
purchased in connection with our North American grain marketing operations. Following the identification of these potentially
excessive valuations, we engaged external counsel, which engaged forensic accountants to work with our management under
the oversight of the Audit Committee of our Board of Directors to conduct an investigation. The investigation concluded there
were misstatements in the consolidated financial statements included in certain of our filings with the SEC that were due to
intentional misconduct by a former employee in our rail freight trading operations, and due to rail freight contracts and certain
non-rail freight contracts not meeting technical accounting requirements to qualify as derivative financial instruments. The
misconduct consisted of the former employee manipulating the mark-to-market valuation of railcars that were the subject of rail
freight purchase contracts and manipulating the quantity of railcars included in the monthly mark-to-market valuation. In
addition, the investigation revealed intentional misstatements that were made by the former employee to our external auditor in
connection with its audit of our consolidated financial statements for the year ended August 31, 2017. During the course of, and
as a result of, the investigation, we terminated the employee. The Audit Committee of our Board of Directors and our legal
counsel reported the findings of the investigation to our Board of Directors and to our independent registered public accounting
firm and have discussed evidence uncovered and conclusions reached in the investigation with the staff of the Division of
Enforcement of the SEC. Although we are not aware that any formal investigation or inquiry has been commenced, we are
cooperating, and will continue to fully cooperate with, the staff of the Division of Enforcement of the SEC in any ongoing
review of these matters. We are unable at this time to predict when the SEC Division of Enforcement's review of these matters
will be completed or what regulatory or other outcomes may result. If the SEC or any other governmental authority determines
that violations of certain laws or regulations occurred, we could be exposed to a broad range of civil and criminal sanctions.
Although we are currently unable to predict what actions the SEC or any other governmental authority might take, or what the
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likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, such actions, fines
and/or penalties could be material, resulting in a material adverse effect on our business, prospects, reputation, financial
condition, results of operations or cash flows. Even if an inquiry or investigation does not result in an adverse determination,
our business, prospects, reputation, financial condition, results of operations or cash flows could be adversely impacted. In
addition, the expenses incurred in connection with the ongoing review or any investigation by the SEC or any other
governmental authority, and the diversion of the attention of our management that could occur as a result thereof, could
adversely affect our business, financial condition, results of operations or cash flows.
We are subject to the Foreign Corrupt Practices Act of 1977 and other similar anti-corruption, anti-bribery and anti-
kickback laws and regulations, and any noncompliance with those laws and regulations by us or others acting on our
behalf could have a material adverse effect on our business, financial condition and results of operations.
We operate on a global basis and are subject to anti-corruption, anti-bribery and anti-kickback laws and regulations,
including the Foreign Corrupt Practices Act of 1977 as amended ("FCPA"). The FCPA and other similar anti-corruption, anti-
bribery and anti-kickback laws and regulations in other jurisdictions generally prohibit companies and their intermediaries or
agents from making improper payments to government officials or any other persons for the purpose of obtaining or retaining
business. We operate and sell our products in many parts of the world that have experienced governmental corruption to some
degree and in certain circumstances strict compliance with anti-corruption, anti-bribery and anti-kickback laws and regulations
may conflict with local customs and practices. In addition, in certain countries, we engage third-party agents or intermediaries
to act on our behalf and/or conduct all or a portion of our operations through joint venture partners, including in those countries
with a high risk for corruption. If any of these third parties violate applicable anti-corruption, anti-bribery or anti-kickback laws
or regulations, we may be liable for those violations. We have policies in place prohibiting employees from making or
authorizing improper payments, we train our employees regarding compliance with anti-corruption, anti-bribery and anti-
kickback laws and regulations, and we utilize procedures to identify and mitigate risks of such misconduct by our employees,
third-party agents, intermediaries and joint venture partners. However, we cannot provide assurances that our employees, third-
party agents, intermediaries or joint venture partners will comply with those policies, laws and regulations. If we are found
liable for violations of the FCPA or other similar anti-corruption, anti-bribery or anti-kickback laws or regulations, either due to
our own acts or out of inadvertence or due to the acts or inadvertence of others, we could suffer criminal or civil fines or
penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business,
financial condition and results of operations.
In the fourth quarter of fiscal 2018, we contacted the U.S. Department of Justice and SEC to voluntarily self-disclose
potential violations of the FCPA in connection with a small number of reimbursements made to Mexican customs agents in the
2014-2015 time period for payments customs agents made to Mexican customs officials in connection with inspections of grain
crossing the U.S.-Mexican border by railcar. We are fully cooperating with the government, with the assistance of legal
counsel, which includes investigating other areas of potential interest to the government. We are unable at this time to predict
when our or the government agencies' review of these matters will be completed or what regulatory or other outcomes may
result.
Environmental and energy laws and regulations may result in increased operating costs and capital expenditures and
may have a material and adverse effect on us.
New and current environmental and energy laws and regulations, including regulations relating to alternative energy
sources and the risk of global climate change, new interpretations of existing environmental and energy laws and regulations,
increased governmental enforcement of environmental and energy laws and regulations or other developments in these areas
could require us to make additional unforeseen expenditures or unforeseen changes to our operations, either of which could
adversely affect us. For example, it is possible that some form of regulation will be forthcoming at the federal or state level in
the United States with respect to emissions of greenhouse gases ("GHGs"), such as carbon dioxide, methane and nitrous oxides.
New federal legislation or regulatory programs that restrict emissions of GHGs or comparable new state legislation or programs
or customer requirements in areas where we or our customers conduct business could adversely affect our operations and the
demand for our energy products, which could have a material adverse effect on our business, financial condition, liquidity,
results of operations and prospects. In addition, new legislation or regulatory programs could require substantial expenditures
for installation and operation of systems and equipment or for substantial modifications to existing equipment.
Also, pursuant to the Energy Independence and Security Act of 2007, the EPA has promulgated the Renewable Fuel
Standard ("RFS"), which requires refiners to blend renewable fuels, such as ethanol and biodiesel, with their petroleum fuels or
to purchase renewable energy credits, known as Renewable Identification Numbers ("RINs"), in lieu of blending. The EPA
generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. We
generate RINs in our marketing operations under the RFS; however, it may not be enough to meet the needs of our refining
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capacity and, if so, RINs must be purchased on the open market. In recent years, the price of RINs has been extremely volatile.
As a result, the purchase of RINs could have a negative impact on our future refined fuels margins, the impact of which we are
unable to estimate.
During fiscal 2019, the EPA granted our Laurel, Montana, refinery an extension of the small refinery exemption under
the RFS as provided for under the Clean Air Act for 2018 ("small refinery exemption"). This action provided our Laurel
refinery an exemption from its renewable fuel volume obligations under the RFS program for compliance year 2018. In
granting this exemption, the EPA considered a number of factors and concluded the Laurel refinery qualified for the exemption
as prescribed under the standard. As with other competitors who received the exemption in the same geographic area as our
Laurel refinery, the small refinery exemption lowers our cost to operate and has a positive impact on our earnings. Since the
small refinery exemption is granted on a year-to-year basis, we are unable to predict whether we will receive this exemption in
the future.
Environmental liabilities could have a material adverse effect on us.
Many of our current and former facilities have been in operation for many years and over that time we and other
operators of those facilities have generated, used, stored and disposed of substances or wastes that are or might be considered
hazardous under applicable or future enacted environmental laws, including liquid fertilizers, chemicals and fuels stored in
underground and above-ground tanks. Any past or future actions in violation of applicable environmental laws could subject us
to administrative penalties, fines, injunctions or other costs, such as capital expenditures. In addition, an owner or operator of
contaminated property, and a party who sends hazardous materials to such site for treatment, storage, disposal or recycling can
be liable for the cost of investigation and remediation under environmental laws. In some instances, such liability exists
regardless of fault. Moreover, future or unknown past releases of hazardous substances could subject us to private lawsuits
claiming damages, including for bodily injury or property damage, and to adverse publicity, which could have a material
adverse effect on us. Liabilities, including legal costs, related to remediation of contaminated properties are not recognized by
us until the related costs are considered probable and can be reasonably estimated.
Actual or perceived quality, safety or health risks associated with our products could subject us to significant liability
and damage our business and reputation.
If any of our food or animal feed products were to become adulterated or misbranded, we would need to recall those
items and could experience product liability claims if either consumers or customers' livestock were injured or were claimed to
be injured as a result. A widespread product recall or a significant product liability judgment could cause our products to be
unavailable for a period of time or could cause a loss of consumer or customer confidence in our products. Even if a product
liability claim were unsuccessful or were not fully pursued, the negative publicity surrounding any assertion that our products
caused illness or injury could adversely affect our business and reputation with existing and potential consumers and customers
and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any
rights of indemnity or contribution that we may have against others. In addition, general public perceptions regarding the
quality, safety or health risks associated with particular food or animal feed products, such as concerns regarding genetically
modified crops, could reduce demand and prices for some of the products associated with our businesses. To the extent that
consumer preferences evolve away from products that our members or we produce for health or other reasons, such as the
growing demand for organic food products, and we are unable to develop or procure products that satisfy new consumer
preferences, there will be a decreased demand for our products, which could have a material adverse effect on our business,
financial condition, liquidity, results of operations and prospects.
We have identified material weaknesses in our internal control over financial reporting. If these material weaknesses
persist or if we fail to establish and maintain effective internal controls over financial reporting, our ability to accurately
report our results could be adversely affected.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial
statements. We have concluded that material weaknesses in our internal control over financial reporting exist and those material
weaknesses are discussed further in Item 9A, Controls and Procedures, of this Annual Report on Form 10-K. The existence of
one or more material weaknesses precludes a conclusion by management that a corporation's internal control over financial
reporting is effective.
In response to the identified material weaknesses, our management, with the oversight of the Audit Committee of our
Board of Directors, has dedicated significant resources, including involvement of outside advisors, and has undertaken
significant efforts to improve our internal control over financial reporting and to remediate the material weaknesses identified.
Although certain remedial actions have been completed, others are still in process, and we continue to actively plan for and
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implement additional control procedures. If we fail to remediate the identified material weaknesses or fail to otherwise
maintain effective control over financial reporting in the future, it could result in a material misstatement of our financial
statements that would not be prevented or detected on a timely basis. Our management and Board of Directors continue to
devote significant time and attention to remediating and overseeing the remediation of the identified material weaknesses and
improving our internal control over financial reporting, and we expect to continue to incur costs associated with remediating
such material weaknesses and implementing appropriate processes, including fees for additional audit, legal and consulting
services, which could negatively affect our financial condition and operating results.
Our financial results are susceptible to seasonality.
Many of our business activities are highly seasonal and operating results vary throughout the year. Our revenue and
income are generally lowest during the second and fourth fiscal quarters and highest during the first and third fiscal quarters.
For example, in our Ag segment, our country operations business generally experiences higher volumes and income during the
spring planting season and during the fall harvest season and our agronomy business generally experiences higher volumes and
income during the spring planting season. Our global grain marketing operations are also subject to fluctuations in volume and
income based on producer harvests, world grain prices and demand, and international trade relationships. Our Energy segment
generally experiences higher volumes and income in certain operating areas, such as refined products, in the spring, summer
and early fall when gasoline and diesel fuel usage by our customers and members is highest and is subject to global supply and
demand forces. Other energy products, such as propane, generally experience higher volumes and income during the winter
heating and crop-drying seasons.
Our operations are subject to business interruptions and casualty losses; we do not insure against all potential losses
and could be seriously harmed by unanticipated liabilities.
Our operations are subject to business interruptions due to unanticipated events such as explosions, fires, pipeline
interruptions, transportation delays, equipment failures, crude oil or refined product spills, adverse weather conditions and labor
disputes. For example:
• Our oil refineries and other facilities are potential targets for terrorist attacks that could halt or discontinue production.
• Our inability to negotiate acceptable contracts with unionized workers in our operations could result in strikes or work
stoppages.
• Our corporate headquarters, the facilities we own or the significant inventories we carry could be damaged or
destroyed by catastrophic events, adverse weather conditions or contamination.
•
Someone may accidentally or intentionally introduce a computer virus to our information technology systems or
breach our computer systems or other cyber resources.
• An occurrence of a pandemic or epidemic disease affecting a substantial part of our workforce or our customers could
cause an interruption in our business operations.
The effects of any of these events could be significant. We maintain insurance coverage against many, but not all,
potential losses or liabilities arising from these operating hazards, but uninsured losses or losses above our coverage limits are
possible. Uninsured losses and liabilities arising from operating hazards could have a material adverse effect on us.
Our risk management strategies may not be effective.
Our business is affected by fluctuations in commodity prices, transportation costs, energy prices, foreign currency
exchange rates and interest rates. We monitor position limits, account receivables and other exposures and engage in other
strategies and controls to manage these risks. Our monitoring efforts may not be effective at detecting a significant risk
exposure and our controls and strategies may not be effective in adequately managing against the occurrence of a significant
loss relating to a risk exposure. If our controls and strategies are not successful in mitigating or preventing our financial
exposure to losses due to the fluctuations or failures mentioned above, it could significantly and adversely affect our operating
results.
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We are subject to workforce factors that could adversely affect our business and financial condition.
Like most companies in the agricultural industry, we are continuously challenged to hire, develop and retain a
sufficient number of employees to operate our businesses throughout our operating geographies. We may have difficulty
recruiting and retaining new employees with adequate qualifications and experience. The challenge of hiring new employees is
exacerbated by the rural nature of our business, which provides for a smaller pool of skilled employee candidates. To hire new
employees, we may be forced to pay higher wages or offer other benefits that might impact our cost of labor. Furthermore,
when we do hire new employees, we may be unable to successfully transfer our other employees' institutional knowledge and
skills to them. These or other employee workforce factors could negatively impact our business, financial condition or results
of operations.
Our business is capital-intensive and we rely on cash generated from our operations and external financing to fund our
strategies and ongoing capital needs.
We require significant capital, including access to credit markets from time to time, to operate our business and fund
our strategies. Our working capital requirements are directly affected by the price of commodities, which may fluctuate
significantly and quickly. We also require substantial capital to maintain and upgrade our extensive network of facilities to keep
pace with competitive developments, technological advances, regulations and changing safety standards. In addition, the
expansion of our business and pursuit of acquisitions or other business opportunities has required, and may in the future
require, significant amounts of capital. If we are unable to generate sufficient cash flow or maintain access to adequate external
financing, including as a result of significant disruptions in the global credit markets, it could restrict our current operations and
our growth opportunities, which could adversely affect our operating results and restrict our ability to repay our existing debts.
Our cooperative structure limits our ability to access equity capital.
As a cooperative, we may not sell common stock in our company. In addition, existing laws and our articles of
incorporation and bylaws limit dividends on any preferred stock we may issue to 8% per annum. These limitations may restrict
our ability to raise equity capital and may adversely affect our ability to compete with enterprises that do not face similar
restrictions.
Changes in the method of determining the London Interbank Offered Rate ("LIBOR") or the replacement of LIBOR
with an alternative reference rate may adversely affect interest rates under our credit facilities and dividend rates with
respect to our Class B Series 2 Preferred Stock and Class B Series 3 Preferred Stock.
LIBOR is the basic rate of interest widely used as a global reference for setting interest rates on loans. Some of our
credit facilities, including our five-year revolving credit facility and our 10-year term loan facility, use LIBOR as the reference
rate. In addition, the terms of our Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2 ("Class B Series 2
Preferred Stock") and our Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3 ("Class B Series 3 Preferred
Stock") provide that, beginning on March 24, 2024, in the case of our Class B Series 2 Preferred Stock, or on September 30,
2024, in the case of our Class B Series 3 Preferred Stock ("Initial Reset Date"), dividends on such preferred stock will
accumulate at a rate equal to three-month LIBOR plus an applicable spread, not to exceed 8% per annum.
In 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to
phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time, if new methods of calculating
LIBOR will be established such that it continues to exist after 2021 or whether different reference rates used to price
indebtedness will develop. It is impossible to predict the effect these developments, any discontinuance, modification or other
reforms to LIBOR or the establishment of alternative reference rates may have on LIBOR, other benchmark rates or floating
rate debt instruments. Although certain of our credit facilities, including our five-year revolving credit facility and our 10-year
term loan facility, contain LIBOR alternative provisions, use of alternative reference rates, new methods of calculating LIBOR
or other reforms could cause the interest rates on our borrowings to be materially different than expected, which could have an
adverse effect on our financial position, results of operations and liquidity and cause us to attempt to renegotiate such credit
facilities. Similarly, although the rate at which dividends accumulate on our Class B Series 2 Preferred Stock and Class B
Series 3 Preferred Stock may not exceed 8% per annum, there is uncertainty regarding the calculation of such rate following the
applicable Initial Reset Date in the event that LIBOR ceases to exist, and the use of alternative reference rates, new methods of
calculating LIBOR or other reforms could cause the dividends we pay on our Class B Series 2 Preferred Stock and Class B
Series 3 Preferred Stock following the applicable Initial Reset Date to be materially different than expected, which could have
an adverse effect on our financial position, results of operations and liquidity and cause us to attempt to amend the terms of our
Class B Series 2 Preferred Stock and Class B Series 3 Preferred Stock, including by seeking shareholder approval of any such
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amendment. In addition, the overall financial market may be disrupted as a result of the phase-out or replacement of LIBOR.
Disruption in the financial market could have an adverse effect on our financial position, results of operations and liquidity.
Consolidation among the producers of products we purchase and customers for products we sell could materially and
adversely affect our revenues, results of operations and cash flows.
Consolidation has occurred among the individual producers of products we sell and purchase, including crude oil,
fertilizer and grain, and it is highly likely to continue in the future. Consolidation could allow producers to negotiate pricing,
supply availability and other contract terms that are less favorable to us. Consolidation also may increase the likelihood that
consumers of these products enter into supply relationships with a smaller number of producers, resulting in potentially higher
prices for the products we purchase.
Consolidation has also occurred among cooperative associations that are the primary wholesale customers of our
products, which has resulted in a smaller wholesale and retail customer base for our products and has intensified the
competition for these customers. This consolidation is likely to continue in the future. Ongoing consolidation among
distributors and brokers of food products and food retailers has altered the buying patterns of these businesses, as they have
increasingly elected to work with product suppliers who can meet their needs nationwide rather than just regionally or locally.
If these cooperatives, distributors, brokers and retailers elect not to purchase our products, our revenues, results of operations
and cash flows could be materially and adversely affected.
In addition, in the seed, fertilizer and crop protection markets, consolidation at both the producer and wholesale
customer level has increased the potential for direct sales from the respective input manufacturer to the cooperative customers
and/or the individual agricultural producer, which would remove us from the supply chain and could have a material and
adverse effect on our revenues, results of operations and cash flows.
If our customers choose alternatives to our refined petroleum products, our revenues, results of operations and cash
flows could be materially and adversely affected.
Numerous alternative energy sources currently under development could serve as alternatives to our gasoline, diesel
fuel and other refined petroleum products. If any of these alternative products become more economically viable or preferable
to our customers for environmental or other reasons, demand for our energy products would decline. Declining demand for our
energy products, particularly diesel fuel sold for farming applications, could materially and adversely affect our revenues,
results of operations and cash flows.
Technological improvements could decrease the demand for our agronomy and energy products.
Technological advances in agriculture could decrease the demand for crop nutrients, energy and other crop input
products and services we provide. Genetically engineered seeds that resist disease and insects, or that meet certain nutritional
requirements, could affect the demand for our crop nutrients and crop protection products. Demand for fuel that we sell could
decline as technology allows for more efficient usage of equipment. Declining demand for our products could materially and
adversely affect our revenues, results of operations and cash flows.
Acquisitions, strategic alliances, joint ventures, divestitures and other non-ordinary course-of business events resulting
from portfolio management actions and other evolving business strategies could affect future results.
We monitor our business portfolio and organizational structure and have made and may continue to make acquisitions,
strategic alliances, joint ventures, divestitures and changes to our organizational structure. With respect to acquisitions, future
results will be affected by our ability to identify suitable acquisition candidates, to adequately finance any acquisitions and to
integrate acquired businesses quickly and obtain the anticipated financial returns, including synergies. Our ability to
successfully complete a divestiture will depend on, among other things, our ability to identify buyers that are prepared to
acquire such assets or businesses on acceptable terms and to adjust and optimize our retained businesses following the
divestiture. Additionally, we may fail to consummate proposed acquisitions, divestitures, joint ventures or strategic alliances
after incurring expenses and devoting substantial resources, including management time, to such transactions.
Several parts of our business, including in particular our nitrogen production business, our foods business and portions
of our global grain marketing and wheat milling operations, are operated through joint ventures with third parties where we do
not have majority control of the venture. By operating a business through a joint venture, we have less control over business
decisions than we have in our subsidiaries and limited liability companies in which we have a controlling interest. In particular,
we generally cannot act on major business initiatives in our joint ventures without the consent of the other party or parties in
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those ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is
not involved, including the possibility that co-venturers might become bankrupt or fail to fund their share of required capital
contributions, in which case the joint venture may be unable to access needed growth capital (if the co-venturer is solely
responsible for capital contributions) or we and any other remaining co-venturers would generally be liable for the joint
venture’s liabilities. Co-venturers may have economic, tax or other business interests or goals that are inconsistent with our
business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Our co-venturers may
take actions that are not within our control, which may expose our investments in joint ventures to the risk of lower values or
returns. Joint venture investments may also lead to impasses. Disputes between us and co-venturers may result in litigation or
arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our
day-to-day business. In addition, we may in certain circumstances be liable for the actions of our co-venturers. Each of these
matters could have a material adverse effect on us.
We made certain assumptions and projections regarding the future of the markets served by our joint venture
investments, which included projected market pricing and demand for their products. These assumptions were an integral part
of the economics used to evaluate these joint venture investment opportunities prior to consummation. To the extent that actual
market performance varies from our models, our ability to achieve projected returns on our joint venture investments may be
impacted in a materially adverse manner.
We utilize information technology systems to support our business. The ongoing multiyear implementation of an
enterprise-wide resource planning system, reliance upon multiple legacy business systems, security breaches or other
disruptions to our information technology systems or assets could interfere with our operations, compromise security of
our customers' or suppliers' information and expose us to liability that could adversely impact our business and
reputation.
Our operations rely on certain key information technology ("IT") systems, many of which are legacy in nature or may
depend on third-party services to provide critical connections of data, information and services for internal and external users.
Over the next several years, we expect to continue implementing a new enterprise resource planning system ("ERP"), which
has and will continue to require significant capital and human resources to deploy. There can be no assurance that the actual
costs for the ERP will not exceed our current estimates or that the ERP will not take longer to implement than we currently
expect. In addition, potential flaws in implementing the ERP or in the failure of any portion/module of the ERP to meet our
needs or provide appropriate controls may pose risks to our ability to operate successfully and efficiently and with an effective
system of internal controls. There may be other challenges and risks to both our aging and current IT systems over time due to
any number of causes, such as catastrophic events, availability of resources, power outages, security breaches or cyber-based
attacks, as we upgrade and standardize our ERP system on a worldwide basis. These challenges and risks could result in legal
claims or proceedings, liability or penalties, disruption in operations, loss of valuable data, increased costs and damage to our
reputation, all of which could adversely affect our business. Our ongoing IT investments include those relating to cybersecurity,
including technology, hired expertise and cybersecurity risk mitigation actions. However, an incident or breach may occur and
subject us to an adverse impact on our business and reputation. Further, we are subject to laws and regulations in the United
States and other jurisdictions regarding privacy, data protection and data security, including those related to the collection,
storage, handling, use, disclosure, transfer and security of personal data. These laws and regulations pose increasingly complex
compliance challenges and may require us to incur significant additional compliance costs. Any violation of such laws and
regulations, including as a result of a security or privacy breach, could subject us to legal claims, regulatory penalties and
damage to our reputation.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
As of the date hereof, there were no unresolved comments from the SEC staff regarding our periodic or current
reports.
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ITEM 2.
PROPERTIES
We own or lease energy, agronomy, grain-handling and processing facilities and other real estate throughout the
United States and internationally. Below is a summary of these locations by segment and related business. All facilities are
owned except where indicated as leased.
Description
Location(s)
Energy
Refineries
Propane terminals
Transportation terminals/repair facilities
Laurel, Montana, and McPherson, Kansas
Biddeford, Maine; Glenwood and Rockville, Minnesota
(Rockville is 50% owned by CHS); Hannaford, North Dakota;
Ross, North Dakota; and Hixton, Wisconsin
12 locations in Iowa, Kansas, Minnesota, Montana, North
Dakota, South Dakota, Washington and Wisconsin
Petroleum and asphalt terminals/storage facilities
11 locations in Montana, North Dakota and Wisconsin
Pipelines:
Cenex Pipeline, LLC
Front Range Pipeline, LLC
Jayhawk Pipeline, LLC
Conway Pipeline
Kaw Pipe Line Company
Osage Pipe Line Company, LLC (50% owned by CHS
McPherson Refinery Inc. ("CHS McPherson"))
Convenience stores/gas stations
Lubricant plants/warehouses
Ag
Global Grain Marketing
Grain terminals
Fertilizer terminal
Grain marketing offices
Country Operations
Agri-operations facilities
Feed manufacturing facilities
Wholesale Agronomy
Deep water port
Terminals
Laurel, Montana, to Fargo, North Dakota
Canadian border to Laurel, Montana
Throughout Kansas, with branches in Nebraska, Oklahoma and
Texas
McPherson, Kansas, to Conway, Kansas
Locations throughout Kansas
Oklahoma to Kansas
36 locations in Minnesota, Montana, North Dakota, South
Dakota and Wyoming, six of which are leased
Inver Grove Heights, Minnesota; Kenton, Ohio; and Amarillo,
Texas; the location in Inver Grove Heights is leased
18 locations in Illinois, Iowa, Louisiana, Minnesota, Wisconsin,
Argentina, Brazil, Hungary, Romania and Ukraine
Argentina
34 locations in Iowa, Minnesota, Nebraska, Argentina, Brazil,
Bulgaria, Canada, China, Hungary, Jordan, Paraguay, Romania,
Serbia, Singapore, South Korea, Spain, Switzerland, Taiwan,
Ukraine and Uruguay; all locations are leased other than the
offices in Davenport, Iowa, and Winona, Minnesota, which we
own
Approximately 470 community locations (of which some of the
facilities are on leased land) located in Colorado, Idaho,
Illinois, Iowa, Kansas, Michigan, Minnesota, Montana,
Nebraska, North Dakota, Oklahoma, Oregon, South Dakota,
Texas, Washington and Wisconsin
8 locations in Montana, North Dakota, Oregon and South
Dakota
Galveston, Texas
18 locations in Arkansas, Idaho, Illinois, Iowa, Kentucky,
Louisiana, Minnesota, Mississippi, South Dakota, Tennessee
and Texas; facilities in Little Rock, Arkansas; Owensboro,
Kentucky; and Galveston, Texas, are on leased land
Bulk chemical rail terminal facility
Brooten, Minnesota
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Distribution warehouses
Processing and Food Ingredients
Oilseed facilities
Sunflower processing plants
Storage and warehouse facilities
Renewable Fuels
Ethanol plants
Corporate and Other
Corporate headquarters
Office facilities
Agricultural land and related improvements
ITEM 3.
LEGAL PROCEEDINGS
32 locations in Arkansas, Iowa, Idaho, Illinois, Kansas,
Michigan, Minnesota, Missouri, Montana, North Dakota,
Nebraska, Oklahoma, South Dakota, Texas, Washington and
Wisconsin; all facilities are leased except those in Willmar,
Minnesota (two locations); Fargo and Minot, North Dakota; and
Black River Falls, Wisconsin
Hallock, Fairmont and Mankato, Minnesota
Grandin and Fargo, North Dakota
Hazel, Minnesota; Joliette, North Dakota; and a leased facility
in Winkler, Canada
Rochelle and Annawan, Illinois
We lease a 24-acre campus in Inver Grove Heights, Minnesota,
consisting of one building with approximately 320,000 square
feet of office space and own an additional nine acres of land
adjacent to the leased property on which we have two smaller
buildings with approximately 13,400 and 9,000 square feet of
space
Leased facilities in Eagan and St. Paul, Minnesota; Kansas City,
Missouri; Huron, South Dakota; and Washington, D.C.
We own approximately 3,500 acres of agricultural land and
related improvements in central Michigan
We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our
business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, our
management believes any resulting liabilities, individually or in the aggregate, will not have a material effect on our
consolidated financial position, results of operations or cash flows during any fiscal year.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
As a cooperative, we do not have common stock that is traded or otherwise. We have not sold any equity securities
during the three years ended August 31, 2019, that were not registered under the Securities Act of 1933.
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ITEM 6.
SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated financial information for each of the five periods
indicated. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations in Item 7 of this Annual Report on Form 10-K and with our consolidated financial statements and
notes thereto included elsewhere in this Annual Report on Form 10-K.
Our consolidated financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP. The selected
income statement data for the years ended August 31, 2019, 2018, 2017 and 2016, and balance sheet data as of August 31,
2019, 2018 and 2017, are derived from our audited consolidated financial statements and related notes. The selected income
statement data for the year ended August 31, 2015, and balance sheet data as of August 31, 2016 and 2015, are derived from
unaudited consolidated financial information not included in this Annual Report on Form 10-K. Certain prior period amounts
have been revised as follows:
•
•
Income statement data for the year ended August 31, 2015, and balance sheet data as of August 31, 2016, and 2015,
were restated in our Annual Report on Form 10-K for the year ended August 31, 2018, to correct certain amounts that
had been previously misstated.
For all periods presented, income statement information has been revised to reflect the impact of adopting Accounting
Standards Update ("ASU") No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Costs and Net Postretirement Benefit Cost during fiscal 2019. As a result of the adoption of
this ASU, the non-service cost components of net periodic benefit costs have been reclassified from cost of goods sold
("COGS") and marketing, general and administrative expenses to outside of operating income within other (income)
loss.
Income Statement Data (for the years
ended August 31):
Revenues
Cost of goods sold
Gross profit
Marketing, general and administrative
expenses
Reserve and impairment charges
(recoveries), net
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to
noncontrolling interests
Net income (loss) attributable to CHS
Inc.
Balance Sheet Data (as of August 31):
Working capital
Net property, plant and equipment
2019
2018
2017
2016
2015
Selected Consolidated Financial Data
(Dollars in thousands)
$ 31,900,453
$ 32,683,347
$ 32,037,426
$ 30,355,260
$ 34,517,452
30,516,120
31,591,227
31,143,549
29,383,459
33,099,074
1,384,333
1,092,120
893,877
971,801
1,418,378
737,636
677,465
611,076
597,531
640,306
(12,905)
659,602
(3,886)
167,065
(82,423)
(236,755)
815,601
(12,456)
828,057
(37,709)
452,364
(131,816)
149,202
(82,737)
(153,515)
671,230
(104,076)
775,306
456,679
(173,878)
2,190
171,239
(99,803)
(137,338)
(110,166)
(181,124)
70,958
75,036
299,234
—
113,704
(40,818)
(175,777)
402,125
19,099
383,026
158,771
619,301
—
70,659
(43,868)
(107,850)
700,360
(4,900)
705,260
(1,823)
(601)
(634)
(223)
(816)
$
$
829,880
1,078,888
5,088,708
$
$
775,907
759,034
5,141,719
$
$
71,592
148,565
5,356,434
$
$
383,249
338,446
5,488,323
$
$
706,076
2,650,637
5,192,927
Total assets
16,447,494
16,381,178
15,818,922
17,149,639
15,101,216
Long-term debt, including current
maturities
Total equities
1,789,111
8,617,530
1,930,255
8,165,028
2,179,793
7,705,640
2,297,205
7,759,157
1,478,930
7,551,439
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ITEM 7.
OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended
to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition
and results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the
following sections:
• Overview
• Business Strategy
Fiscal 2019 Highlights
•
Fiscal 2020 Priorities
•
•
Fiscal 2020 Outlook
• Results of Operations
• Liquidity and Capital Resources
• Off-Balance Sheet Financing Arrangements
• Contractual Obligations
• Critical Accounting Estimates
• Effect of Inflation and Foreign Currency Transactions
• Recent Accounting Pronouncements
Our MD&A should be read in conjunction with the accompanying audited financial statements and notes to those
financial statements and the Cautionary Statement regarding forward-looking statements found in Part I, Item 1A of this Annual
Report on Form 10-K.
Overview
CHS Inc. is a diversified company that provides grain, food, agronomy and energy resources to businesses and
consumers on a global scale. As a cooperative, we are owned by farmers, ranchers and member cooperatives across the United
States. We also have preferred shareholders that own our five series of preferred stock, all of which are listed and traded on the
Nasdaq Global Select Market. We operate in the following three reportable segments:
• Energy. Produces and provides primarily for the wholesale distribution and transportation of petroleum products.
• Ag. Purchases and further processes or resells grains and oilseeds originated by our country operations business, by
our member cooperatives and by third parties; also serves as a wholesaler and retailer of agronomy products.
• Nitrogen Production. Consists solely of our equity method investment in CF Nitrogen and produces and distributes
nitrogen fertilizer, a commodity chemical.
In addition, our financing and hedging businesses, along with our non-consolidated wheat milling and food production
and distribution joint ventures, have been aggregated within Corporate and Other. Prior to its sale on May 4, 2018, our
insurance operations were also included within Corporate and Other.
The consolidated financial statements include the accounts of CHS and all subsidiaries and limited liability companies
in which we have a controlling interest. The effects of all significant intercompany transactions have been eliminated.
Corporate administrative expenses and interest are allocated to each reporting segment, along with Corporate and
Other, based on direct usage for services, such as information technology and legal, and other factors or considerations relevant
to the costs incurred.
Management's Focus. When evaluating our operating performance, management focuses on gross profit and income
(loss) before income taxes ("IBIT"). As a company that operates heavily in global commodities, there is significant
unpredictability and volatility in pricing, costs and global trade volumes. Consequently, we focus on managing the margin we
can earn and resulting income before income taxes. Management also focuses on ensuring the strength of the balance sheet
through appropriate management of financial liquidity, leverage, capital allocation and cash flow optimization.
Seasonality. Many of our business activities are highly seasonal and our operating results vary throughout the year.
Our revenues and income generally trend lower during the second and fourth fiscal quarters and higher during the first and
third fiscal quarters; however, weather or other events may impact this trend, particularly for IBIT. For example, in our Ag
segment, our country operations business generally experiences higher volumes and income during the fall harvest and spring
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planting seasons, which generally correspond to our first and third fiscal quarters, respectively. Additionally, our agronomy
business generally experiences higher volumes and income during the spring planting season. Our global grain marketing
operations are subject to fluctuations in volume and earnings based on producer harvests, world grain prices, demand and
global trade volumes. Our Energy segment generally experiences higher volumes and profitability in certain operating areas,
such as refined products, in the spring, summer and early fall when gasoline and diesel fuel usage by our agricultural producers
is highest and is subject to global supply and demand forces. Other energy products, such as propane, generally experience
higher volumes and profitability during the winter heating and fall crop-drying seasons. The graphs below depict the
seasonality inherent in our business, particularly revenue trends that are not impacted as significantly by other events.
* Income (loss) before income taxes experienced deviations from historical trends during fiscal 2017 through fiscal 2019 as a result of material charges
incurred, gains on sales of non-core assets and a combination of factors described in the Fiscal 2019 Highlights and the Results of Operations sections
below.
Pricing and Volumes. Our revenues, assets and cash flows can be significantly affected by global market prices and
sales volumes of commodities such as petroleum products, natural gas, grains, oilseed products and agronomy products.
Changes in market prices for commodities we purchase without a corresponding change in the selling prices of those products
can affect revenues and operating earnings. Similarly, increased or decreased sales volumes without a corresponding change in
the purchase and selling prices of those products can affect revenues and operating earnings. Commodity prices and sales
volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or
insects, drought, availability/adequacy of supply of the related commodity, availability of a reliable rail and river transportation
network, government regulations/policies, world events, global trade disputes and general political/economic conditions.
Business Strategy
Our business strategies focus on an enterprise-wide effort to create an experience that empowers customers to make
CHS their first choice, expands market access to add value for our owners, and transforms and evolves our core businesses by
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capitalizing on changing market dynamics. To execute upon these strategies, we are focused on the implementation and use of
agile, efficient and sustainable new technology platforms; building robust and efficient supply chains; hiring, developing and
retaining high-performing, diverse and passionate teams; achieving operational excellence and continuous improvement; and
maintaining a strong balance sheet.
Fiscal 2019 Highlights
• Margins were higher in our Energy segment compared to the prior year's results due to favorable pricing of heavy
Canadian crude oil, which is processed by our refineries, experienced primarily during the first half of fiscal 2019.
• We continued to experience significant pressure on grain volume and margins due to slow movement of grain that has
•
resulted from unresolved trade issues between the United States and its trading partners.
Poor weather conditions, including heavy snow during the spring and significant rainfall during the summer of 2019
negatively impacted our Ag segment operations. Severe flooding resulting from the heavy snow and rainfall
contributed to railroad delays and prevented or delayed planting, which resulted in increased costs, reduced volumes
and fewer planted acres. Further, navigable waterways experienced high, swift water conditions that impeded barge
traffic, severely affecting our ability to economically supply fertilizer and grains to their associated buyers.
• Through various efforts and mechanisms, we recovered a net $12.9 million of previously recorded reserve and
impairment charges. This consisted of recoveries of approximately $109.4 million in fiscal 2019, partially offset by
additional reserves and impairment charges of $96.5 million as more fully described in Results of Operations.
• Manufacturing changes within our Energy business have allowed us to benefit from certain federal excise tax credits.
Following the resolution of the underlying gain contingencies associated with tax credits during fiscal 2019, a gain of
$80.8 million was recognized as a reduction of COGS in our Consolidated Statements of Operations. We are uncertain
whether similar gains may reoccur in the future.
• On March 1, 2019, we completed the acquisition of the remaining 75% ownership interest in West Central
Distribution, LLC ("WCD"), a full-service wholesale distributor of agronomy products that was not previously owned
by us.
• Earnings from our equity method investments in CF Nitrogen and Ventura Foods remained strong compared to the
prior year.
• As more fully described in Item 9A, Controls and Procedures, of this Annual Report on Form 10-K, we continued
dedicating significant internal and external resources, as well as management and Board focus on improving our
internal control environment resulting in remediation of three material weaknesses identified in our fiscal 2018 Annual
Report on Form 10-K.
Fiscal 2020 Priorities
Identify and execute on opportunities to deliver sustainable cost savings across the enterprise.
•
Successfully achieve milestones for implementation of our new ERP system to drive efficiency and growth.
•
• Manage and leverage information to enable business growth and drive competitive advantage through data-driven
decisions and insight.
• Continue to strengthen and improve our internal control environment with an emphasis on operational excellence and
continuous improvement.
Fiscal 2020 Outlook
Our Energy and Ag segments operate in cyclical environments. The energy industry experienced favorable market
conditions during the first half of fiscal 2019 that led to higher margins and improved earnings in fiscal 2019; however, the
favorable conditions returned to lower, more normalized levels during the second half of fiscal 2019. Although unforeseen
market conditions could positively or negatively impact the energy industry, we expect the normalized market conditions
experienced by our Energy segment during the second half of fiscal 2019 to remain throughout fiscal 2020. The agricultural
industry continues to operate in a challenging environment characterized by lower margins, reduced liquidity and increased
leverage that have resulted from reduced commodity prices. In addition, trade relations between the United States and foreign
trade partners, particularly those that purchase large quantities of agricultural commodities, are strained, resulting in
unpredictable impacts to commodity prices and volumes sold within the agricultural industry. We are unable to predict how
long the current environment will last or how severe the effects will ultimately be. In addition to global supply and demand
impacts, regional factors, including unpredictable weather conditions, could continue to impact our operations. As a result, we
expect revenues, margins and cash flows from our core operations in our Ag segment to continue to be under pressure during
fiscal 2020, which will put pressure on the associated asset valuations.
24
Table of Contents
Results of Operations
Consolidated Statements of Operations
Revenues
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Reserve and impairment charges (recoveries), net
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
For the Years Ended August 31,
2019
2018
Dollars
% of Revenues*
Dollars
% of Revenues*
(In thousands)
$ 31,900,453
30,516,120
1,384,333
737,636
(12,905)
659,602
(3,886)
167,065
(82,423)
(236,755)
815,601
(12,456)
828,057
(1,823)
829,880
(In thousands)
100.0% $ 32,683,347
95.7
31,591,227
4.3
2.3
—
2.1
—
0.5
(0.3)
(0.7)
2.6
—
2.6
—
2.6% $
1,092,120
677,465
(37,709)
452,364
(131,816)
149,202
(82,737)
(153,515)
671,230
(104,076)
775,306
(601)
775,907
100.0%
96.7
3.3
2.1
(0.1)
1.4
(0.4)
0.5
(0.3)
(0.5)
2.1
(0.3)
2.4
—
2.4%
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to CHS Inc.
$
*Amounts less than 0.1% are shown as zero percent.
The charts below detail revenues, net of intersegment revenues, and IBIT by reportable segment for fiscal 2019. Our
Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses,
but not revenue.
25
Table of Contents
Energy Segment Operating Metrics
Our Energy segment operations primarily include our Laurel, Montana, and McPherson, Kansas, refineries, which
process crude oil to produce refined products, including gasoline, distillates and other products. The following tables provide
information about our consolidated refinery operations.
Refinery throughput volumes
Heavy, high-sulfur crude oil
All other crude oil
Other feedstocks and blendstocks
Total refinery throughput volumes
Refined fuel yields
Gasolines
Distillates
For the Years Ended August 31,
2019
2018
(Barrels per day)
92,047
58,366
10,724
161,137
76,563
66,661
84,339
66,785
17,713
168,837
86,115
65,060
We are subject to the Renewable Fuels Standard ("RFS"), which requires refiners to blend renewable fuels (e.g.,
ethanol, biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as Renewable
Identification Numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency generally establishes new
annual renewable fuel percentage standards for each compliance year in the preceding year. We generate RINs under the RFS in
our renewable fuels operations and through our blending activities at our terminals, but we cannot generate enough RINs to
meet the needs of our refining capacity and RINs must be purchased on the open market. The price of RINs can be volatile and
can impact profitability.
In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack
spreads (i.e., the price differential between refined products and inputs such as crude oil) and Western Canadian Select ("WCS")
crude oil differentials (i.e., the price differential between West Texas Intermediate ("WTI") crude oil and WCS crude oil), which
are driven by the supply and demand of refined product markets. Crack spreads remained relatively stable during fiscal 2019
compared to the prior fiscal year; however, WCS crude oil differentials improved during fiscal 2019 compared to the prior
fiscal year, specifically during the first half of fiscal 2019. The table below provides information about the average market
reference prices and differentials that impact our Energy segment.
Market indicators
WTI crude oil (dollars per barrel)
WTI - WCS crude oil differential (dollars per barrel)
Group 3 2:1:1 crack spread (dollars per barrel)*
Group 3 5:3:2 crack spread (dollars per barrel)*
D6 ethanol RIN (dollars per RIN)
D4 ethanol RIN (dollars per RIN)
For the Years Ended August 31,
2019
2018
$58.59
$20.23
$18.74
$17.67
$0.1713
$0.4273
$62.23
$17.92
$19.08
$18.46
$0.5280
$0.7221
*Group 3 refers to the oil refining and distribution system serving the Midwest markets from the Gulf Coast through the Plains states.
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Table of Contents
Income (Loss) Before Income Taxes by Segment
Energy
Income (loss) before income taxes
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
618,188
$
452,108
$
166,080
36.7%
The following table and commentary present the primary reasons for changes in IBIT for our Energy segment for the
year ended August 31, 2019, compared to the prior year:
Volume
Price
Transportation, retail and other
Non-gross profit related activity+
Total change in Energy IBIT
2019 vs. 2018
(Dollars in thousands)
$
$
(10,369)
298,979
(30,976)
(91,554)
166,080
+See commentary related to these changes in the marketing, general and administrative expenses, reserve and impairment charges (recoveries), net, (gain)
loss on disposal of business, interest expense, other income (loss) and equity (income) loss from investments sections of this Results of Operations.
The $166.1 million increase in Energy segment IBIT for fiscal 2019 reflects the following:
•
Improved market conditions in our refined fuels business, primarily driven by favorable pricing on heavy Canadian
crude oil, which is processed by our refineries. Favorable crude oil pricing, as well as hedging gains and decreased
renewable energy credit costs during fiscal 2019, contributed to a $215.7 million IBIT increase.
• Manufacturing changes within our Energy business have allowed us to benefit from certain federal excise tax credits.
Following resolution of the underlying gain contingencies associated with the tax credits during fiscal 2019, a gain of
$80.8 million was recognized as a reduction of COGS in our Consolidated Statements of Operations.
• The increased IBIT resulting from improved market conditions in our refined fuels business was partially offset by the
turnaround at our McPherson refinery during April and May 2019. The decreased IBIT related to the McPherson
refinery turnaround was partially offset by increased IBIT at our Laurel refinery following a turnaround during May
2018 that did not reoccur during fiscal 2019.
Increases to IBIT were also partially offset by gains totaling $65.9 million recorded in other income in connection with
the sale of certain assets during fiscal 2018, including the sale of 34 Zip Trip stores located in the Pacific Northwest
and sale of the Council Bluffs pipeline and refined fuels terminal in Council Bluffs, Iowa, that did not reoccur during
fiscal 2019.
•
Ag
Income (loss) before income taxes
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
43,016
$
74,258
$
(31,242)
(42.1)%
The following table and commentary present the primary reasons for changes in IBIT for our Ag segment for the year
ended August 31, 2019, compared to the prior year:
Volume
Price
Non-gross profit related activity+
Total change in Ag IBIT
2019 vs. 2018
(Dollars in thousands)
$
$
59,344
(31,648)
(58,938)
(31,242)
+See commentary related to these changes in the marketing, general and administrative expenses, reserve and impairment charges (recoveries), net, (gain)
loss on disposal of business, interest expense, other income (loss) and equity (income) loss from investments sections of this Results of Operations.
27
Table of Contents
The $31.2 million decrease in Ag segment IBIT for fiscal 2019 reflects the following:
• A combination of higher non-gross-profit-related expenses contributed to a $58.9 million IBIT decrease, primarily
related to increased reserve and impairment charges in connection with certain loan loss reserves associated with the
challenging agricultural environment in our country operations business, including the impact of an out-of-period
adjustment recorded during the period increasing reserve and impairment charges (recoveries), net by $25.5 million.
Decreased interest income and increased interest expense also contributed to the IBIT decrease; however, the impacts
of these changes were mostly offset by a $19.1 million gain recognized in connection with our acquisition of the
remaining 75% ownership interest in WCD that we did not previously own during fiscal 2019.
Poor weather conditions, including heavy snow during the spring and heavy rainfall during the summer of 2019 in the
agricultural regions of the United States and continuing global trade tensions between the United States and foreign
trading partners resulted in generally decreased margins and decreased or flat volumes across most of our Ag segment
during fiscal 2019.
•
• The decreased IBIT across much of the Ag segment was partially offset by increased rebates and increased volumes
associated with certain agronomy products, which was attributable to a $12.9 million increase of IBIT that resulted
from the March 1, 2019, acquisition of the remaining 75% ownership interest in WCD that we did not previously own,
the results of which were not included in the comparable period of the prior fiscal year.
All Other Segments
Nitrogen Production IBIT*
Corporate and Other IBIT
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
$
72,870
81,527
$
$
38,838
106,026
$
$
34,032
(24,499)
87.6 %
(23.1)%
*See Note 5, Investments, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional
information.
Our Nitrogen Production segment IBIT increased as a result of significantly higher equity method income throughout
fiscal 2019 attributed to increased sale prices of urea and UAN, which are produced and sold by CF Nitrogen. Corporate and
Other IBIT decreased primarily as a result of a $58.2 million gain in Corporate and Other associated with the sale of CHS
Insurance during fiscal 2018 that did not reoccur during fiscal 2019. That gain was partially offset by higher earnings from our
investment in Ventura Foods and from our financing business.
Revenues by Segment
Energy
Revenues
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
7,119,076
$
7,589,119
$
(470,043)
(6.2)%
The following table and commentary present the primary reasons for changes in revenues, net of intersegment
revenues, for our Energy segment for the year ended August 31, 2019, compared to the prior year:
Volume
Price
Transportation, retail and other
Total change in Energy revenues
2019 vs. 2018
(Dollars in thousands)
$
$
(25,223)
(317,622)
(127,198)
(470,043)
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Table of Contents
The $470.0 million decrease in Energy segment revenues for fiscal 2019 reflects the following:
• The net impact of price and volume changes associated with other energy products, including decreased refined fuels
and propane selling prices, contributed to revenue decreases of $180.7 million and $142.5 million, respectively.
Decreased volumes of refined fuels and lubricants also contributed to $64.7 million and $19.2 million revenue
decreases, respectively. The decreased volumes were attributed primarily to poor weather conditions that prevented
and delayed spring planting of crops across much of the agricultural region of the United States, lowering demand for
our diesel fuel products. These decreases were partially offset by increased propane volumes that contributed to a
$58.7 million increase of revenues.
• Transportation, retail and other revenues decreased as a result of the sale of 34 Zip Trip stores located in the Pacific
Northwest during the third quarter of fiscal 2018. Revenues for these stores were included in our Energy segment
results of operations during most of fiscal 2018, but were not present in fiscal 2019.
• Transportation, retail and other revenues also decreased as a result of the impact of applying new revenue recognition
guidance under Accounting Standards Codification ("ASC") Topic 606 during fiscal 2019 compared to previous
guidance during the prior fiscal year, which resulted in a $52.1 million decrease of revenues due to certain contracts
being recognized on a net basis rather than a gross basis.
Ag
Revenues
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$ 24,720,072
$ 25,037,481
$
(317,409)
(1.3)%
The following table and commentary present the primary reasons for changes in revenues, net of intersegment
revenues, for our Ag segment for the year ended August 31, 2019, compared to the prior year:
Volume
Price
Total change in Ag revenues
2019 vs. 2018
(Dollars in thousands)
$
$
(29,341)
(288,068)
(317,409)
The $317.4 million decrease in Ag segment revenues for fiscal 2019 reflects the following:
• Decreased volumes associated with grain and oilseed contributed to a $600.9 million decrease of revenues. The
decreased volumes resulted primarily from continuing global trade tensions between the United States and foreign
trading partners.
• Decreased prices associated with grain and oilseed, feed and farm supplies, renewable fuels and processing and food
ingredients all contributed to decreased revenues, the largest of which were attributable to decreased renewable fuel
and grain and oilseed prices, which decreased revenues by $261.9 million and $134.9 million, respectively. Although
ethanol demand has remained relatively stable in North America, margins and underlying prices remained under
pressure for most of fiscal 2019 as ethanol production and inventory supplies remained at high levels. The decreased
prices also resulted from the poor weather conditions during the spring of 2019 in the agricultural region of the United
States that prevented and delayed planting of crops (impacting the mix and timing of products sold) and continuing
global trade tensions between the United States and foreign trading partners.
• The decreased revenues across much of the Ag segment were partially offset by increased pricing and volumes
associated with certain agronomy products, including increased pricing of crop nutrient products due to global supply
and demand and a $456.2 million increase of revenues that resulted from the March 1, 2019, acquisition of the
remaining 75% ownership interest in WCD that we did not previously own and the results of which were not included
in the prior fiscal year.
All Other Segments*
Corporate and Other revenues
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
61,305
$
56,747
$
4,558
8.0%
*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.
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Table of Contents
There were no significant changes in Corporate and Other revenues during fiscal 2019; however, the increase resulted
from higher revenues associated with our financing and hedging businesses, which was partially offset by a decrease of
insurance revenues due to the sale of CHS Insurance during the third quarter of fiscal 2018.
Cost of Goods Sold by Segment
Energy
Cost of goods sold
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
6,303,323
$
7,031,000
$
(727,677)
(10.3)%
The following table and commentary present the primary reasons for changes in COGS for our Energy segment, net of
intercompany COGS, for the year ended August 31, 2019, compared to the prior year:
Volume
Price
Transportation, retail and other
Total change in Energy COGS
2019 vs. 2018
(Dollars in thousands)
$
$
(14,855)
(616,600)
(96,222)
(727,677)
The $727.7 million decrease in Energy segment COGS for fiscal 2019 reflects the following:
• Decreased refined fuels costs and volumes contributed to $396.4 million and $59.8 million decreases of COGS,
respectively. Decreased costs for refined fuels was driven primarily by favorable pricing on heavy Canadian crude oil,
which is processed by our refineries, as well as decreased renewable energy credit costs. The decreased volumes were
attributed primarily to poor weather conditions that prevented and delayed spring planting of crops across much of the
agricultural region of the United States, lowering demand for our diesel fuel products.
• Decreased propane costs contributed to a $147.7 million decrease of COGS; however, the decrease was partially offset
by an 8% increase in propane volumes, which contributed to a $60.2 million increase of COGS.
• A gain of $80.8 million recognized as a reduction of COGS in our Consolidated Statements of Operations during fiscal
2019, which resulted from manufacturing changes in our Energy business that allowed us to benefit from certain
federal excise tax credits.
• Transportation, retail and other COGS decreased primarily as a result of the sale of 34 Zip Trip stores located in the
Pacific Northwest that were sold during the third quarter of fiscal 2018. Costs associated with these stores were
included in our Energy segment results of operations during most of fiscal 2018, but were not present in fiscal 2019.
• Other COGS also decreased as a result of the impact of applying new revenue recognition guidance under ASC Topic
606 during fiscal 2019 compared to previous guidance during the comparable period of the prior fiscal year, which
resulted in a $52.1 million decrease of COGS due to certain contracts being recognized on a net basis rather than a
gross basis.
Ag
Cost of goods sold
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$ 24,215,749
$ 24,560,854
$
(345,105)
(1.4)%
The following table and commentary present the primary reasons for changes in COGS for our Ag segment, net of
intercompany COGS, for the year ended August 31, 2019, compared to the prior year:
Volume
Price
Total change in Ag COGS
30
2019 vs. 2018
(Dollars in thousands)
$
$
(89,447)
(255,658)
(345,105)
Table of Contents
The $345.1 million decrease in Ag segment COGS for fiscal 2019 reflects the following:
• Decreased volumes associated with grain and oilseed contributed to a $595.8 million decrease of COGS. The
decreased volumes resulted primarily from continuing global trade tensions between the United States and foreign
trading partners.
• Decreased costs associated with grain and oilseed, feed and farm supplies, renewable fuels and processing and food
ingredients contributed to decreased COGS, the largest of which were attributable to decreased renewable fuel and
feed and farm supply costs, which decreased COGS by $223.5 million and $182.5 million, respectively. Although
ethanol demand has remained relatively stable in North America, margins remained under pressure for most of fiscal
2019 as ethanol production and inventory supplies remained at high levels. The decreased costs also resulted from the
poor weather conditions, including heavy snow and rainfall, during the spring of 2019 in the agricultural region of the
United States that prevented and delayed planting of crops (impacting the mix and timing of products sold) and
continuing global trade tensions between the United States and foreign trading partners.
• The decreased COGS across much of the Ag segment was partially offset by increased volumes and costs associated
with certain agronomy products and processing and food ingredients, most of which was attributable to an increase of
COGS that resulted from our acquisition of the remaining 75% ownership interest in WCD that we did not previously
own on March 1, 2019, the results of which were not included in the comparable period of the prior fiscal year.
All Other Segments
Nitrogen Production COGS
Corporate and Other COGS
*NM - not meaningful
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
$
2,879
$
1,340
$
1,539
(5,831) $
(3,307) $
(2,524)
NM*
NM*
There were no significant changes to COGS for our Nitrogen Production segment or Corporate and Other during fiscal
2019.
Marketing, General and Administrative Expenses
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
Marketing, general and administrative expenses
$
737,636
$
677,465
$
60,171
8.9%
The $60.2 million increase in marketing, general and administrative expenses for fiscal 2019 relates primarily to
increased annual incentive compensation resulting from improved earnings during fiscal 2019, increased consulting and outside
service fees associated with ongoing internal controls strengthening efforts in response to prior material weakness
determinations and increased repairs and maintenance expense at our facilities.
Reserve and Impairment Charges (Recoveries), Net
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
Reserve and impairment charges (recoveries), net
$
(12,905) $
(37,709) $
24,804
65.8%
The $24.8 million decrease in recoveries of reserve and impairment charges relates primarily to the impact of reserve
and impairment charges recorded during fiscal 2019 that offset recoveries. Recoveries of amounts reserved and impaired during
previous years totaled approximately $109.4 million during fiscal 2019; however, these recoveries were offset by approximately
$96.5 million of reserve and impairment charges recorded during fiscal 2019 that resulted from the challenging agricultural
environment that continues to negatively impact our Ag segment. The reserve and impairment charges recorded during fiscal
2019 relate primarily to increased loan loss reserves of $48.4 million in our country operations business, including the impact of
a $25.5 million out-of-period adjustment, as well as a $27.4 million impairment of goodwill associated with a reporting unit in
our Ag segment and the impairment of other long-lived assets.
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Table of Contents
Gain (Loss) on Disposal of Business
Gain (loss) on disposal of business
*NM - not meaningful
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
3,886
$
131,816
$
(127,930)
NM*
The decrease in gain (loss) on disposal of business is primarily attributable to gains recognized on the sale of certain
assets during fiscal 2018 that did not reoccur during fiscal 2019, including a $65.9 million gain in our Energy segment
associated with the sale of 34 Zip Trip stores located in the Pacific Northwest and sale of the Council Bluffs pipeline and
refined fuels terminal in Council Bluffs, Iowa, and a $58.2 million gain in Corporate and Other associated with the sale of CHS
Insurance.
Interest Expense
Interest expense
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
167,065
$
149,202
$
17,863
12.0%
The $17.9 million increase in interest expense for fiscal 2019 was due to higher outstanding debt balances associated
with our unsecured revolving credit facility and higher interest rates during fiscal 2019.
Other Income (Loss)
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
Other income (loss)
$
82,423
$
82,737
$
(314)
(0.4)%
There were no significant changes to other income (loss) during fiscal 2019.
Equity Income (Loss) from Investments
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
Equity income (loss) from investments*
$
236,755
$
153,515
$
83,240
54.2%
*See Note 5, Investments, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional
information.
The $83.2 million increase of equity income (loss) from investments for fiscal 2019 was primarily due to higher equity
income recognized from our equity method investments in CF Nitrogen and Ventura Foods, which increased by $53.5 million
and $26.8 million, respectively. The increases were driven by improved urea and UAN pricing for CF Nitrogen and improved
product margins and volumes for Ventura Foods.
Income Tax Benefit (Expense)
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
Income tax benefit (expense)
$
12,456
$
104,076
$
(91,620)
(88.0)%
The decrease in income tax benefit was primarily due to incremental tax benefits recognized during fiscal 2018 that
did not reoccur during fiscal 2019, including revaluation of our net deferred tax liability resulting from the Tax Cuts and Jobs
Act enacted on December 22, 2017, and the intercompany transfer of a business on December 1, 2017. The federal and state
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Table of Contents
statutory rate applied to nonpatronage business activity was 24.7% and 29.3% for the years ended August 31, 2019 and 2018,
respectively. Income taxes and effective tax rates vary each year based upon profitability and nonpatronage business activity.
Comparison of results of operations for the years ended August 31, 2018 and 2017
For a discussion of results of operations for fiscal 2018 compared to fiscal 2017, please refer to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K
for the year ended August 31, 2018, filed with the SEC on December 3, 2018.
Liquidity and Capital Resources
Summary
In assessing our financial condition, we consider factors such as working capital and internal benchmarking related to
our applicable covenants and other financial criteria. We fund our operations primarily through a combination of cash flows
from operations supplemented with borrowings under our revolving credit facilities. We fund our capital expenditures and
growth primarily through cash, operating cash flow and long-term debt financing.
On August 31, 2019 and 2018, we had working capital, defined as current assets less current liabilities, of $1.1 billion
and $759.0 million, respectively. The increase in working capital was driven primarily by reductions in our notes payable and
debt and increases in our accounts receivable and inventory that resulted from our acquisition of the remaining 75% ownership
interest in WCD that we did not previously own. Our current ratio, defined as current assets divided by current liabilities, was
1.2 and 1.1 as of August 31, 2019 and 2018, respectively. Working capital and the current ratio may not be computed the same
as similarly titled measures used by other companies. We believe this information is meaningful to investors as a measure of
operational efficiency and short-term financial health.
As of August 31, 2019, we had cash and cash equivalents of $211.2 million, total equities of $8.6 billion, long-term
debt (including current maturities) of $1.8 billion and notes payable of $2.2 billion. Our capital allocation priorities include
paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and
equity redemptions, maintaining the safety and compliance of our operations, and taking advantage of strategic opportunities
that benefit our owners. We will continue to consider opportunities to further diversify and enhance our sources and amounts of
liquidity. We believe cash generated by operating and investing activities, along with available borrowing capacity under our
credit facilities, will be sufficient to support our operations for the foreseeable future and we expect to remain in compliance
with our loan covenants.
Fiscal 2019 and 2018 Activity
During fiscal 2019, we completed the acquisition of the remaining 75% ownership interest in WCD that we did not
previously own by paying $106.7 million, of which net cash flows were reduced by $8.0 million of cash acquired. WCD is now
included in our Ag segment and deepens our presence in the agronomy products market. See Note 18, Acquisitions, of the notes
to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Also during fiscal 2019, our McPherson refinery finished its planned major maintenance. Total cash spend associated
with the project was $223.4 million for the year ended August 31, 2019.
On June 27, 2019, we extended our existing receivables and loans securitization facility ("Securitization Facility")
with certain unaffiliated financial institutions ("Purchasers"). Under the Securitization Facility, we and certain of our
subsidiaries ("Originators") sell trade accounts and notes receivable ("Receivables") to Cofina Funding, LLC ("Cofina"), a
wholly-owned bankruptcy-remote indirect subsidiary of CHS. Cofina in turn transfers the Receivables to the Purchasers, which
is accounted for as a secured borrowing. During the period from July 2017 through a previous amendment of the Securitization
Facility in June 2018, CHS accounted for Receivables sold under the Securitization Facility as a sale of financial assets
pursuant to ASC 860, Transfers and Servicing, and the Receivables sold were derecognized from our Consolidated Balance
Sheets. We use the proceeds from the sale of Receivables under the Securitization Facility for general corporate purposes and
settlements are made on a monthly basis. The Securitization Facility is scheduled to terminate on June 26, 2020, but may be
extended.
The amount available under the Securitization Facility fluctuates over time based on the total amount of eligible
Receivables generated during the normal course of business, with maximum availability of $700.0 million. As of August 31,
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2019 and 2018, the total availability under the Securitization Facility was $632.0 million and $645.0 million, respectively, all of
which had been utilized.
On September 4, 2018, we entered into a repurchase facility (the "Repurchase Facility") related to the Securitization
Facility. Under the Repurchase Facility, we are able to borrow up to $150.0 million, collateralized by a subordinated note
issued by Cofina in favor of the Originators and representing a portion of the outstanding balance of the Receivables sold by
the Originators to Cofina under the Securitization Facility. As of August 31, 2019, the outstanding balance under the
Repurchase Facility was $150.0 million.
Cash Flows
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
For the Years Ended August 31,
Change
2019
2018
Dollars
Percent
(Dollars in thousands)
$
1,139,931
$
1,074,497
$
65,434
6.1 %
(79,524)
(581,759)
(731.6)%
(661,283)
(725,646)
2,733
(732,170)
8,864
6,524
(6,131)
0.9 %
(69.2)%
(189.9)%
Net increase (decrease) in cash and cash equivalents
$
(244,265) $
271,667
$
(515,932)
The $65.4 million increase in cash provided by operating activities primarily reflects increased net income during
fiscal 2019 compared to the prior fiscal year. A combination of factors contributed to various other offsetting changes within
operating cash flow activities, including decreased revenues that resulted from global trade tensions between the United States
and its foreign trading partners, as well as poor weather conditions during the spring of 2019 in the agricultural region of the
United States that prevented and delayed planting of crops.
The $581.8 million increase in cash used in investing activities for fiscal 2019 primarily reflects the following:
• Cash outflows of approximately $223.4 million for planned major maintenance at our McPherson refinery during
•
•
fiscal 2019.
Proceeds of $230.0 million from the sale of certain North American businesses/assets during fiscal 2018 that did not
reoccur during fiscal 2019.
In March 2019, we acquired the remaining 75% ownership interest in WCD that we did not previously own for $106.7
million, of which net cash flows were reduced by $8.0 million of cash acquired.
Increased acquisitions of property, plant and equipment for selective growth capital investments.
•
• The increased uses of cash referenced above were partially offset by certain other investing activities, including
increased payments from customer financing and decreased investments redeemed.
Cash used in financing activities decreased by $6.5 million for fiscal 2019, primarily due to the following:
• Decreased net cash outflows associated with our notes payable and long-term borrowings.
• The decrease was partially offset by payment of cash patronage of $75.8 million during fiscal 2019 and increased
equity redemption payments of $76.7 million.
Future Uses of Cash
We expect to utilize cash and cash equivalents, along with cash generated by operating activities, to fund capital
expenditures, major repairs, debt and interest payments, preferred stock dividends, patronage and equity redemptions. The
following is a summary of our primary cash requirements for fiscal 2020:
• Capital expenditures. We expect total capital expenditures for fiscal 2020 to be approximately $524.8 million,
compared to capital expenditures of $443.2 million in fiscal 2019. Included in that amount for fiscal 2020 is
approximately $105.0 million for the acquisition of property, plant and equipment at our Laurel and McPherson
refineries.
• Debt and interest. We expect to repay approximately $39.2 million of long-term debt and capital lease obligations and
incur interest payments related to long-term debt of approximately $76.2 million during fiscal 2020.
• Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of August 31, 2019.
We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2020.
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• Patronage. Our Board of Directors authorized approximately $90.0 million of our fiscal 2019 patronage sourced
earnings to be paid to our member owners during fiscal 2020.
• Equity redemptions. Our Board of Directors authorized and we expect total redemptions of approximately $90.0
million to be distributed in fiscal 2020 and in the form of redemptions of qualified and non-qualified equity owned by
individual producer members and association members.
Future Sources of Cash
We fund our current operations primarily through a combination of cash flows from operations and committed and
uncommitted revolving credit facilities, including our Securitization Facility and Repurchase Facility. We believe these sources
will provide adequate liquidity to meet our working capital needs. We fund certain of our long-term capital needs, primarily
those related to acquisitions of property, plant and equipment, with cash flows from operations and by issuing privately placed
long-term debt and term loans. In addition, our wholly-owned subsidiary, CHS Capital, makes loans to member cooperatives,
businesses and individual producers of agricultural products included in our cash flows from investing activities and has
financing sources as detailed below in CHS Capital Financing.
Working Capital Financing
We finance our working capital needs through committed and uncommitted lines of credit with domestic and
international banks. We believe our current cash balances and available capacity on our committed lines of credit will provide
adequate liquidity to meet our working capital needs. The following table summarizes our primary lines of credit as of
August 31, 2019 and 2018:
Primary Revolving Credit Facilities
Maturity
Total
Capacity
2019
Borrowings Outstanding
Interest Rates
2019
2018
(Dollars in thousands)
Committed five-year unsecured facility
2024
$
2,750,000
$
335,000
$
—
Uncommitted bilateral facilities
2020
630,000
430,000
515,000
LIBOR or base rate
+0.00% to 1.45%
LIBOR or base rate
+0.00% to 1.20%
On July 16, 2019, we amended and restated our primary line of credit, which is a five-year, unsecured revolving credit
facility with a syndicate of domestic and international banks. The credit facility provides a committed amount of $2.75 billion
that expires on July 16, 2024.
In addition to our primary revolving lines of credit, we have a three-year $315.0 million committed revolving pre-
export credit facility for CHS Agronegocio Industria e Comercio Ltda ("CHS Agronegocio"), our wholly-owned subsidiary, to
provide financing for its working capital needs arising from its purchases and sales of grains, fertilizers and other agricultural
products and that expires in April 2020. As of August 31, 2019, no amounts were outstanding under the facility.
In addition to our uncommitted bilateral facilities above, our wholly-owned subsidiaries, CHS Europe S.a.r.l and CHS
Agronegocio, had uncommitted lines of credit with $342.7 million outstanding, as of August 31, 2019. In addition, our other
international subsidiaries had total lines of credit outstanding of $155.8 million as of August 31, 2019, of which $13.8 million
was collateralized.
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Long-term Debt Financing
The following table presents summarized long-term debt including current maturities, for the years ended August 31,
2019 and 2018.
Private placement debt
Bank financing
Capital lease obligations
Other notes and contract payable
Deferred financing costs
For the Years Ended August 31,
2019
2018
(Dollars in thousands)
$ 1,379,840
366,000
28,239
18,601
(3,569)
$ 1,789,111
$ 1,510,547
366,000
25,280
32,607
(4,179)
$ 1,930,255
Long-term debt outstanding as of August 31, 2019, has aggregate maturities, excluding fair value adjustments and
capital leases, as follows:
2020
2021
2022
2023
2024
Thereafter
(Dollars in thousands)
$
$
32,812
180,663
66
282,066
2,620
1,256,525
1,754,752
See Note 8, Notes Payable and Long-Term Debt, of the notes to the consolidated financial statements that are included
in this Annual Report on Form 10-K for additional information.
CHS Capital Financing
For a description of the Securitization Facility and the Repurchase Facility, see above in Fiscal 2019 and 2018
activity.
CHS Capital has available credit under a master participation agreement with one counterparty. Borrowings under this
agreement are accounted for as secured borrowings and bear interest at 4.19% as of August 31, 2019. As of August 31, 2019,
the total funding commitment under this agreement was $5.0 million, of which $2.3 million was borrowed.
CHS Capital sells loan commitments it has originated to ProPartners Financial on a recourse basis. Total outstanding
commitments under the program were $65.8 million as of August 31, 2019, of which $42.3 million was borrowed with an
interest rate of 3.36%.
CHS Capital borrows funds under short-term notes issued as part of a surplus funds program. Borrowings under this
program are unsecured and bear interest at variable rates ranging from 0.35% to 1.40% as of August 31, 2019, and are due upon
demand. Borrowings under these notes totaled $63.8 million as of August 31, 2019.
Covenants
Our long-term debt is mostly unsecured; however, restrictive covenants under various debt agreements require the
maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with all debt covenants and
restrictions as of August 31, 2019. Based on our current 2020 projections, we expect continued covenant compliance.
All outstanding private placement notes conform to financial covenants applicable to those of our amended and
restated five-year, unsecured, revolving credit facility. The notes provide that if our ratio of consolidated funded debt to
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consolidated cash flow is greater than 3.0 to 1.0, the interest rate on all outstanding notes will be increased by 0.25% until the
ratio becomes 3.0 or less. During both fiscal 2019 and 2018, our ratio of funded debt to consolidated cash flow remained below
3.0 to 1.0.
Patronage and Equity Redemptions
In accordance with our bylaws and by action of our Board of Directors, annual net earnings from patronage sources
are distributed to consenting patrons following the close of each fiscal year and are based on amounts using financial statement
earnings. The cash portion of the qualified patronage distribution, if any, is determined annually by our Board of Directors,
with the balance issued in the form of qualified and/or non-qualified capital equity certificates. Total patronage distributions for
fiscal 2019 are estimated to be $562.4 million, with the qualified cash portion estimated to be $90.0 million and non-qualified
equity distributions of $472.4 million. No portion of annual net earnings for fiscal 2019 will be issued in the form of qualified
capital equity certificates. Patronage distributions for fiscal 2018 were $428.8 million, with a $75.8 million cash portion. Actual
patronage distributions and cash portion for fiscal 2017 and 2016 were $128.8 million (with no cash portion) and $257.5
million ($103.9 million in cash), respectively.
The following table presents estimated patronage data for the year ending August 31, 2020, and actual patronage data
for the years ended August 31, 2019, 2018 and 2017:
Patronage distributed in cash
Patronage distributed in equity
Total patronage distributed
2020
2019
2018
2017
(Dollars in millions)
$
$
90.0
$
75.8
$
— $
472.4
353.0
128.8
562.4
$
428.8
$
128.8
$
103.9
153.6
257.5
In accordance with authorization from our Board of Directors, we expect total redemptions related to the year ended
August 31, 2019, and distributed in fiscal 2020 to be approximately $90.0 million. These redemptions are classified as a current
liability on the August 31, 2019, Consolidated Balance Sheet.
Other Financing
See Note 10, Equities, of the notes to the consolidated financial statements that are included in this Annual Report on
Form 10-K for a summary of our outstanding preferred stock as of August 31, 2019, each series of which is listed and traded on
the Global Select Market of Nasdaq.
Off-Balance Sheet Financing Arrangements
Guarantees
We are a guarantor for lines of credit and performance obligations of related, non-consolidated companies. Our bank
covenants allow maximum guarantees of $1.0 billion, of which $196.0 million were outstanding on August 31, 2019. We have
collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as
we do not expect to pay out cash related to them and the fair values are considered immaterial. The underlying loans to the
counterparties for which we provide guarantees were current as of August 31, 2019.
Operating Leases
Future minimum lease payments required under noncancelable operating leases as of August 31, 2019, were $342.0
million.
Debt
There is no material off-balance sheet debt.
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Loan Participations
We engage in off-balance sheet arrangements through certain loan participation agreements. Refer to further details
about these arrangements in Note 3, Receivables, of the notes to the consolidated financial statements that are included in this
Annual Report on Form 10-K.
Contractual Obligations
We had certain contractual obligations as of August 31, 2019, which require the following payments to be made:
Long-term debt obligations (1)
Interest payments (2)
Capital lease obligations (3)
Operating lease obligations
Purchase obligations (4)
Other liabilities (5)
Total obligations
Total
Less than
1 Year
1 - 3
Years
3 - 5
Years
More than
5 Years
Payments Due by Period
(Dollars in thousands)
$
1,754,752
$
32,812
$
180,729
$
284,686
$
1,256,525
575,305
31,684
341,988
7,094,073
496,356
76,217
6,761
87,168
5,696,389
—
142,227
11,220
101,046
719,274
35,355
122,001
7,186
61,121
256,480
17,143
234,860
6,517
92,653
421,930
443,858
$ 10,294,158
$
5,899,347
$
1,189,851
$
748,617
$
2,456,343
(1) Excludes fair value adjustments to the long-term debt reported on our Consolidated Balance Sheet as of August 31, 2019, resulting
from fair value interest rate swaps and related hedge accounting.
(2) Based on interest rates and long-term debt balances as of August 31, 2019.
(3) Future minimum lease payments under capital leases include amounts related to bargain purchase options and residual value
guarantees, which represent economic obligations as opposed to contractual payment obligations.
(4) Purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms,
including fixed or minimum quantities; fixed, minimum or variable price provisions; and approximate time of the transactions. In the
ordinary course of business, we enter into a significant number of forward purchase commitments for agricultural and energy commodities
and related freight. The purchase obligation amounts shown above include both short- and long-term obligations and are based on a) fixed
or minimum quantities to be purchased and b) fixed or estimated prices to be paid at the time of settlement. Current estimates are based on
assumptions about future market conditions that will exist at the time of settlement. Consequently, actual amounts paid under these
contracts may differ due to the variable pricing provisions. Market risk related to the variability of our forward purchase commitments is
economically hedged by offsetting forward sale contracts that are not included in the amounts above.
(5) Other liabilities include the long-term portion of deferred compensation, deferred tax liabilities and contractual redemptions. Of the
total other liabilities and deferred tax liabilities of $496.4 million on our Consolidated Balance Sheet as of August 31, 2019, the timing of
the payments of $431.8 million of such liabilities cannot be determined.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with U.S. GAAP. Preparation of these consolidated
financial statements requires use of estimates, as well as management’s judgments and assumptions regarding matters that are
subjective, uncertain or involve a high degree of complexity, all of which affect the results of operations and financial condition
for the periods presented. We believe the following significant accounting policies may involve a higher degree of estimates,
judgments and complexity.
Inventory Valuation and Reserves
Grain, processed grain, oilseed and processed oilseed inventories are stated at net realizable value. All other
inventories are stated at the lower of cost or net realizable value. The costs of certain energy inventories (wholesale refined
products, crude oil and asphalt) are determined on the last-in, first-out ("LIFO") method; all other inventories of non-grain
products purchased for resale are valued on the first-in, first-out ("FIFO") and average cost methods. Estimates are used in
determining the net realizable values of grain and oilseed and processed grains and oilseeds inventories. These estimates
include measurement of grain in bins and other storage facilities, which uses formulas in addition to actual measurements taken
to arrive at appropriate quantities. Other determinations made by management include quality of inventory and estimates for
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freight. Grain shrink reserves and other reserves that account for spoilage also affect inventory valuations. If estimates
regarding the valuation of inventories, or the adequacy of reserves, are less favorable than management’s assumptions, then
additional reserves or write-downs of inventories may be required.
Derivative Financial Instruments
We enter into exchange-traded commodity futures and options contracts to hedge our exposure to price fluctuations on
energy, grain and oilseed transactions to the extent considered practicable for minimizing risk. Futures and options contracts
used for hedging are purchased and sold through regulated commodity exchanges. We also use over-the-counter instruments to
hedge our exposure on fixed-price contracts. Fluctuations in inventory valuations, however, may not be completely hedged, due
in part to the absence of satisfactory hedging facilities for certain commodities and geographical areas and in part to our
assessment of our exposure from expected price fluctuations. We also manage our risks by entering into fixed-price purchase
contracts with preapproved producers and establishing appropriate limits for individual suppliers. Fixed-price sales contracts
are entered into with customers of acceptable creditworthiness, as internally evaluated. The fair values of futures and options
contracts are determined primarily from quotes listed on regulated commodity exchanges. Fixed-price purchase and sales
contracts are with various counterparties, and the fair values of such contracts are determined from the market price of the
underlying product. We are exposed to loss in the event of nonperformance by the counterparties to the contracts and, therefore,
contract values are reviewed and adjusted to reflect potential nonperformance. Risk of nonperformance by counterparties
includes the inability to perform because of a counterparty’s financial condition and a risk that the counterparty will refuse to
perform on a contract during periods of price fluctuations where contract prices are significantly different than the current
market prices.
Pension and Other Postretirement Benefits
Pension and other postretirement benefits costs and obligations depend on assumptions used in calculating such
amounts. These assumptions include discount rates, health care cost trend rates, benefits earned, interest costs, expected return
on plan assets, mortality rates and other factors. In accordance with U.S. GAAP, actual results that differ from the assumptions
are accumulated and amortized over future periods and, therefore, generally affect recognized expenses and the recorded
obligations in future periods. While our management believes the assumptions used are appropriate, differences in actual
experience or changes in assumptions may affect our pension and other postretirement obligations and future expenses.
Deferred Tax Assets and Uncertain Tax Positions
We assess whether a valuation allowance is necessary to reduce our deferred tax assets to the amount we believe is
more likely than not to be realized. While we have considered future taxable income, as well as other factors, in assessing the
need for the valuation allowance, in the event that we were to determine that we would not be able to realize all or part of our
net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to income in the period such
determination was made. We are also significantly impacted by the utilization of tax credits, some of which were passed to us
from the McPherson refinery, related to refinery upgrades that enable us to produce ultra-low-sulfur fuels. Our tax credit
carryforwards are available to offset future federal and state tax liabilities with the tax credits becoming unavailable to us if not
used by their expiration date. Our net operating loss carryforwards for tax purposes are available to offset future taxable
income. If our loss carryforwards are not used, these loss carryforwards will expire.
Tax benefits related to uncertain tax positions are recognized in our financial statements if it is more likely than not
that the position would be sustained upon examination by a tax authority that has full knowledge of all relevant information.
The benefits are measured using a cumulative probability approach. Under this approach, we record in our financial statements
the greatest amount of tax benefits that have a more than 50% probability of being realized upon final settlement with the tax
authorities. In determining these tax benefits, we assign probabilities to a range of outcomes that we feel we could ultimately
settle on with the tax authorities using all relevant facts and information available at the reporting date. Due to the complexity
of these uncertainties, the ultimate resolution may result in a benefit that is materially different than our current estimate.
Long-Lived Assets
Property, plant and equipment is depreciated or amortized over the expected useful lives of individual or groups of
assets based on the straight-line method. Economic circumstances or other factors may cause management’s estimates of
expected useful lives to differ from actual.
All long-lived assets, including property, plant and equipment, goodwill, investments in unconsolidated affiliates and
other identifiable intangibles, are evaluated for impairment in accordance with U.S. GAAP, at least annually for goodwill, and
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whenever events or changes in circumstances indicate the carrying amount of a long-lived asset or asset group may not be
recoverable. For goodwill, our annual impairment testing occurs in our fourth quarter. An impaired asset is written down to its
estimated fair value based on the best information available. Fair value is generally measured by discounting estimated future
cash flows. Considerable management judgment is necessary to estimate discounted future cash flows and our estimates may
differ from actual.
We have asset retirement obligations with respect to certain of our refineries and other assets due to various legal
obligations to clean and/or dispose of the component parts at the time they are retired. In most cases, these assets can be used
for extended and indeterminate periods of time, as long as they are properly maintained and/or upgraded. It is our practice and
current intent to maintain refineries and related assets and to continue making improvements to those assets based on
technological advances. As a result, we believe our refineries and related assets have indeterminate lives for purposes of
estimating asset retirement obligations because dates or ranges of dates upon which we would retire a refinery and related
assets cannot reasonably be estimated at this time. When a date or range of dates can reasonably be estimated for the retirement
of any component part of a refinery or other asset, we will estimate the cost of performing the retirement activities and record a
liability for the fair value of that future cost.
We have other assets that we may be obligated to dismantle at the end of corresponding lease terms subject to lessor
discretion for which we have recorded asset retirement obligations. Based on our estimates of the timing, cost and probability
of removal, these obligations are not material.
Effect of Inflation and Foreign Currency Transactions
We believe inflation and foreign currency fluctuations have not had a significant effect on our operations during the
three years ended August 31, 2019, since we conduct a significant portion of our business in U.S. dollars.
Recent Accounting Pronouncements
See Note 1, Organization, Basis of Presentation and Significant Accounting Policies, of the notes to the consolidated
financial statements that are included in this Annual Report on Form 10-K for information concerning new accounting
standards and the impact of the implementation of those standards on our financial statements.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
When we enter into a commodity purchase or sales commitment, we incur risks related to price changes and
performance including delivery, quality, quantity and shipment period. In the event that market prices decrease, we are exposed
to risk of loss for the market value of inventory and purchase contracts with fixed or partially fixed prices. Conversely, we are
exposed to risk of loss on our fixed or partially fixed price sales contracts in the event that market prices increase.
Our use of hedging reduces exposure to price volatility by protecting against adverse short-term price movements, but
also limits the benefits of favorable short-term price movements. To reduce the price risk associated with fixed price
commitments, we generally enter into commodity derivative contracts, to the extent practical, to achieve a net commodity
position within the formal position limits we have established and deemed prudent for each commodity. These contracts are
primarily transacted on regulated commodity futures exchanges, but may include over-the-counter derivative instruments when
deemed appropriate. For commodities where there is no liquid derivative contract, risk is managed through the use of forward
sales contracts, other pricing arrangements and, to some extent, futures contracts in highly correlated commodities. These
contracts are economic hedges of price risk, but are not designated as hedging instruments for accounting purposes. The
contracts are recorded on our Consolidated Balance Sheets at fair values based on quotes listed on regulated commodity
exchanges or the market prices of the underlying products listed on the exchanges, except that fertilizer and propane contracts
are accounted for as normal purchase and normal sales transactions. Unrealized gains and losses on these contracts are
recognized in cost of goods sold in our Consolidated Statements of Operations.
When a futures position is established, initial margin must be deposited with the applicable exchange or broker. The
amount of margin required varies by commodity and is set by the applicable exchange at its sole discretion. If the market price
relative to a short futures position increases, an additional margin deposit would be required. Similarly, a margin deposit would
be required if the market price relative to a long futures position decreases. Conversely, if the market price increases relative to
a long futures position or decreases relative to a short futures position, margin deposits may be returned by the applicable
exchange or broker.
Our policy is to manage our commodity price risk exposure according to internal polices and in alignment with our
tolerance for risk. It is our policy that our profitability should come from operations, primarily derived from margins on
products sold and grain merchandised, not from hedging transactions. At any one time, inventory and purchase contracts for
delivery to us may be substantial. We have risk management policies and procedures that include established net physical
position limits. These limits are defined for each commodity and business unit, and may include both trader and management
limits as appropriate. The limits policy is overseen at a high level by our corporate compliance team, with day-to-day
monitoring procedures being implemented within each individual business unit to ensure any limits overage is explained and
exposures reduced, or a temporary limit increase is established if needed. The position limits are reviewed at least annually
with our senior leadership and Board of Directors. We monitor current market conditions and may expand or reduce our net
position limits or procedures in response to changes in those conditions.
The use of hedging instruments does not protect against nonperformance by counterparties to cash contracts. We
evaluate counterparty exposure by reviewing contracts and adjusting the values to reflect potential nonperformance. Risk of
nonperformance by counterparties includes the inability to perform because of a counterparty's financial condition and the risk
that the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are
significantly different than the current market prices. We manage these risks by entering into fixed price purchase and sales
contracts with preapproved producers and by establishing appropriate limits for individual suppliers. Fixed price contracts are
entered into with customers of acceptable creditworthiness, as internally evaluated. Regarding our use of derivatives, we
primarily transact in exchange traded instruments or enter into over-the-counter derivatives that clear through a designated
clearing organization, which limits our counterparty exposure relative to hedging activities. Historically, we have not
experienced significant events of nonperformance on open contracts. Accordingly, we only adjust the estimated fair values of
specifically identified contracts for nonperformance. Although we have established policies and procedures, we make no
assurances that historical nonperformance experience will carry forward to future periods.
A 10% adverse change in market prices would not materially affect our results of operations, since we use commodity
futures and forward contracts as economic hedges of price risk and since our operations have effective economic hedging
requirements as a general business practice.
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INTEREST RATE RISK
Debt used to finance inventories and receivables is represented by short-term notes payable, so our blended interest
rate for all such notes approximates current market rates. We have outstanding interest rate swaps with an aggregate notional
amount of $365.0 million designated as fair value hedges of portions of our fixed-rate debt. Our objective is to offset changes
in the fair value of the debt associated with the risk of variability in the three-month U.S. dollar LIBOR interest rate, in essence
converting the fixed-rate debt to variable-rate debt. Offsetting changes in the fair values of both the swap instruments and
hedged debt are recorded contemporaneously each period and only create an impact to earnings to the extent that the hedge is
ineffective. During fiscal 2019, we recorded offsetting fair value adjustments of $21.2 million, with no ineffectiveness recorded
in earnings.
The table below provides information about our outstanding debt and derivative financial instruments that are
sensitive to changes in interest rates. For debt obligations, the table presents scheduled contractual principal payments and
related weighted average interest rates for the fiscal years presented. For interest rate swaps, the table presents notional
amounts for payments to be exchanged by expected contractual maturity dates for the fiscal years presented and interest rates
noted in the table.
Expected Maturity Date
2020
2021
2022
2023
2024
Thereafter
Total
(Dollars in thousands)
Fair Value
Asset
(Liability)
Liabilities:
Variable rate miscellaneous
short-term notes payable
$ 1,330,550
Average interest rate
Variable rate CHS Capital
short-term notes payable
3.4%
$ 825,558
$
$
— $
— $
— $
— $
— $ 1,330,550
$ (1,330,550)
—
—
—
—
—
3.4%
—
— $
— $
— $
— $
— $ 825,558
$
(825,558)
Average interest rate
2.9%
—
Fixed rate long-term debt
$
32,812
$180,663
$
—
66
—
—
—
2.9%
—
$282,066
$
2,620
$890,525
$ 1,388,752
$ (1,505,213)
Average interest rate
4.4%
4.5%
5.1%
4.5%
5.1%
4.6%
4.4%
—
Variable rate long-term debt
Average interest rate (a)
Interest Rate Derivatives:
Fixed to variable long-term
debt interest rate swaps
Average pay rate (b)
Average receive rate (c)
$
$
— $
— $
— $
— $
— $366,000
$ 366,000
$
(372,489)
—
—
—
—
—
range
range
—
— $160,000
$
— $130,000
$
— $ 75,000
$ 365,000
$
9,841
—
—
range
range
—
—
range
range
—
—
range
range
range
range
—
—
(a) Borrowings under the agreement bear interest at a base rate (or LIBOR) plus an applicable margin, or at a fixed rate of interest
determined and quoted by the administrative agent under the agreement in its sole and absolute discretion from time to time. The
applicable margin is based on our leverage ratio and ranges between 1.50% and 2.00% for LIBOR-based loans and between 0.50% and
1.00% for base rate loans.
(b) Five swaps with notional amounts of $365.0 million with fixed rates from 4.52% to 4.67%.
(c) Average three-month U.S. dollar LIBOR plus spreads ranging from 2.009% to 2.74%.
FOREIGN CURRENCY RISK
We were exposed to risk regarding foreign currency fluctuations during fiscal 2019 and in prior years even though a
substantial amount of our international sales were denominated in U.S. dollars. In addition to specific transactional exposure,
foreign currency fluctuations can impact the ability of foreign buyers to purchase U.S. agricultural products and the
competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.
From time to time, we enter into foreign currency hedge contracts to minimize the impact of currency fluctuations on our
transactional exposures. The notional amounts of our foreign exchange derivative contracts were $894.7 million and $988.8
million as of August 31, 2019 and 2018, respectively.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 15(a)(1) of this Annual Report on Form 10-K are set forth beginning on
page F-1. Financial statement schedules are included in Schedule II in Item 15(a)(2) of this Annual Report on Form 10-K.
Supplementary financial information required by Item 302 of Regulation S-K promulgated by the SEC for each quarter during
the years ended August 31, 2019 and 2018, is presented below.
For the Three Months Ended
August 31,
2019
May 31,
2019
February 28,
2019
November 30,
2018
(Unaudited)
(Dollars in thousands)
Revenues
Gross profit
Income (loss) before income taxes
Net income (loss)
Net income (loss) attributable to CHS Inc.
$
8,434,684
$
8,497,941
$
6,483,539
$
8,484,289
262,508
124,935
177,925
178,990
223,771
61,579
54,713
54,620
427,413
261,855
248,304
248,766
470,641
367,232
347,115
347,504
For the Three Months Ended
August 31,
2018
May 31,
2018
February 28,
2018
November 30,
2017
(Unaudited)
(Dollars in thousands)
Revenues
Gross profit
Income (loss) before income taxes
Net income (loss)
Net income (loss) attributable to CHS Inc.
$
8,583,982
$
9,087,328
$
6,980,153
$
8,031,884
391,027
248,332
240,545
240,447
245,632
236,839
181,620
181,807
134,969
(21,729)
165,959
166,007
320,492
207,788
187,182
187,646
ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures:
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended ("Exchange Act")), as of August 31, 2019. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were
not effective because of the material weaknesses in our internal control over financial reporting disclosed within Management's
Annual Report on Internal Control Over Financial Reporting in this Item 9A.
Management’s Annual Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projecting any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
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Management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).
Based on management’s assessment using this framework, management concluded that, as of August 31, 2019, we did not
maintain effective internal control over financial reporting due to the fact that there were material weaknesses in our internal
control over financial reporting. We previously identified and disclosed in our Annual Report on Form 10-K for the year ended
August 31, 2018, the following material weaknesses in our internal control over financial reporting that continue to exist as of
August 31, 2019:
• We did not design and consistently maintain effective monitoring controls related to the design and operating
effectiveness of our internal controls. Specifically, we did not implement and reinforce an adequate process for
monitoring the proper functioning of internal control to verify that our accounting policies and procedures are
consistently and adequately being performed, as relevant, by a sufficient number of resources with the appropriate
knowledge and training.
• We did not design and maintain effective controls over certain information technology ("IT") general controls for
information systems relevant to the preparation of our financial statements. Specifically, we did not design and
maintain sufficient (i) testing and approval controls for program development to ensure the implementation of a
new ERP system was aligned with business and IT requirements, or (ii) user access controls to ensure appropriate
segregation of duties, or that adequately restrict user and privileged access to certain financial applications,
programs and data to appropriate personnel. These control deficiencies resulted in misstatements to the inventory
and COGS and related disclosures for the third quarter of fiscal 2018. Additionally, the deficiencies, when
aggregated, could impact the maintenance of effective segregation of duties, as well as the effectiveness of IT-
dependent controls (such as automated controls that address the risk of material misstatement to one or more
assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data
and reports) that could result in misstatements potentially impacting all financial statement accounts and
disclosures that would not be prevented or detected. Accordingly, our management has determined that these
control deficiencies constitute material weaknesses.
These material weaknesses resulted in the restatement of our consolidated financial statements for fiscal years 2016
and 2017, the restatement of each of the interim periods in fiscal years 2017 and 2018 and the correction of misstatements
identified during fiscal year 2018.
Additionally, each of the above material weaknesses could result in a misstatement of the aforementioned account
balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements
that would not be prevented or detected.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our
independent registered public accounting firm pursuant to the Financial Reform Bill passed in July 2010 that permits us to
provide only management’s report in this Annual Report on Form 10-K.
Remediation of Previously Identified Material Weaknesses
We previously identified and disclosed in our Annual Report on Form 10-K for the year ended August 31, 2018, the
following material weaknesses in our internal control over financial reporting, each of which has been remediated, as described
below:
• We did not design and maintain effective controls over the review of journal entries and account reconciliations in
our grain marketing operations. Specifically, we did not design and maintain effective controls to ensure journal
entries and account reconciliations were (i) properly prepared with sufficient supporting documentation or (ii)
reviewed and approved to ensure accuracy and completeness of the resulting journal entries.
• We did not design and maintain effective internal controls over the accounting for intercompany transactions.
Specifically, we did not design and maintain effective controls to ensure intercompany transactions are completely
and accurately identified, reconciled, evaluated and eliminated.
• We did not design and maintain effective controls over the accounting for freight contracts in our grain marketing
operations. Specifically, we did not design and maintain effective controls to verify (i) review over the accounting
for freight contracts was being performed by appropriate individuals with the requisite level of knowledge,
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training and skill to ensure freight contracts met the criteria to be accounted for as a derivative or (ii) the accuracy,
existence and valuation of freight contracts.
During the first three quarters of fiscal 2019, we substantially completed the comprehensive risk assessment of the
design of existing controls and implemented new controls as needed to remediate the above previously identified material
weaknesses. However, as we had yet to complete the testing and evaluation of the operating effectiveness of controls, the above
previously identified material weaknesses remained unremediated as of the end of the third quarter of fiscal 2019. During the
quarter ended August 31, 2019, we completed the testing and evaluation of the operating effectiveness of the controls and
concluded that the above previously identified material weaknesses have been remediated as of August 31, 2019.
Status of Remediation Actions
As it relates to the material weaknesses that existed as of August 31, 2019, the following remediation actions were taken during
the quarter ended August 31, 2019:
• Held bi-weekly steering committee meetings consisting of senior finance, legal, IT, operational and human
resources leaders to oversee the design and implementation of remediation plans.
• Continued developing, executing and monitoring of detailed remediation plans in response to each of the
remaining previously identified material weaknesses.
We are continuing to enhance our overall financial control environment through the following:
• Continued execution of our plans designed to remediate the two remaining previously identified material
weaknesses, including (1) implementing and reinforcing an adequate process for monitoring proper functioning of
internal controls to verify that our accounting policies and procedures are consistently and adequately being
performed as relevant by a sufficient number of resources with the appropriate knowledge and training and (2)
designing and maintaining effective controls over certain IT general controls for information systems that are
relevant to the preparation of our financial statements and testing the effectiveness of remediated controls.
• Continued hiring for our teams in functional areas as necessary to ensure the size and skill set of those teams is
adequate given the size, scale and complexity of our organization, industry and required internal controls over
financial reporting.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended August 31, 2019, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
We have announced the appointment of Angela Olsonawski to the position of interim chief financial officer, effective
November 7, 2019. In this capacity, Ms. Olsonawski will serve as our principal financial officer. Ms. Olsonawski will also
continue in her role as senior vice president and corporate treasurer.
Since 2018, Ms. Olsonawski has served as our senior vice president and corporate treasurer. From 2013, Ms.
Olsonawski served as a vice president in our energy marketing, trading risk management and operations areas in our energy
operations area, where she also held a variety of positions prior to 2013.
There is no arrangement or understanding between Ms. Olsonawski and any other person pursuant to which she was
appointed as interim chief financial officer, nor is there any family relationship between Ms. Olsonawski and any of our
directors or other executive officers. There are no transactions in which Ms. Olsonawski has an interest requiring disclosure
under Item 404(a) of Regulation S-K promulgated by the SEC. Ms. Olsonawski is 41 years old.
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS
The table below provides certain information regarding each of our directors, as of August 31, 2019.
Name
David Beckman
Clinton J. Blew
Dennis Carlson
Scott Cordes
Jon Erickson
Mark Farrell
Steve Fritel
Alan Holm
David Johnsrud
Tracy Jones
David Kayser
Russell Kehl
Randy Knecht
Edward Malesich
Perry Meyer
Steve Riegel
Daniel Schurr
Age
59
42
58
58
59
60
64
59
65
56
60
44
69
66
65
67
54
Director
Region
Director Since
8
8
3
1
3
5
3
1
1
5
4
6
4
2
1
8
7
2018
2010
2001
2017
2011
2016
2003
2013
2012
2017
2006
2017
2001
2011
2014
2006
2006
As a cooperative, members of our Board of Directors are nominated and elected by our members as required by our
bylaws. As described below under "Director Elections and Voting," to ensure geographic representation of our members, the
Board of Directors represents eight regions in which our members are located. The members in each region nominate and elect
the number of directors for that region as set forth in our bylaws. Neither management nor the incumbent directors have any
control over the nominating process for directors. As described below under "Director Elections and Voting," to be eligible for
service as a director, a nominee must, among other things, (i) be an active farmer or rancher whose primary occupation is that
of a farmer or rancher, (ii) be a Class A individual member of CHS or a member of a cooperative association member and (iii)
reside in the geographic region from which he or she is nominated. In general, our directors operate large commercial
agricultural enterprises, which require expertise in all areas of management, including financial management and oversight.
They also have experience serving on local cooperative association boards and participate in a variety of agricultural and
community organizations. Our directors complete the National Association of Corporate Directors Comprehensive Director
Professionalism course and earn the Certificate of Director Education, and also participate in ongoing director development and
education through various organizations and programs.
David Beckman has been a member of the CHS Board of Directors since 2018. He is a member of the Government
Relations Committee and Corporate Risk Committee. He serves as board chair for Central Valley Ag Cooperative and secretary
of the Nebraska Cooperative Council. Mr. Beckman's principal occupation has been farming for more than five years, and, in
partnership with his family, he raises irrigated corn and soybeans and operates a custom hog-feeding operation near Elgin,
Nebraska. He also owns a trucking business.
Clinton J. Blew, First Vice Chair, has been a member of the CHS Board of Directors since 2010. Since 2017, Mr.
Blew has served as first vice chair of the Executive Committee of the Board of Directors. He serves on the Audit Committee
and Corporate Risk Committee. He is a member of the board of directors of Mid Kansas Coop, Moundridge, Kansas, and is a
member of the Hutchinson Community College Ag Advisory Board, Kansas Livestock Association, Texas Cattle Feeders
Association and Red Angus Association of America. He holds an applied science degree in farm and ranch management from
Hutchinson Community College. Mr. Blew's principal occupation has been farming for more than five years, and he farms and
ranches in a family partnership in south-central Kansas.
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Dennis Carlson has been a member of the CHS Board of Directors since 2001. He serves as chair of the Capital
Committee and as a member of the Governance Committee. Mr. Carlson's principal occupation has been farming for more than
five years, and he raises wheat, sunflowers and soybeans near Mandan, North Dakota.
Scott Cordes has been a member of the CHS Board of Directors since 2017. He serves on the Government Relations
Committee and Corporate Risk Committee. He serves as a director and past chair of Security State Bank of Wanamingo
(Minnesota). He also served as director of the Minneapolis Grain Exchange and National Futures Association. He holds a
bachelor's degree in agricultural economics from the University of Minnesota. Mr. Cordes’ principal occupation has been
farming for more than three years. In 1995, he joined CHS and most recently served as the president of CHS Hedging, LLC, a
commodities brokerage subsidiary of CHS Inc., until 2016. He operates a corn and soybean farm near Wanamingo, Minnesota.
Jon Erickson, Second Vice Chair, has been a member of the CHS Board of Directors since 2011. Since 2017, he has
been second vice chair of the Executive Committee of the Board of Directors. He is a member of the Audit Committee and
Capital Committee. He is a member of the North Dakota Farmers Union and North Dakota Stockmen's Association. He holds a
bachelor’s degree in agricultural economics from North Dakota State University. Mr. Erickson’s principal occupation has been
farming for more than five years, and he raises grains and oilseeds and operates a commercial Hereford-Angus cow-calf
business near Minot, North Dakota.
Mark Farrell has been a member of the CHS Board of Directors since 2016. He serves as vice chair of the CHS
Foundation Board of Trustees and as a member of the Audit Committee. He graduated from the University of Wisconsin-
Madison Agricultural & Life Sciences Farm & Industry Short Course. Mr. Farrell's principal occupation has been farming for
more than five years. He raises corn, soybeans and wheat in Dane County, Wisconsin.
Steve Fritel has been a member of the CHS Board of Directors since 2003. He serves as vice chair of the Corporate
Risk Committee and as a member of the Audit Committee. He earned an associate degree from North Dakota State College of
Science. Mr. Fritel's principal occupation has been farming for more than five years. He raises spring wheat, soybeans, edible
beans, corn and canola near Rugby, North Dakota. He also runs a family business providing on-farm grain storage equipment.
Alan Holm has been a member of the CHS Board of Directors since 2013. He is chair of the Corporate Risk
Committee and vice chair of the Government Relations Committee. He also serves on the board for Citizens Bank Minnesota.
Mr. Holm holds an associate degree in machine tool technology from Mankato Technical College. Mr. Holm's principal
occupation has been farming for more than five years. He raises corn, soybeans, sweet corn, peas and hay and operates a cow-
calf herd near Sleepy Eye, Minnesota.
David Johnsrud, Secretary-Treasurer, has been a member of the CHS Board of Directors since 2012. Since 2017, he
has been secretary-treasurer of the Executive Committee of the Board of Directors. He serves as a member of the Capital
Committee and Governance Committee. He also serves as a member of the board for the Cooperative Network. Mr. Johnsrud's
principal occupation has been farming for more than five years, and he raises corn and soybeans near Starbuck, Minnesota.
Tracy Jones has been a member of the CHS Board of Directors since 2017. He serves on the Governance Committee
and the CHS Foundation Board of Trustees. He is a producer board member of CHS Elburn (Illinois) and was the board chair
of the Elburn Cooperative between 2011 and its merger into CHS in 2016. Mr. Jones' primary occupation has been farming for
more than five years. He operates a fourth-generation family farm near Kirkland, Illinois, that raises corn, soybeans and wheat
and feeds cattle.
David Kayser has been a member of the CHS Board of Directors since 2006. He is chair of the CHS Foundation
Board of Trustees and vice chair of the Audit Committee. Mr. Kayser is a member of the Mitchell Technical Institute
Foundation Board. Mr. Kayser's principal occupation has been farming for more than five years. He raises corn, soybeans and
hay near Alexandria, South Dakota, and operates a cow-calf and feeder-calf business.
Russell Kehl has been a member of the CHS Board of Directors since 2017. He serves on the Governance Committee
and Capital Committee. He previously served as a member of the producer board of CHS SunBasin Growers and vice chair of
the Columbia Basin Seed Association. Mr. Kehl's primary occupation has been farming for more than five years. He and his
wife operate a farm near Quincy, Washington, that produces crops, primarily potatoes and dry beans, and includes a cow-calf
herd. His family also owns a dry bean processing facility, runs a custom farming business, and owns and operates a trucking
and logistics company.
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Randy Knecht has been a member of the CHS Board of Directors since 2001. He is chair of the Government Relations
Committee and vice chair of the Capital Committee. He holds a bachelor's degree in agriculture from South Dakota State
University. Mr. Knecht's principal occupation has been farming for more than five years, and he operates a diversified family
farm operation near Houghton, South Dakota, raising corn, soybeans, alfalfa and beef cattle.
Edward Malesich has been a member of the CHS Board of Directors since 2011. He chairs the Governance
Committee and serves on the Capital Committee. He is a member of Montana Stock Growers Association, Montana Grain
Growers Association, Montana Farm Bureau Federation, Montana Farmers Union and Montana Council of Co-ops. He holds a
bachelor’s degree in agricultural production from Montana State University. Mr. Malesich's principal occupation has been
farming for more than five years, and he raises Angus cattle, wheat, malt barley and hay near Dillon, Montana.
Perry Meyer has been a member of the CHS Board of Directors since 2014. He is chair of the Audit Committee and
serves on the Corporate Risk Committee. He serves as director of Heartland Corn Products Cooperative and is a member of
United Farmers Co-op, Central Region Cooperative, Minnesota Farm Bureau, Minnesota and Nicollet County corn growers
associations, and Minnesota Pork Producers Association. He serves as a director of Steamboat Pork Cooperative, chair of the
board of NU-Telecom and director of Minnesota Valley Lutheran School Foundation. He holds an agricultural mechanics
degree from Alexandria (Minnesota) Technical School. Mr. Meyer’s principal occupation has been farming for more than five
years, and he operates a family farm, raising corn, soybeans and hogs near New Ulm, Minnesota.
Steve Riegel, Assistant Secretary-Treasurer, has been a member of the CHS Board of Directors since 2006. He serves
as the assistant secretary-treasurer of the Executive Committee of the Board of Directors. He is vice chair of the Governance
Committee and serves on the CHS Foundation Board of Trustees. He serves as advisory director of Bucklin (Kansas) National
Bank. He attended Fort Hays (Kansas) State University, majoring in agriculture, business and animal science. Mr. Riegel's
principal occupation has been farming for more than five years, and he raises irrigated corn, soybeans, alfalfa, dryland wheat
and milo near Ford, Kansas.
Daniel Schurr, Chair, has been a member of the CHS Board of Directors since 2006. Since 2017, Mr. Schurr has
served as chair of the Executive Committee of the Board of Directors. He serves on the Blackhawk Bank and Trust board and
audit and loan committees and on the Silos and Smokestacks National Heritage Area board. He holds a bachelor's degree in
agricultural business with a minor in economics from Iowa State University. Mr. Schurr’s principal occupation has been
farming for more than five years. He raises corn and soybeans near LeClaire, Iowa, and operates a commercial trucking
business.
Director Elections and Voting
Director elections are for three-year terms and are open to any qualified candidate. Qualifications for the office of
director are as follows:
• At the time of declaration of candidacy, the individual (except in the case of an incumbent) must have the written
endorsement of a locally elected producer board that is part of the CHS system and located within the region from
which the individual is to be a candidate.
• At the time of the election, the individual must be less than 68 years old.
The remaining qualifications set forth below must be met at all times commencing six months prior to the time of
election and while the individual holds office:
• The individual must be a Class A individual member of CHS or a member of a cooperative association member.
• The individual must reside in the region from which he or she is to be elected.
• The individual must be an active farmer or rancher. "Active farmer or rancher" means an individual whose primary
occupation is that of a farmer or rancher, excluding anyone who is an employee of CHS or of a cooperative association
member.
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The following positions on the Board of Directors will be up for election at the 2019 Annual Meeting of Members:
Region 1 (Minnesota)
Region 3 (North Dakota)
Region 4 (South Dakota)
Region
Region 5 (Connecticut, Delaware, Illinois, Indiana, Kentucky, Ohio, Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, West
Virginia, Wisconsin)
Region 8 (Colorado, Nebraska, Kansas, New Mexico, Oklahoma, Texas)
Incumbent
Alan Holm
Open Seat
Open Seat
Mark Farrell
Steve Riegel
Voting rights, including those in regard to director elections, arise by virtue of membership in CHS, not because of
ownership of any equity or debt instruments; therefore, our preferred stockholders cannot recommend nominees to our Board
of Directors nor vote in regard to director elections unless they are Class A or Class C members of CHS.
The table below lists our executive officers as appointed by the CHS Board of Directors as of August 31, 2019.
EXECUTIVE OFFICERS
Name
Jay Debertin
Richard Dusek
Darin Hunhoff
Timothy Skidmore
James Zappa
David Black
John Griffith
Gary Halvorson
Mary Kaul-Hottinger
Age
59
55
49
58
55
53
50
46
55
Position
President and Chief Executive Officer
Executive Vice President, CHS Country Operations
Executive Vice President, Energy and Processing
Executive Vice President and Chief Financial Officer
Executive Vice President and General Counsel
Senior Vice President, Enterprise Strategy and Chief Information Officer
Senior Vice President, CHS Global Grain Marketing and CHS Renewable Fuels
Senior Vice President, CHS Agronomy
Senior Vice President, Human Resources
Jay Debertin has been president and chief executive officer ("CEO") for CHS since May 2017. He leads the strategic
leadership team in strengthening CHS by advancing operational excellence, accelerating its focus on results and delivering
products and services that help the cooperative's owners grow their businesses. Mr. Debertin joined CHS in 1984 in the
petroleum division and held a variety of positions in its energy marketing operations before being named vice president of
crude oil supply in 1998. In 2001, his responsibilities expanded to include crude oil supply, refining, pipelines and terminals,
trading and risk management, and transportation. From 2005 to 2010, Mr. Debertin was executive vice president and chief
operating officer for processing at CHS. From 2010 to 2017, he served as executive vice president and chief operating officer
of Energy and Foods where he led energy, transportation and processing and food ingredients at CHS. Mr. Debertin serves as
board chairman for Ventura Foods and serves on the board of directors for Securian Financial. He earned a bachelor’s degree in
economics from the University of North Dakota and a master of business administration degree from the University of
Wisconsin - Madison.
Richard Dusek has been executive vice president, CHS Country Operations, since November 2017. He is responsible
for the division delivering agricultural inputs, energy products, grain marketing, animal nutrition and other farm supplies to
producers through retail businesses in 16 states. Mr. Dusek serves on the board of directors for The Fertilizer Institute. He
joined CHS 30 years ago as a wheat trader. He has also been the director of merchandising, vice president of grain marketing
and vice president of agronomy at CHS. He earned a bachelor's degree in agricultural economics from North Dakota State
University and completed the Harvard Business School Advanced Management Program.
Darin Hunhoff has been executive vice president, Energy and Processing since May 2017. He leads CHS energy
operations including refineries, pipelines and terminals, refined fuels, propane, lubricants and transportation. He also leads
processing and food ingredients at CHS, which includes our soybean and canola oilseed crushing and refining operations,
ethanol production platform and sunflower business. In addition, he oversees the CHS Cooperative Resources group, which
provides leadership development and strategic planning services to local cooperatives. Mr. Hunhoff serves on the board of
directors for Ardent Mills. He joined CHS more than 25 years ago as a petroleum specialist. He has also been chief strategy
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officer for CHS and has spent several years in energy leadership roles, including time as senior vice president of refined fuels
and vice president of propane. He earned a bachelor’s degree in marketing and business management from Southwest
Minnesota State University.
Timothy Skidmore has been executive vice president and chief financial officer since joining CHS in August 2013. He
is responsible for accounting, credit and finance activities across CHS. Mr. Skidmore chairs the CHS Retirement Plan
Committee and serves as a trustee for the Science Museum of Minnesota, where he serves on its Audit and Finance Committee.
He also serves as a founding member of World 50's Finance Officer community, a peer forum for top finance executives.
Before joining CHS, he served as vice president of finance and strategy for Campbell North America. He joined Campbell as
assistant treasurer in 2001 and held numerous leadership positions, including various business unit chief financial officer roles.
Prior to that, Mr. Skidmore spent 15 years at DuPont, holding a variety of financial leadership positions. He holds a bachelor's
degree in risk management from the University of Georgia and a master of business administration in finance from Widener
University. Mr. Skidmore will retire from CHS on December 31, 2019, and cease to serve as executive vice president and chief
financial officer of CHS the day after we file this Annual Report on Form 10-K.
James Zappa has been executive vice president and general counsel for CHS since April 2015. He provides counsel to
CHS leadership and the Board of Directors on company strategy, government affairs, corporate governance, corporate
compliance, federal securities reporting and compliance, and disclosure and investor communications. Mr. Zappa also oversees
CHS internal audit, CHS enterprise sustainability initiatives, and the CHS Foundation and CHS Community Giving functions.
Mr. Zappa serves as a director for Ventura Foods. He previously worked at 3M Company for 15 years in various legal and
leadership roles including vice president, associate general counsel and chief compliance officer, and vice president, associate
general counsel, international operations. Prior to joining 3M, he worked for UnitedHealth Group and for the law firm Dorsey
& Whitney. He earned a juris doctor degree from the University of Minnesota Law School, a master's degree in communication
arts and sciences from the University of Southern California, and a bachelor’s degree from Drake University.
David Black has been senior vice president, enterprise strategy, and chief information officer for CHS since April
2018. He leads enterprise strategy, CHS global information technology, marketing and communications, and facilities. He is
responsible for the strategy, implementation, delivery and operation of information technology for all CHS businesses
worldwide. He also serves as a director for Ventura Foods. He joined CHS five years ago. He previously worked at Monsanto
Company where he served as vice president, information technology, overseeing all aspects of information technology for its
global commercial businesses. During his 20 years with Monsanto, he also served as vice president, corporate strategy, and
president, Monsanto Agro-Services, LLC. Mr. Black earned a bachelor’s degree in computer science from Tarkio College.
John Griffith has been senior vice president, CHS Global Grain Marketing and CHS Renewable Fuels since April
2018. He leads CHS global grain marketing operations and renewable fuels trading, supply chain management and risk
management, including freight, currency, execution and trade finance. Mr. Griffith serves on the Minneapolis Grain Exchange
and the North American Export Grain Association boards. He also serves as the board chairman for CHS Hedging, a
commodities brokerage subsidiary of CHS. He worked for CHS early in his career as a grain merchandiser and rejoined CHS at
a leadership level in January 2013. Since that time, he has held various leadership roles within global grain marketing including
vice president, grain marketing North America. He earned a bachelor’s degree from St. John’s University and a master of
business administration degree from Rockhurst University.
Gary Halvorson has been senior vice president, CHS Agronomy since April 2018. He leads CHS agronomy, including
all commodity and specialty fertilizers, seed, crop protection and precision ag technology and services. Mr. Halvorson serves
on the Agricultural Retailers Association board of directors, the National FFA Sponsors board and represents CHS on the
United Prairie board of directors. He joined CHS 20 years ago and held various leadership roles with CHS at locations in North
Dakota before becoming general manager for CHS Ag Services in Warren, Minnesota. Mr. Halvorson also served as vice
president of farm supply in CHS Country Operations. He earned a bachelor's degree in business from Concordia University.
Mary Kaul-Hottinger has been senior vice president, human resources, for CHS since September 2018. Ms. Kaul-
Hottinger sets direction and strategy for human resources with a focus on helping us attract, develop and retain high-performing
and diverse employees. Prior to joining CHS, she was vice president, human resources, for Ecolab's global businesses and
supported business units with more than 30,000 employees. She previously served in human resource leadership roles at
General Mills and Pillsbury. Ms. Kaul-Hottinger has a bachelor’s degree in business administration from the University of St.
Thomas.
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DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more
than 10% of any class of our preferred stock to file initial reports of ownership and reports of changes in ownership with the
SEC. Such executive officers, directors and greater than 10% beneficial owners are required by the regulations of the SEC to
furnish us with copies of all Section 16(a) reports they file.
Based solely upon a review of copies of reports on Forms 3 and 4 and amendments thereto filed electronically with the
SEC during, and reports on Form 5 and amendments thereto filed electronically with the SEC with respect to, the fiscal year
ended August 31, 2019, and based further upon written representations received by us with respect to the need to file reports on
Form 5, the following persons filed late reports required by Section 16(a) of the Exchange Act: Mr. Riegel did not timely file
one Form 4 relating to three transactions in December 2018 and Mr. Fritel did not timely file one Form 4 relating to two
transactions in December 2018.
CODE OF ETHICS
We have adopted a code of ethics within the meaning of Item 406(b) of Regulation S-K promulgated by the SEC. This
code of ethics applies to all of our directors, officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer. This code of ethics is part of our broader CHS Code of Conduct, which is
posted on our website. The internet address for our website is www.chsinc.com and the CHS Code of Conduct may be found on
the "Compliance and Integrity" web page, which can be accessed from the "About CHS" web page, which can be accessed
from our main web page. We intend to disclose any amendment to, or waiver from, a provision of the code of ethics that applies
to our principal executive officer, principal financial officer or principal accounting officer on the "Compliance and Integrity"
web page of our website. The information contained on our website is not part of, and is not incorporated in, this report or any
other report we file with or furnish to the SEC.
AUDIT COMMITTEE MATTERS
The Board of Directors has a separately designated standing Audit Committee for the purpose of overseeing our
accounting and financial reporting processes and audits of our financial statements. In Fiscal Year 2019, the Audit Committee
was comprised of Mr. Blew, Mr. Erickson, Mr. Farrell, Mr. Fritel, Mr. Kayser and Mr. Meyer (Chair), each of whom is an
independent director. The Audit Committee has oversight responsibility to our member-owners relating to our financial
statements and the financial reporting process, preparation of the financial reports and other financial information provided by
us to any governmental or regulatory body, the systems of internal accounting and financial controls, the internal audit function
and the annual independent audit of our financial statements. The Audit Committee assures that the corporate information
gathering and reporting systems developed by management represent a good faith attempt to provide senior management and
the Board of Directors with information regarding material acts, events and conditions within CHS. In addition, the Audit
Committee is directly responsible for the appointment, compensation and oversight of the independent registered public
accounting firm.
We do not believe any member of the Audit Committee is an "audit committee financial expert" as defined in the
Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder. As a cooperative, members of our Board of Directors are
nominated and elected by our members. To ensure geographic representation of our members, the Board of Directors represents
eight regions in which our members are located. The voting members in each region nominate and elect the number of directors
for that region as set forth in our bylaws. To be eligible for service as a director, a nominee must among other things, (i) be an
active farmer or rancher whose primary occupation is that of a farmer or rancher, (ii) be a Class A individual member of CHS
or a member of any cooperative association member and (iii) reside in the geographic region from which he or she is
nominated. Neither management nor the incumbent directors have any control over the nominating process for directors.
Because of the nomination procedure and the election process, we cannot ensure that an elected director serving on our Audit
Committee will be an audit committee financial expert. However, many of our directors, including all of the Audit Committee
members, are financially sophisticated and have experience or background in which they have had significant financial
management or oversight responsibilities. The current Audit Committee includes directors who have served as presidents or
chairs of local cooperative association boards. Members of the Board of Directors, including the Audit Committee, also operate
large commercial enterprises requiring expertise in all areas of management, including financial oversight.
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ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Compensation
Overview
This Compensation Discussion and Analysis describes the material elements of compensation awarded to each of the
following executive officers ("Named Executive Officers") for fiscal 2019, which ran from September 1, 2018, through August
31, 2019:
Name
Position
Jay Debertin
President and Chief Executive Officer
Timothy Skidmore
Executive Vice President and Chief Financial Officer
Darin Hunhoff
James Zappa
Richard Dusek
Executive Vice President, Energy and Processing
Executive Vice President and General Counsel
Executive Vice President, CHS Country Operations
Other than the removal of Shirley Cunningham, our former executive vice president, ag business and enterprise
strategy, who retired from CHS on May 4, 2018, there were no changes to our Named Executive Officers during fiscal 2019.
Timothy Skidmore will retire from CHS on December 31, 2019 and cease to serve as our executive vice president and chief
financial officer effective on the day after we file this Annual Report on Form 10-K. We are conducting a search process for Mr.
Skidmore's successor. Prior to appointing such a successor, Angela Olsonawski, our senior vice president and corporate
treasurer, will serve as our interim chief financial officer and principal financial officer. Refer to Item 9B, Other Information, of
this Annual Report on Form 10-K for further details.
CHS is an organization that exists to create connections to empower agriculture, for the benefit of our producer and
local cooperative owners and the communities in which our owners and we live and operate. CHS compensation programs are
designed to attract, retain and reward the executives who carry out this purpose and align them around attainment of CHS short-
term and long-term strategies and short-term priorities.
This section outlines the compensation and benefit programs as well as the materials and factors used to assist us in
making compensation decisions. In this Compensation Discussion and Analysis, the related compensation tables and the
accompanying narratives, all references to a given year refer to our fiscal year ending on August 31 of that year.
Compensation Philosophy and Objectives
The Governance Committee of our Board of Directors oversees the administration of, and the fundamental changes to,
our executive compensation and benefits programs. The primary principles and objectives in compensating our executive
officers include:
• Attract and retain exceptional talent who meet our leadership expectations and are engaged and committed to the long-
term success of CHS, by providing market-competitive compensation and benefit programs;
• Align executive rewards to quantifiable annual and long-term performance goals that drive enterprise results and
provide competitive returns to our member-owners;
• Emphasize pay for performance by providing a total direct compensation mix of fixed and variable pay that is
primarily weighted on annual and long-term incentives, to reward annual and sustained performance over the long
term; and
• Ensure compliance with government mandates and regulations.
There are no material changes anticipated to our compensation philosophy or objectives for fiscal 2020.
Components of Executive Compensation and Benefits
Our executive compensation programs are designed to attract and retain highly qualified executives and to motivate
them to optimize member-owner returns and to achieve our long-term strategies by achieving specified goals. The
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compensation program links executive compensation directly to our annual and long-term financial performance. A significant
portion of each executive's compensation depends on meeting financial goals and a smaller portion is linked to individual
performance objectives.
The Governance Committee of our Board of Directors reviews our executive compensation policies each year with
respect to the correlation between executive compensation and the creation of member-owner value, as well as the
competitiveness of our executive compensation programs. The Executive Committee, with input from a third-party consultant if
necessary, determines what, if any, changes are appropriate to our executive compensation programs, including the incentive
plan goals applicable to our Named Executive Officers under the incentive compensation plans to which they and other
employees are eligible. A third-party consultant is chosen and hired directly by the Executive Committee to provide guidance
regarding market competitive levels of base pay, annual variable pay and long-term incentive pay, as well as market competitive
allocations between base pay, annual variable pay and long-term incentive pay for our CEO. The data is shared with our Board
of Directors, which makes final decisions regarding our CEO's base pay, annual incentive pay and long-term incentive pay, as
well as the allocation of compensation between base pay, annual incentive pay and long-term incentive pay. There are no formal
policies for allocation between long-term and short-term compensation, other than the intention to be competitive with the
external compensation market for comparable positions and to be consistent with our compensation philosophy and objectives.
The Executive Committee recommends to our Board of Directors salary actions relative to our CEO and approves annual and
long-term incentive awards for the CEO based on performance of CHS compared to the financial targets and, as applicable,
individual performance. In turn, our Board of Directors communicates this pay information to our CEO. Our CEO is not
involved with the selection of the third-party consultant and does not participate in or observe Executive Committee meetings
that concern CEO compensation matters. Based on a review of compensation market data provided by our human resources
department (survey sources and pricing methodology are explained below under "Components of Compensation"), with input
from a third-party consultant if necessary, our CEO decides base compensation levels for the other Named Executive Officers,
recommends for Board of Directors approval the annual and long-term incentive pay plan performance goals applicable to the
other Named Executive Officers (and other employees) and communicates base and incentive compensation pay to the other
Named Executive Officers. The day-to-day design and administration of compensation and benefit plans are managed by our
human resources, finance and legal departments.
Components of Compensation
Our executive compensation and benefits program consists of seven components. Each component is designed to be
competitive within the executive compensation market. In determining competitive compensation levels, we analyze
information from independent compensation surveys, which include information regarding comparable industries, markets,
revenues and companies that compete with us for executive talent. The surveys used for this analysis in fiscal 2019 included a
combination of the following sources: Mercer Benchmark Database Executive Compensation Survey and Towers Watson CDB
Executive Compensation Survey Report. The data extracted from these surveys includes median market rates for base salary,
annual incentive, total cash compensation and total direct compensation. Companies included in the surveys vary by industry,
revenue and number of employees, and represent both public and private ownership, as well as non-profit, government and
mutual organizations. Compensation paid by a comparator group of industry specific companies, which includes 16 private,
public and cooperative organizations in the agronomy, energy, food and grain industries, is also considered when making
compensation decisions.
The following companies comprised the 2019 comparator group:
Archer Daniels Midland
ConAgra Brands
Bunge
CF Industries
Cargill
ConocoPhillips
Dean Foods
HollyFrontier
Comparator Group
Kinder Morgan
Koch Industries
Land O'Lakes
Mosaic
Nutrien
Valero Energy
Marathon Petroleum
Williams Companies
The emphasis of our executive compensation package is weighted more on variable pay through annual variable pay
and long-term incentive awards. This is consistent with our compensation philosophy of emphasizing a strong link between pay,
employee performance and business goals to foster a clear line of sight and strong commitment to CHS short-term and long-
term success, and also aligns our programs with general market practices. The goal is to provide our executives with an overall
compensation package that is competitive in comparable industries, companies and markets. We target the market median
compensation for base pay, target total cash and target total direct compensation, and the 75th percentile for total direct
compensation when we achieve above market performance.
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For fiscal 2019, base pay was below the market median, total cash compensation was above the market median, and
total direct compensation was below the market median. The above market median total cash compensation occurred because
actual earned annual variable pay awards exceeded target performance.
The following table presents a more detailed breakout of each compensation element:
Pay Element
Base Pay
Annual Variable Pay
Definition of Pay Element
Competitive base level of compensation provided
relative to skills, experience, knowledge and
contributions
Broad-based employee short-term performance-
based variable pay incentive for achieving
predetermined annual financial and individual
performance goals
Profit Sharing
Broad-based employee short-term performance-
based variable pay incentive for achieving
predetermined annual financial goals
Purpose of Pay Element
• Provides the fundamental element of
compensation for carrying out duties of the job
• Provides a direct link between pay and annual
business objectives
• Pay for performance to motivate and encourage
the achievement of critical business initiatives
• Encourages proper expense control and
containment
• Provides a direct link between employee pay
and CHS profitability
Long-Term Incentive
Plans
Long-term performance-based incentive for
senior management to achieve predetermined
triennial Return on Adjusted Equity ("ROAE")
performance or Return on Invested Capital
("ROIC") goals
• Provides a direct link between senior
management pay and long-term strategic business
objectives
• Aligns management and member-owner interests
• Encourages retention of key management
Retirement Benefits
Retirement benefits under the qualified retirement
plans are identical to broad-based retirement plans
generally available to all full-time employees
• These benefits are a part of our broad-based
employee total rewards program designed to
attract and retain quality employees
The supplemental plans include non-qualified
retirement benefits that restore qualified benefits
contained in our broad-based plans for employees
whose retirement benefits are limited by salary
caps under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). In addition,
the plans allow participants to voluntarily defer
receipt of a portion of their income
Medical, dental, vision, life insurance and short-
term disability benefits generally available to all
full-time employees. Certain officers, including
our Named Executive Officers, also are eligible
for executive long-term disability benefits
Additional benefits provided to certain officers,
including our Named Executive Officers
Health & Welfare
Benefits
Additional Benefits
• These benefits are provided to attract and retain
senior managers with total rewards programs that
are competitive with comparable companies
• With the exception of executive long-term
disability benefits, these benefits are a part of our
broad-based employee total rewards program
designed to attract and retain quality employees
• These benefits are provided as part of an overall
total rewards package that strives to be
competitive with comparable companies and
retain individuals who are critical to CHS
Explanation of Ratio of Salary and Bonus to Total Compensation
The structure of our executive compensation package is focused on a suitable mix of base pay, annual variable pay and
long-term incentive awards to encourage executive officers and employees to strive to achieve goals that benefit our member-
owners’ interests over the long term and to better align our programs with general market practices.
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Fiscal 2019 Executive Compensation Mix at Target
The charts below illustrate the mix of base salary, annual variable pay at target performance (2019 Plan) and long-term
incentive compensation at target performance (2017-2019 Plan) for fiscal 2019 for our CEO and the other Named Executive
Officers as a group.
Base Pay
Base salaries of our Named Executive Officers represent a fixed form of compensation paid on a semi-monthly basis.
The base salaries are generally set at the median level of market data collected through our benchmarking process against other
equivalent positions of comparable companies. The individual's actual salary relative to the market median is based on a
number of factors, which include, but are not limited to, scope of responsibilities and individual experience.
Base salaries for our Named Executive Officers are reviewed on an annual basis or at the time of significant changes in
scope and level of responsibilities. Changes in base salaries are determined through review of competitive market data, as well
as individual performance and contribution. Changes are not governed by pre-established weighting factors or merit metrics.
The CEO is responsible for this process for the other Named Executive Officers. In fiscal 2019, the Executive Committee was
responsible for this process for the CEO.
Mr. Debertin received a 5.0% base salary increase effective January 1, 2019. Our Board of Directors approved the
increase to maintain a competitive pay position to market. Mr. Skidmore, Mr. Hunhoff, Mr. Zappa and Mr. Dusek also received
base salary increases of 2.0%, 5.0%, 5.0% and 5.0%, respectively, in fiscal 2019 to ensure their base salaries were
commensurate with their responsibilities, skills, contributions and competitive pay range.
Annual Variable Pay
Named Executive Officers are covered by the same broad-based CHS Annual Variable Pay Plan ("Annual Variable Pay
Plan" or "AVP") as other employees and, based on the plan provisions, when they retire they receive awards prorated to the
period of time eligible. Each Named Executive Officer was eligible to participate in the AVP for fiscal 2019. Target AVP award
levels were set with reference to competitive market compensation levels and were intended to motivate our executives by
providing annual variable pay awards for the achievement of predetermined goals. Our AVP program for fiscal 2019 was based
on enterprise-level financial performance and specific management business objectives with actual payout dependent on
achieving predetermined enterprise-level financial performance targets and individual performance goals. The financial
performance components included ROIC and Return on Assets ("ROA") targets for CHS at the enterprise level. The threshold,
target and maximum ROIC and ROA targets for fiscal 2019 are set forth in the table below. The management business
objectives include individual performance against specific goals relating to subjects such as business profitability, execution of
strategic initiatives or talent acquisition, development and retention. In conjunction with the annual performance appraisal
process for our CEO, our Board of Directors reviews the individual goals and, in turn, determines and approves this portion of
the annual variable pay award based upon completion or partial completion of the previously specified goals and principal
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accountabilities for our CEO. Likewise, our CEO uses the same process for determining individual goal attainment for the other
Named Executive Officers.
CHS financial performance goals and award opportunities under our fiscal 2019 Annual Variable Pay Plan were as
follows:
Performance Level
CHS Company
Performance Goal
CHS Company
Performance Goal
Percent of Target Award
Maximum
Target
Threshold
6.9% ROIC
5.9% ROIC
4.9% ROIC
6.9% ROA
6.1% ROA
5.2% ROA
Below threshold
<4.9% ROIC
<5.2% ROA
200%
100%
50%
0%
ROIC and ROA are not defined under U.S. GAAP. Therefore, they should not be considered a substitute for other
measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other
companies.
ROIC is a measurement of how efficiently we use capital and the level of returns on that capital and is calculated by
dividing adjusted net operating profit after tax by funded debt plus equity. We define adjusted net operating profit after tax as
earnings before tax plus interest, net, and the sum is multiplied by the effective tax rate. We define funded debt as the average
of the funded debt as of the end of July 2018 and 2019, respectively, and equity at the end of July 2018.
ROA is a measurement of how well we use our assets to generate earnings and maximize returns on our owner equity
and assets and is calculated by dividing adjusted operating income by net assets. We define adjusted operating income as
earnings before income taxes plus interest, net, plus corporate indirect allocations. We define net assets as total assets minus
working capital liabilities, where working capital liabilities means current liabilities excluding current portions of debt or
financing liabilities, and is measured as of the end of July 2018.
Our Board of Directors approved the ROIC and ROA performance targets for the fiscal 2019 AVP and determined our
CEO's individual goals. The weighting of our CEO’s goals for fiscal 2019 was 60% CHS total company ROIC, 10% CHS total
company ROA and 30% principal accountabilities and individual goals. Our CEO determined individual goals for the other
Named Executive Officers. The weighting of goals for the other Named Executive Officers for fiscal 2019 was 60% CHS total
company ROIC, 10% CHS total company ROA and 30% individual goals. ROIC results were 9.6% and ROA results were 8.6%
for fiscal 2019. Effective for fiscal 2020, the weighting of our CEO's goals will be 70% ROIC and 30% principal
accountabilities and individual goals, and the weighting of goals for the other Named Executive Officers will be 70% ROIC and
30% individual goals.
In connection with Mr. Skidmore's retirement from CHS on December 31, 2019, we entered into a letter agreement
with Mr. Skidmore on July 26, 2019 ("Letter Agreement"). The Letter Agreement provides, among other things, that the
individual goals component of the fiscal 2019 Annual Variable Pay Plan will be paid to Mr. Skidmore at the target level.
Annual variable pay awards that will be paid under the Annual Variable Pay Plan for fiscal 2019 for the Named
Executive Officers are as follows:
Name
Jay Debertin
Timothy Skidmore
Darin Hunhoff
James Zappa
Richard Dusek
56
$
Variable Pay
(Dollars)
3,713,064
1,212,064
1,279,950
1,207,500
1,110,515
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Profit Sharing
Each Named Executive Officer is eligible to participate in our Profit Sharing Plan applicable to other employees. The
purpose of the Profit Sharing Plan is to provide a direct link between employee pay and our profitability. Annual profit sharing
contributions are calculated as a percent of base pay and annual variable pay (total earnings) and are made to the CHS Inc.
401(k) Plan ("401(k) Plan") account and CHS Inc. Deferred Compensation Plan ("Deferred Compensation Plan") account of
each Named Executive Officer. The levels of profit sharing awards vary in relation to the level of CHS ROIC achieved and are
displayed in the following table:
ROIC
6.9%
6.4%
5.9%
5.4%
4.9%
Profit Sharing Award
5%
4%
3%
2%
1%
In fiscal 2019 ROIC results were 9.6%. Accordingly, each Named Executive Officer earned a 5% award under the
Profit Sharing Plan. Profit Sharing Plan goals will continue to be based on an ROIC performance metric for fiscal 2020.
Long-Term Incentive Plans
Each Named Executive Officer is eligible to participate in our Long-Term Incentive Plan ("LTIP"). The purpose of the
LTIP is to align long-term results with long-term performance goals, encourage our Named Executive Officers to maximize
long-term value for our member-owners and retain key executives. The LTIP consists of three-year performance periods to
ensure consideration is made for our long-term financial performance and strategic execution, with a new performance period
beginning every year. Our Board of Directors approves the LTIP goals for each three-year period.
Awards from the LTIP are contributed to the Deferred Compensation Plan after the end of each performance period.
These awards vest over an additional 28-month period following the performance period end date. The extended earning and
vesting provisions of the LTIP are designed to help us retain key executives. Participants who leave CHS prior to retirement for
reasons other than death or disability forfeit all unearned and unvested LTIP award balances. Participants who meet retirement
criteria, die or become disabled receive prorated awards following the LTIP rules. Like the Annual Variable Pay Plan, award
levels for the LTIP are set with regard to competitive considerations. Beginning with the fiscal 2018-2020 LTIP performance
period, the target level LTIP award levels increased from 70% to 115% of base salary for Named Executive Officers, excluding
Mr. Debertin, to improve our competitive position to market.
For the 3-year LTIP period ending in fiscal 2019, the LTIP performance measure was based upon our ROAE during the
period. ROAE is a measurement of our profitability and is calculated by dividing adjusted net income (earnings) by adjusted
equity. To determine the equity and earnings adjustments, we subtract preferred stock dividends (paid on beginning of the fiscal
year preferred stock) from earnings and reduce equity by the beginning of the fiscal year preferred stock on the balance sheet.
Earnings are subject to one-time exclusions or inclusions in any given fiscal year. ROAE is not defined under U.S. GAAP.
Therefore, it should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be
comparable to similarly titled measures used by other companies. Award opportunities for the fiscal 2017-2019 LTIP are
expressed as a percentage of a participant’s average base salary as of August 31 for each of the three years in the performance
period. We must meet a three-year period threshold level of ROAE performance for any participant to earn an award payout
under the 2017-2019 LTIP. As indicated in the below table, the threshold, target, maximum and superior performance maximum
ROAE goals for the fiscal 2017-2019 performance period were 5.5%, 7%, 9% and 20%, respectively.
Performance Level
Superior performance maximum
CHS Three Year-ROAE
20%
Percent of Target Award
400%
Maximum
Target
Threshold
Below threshold
9%
7%
5.5%
<5.5%
57
200%
100%
50%
0%
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Actual ROAE performance for the fiscal 2017-2019 performance period was 6.8%. LTIP payments for the fiscal
2017-2019 LTIP for the Named Executive Officers are as follows:
Name
Jay Debertin
Timothy Skidmore
Darin Hunhoff
James Zappa
Richard Dusek
LTIP Payments
(Dollars)
$
1,692,275
403,187
351,304
331,220
250,413
Details for the fiscal 2019 awards associated with the fiscal 2019-2021 LTIP performance period are provided in the
"2019 Grants of Plan-Based Awards" table.
Beginning with the fiscal 2018-2020 performance period, the LTIP ROAE performance metric was replaced with an
ROIC performance metric, which is defined in the same manner as for AVP (see "Annual Variable Pay" above). ROIC will
continue to be used as the LTIP performance metric for the fiscal 2020-2022 performance period.
Because Mr. Skidmore’s retirement will occur prior to him achieving ten years of service, he will not be eligible to
vest in and will forfeit his LTIP payment for the fiscal 2017-2019 LTIP. In addition, because Mr. Skidmore's employment will
end prior to the end of each of the fiscal 2018-2020 and fiscal 2019-2021 performance periods, he will not be eligible to earn
any compensation under either the 2018-2020 LTIP or the 2019-2021 LTIP. For a description of the payment that will be made
to Mr. Skidmore under the Letter Agreement in recognition of, among other things, earned but unvested long-term incentive
compensation that will be forfeited due to the end of Mr. Skidmore's employment prior to vesting, please see "Post
Employment" below.
Other Compensation
To preserve key leadership continuity and bench strength, as well as a total direct compensation opportunity amount
that is competitive to market, in April 2019, our Board of Directors approved a potential retention incentive award (the
"Retention Award") for certain of our senior officers, including each of the Named Executive Officers who were active
participants in the 2016-2018 LTIP and who were active employees on the date the Retention Award was approved. The
potential award value is equal to the percentage of base salary used for the 2016-2018 LTIP awards at the target level, based on
the participant's job level as of August 31, 2018, multiplied by the participant's base salary as of August 31, 2018 and, subject to
the following sentence, will be earned only if a participant continues active employment through January 1, 2021, or meets the
limited pro ration criteria provided in the Retention Award. Notwithstanding the foregoing, the Letter Agreement provides that
Mr. Skidmore will receive a pro rata portion of the Retention Award in the amount of $170,191 within 60 days of his retirement
on December 31, 2019.
Retirement Benefits
We provide the following retirement and deferral programs to Named Executive Officers:
• CHS Inc. Pension Plan
• CHS Inc. 401(k) Plan
• CHS Inc. Supplemental Executive Retirement Plan
• CHS Inc. Deferred Compensation Plan
CHS Inc. Pension Plan
The CHS Inc. Pension Plan ("Pension Plan") is a tax-qualified defined benefit pension plan. All Named Executive
Officers participate in the Pension Plan. A Named Executive Officer is fully vested in the Pension Plan after three years of
vesting service. The Pension Plan provides for a lump sum payment of the participant’s account balance once the Named
Executive Officer reaches normal retirement age (or, alternatively, for a monthly annuity for the Named Executive Officer's
lifetime if elected by the Named Executive Officer). The normal form of benefit for a single Named Executive Officer is a life
annuity and for a married Named Executive Officer the normal form of benefit is a 50% joint and survivor annuity. Other
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annuity forms are also available on an actuarial equivalent basis. Compensation and benefits are limited based on limits
imposed by the Internal Revenue Code.
A Named Executive Officer's benefit under the Pension Plan depends on pay credits to his or her account, which are
based on the Named Executive Officer’s total salary and annual variable pay for each year of employment, date of hire, age at
date of hire and the length of service, and investment credits, which are computed using the interest crediting rate and the
Named Executive Officer’s account balance at the beginning of the plan year.
The amount of pay credits added to a Named Executive Officer's account each year is a percentage of the Named
Executive Officer’s base salary and annual variable pay plus compensation reduction pursuant to the 401(k) Plan, and any
pretax contribution to any of our welfare benefit plans, paid vacations, paid leaves of absence and pay received if away from
work due to a sickness or injury. The pay credits percentage received is determined on a yearly basis, based on the years of
benefit service completed as of December 31 of each year. A Named Executive Officer receives one year of benefit service for
every calendar year of employment in which the Named Executive Officer completed at least 1,000 hours of service.
Pay credits are earned according to the following schedules:
Years of Benefit Service
Regular Pay Credits
1 - 3 years
4 - 7 years
8 - 11 years
12 - 15 years
16 years or more
Mid-Career Pay Credits
Employees hired after age 40 qualify for the following minimum pay credit:
Age at Date of Hire
Age 40 - 44
Age 45 - 49
Age 50 or more
Investment Credits
Regular Pay Credit
Pay Below Social
Security Taxable
Wage Base
Pay Above Social
Security Taxable
Wage Base
3%
4%
5%
6%
7%
6%
8%
10%
12%
14%
Minimum Pay Credit
Pay Below Social
Security Taxable
Wage Base
4%
Pay Above Social
Security Taxable
Wage Base
8%
5%
6%
10%
12%
We credit a Named Executive Officer's account at the end of the calendar year with an investment credit based on the
balance at the beginning of the year. The investment credit is based on the average return for one-year U.S. Treasury bills for
the preceding 12-month period. The minimum interest rate under the Pension Plan is 4.65% and the maximum is 10%.
CHS Inc. 401(k) Plan
The 401(k) Plan is a tax-qualified defined contribution retirement plan. Most full-time, non-union CHS employees are
eligible to participate in the 401(k) Plan, including each Named Executive Officer. Participants may contribute between 1% and
50% of their pay on a pretax basis. We match 100% of the first 1% and 50% of the next 5% of pay contributed each year
(maximum 3.5%). Our Board of Directors may elect to reduce or eliminate matching contributions for any year or any portion
thereof. Participants are 100% vested in their own contributions and are fully vested after two years of service in matching
contributions made on the participant’s behalf by us.
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Non-participants are automatically enrolled in the plan at a 3% contribution rate and, effective each January 1, the
participant’s contribution will be automatically increased by 1%. This escalation will stop once the participant’s contribution
reaches 10%. The participant may elect to cancel or change these automatic deductions at any time.
CHS Inc. Supplemental Executive Retirement Plan and CHS Inc. Deferred Compensation Plan
Because the Internal Revenue Code limits the benefits that may be paid from the Pension Plan and the 401(k) Plan, the
CHS Inc. Supplemental Executive Retirement Plan ("SERP") and the Deferred Compensation Plan were established to provide
certain employees participating in the qualified plans with supplemental benefits such that, in the aggregate, they equal the
benefits they would have been entitled to receive under the qualified plan had these limits not been in effect. The SERP also
includes compensation deferred under the Deferred Compensation Plan that is excluded under the qualified retirement plan. All
Named Executive Officers participate in the SERP. Participants in the plans are select management or highly compensated
employees who have been designated as eligible by our CEO to participate.
Compensation includes total salary and annual variable pay without regard to limitations on compensation imposed by
the Internal Revenue Code. Company contributions under the Pension Plan and 401(k) Plan are not eligible for pay credits.
Certain Named Executive Officers may have accumulated non-qualified plan balances or benefits that have been
carried over from predecessor companies as a result of past mergers and acquisitions. Benefits from the SERP are primarily
funded in a rabbi trust, with a balance at August 31, 2019, of $31.3 million. Benefits from the plan do not qualify for special tax
treatment under the Internal Revenue Code.
The Deferred Compensation Plan allows eligible Named Executive Officers to voluntarily defer receipt of up to 75%
of their base salary and up to 100% of their annual variable pay. The election must occur prior to the beginning of the calendar
year in which the compensation will be earned. During the year ended August 31, 2019, all of the Named Executive Officers
were eligible to participate in the Deferred Compensation Plan. Mr. Debertin, Mr. Skidmore, Mr. Zappa and Mr. Dusek
participated in the elective portion of the Deferred Compensation Plan.
Benefits from the Deferred Compensation Plan are primarily funded in a rabbi trust, with a balance as of August 31,
2019, of $125.8 million. Benefits from the plan do not qualify for special tax treatment under the Internal Revenue Code.
Health & Welfare Benefits
Like our other employees, each of the Named Executive Officers is entitled to receive benefits under our
comprehensive health and welfare program. Like non-executive full-time employees, participation in the individual benefit
plans is based on each Named Executive Officer’s annual benefit elections and varies by individual.
Medical Plans
Named Executive Officers and their dependents may participate in our medical plan on the same basis as other eligible
full-time employees. The plan provides each Named Executive Officer an opportunity to choose a level of coverage and
coverage options with varying deductibles and co-pays to pay for hospitalization, physician and prescription drug expenses.
The cost of this coverage is shared by us and the covered Named Executive Officer.
Dental, Vision and Hearing Plan
Named Executive Officers and their dependents may participate in our dental, vision and hearing plan on the same
basis as other eligible full-time employees. The plan provides coverage for basic dental, vision and hearing expenses. The cost
of this coverage is shared by us and the covered Named Executive Officer.
Life, AD&D and Dependent Life Insurance
Named Executive Officers and their dependents may participate in our basic life, optional life, accidental death and
dismemberment ("AD&D") and dependent life plans on the same basis as other eligible full-time employees. The plans allow
Named Executive Officers an opportunity to purchase group life insurance on the same basis as other eligible full-time
employees. Basic life insurance equal to one times eligible compensation will be provided at our expense on the same basis as
other eligible full-time employees. Named Executive Officers can choose various coverage levels of optional life insurance at
their own expense on the same basis as other eligible full-time employees.
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Short- and Long-term Disability
Named Executive Officers participate in our Short-Term Disability Plan ("STD") on the same basis as other eligible
full-time employees. The Named Executive Officers also participate in an executive Long-Term Disability Plan ("LTD"). These
plans replace a portion of income in the event that a Named Executive Officer is disabled under the terms of the plan and is
unable to work full-time. The cost of STD and LTD coverage is paid by us.
Flexible Spending Accounts/Health Savings Accounts/Health Reimbursement Accounts
Named Executive Officers may participate in our Flexible Spending Account ("FSA") or Health Savings Account
("HSA") on the same basis as other eligible full-time employees. The FSA and HSA provide Named Executive Officers an
opportunity to pay for certain eligible medical expenses on a pretax basis. Contributions to the FSA and HSA are made by the
Named Executive Officer.
Travel Assistance Program and Identity Theft Protection
Like other non-executive full-time employees, each of the Named Executive Officers is covered by our travel
assistance program and identity theft protection program. The travel assistance program provides AD&D protection should a
covered injury or death occur while on a business trip. The identity theft protection program provides credit monitoring and
restoration services to protect against identity theft.
Additional Benefits
Certain benefits such as executive physical examinations and limited financial planning assistance are available to our
Named Executive Officers. These are provided as part of an overall total rewards package that strives to be competitive with
comparable companies and retain individuals who are critical to us.
Incentive Compensation Recovery Policy
In July 2019, our Board of Directors adopted an Incentive Compensation Recovery Policy ("Recovery Policy") that
applies to our current and former employees who are or were identified by us as an "officer" pursuant to Rule 16a-1(f) under the
Securities Exchange Act of 1934 and the Nasdaq listing standards ("Covered Employee").
The Recovery Policy provides that, in the event of a required revision of our previously issued financial statements to
reflect the correction of one or more errors that are material to those financial statements, our Board of Directors will require
reimbursement or forfeiture of any excess incentive compensation received by any Covered Employee during the three
completed fiscal years immediately preceding the date on which we determine that we are required to prepare an accounting
restatement. The amount of excess incentive compensation will be equal to the amount by which the Covered Employee’s
incentive compensation for the relevant period exceeded the amount that would have been earned or awarded based on the
restated financial results, as determined by our Board of Directors. The method used to recover the applicable excess incentive
compensation will be determined by our Board of Directors, in its sole discretion, and may include requiring reimbursement of
cash incentive compensation that was previously paid, forfeiting any incentive compensation contribution made under the
Deferred Compensation Plan, offsetting the recovered amount from any compensation or incentive compensation that may be
earned or awarded in the future or taking any other remedial or recovery action permitted by law.
The Recovery Policy also provides that, in the event our Board of Directors determines in good faith that a Covered
Employee has engaged in detrimental conduct, we may require the Covered Employee to reimburse or forfeit all or a portion of
the incentive compensation earned by or awarded to the Covered Employee, or in which the Covered Employee has become
vested under the terms of the Deferred Compensation Plan. For purposes of the Recovery Policy, detrimental conduct includes:
•
•
•
•
deliberate and continued failure by a Covered Employee to substantially perform his or her duties and responsibilities
in a manner that has an adverse effect on us;
knowing and willful violation of any law, government regulation or company code of conduct or policy;
fraud or dishonesty resulting or intended to result in personal enrichment at our expense; and/or
gross misconduct in the performance of duties that results in economic harm to us.
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Under the Recovery Policy, incentive compensation includes annual cash incentive awards granted pursuant to either
the Annual Variable Pay Plan or an individual cash incentive plan, annual cash awards earned under the Profit Sharing Plan and
cash-based performance awards granted pursuant to the LTIP or any successor plan; in each case, provided that such
compensation is granted, earned or vested based wholly or in part on the attainment of a financial performance measure.
Agreements with Named Executive Officers
On May 22, 2017, Mr. Debertin was elected as our President and CEO, and in connection therewith entered into an
employment agreement with us on that date ("Employment Agreement"). The Employment Agreement has an initial term of
three years ending on August 31, 2020, provided that the beginning on August 31, 2020, and on each anniversary date
thereafter, the term will be automatically renewed for an additional one-year period unless either party notifies the other in
writing, at least 120 days in advance of the relevant anniversary date, of its intent not to renew the agreement for the additional
one-year period. Pursuant to the terms of the Employment Agreement, Mr. Debertin is entitled to, among other things:
• An annual base salary of $1,150,000, subject to increase by our Board of Directors from time to time;
• A target annual incentive compensation award of 150% of his base salary with a maximum potential annual incentive
compensation award of 300% of his base salary, based on achievement of performance targets set by our Board of
Directors; and
• A target long-term incentive compensation award of 150% of his average base salary during the three-year
performance period applicable to that award opportunity, with a maximum superior performance potential long-term
incentive compensation award of 500% of his average base salary during the three-year performance period applicable
to that award.
The Employment Agreement provides that in the event of a restatement of our financial results due to material
noncompliance with financial reporting requirements, if our Board of Directors determines in good faith that any compensation
paid (or payable but not yet paid) to Mr. Debertin was awarded or determined based on that material noncompliance, then we
are entitled to recover from him (or to reduce compensation determined but not yet paid) all compensation based on the
erroneous financial data in excess of what would have been paid or been payable to him under the restatement.
The severance pay and benefits to which Mr. Debertin would be entitled if we terminated his employment without
cause or, if he terminated his employment for "good reason" are described below under "Post Employment."
In connection with Mr. Skidmore's retirement from CHS on December 31, 2019, we entered into the Letter Agreement
with Mr. Skidmore. The Letter Agreement, as well as the payments to which Mr. Skidmore will be entitled thereunder in
connection with his retirement, are described below under "Post Employment."
Mr. Zappa, our executive vice president and general counsel, joined us in April 2015 and the terms of his employment
provided for certain payments to him in respect of compensation earned from his former employer during past periods but
forfeited in order to accept employment with us due to vesting requirements and other restrictions. Specifically, Mr. Zappa was
entitled to receive three payments on the following schedule: $101,667 in April 2015; $101,667 in April 2016; and $101,667 in
April 2017.
Tax Considerations
Section 162(m) of the Internal Revenue Code ("Section 162(m)") generally limits us to a deduction for federal income
tax purposes of no more than $1 million of compensation paid to certain current and former executive officers in a taxable year.
However, historically, the $1 million deduction limit did not apply to compensation that satisfied Section 162(m) requirements
for qualified performance-based compensation. Accordingly, we historically attempted to preserve deductibility under the
Internal Revenue Code of compensation paid to our executive officers while maintaining compensation programs to attract and
retain highly qualified executives in a competitive environment. However, effective for tax years beginning after December 31,
2017, the exemption for qualified performance-based compensation from the $1 million deduction limitation contained in
Section 162(m) was repealed, unless certain transition relief for certain compensation arrangements in place as of November 2,
2017, is available. As such, certain compensation paid in excess of $1 million, which was historically deductible by us for
federal tax purposes, is no longer deductible.
We believe that Section 162(m) is only one of several relevant considerations in setting compensation. We also believe
that Section 162(m) should not be permitted to compromise our ability to design and maintain executive compensation
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arrangements that, among other things, are intended to attract and retain highly qualified executives in a competitive
environment. As a result, we retain the flexibility to provide compensation that we determine to be in our best interests and the
best interests of our member-owners, even if that compensation ultimately is not deductible for tax purposes.
Shareholder Advisory Votes on Executive Compensation
We are not required to, and do not, conduct shareholder advisory votes on executive compensation under Section 14A
of the Securities Exchange Act of 1934.
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Summary Compensation Table
Name and Principal Position
Year
Salary
(1)(2)
Bonus
(2)(3)(4)(5)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(2)(7)
Non-Equity
Incentive Plan
Compensation
(1)(2)(6)
(Dollars)
All Other
Compensation
(2)(8-14)
Total
(2)
Jay Debertin
President and Chief
Executive Officer
Timothy Skidmore
Executive Vice President
and Chief Financial
Officer
Darin Hunhoff
Executive Vice President,
Energy and Processing
James Zappa
Executive Vice President
and General Counsel
Richard Dusek
Executive Vice President,
CHS Country Operations
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
$
$ 1,218,042
1,169,167
815,365
615,929
602,883
523,500
547,667
520,000
443,670
516,667
490,267
467,223
513,696
468,012
— $ 5,405,339
— 3,473,839
862,500
—
— 1,615,251
— 1,115,086
207,550
— 1,631,254
— 1,219,000
175,000
— 1,538,720
— 1,086,591
164,780
— 1,360,928
— 1,137,174
100,000
100,000
201,667
$
$ 1,307,488
372,721
293,497
316,033
106,115
95,952
611,133
56,050
75,198
285,992
68,928
69,638
465,830
20,449
410,651
90,579
41,611
151,172
44,133
30,114
160,989
38,457
18,030
141,526
42,646
23,142
142,030
39,089
$ 8,341,520
5,106,306
2,012,973
2,698,385
1,868,217
957,116
2,951,043
1,833,507
811,898
2,482,905
1,688,432
926,450
2,482,484
1,664,724
(1) Amounts reflect the gross salary and non-equity incentive plan compensation, as applicable, and include any applicable deferrals.
Mr. Debertin deferred $3,493,832 in fiscal 2019, $157,167 in fiscal 2018 and $0 in fiscal 2017; Mr. Skidmore deferred $722,060 in fiscal
2019, $303,483 in fiscal 2018 and $52,350 in fiscal 2017; Mr. Zappa deferred $543,295 in fiscal 2019 and $82,390 in fiscal 2018; and Mr.
Dusek deferred $227,435 in fiscal 2019 and $0 in fiscal 2018 (Mr. Dusek was not a Named Executive Officer in fiscal 2017).
(2) Information on Mr. Dusek includes compensation beginning in fiscal 2018, the first year in which he became a Named Executive
Officer.
(3) Includes payments to Mr. Skidmore of $100,000 in fiscal 2017 for providing additional strong leadership and significant time
commitment to the ongoing management of multiple business and financial challenges in addition to performing his regular executive vice
president and chief financial officer role.
(4) Includes payments to Mr. Zappa of $201,667 in fiscal 2017, $100,000 of which was for providing additional strong leadership of and
significant time commitment to the ongoing management of multiple business and governance challenges in addition to performing his
regular executive vice president and general counsel role, and $101,667 of which covered earned and forfeited compensation from previous
employment.
(5) Includes payment to Mr. Hunhoff of $100,000 in fiscal 2017 for taking on additional leadership roles in addition to performing his new
role as executive vice president, Energy and Foods.
(6) Amounts include annual variable pay awards and long-term incentive awards.
The actual annual variable pay award value was as follows in fiscal 2019, 2018 and 2017, respectively: Mr. Debertin, $3,713,064,
$3,473,839 and $862,500; Mr. Skidmore, $1,202,064, $1,115,086 and $207,550; Mr. Hunhoff, $1,279,950, $1,219,000 and $175,000; Mr.
Zappa, $1,207,500, $1,086,591 and $164,780; Mr. Dusek, $1,110,515 and $1,137,174 (Mr. Dusek was not a Named Executive Officer in
fiscal 2017).
These annual variable pay award values exclude awards in the following amounts with respect to fiscal 2018 that our Board of Directors
reduced at the voluntary request of the Named Executive Officers in connection with our restated financial statements: Mr. Debertin,
$62,411; Mr. Skidmore, $73,213; Mr. Zappa, $63,410; and Mr. Dusek, $6,213.
The actual long-term incentive award value was as follows in fiscal 2019, 2018 and 2017, respectively: Mr. Debertin, $1,692,275, $0 and
$0; Mr. Skidmore, $403,187, $0 and $0; Mr. Hunhoff, $351,304, $0 and $0; Mr. Zappa, $331,220, $0 and $0; Mr. Dusek, $250,413 and $0
(Mr. Dusek was not a Named Executive Officer in fiscal 2017).
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Because Mr. Skidmore's retirement will occur prior to him achieving ten years of service, he will not be eligible to vest in and will forfeit
his LTIP payment for the fiscal 2017-2019 LTIP. For a description of the payment that will be made to Mr. Skidmore under the Letter
Agreement in recognition of, among other things, earned but unvested long-term incentive compensation that will be forfeited due to the
end of Mr. Skidmore's employment prior to vesting, please see "Post Employment" below.
(7) This column represents both changes in pension value and above-market earnings on deferred compensation. Change in pension value
is the aggregate change in the actuarial present value of the Named Executive Officer's benefit under his or her retirement program and
nonqualified earnings, if applicable.
The aggregate change in the actuarial present value was as follows in fiscal 2019, 2018 and 2017, respectively: Mr. Debertin, $1,245,229,
$267,017 and $175,298; Mr. Skidmore, $305,723, $89,520 and $79,807; Mr. Hunhoff, $607,801, $49,824 and $68,620; Mr. Zappa,
$285,992, $68,928 and $69,638; and Mr. Dusek, $460,972 and $12,951 (Mr. Dusek was not a Named Executive Officer in fiscal 2017).
Above-market earnings on deferred compensation represent earnings exceeding 120% of the Federal Reserve long-term rate as determined
by the Internal Revenue Service ("IRS") on applicable funds, and was as follows in fiscal 2019, 2018 and 2017, respectively: Mr. Debertin,
$62,259, $105,704 and $118,199; Mr. Skidmore, $10,310, $16,595 and $16,145; Mr. Hunhoff, $3,332, $6,226 and $6,578; Mr. Zappa, $0,
$0 and $0; and Mr. Dusek, $4,858 and $7,498 (Mr. Dusek was not a Named Executive Officer in fiscal 2017).
(8) Amounts may include executive LTD paid by us, travel accident insurance, executive physical, contributions by us during each fiscal
year to qualified and non-qualified defined contribution plans, spousal travel and financial planning.
(9) Includes fiscal 2019 executive LTD of $3,221 for all Named Executive Officers.
(10) Includes fiscal 2019 employer contributions to the Deferred Compensation Plan: Mr. Debertin, $371,407; Mr. Skidmore, $127,290;
Mr. Hunhoff, $128,810; Mr. Zappa, $115,134; and Mr. Dusek, $118,989.
(11) Includes fiscal 2019 employer contribution to the 401(k) Plan: Mr. Debertin, $15,271; Mr. Skidmore, $15,284; Mr. Hunhoff $15,375;
Mr. Zappa, $15,300; and Mr. Dusek, $12,894.
(12) Includes fiscal 2019 executive physical examinations for the following Named Executive Officers: Mr. Debertin, $3,870; and Mr.
Hunhoff, $7,488.
(13) Includes fiscal 2019 executive financial planning for the following Named Executive Officers: Mr. Debertin, $6,740; Mr. Skidmore,
$1,035; Mr. Hunhoff, $905; Mr. Zappa, $2,810; and Mr. Dusek, $1,815.
(14) Includes fiscal 2019 spousal travel for Mr. Debertin of $745.
Agreements with Named Executive Officers
On May 22, 2017, we entered an Employment Agreement with Mr. Debertin, our President and Chief Executive
Officer. The Employment Agreement supersedes all previous agreements we had with Mr. Debertin. The Employment
Agreement was entered into to clearly define the obligations of the parties thereto with respect to employment matters, as well
as the compensation and benefits to be provided to Mr. Debertin upon termination of employment. Other details of Mr.
Debertin’s Employment Arrangement are described in "Compensation Discussion and Analysis" above.
In connection with Mr. Skidmore's retirement from CHS on December 31, 2019, we entered into the Letter Agreement
with Mr. Skidmore. Details of the Letter Agreement are described below under the heading "Post Employment." In addition, the
severance payments to which Mr. Skidmore would be entitled under his employment term sheet with us if we terminated his
employment without cause or if he terminated his employment for "good reason" are also described below under the heading
"Post Employment."
The severance payments to which Mr. Zappa would be entitled under his employment term sheet with us if we
terminated his employment without cause or if he terminated his employment for "good reason" are described below under the
heading "Post Employment." Other details of Mr. Zappa's employment arrangement with us are described in "Compensation
Discussion and Analysis" above.
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Jay Debertin
Timothy Skidmore
Darin Hunhoff
James Zappa
Richard Dusek
2019 Grants of Plan-Based Awards
Name
Grant Date
Threshold
Target
(Dollars)
Maximum
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
9/6/2018(1)
9/6/2018(2)
4/3/2019(3)
9/6/2018(1)
9/6/2018(2)
4/3/2019(3)
9/6/2018(1)
9/6/2018(2)
4/3/2019(3)
9/6/2018(1)
9/6/2018(2)
4/3/2019(3)
9/6/2018(1)
9/6/2018(2)
4/3/2019(3)
$
884,063
$ 1,768,125
$ 3,536,250
884,063
—
349,499
349,499
—
304,750
304,750
—
287,500
287,500
—
285,847
285,847
—
1,768,125
1,768,125
698,999
698,999
425,478
609,500
609,500
371,000
575,000
575,000
350,000
571,694
571,694
347,988
5,893,750
—
1,397,998
2,795,995
—
1,219,000
2,438,000
—
1,150,000
2,300,000
—
1,143,388
2,286,775
—
(1) Represents range of possible awards under our fiscal 2019 Annual Variable Pay Plan.
(2) Represents range of possible awards under our LTIP for the fiscal 2019-2021 performance period. Goals are based on achieving a three-
year ROIC of 4.9% threshold, 5.9% target and 6.9% maximum plus a potential award for 7.9% superior ROIC performance. Values
displayed in the maximum column reflect 7.9% superior ROIC performance award potential. The 5.7% maximum performance award
values are not listed in this table. Awards are earned over a three-year period and vest over an additional 28-month period.
Because Mr. Skidmore's employment will end prior to the end of fiscal 2019-2021 performance period, he will not be eligible to earn any
compensation under the 2019-2021 LTIP.
(3) Represents the maximum potential award opportunity with respect to the Retention Award. Subject to the following sentence, the
Retention Award is earned only if a participant continues active employment through January 1, 2021, or meets the limited pro rata criteria
provided in the award. For a description of the Award that will be made to Mr. Skidmore under the Letter Agreement please see "Post
Employment" below.
The material terms of annual variable pay and long-term incentive awards that are disclosed in this table, including the
vesting schedule, are described under "Compensation Discussion and Analysis" above.
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2019 Pension Benefits
Name
Plan Name
Jay Debertin(1)
Timothy Skidmore
Darin Hunhoff
James Zappa
Richard Dusek
Pension Plan
SERP
Pension Plan
SERP
Pension Plan
SERP
Pension Plan
SERP
Pension Plan
SERP
Number of Years of
Credited Service
Actuarial Present Value
of Accumulated Benefits
(Years)
(Dollars)
35.2500
$
35.2500
6.0000
6.0000
27.2500
27.2500
3.3333
3.3333
31.0833
31.0833
1,104,675
3,977,697
182,996
653,225
769,510
827,260
124,074
454,168
898,434
617,051
(1) Mr. Debertin is eligible for early retirement in both the Pension Plan and the SERP.
The above table shows the present value of accumulated retirement benefits that Named Executive Officers are
entitled to under the Pension Plan and the SERP.
For a discussion of the material terms and conditions of the Pension Plan and the SERP, see "Compensation
Discussion and Analysis" above.
The present value of accumulated benefits is determined in accordance with the same assumptions outlined in Note 11,
Benefit Plans, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K:
• Discount rate of 3.03% for the Pension Plan and 2.53% for the SERP;
• RP 2014 Mortality Table with a fully generational projection reflecting scale MP 2017 from 2006;
• Each Named Executive Officer is assumed to retire at the earliest retirement age at which unreduced benefits are
available (age 65). The early retirement benefit under the cash balance plan formula is equal to the participant’s
account balance; and
•
Payments under the cash balance formula of the Pension Plan assume a lump sum payment. SERP benefits are payable
as a lump sum.
The normal form of benefit for a single Named Executive Officer is a life only annuity, and for a married Named
Executive Officer the normal form of benefit is a 50% joint and survivor annuity. Other annuity forms are also available on an
actuarial equivalent basis. A lump sum option is also available.
All Named Executive Officers' retirement benefits at normal retirement age will be equal to their accumulated benefits
under the Pension Plan and the SERP, as described under "Compensation Discussion and Analysis" above.
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2019 Nonqualified Deferred Compensation
Name
Executive
Contributions in
Last Fiscal Year (1)
Registrant
Contributions in
Last Fiscal Year (2)
Aggregate
Earnings in Last
Fiscal Year (3)
Aggregate
Withdrawals/
Distributions
Aggregate Balance
at Last Fiscal Year
End (2)(4)
Jay Debertin
Timothy Skidmore
Darin Hunhoff
James Zappa
Richard Dusek
$
$
3,493,832
722,060
—
543,295
227,435
$
371,407
127,290
128,810
115,134
118,989
$
506,870
149,635
61,884
90,090
41,653
$
1,876,339
—
—
—
—
13,390,214
4,480,949
2,688,783
1,574,256
1,206,474
(1) Includes amounts deferred from salary and annual incentive pay reflected in the Summary Compensation Table.
(Dollars)
(2) Contributions are made by us into the Deferred Compensation Plan on behalf of Named Executive Officers. Amounts include LTIP,
retirement contributions on amounts exceeding IRS compensation limits, Profit Sharing and 401(k) match. The amounts reported were
made in early fiscal 2019 based on fiscal 2018 results. These results are also included in amounts reported in the Summary Compensation
Table: Mr. Debertin, $380,345; Mr. Skidmore, $131,322; Mr. Hunhoff, $133,540; Mr. Zappa, $119,735; and Mr. Dusek, $123,790.
(3) The amounts in this column include the change in value of the balance, not including contributions made by the Named Executive
Officer. Amounts include the following above market earnings in fiscal 2019 that are also reflected in the Summary Compensation Table:
Mr. Debertin, $62,259; Mr. Skidmore, $10,310; Mr. Hunhoff, $3,332; Mr. Zappa, $0; and Mr. Dusek, $4,858.
(4) Amounts vary in accordance with individual pension plan provisions and voluntary employee deferrals and withdrawals. These amounts
include rollovers, voluntary salary and voluntary incentive plan contributions from predecessor plans with predecessor employers that have
increased in value over the course of the executive's career. Named Executive Officers may defer up to 75% of their base salary and up to
100% of their annual variable pay to the Deferred Compensation Plan. Earnings on amounts deferred under the Deferred Compensation
Plan are determined based on the investment election made by the Named Executive Officer from five market-based notional investments
with a varying level of risk selected by us and a fixed rate fund. The notional investment returns for fiscal 2019 were as follows: Vanguard
Prime Money Market, 2.36%; Vanguard Life Strategy Income, 8.61%; Vanguard Life Strategy Conservative Growth, 6.30%; Vanguard Life
Strategy Moderate Growth, 3.96%; Vanguard Life Strategy Growth, 1.59%; Fixed Rate, 4.00%.
Named Executive Officers may change their investment election daily. Payments of amounts deferred are made in accordance with
elections by the Named Executive Officer and in accordance with Section 409A under the Internal Revenue Code. Payments under the
Deferred Compensation Plan may be made at a specified date elected by the Named Executive Officer or deferred until retirement,
disability, or death. Such payments would be made in a lump sum. In the event of retirement, the Named Executive Officer can elect to
receive payments either in a lump sum or annual installments up to ten years.
For a discussion of the material terms and conditions of the Deferred Compensation Plan, see "Compensation
Discussion and Analysis" above.
Post Employment
Pursuant to the terms of his Employment Agreement, Mr. Debertin, our President and CEO, is entitled to severance in
the event that his employment is terminated by us without cause or by him with "good reason." Specifically, severance under
the Employment Agreement would consist of:
• The annual incentive compensation Mr. Debertin would have been entitled to receive for the year in which his
termination occurred as if he had continued until the end of that fiscal year, determined based on our actual
performance for that fiscal year relative to the performance goals applicable to Mr. Debertin (with that portion
of the annual incentive compensation based on completion or partial completion of previously specified personal
goals equal to 30% of the target annual incentive), prorated for the number of days in the fiscal year through
Mr. Debertin’s termination date and generally payable in a cash lump sum at the time that incentive awards are
payable to other participants;
• Two times Mr. Debertin's base salary plus two times his target annual incentive compensation, payable in three
equal installments with the first installment payable 60 days following termination and the second and third
installments payable on the first and second anniversary dates of termination, respectively; and
• Welfare benefit continuation for two years following termination.
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Mr. Skidmore's employment term sheet with us provides for severance in the event his employment is terminated by us
without cause, or by him with "good reason," in the amount of one year of base pay and prorated annual variable pay, payable
in a lump sum. In addition, in connection with Mr. Skidmore's retirement from CHS on December 31, 2019, we entered into the
Letter Agreement with Mr. Skidmore. The Letter Agreement includes confidentiality, cooperation, non-disparagement and other
customary provisions, as well as one-year covenants regarding non-solicitation and non-competition. The Letter Agreement
also provides for certain payments to Mr. Skidmore, including the following:
•
If, no earlier than his separation from employment on December 31, 2019, Mr. Skidmore signs a general release of
claims in the form attached to the Letter Agreement and does not subsequently rescind that general release within 14
days after its execution ("Rescission Deadline"), then we will make a lump sum payment to him in an amount equal to
one year of his current base salary, which amount is $619,982, as well as a pro rata portion of annual variable
compensation earned for fiscal 2020, which pro rata portion will be calculated based on Mr. Skidmore's target level
opportunity of 115% of his current base salary;
• A $340,975 payment representing a November 2017 retention award grant that will fully vest on January 1, 2020;
• A pro rata portion of the Retention Award in the amount of $170,191, to be paid within 60 days of Mr. Skidmore's
•
•
retirement on December 31, 2019;
Payment for 30 days of paid time off; and
$700,000 in recognition of earned but unvested long-term incentive compensation that will be forfeited due to the end
of Mr. Skidmore's employment prior to vesting, to offset medical and dental benefits coverage for 12 months and one
year of financial planning expense reimbursement, and for agreeing to be subject to the one-year non-competition and
non-solicitation covenants following his departure from employment. Payment of this amount will be made within 30
days after December 31, 2020. This payment is subject to Mr. Skidmore's ongoing compliance with obligations that
continue under the Letter Agreement including, without limitation, the non-competition and non-solicitation
covenants.
Mr. Zappa's employment term sheet with us provides for severance in the event his employment is terminated by us
without cause, or by him with "good reason," in the amount of one year of base pay and prorated annual variable pay, payable
as a lump sum.
Mr. Hunhoff and Mr. Dusek are covered by a broad-based employee severance program that provides a lump sum
payment of two weeks of pay per year of service with a 12-month cap.
The severance pay that the Named Executive Officers would have been entitled to had they been terminated by us
without cause or terminated their employment for "good reason," in each case, as of the last business day of fiscal 2019 is as
follows:
Name
Jay Debertin (1)(2)
Timothy Skidmore (3)(4)
Darin Hunhoff
James Zappa (3)
Richard Dusek
$
Amount
(Dollars)
8,098,228
1,332,961
556,500
1,128,750
521,981
(1) Includes the value of health and welfare insurance based on current monthly rates.
(2) For purposes of calculating the prorated portion of Mr. Debertin's unpaid annual variable pay award for the fiscal year in which the
termination occurred, assumes an annual variable pay award at target performance for the entire fiscal year.
(3) Assumes an annual variable pay award at target performance for the entire fiscal year.
(4) Represents severance payments that would be made pursuant to Mr. Skidmore's employment term sheet with us. Details of the
payments to be made pursuant to Mr. Skidmore's Letter Agreement are set forth above.
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There are no other severance benefits offered to our Named Executive Officers, except for up to $10,000 of
outplacement assistance, which would be included as imputed income, and government mandated benefits such as COBRA.
Except as otherwise set forth above, the method of payment would be a lump sum. Named Executive Officers not covered by
the Letter Agreement or employment agreements are not offered any special postretirement health and welfare benefits that are
not offered to other similarly situated (i.e., age and service) salaried employees.
Pay Ratio
The following pay ratio and supporting information compares the annual total compensation of our employees other
than our CEO (including full-time, part-time, seasonal and temporary employees) and the annual total compensation of our
CEO, as required by Section 953(b) of the Dodd-Frank Act. The pay ratio is a reasonable estimate calculated in a manner
consistent with Item 402(u) of Regulation S-K promulgated by the SEC.
For fiscal 2019, our last completed fiscal year:
• The median of the annual total compensation of all our employees (other than the CEO) was $75,561; and
• The annual total compensation of our CEO, as reported in the Summary Compensation Table set forth above, was
$8,341,520.
Based on this information, the ratio of the annual total compensation of our CEO to the median of the annual total
compensation of all other employees was 110:1.
To determine the pay ratio, we took the following steps:
• We determined that as of June 1, 2019, the determination date, our employee population consisted of approximately
10,039 individuals, 9,502 of which were located in the United States and 537 of which were located outside of the
United States. This population consisted of our full-time, part-time, temporary and seasonal employees. From this
population, we excluded 282 individuals who were located in the following countries: Argentina (51), Bulgaria (4),
Canada (8), China (38), Hungary (8), Jordan (1), Paraguay (14), Republic of Korea (3), Romania (55), Russia (2),
Serbia (4), Singapore (17), Spain (9), Switzerland (18), Taiwan (3), Ukraine (38) and Uruguay (9). Excluding these
employees, our employee population that was used to calculate the pay ratio consisted of 9,757 individuals.
• To identify the median employee, we compared regular, bonus and overtime wages (or their equivalents). We then
applied a statistical sampling methodology to produce a sample of employees who were paid within a 5% range of
the median regular, bonus and overtime wages (or their equivalents) and selected an employee from within that group
as our median employee.
• Once we identified our median employee, we calculated that employee's annual total compensation for fiscal 2019 in
accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K promulgated by the SEC, resulting in
annual total compensation of $75,561.
• With respect to our CEO, we used the amount reported as total compensation in the Summary Compensation Table
set forth above.
In adopting the pay ratio rule, the SEC expressly sought to provide flexibility to each company to determine the
methodology that best suits its own facts and circumstances. Our pay ratio should not be compared to other companies’ pay
ratios, because it is based on a methodology specific to us and certain material assumptions, adjustments and estimates have
been made in the calculation of the ratio.
Director Compensation
Overview
Our Board of Directors met 11 times during the year ended August 31, 2019. Each director (other than the chair of the
Board) is a member of two Board Committees. At a minimum, each Board Committee meets during each of the Board’s six
regular meetings. Through August 31, 2019, each director was provided annual compensation of $69,000, paid in 12 monthly
payments, plus actual expenses and travel allowance, with the chair of the Board receiving additional annual compensation of
$18,000, the first vice chair and the secretary-treasurer each receiving additional annual compensation of $3,600 and all Board
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committee chairs receiving additional annual compensation of $6,000. Each director receives a per diem of $500 plus actual
expenses and travel allowance for each day spent at meetings other than regular Board meetings and the CHS Annual Meeting.
The number of days per diem may not exceed 55 days annually, except that the chair of the Board is exempt from this limit.
Further, directors are eligible to participate in the Deferred Compensation Plan through a retirement plan account.
Other than direct contributions, contributions to the retirement plan account in the Deferred Compensation Plan have
historically been made based on our ROAE performance during specific three-year periods. However, beginning in fiscal 2020,
for the 2018-2020 three-year cycle, contributions to each director’s retirement plan account in the Deferred Compensation Plan
will be made based on our ROIC performance, with ROIC defined in the same manner as for executive compensation (see
"Long Term Incentive Compensation" above). We believe that using the ROAE and ROIC performance metrics for this purpose
aligns the interests of our directors with the interests of our management and member-owners. The ROAE and ROIC
performance target levels are established and approved by our Board of Directors prior to each three-year performance period.
Deferred Compensation Plan credits are based on ROAE or ROIC performance results as applicable, as detailed on the
following pages.
We previously restated our consolidated financial statements for the fiscal years ended August 31, 2017 and 2016, and
our unaudited financial information for the fiscal years ended August 31, 2015 and 2014. Each of our current directors, other
than Messrs. Beckman, Cordes, Farrell, Jones, and Kehl (none of whom was a director during those years), had previously
credited to their retirement plan account under the Deferred Compensation Plan $1,432 in excess of what would have been
credited to such account under the restated financial statements and information. Accordingly, each affected director voluntarily
declined that excess contribution and voluntarily agreed that we should remove such amount from the director’s retirement plan
account under the Deferred Compensation Plan (and such amounts were so removed during fiscal 2019), with the exception of
Mr. Kayser, who instead voluntarily provided that same offset by foregoing $1,432 in annual compensation during fiscal 2019.
During fiscal 2019, the Governance Committee of our Board of Directors retained Mercer (US) ("Mercer"), a global
compensation consulting firm, to conduct a market study of CHS director compensation. The last comprehensive director
market study we conducted was completed in 2013. The fiscal 2019 study conducted by Mercer included an analysis of director
compensation levels and practices compared to peer companies and cross-industry data, an assessment of time spent on Board
of Directors and Board committee meetings and other director responsibilities, and a summary of recent market trends specific
to certain components of board member compensation. In order to better align our director compensation with the market based
on the Mercer study, our Board of Directors approved the following changes to director compensation for fiscal 2020:
•
•
•
•
•
•
Increase annual cash retainer to $85,000.
Increase annual Board chair additional compensation to $24,000.
Increase annual first vice chair and secretary-treasurer additional compensation to $6,000.
Increase annual Board Committee chair additional compensation to $9,000.
Provide each other member of the Executive Committee of our Board of Directors with annual additional
compensation of $3,000.
Provide a minimum retirement plan account contribution of $25,000 under the Deferred Compensation Plan as
described in greater detail below under "Components of Compensation."
Director Retirement and Health Care Benefits
Members of our Board of Directors are eligible for certain retirement and health care benefits. The director retirement
plan is a defined benefit plan and provides for a monthly benefit for the director's lifetime, beginning at age 60. Benefits are
immediately vested and the monthly benefit is determined according to the following formula: $250 times years of service on
the Board (up to a maximum of 15 years). Under no event will the benefit payment be payable for less than 120 months.
Payment shall be made to the retired director's beneficiary in the event of the director's death before 120 payments are made.
Prior to 2005, directors could elect to receive their benefit as an actuarial equivalent lump sum. To comply with IRS
requirements, directors were required in 2005 to make a one-time irrevocable election whether to receive their accrued benefit
in a lump sum or a monthly annuity upon retirement. If the lump sum was elected, the director would commence benefits upon
expiration of his or her Board term.
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Effective August 31, 2011, future accruals under the director retirement plan were frozen. Directors elected after that
date are not eligible for benefits under that plan.
Retirement benefits are funded by a rabbi trust, with a balance at August 31, 2019, of $8.6 million.
Directors serving as of September 1, 2005, and their eligible dependents, are eligible to participate in our medical, life,
dental, vision and hearing plans. We will pay 100% of the medical premium for the director and their eligible dependents while
active on the Board. Term life insurance cost is paid by the director. Retired directors and their dependents are eligible to
continue medical and dental insurance with the premiums paid by us after they leave the Board, until they are eligible for
Medicare. In the event a director's coverage ends due to death or Medicare eligibility, we will pay 100% of the premium for the
eligible spouse and eligible dependents until the spouse reaches Medicare age or upon death, if earlier.
New directors elected on or after December 1, 2006, and their eligible dependents, are eligible to participate in our
medical, dental, vision and hearing plans. We will pay 100% of the premium for the director and eligible dependents while
active on the Board. In the event a director leaves the Board prior to Medicare eligibility, premiums will be shared based on the
following schedule:
Years of Service
Up to 3
3 to 6
6+
Director
100%
50%
0%
CHS
0%
50%
100%
In the event a director's coverage ends due to death or Medicare eligibility, premiums for the eligible spouse and
eligible dependents will be shared based on the same schedule until the spouse reaches Medicare age or upon death, if earlier.
Deferred Compensation Plan
Directors are eligible to participate in the Deferred Compensation Plan. Each participating director may elect to defer
up to 100% of his or her monthly director fees into the Deferred Compensation Plan. This must be done prior to the beginning
of the calendar year in which the fees will be earned, or in the case of newly-elected directors, upon election to the Board.
During fiscal year 2019, the following directors deferred Board fees pursuant to the Deferred Compensation Plan: Mr.
Erickson, Mr. Johnsrud, Mr. Kehl, Mr. Knecht, Mr. Malesich and Mr. Meyer.
Benefits are funded in a rabbi trust. The Deferred Compensation Plan rabbi trust balance reported elsewhere in this
Annual Report on Form 10-K includes amounts deferred by the directors.
Each year we will credit an amount to each director’s retirement plan account under the Deferred Compensation Plan.
The fiscal year 2019 credit to each director’s retirement plan account is based on ROAE performance goals for fiscal years
2017-2019 of 5.5%, 7%, 9% and 20%, respectively. The actual ROAE performance for the fiscal years 2017-2019 performance
period was 6.8% and is reflected in the Director Compensation Table.
Beginning in fiscal year 2020, for the fiscal years 2018-2020 three-year cycle, the amount that will be credited to each
director's retirement plan account under the Deferred Compensation Plan using ROIC measurement, as previously discussed, is
as follows:
$100,000 (Superior performance)
Amount Credited*
$50,000 (Maximum)
$25,000 (Target)
$12,500 (Minimum)
ROIC Performance
6.7% ROIC
5.7% ROIC
4.7% ROIC
3.7% ROIC
*The amount credited for any performance period will be mathematically interpolated when results occur between the superior performance, maximum,
target and minimum ROIC performance levels.
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Beginning in fiscal year 2022, for the fiscal years 2020-2022 three-year cycle, the amount that will be credited to each
director's retirement plan account under the Deferred Compensation Plan using ROIC measurement, as previously discussed, is
as follows:
Amount Credited*
$100,000 (Superior performance)
$50,000 (Maximum)
$25,000 (Target, minimum contribution amount)
ROIC Performance
7.9% ROIC
6.9% ROIC
5.9% ROIC
*The amount credited for any performance period will be mathematically interpolated when results occur between the superior performance, maximum and
target ROIC performance levels.
Upon leaving our Board of Directors during the fiscal year, a director’s credit for that partial fiscal year will be the
target amount ($25,000) prorated through the end of the month in which the director departs. Directors who join our Board of
Directors during the fiscal year receive credit for that partial fiscal year based on the actual ROAE or ROIC, as applicable, for
that fiscal year, prorated from the first of the month following the month in which the director joins our Board of Directors to
the end of the fiscal year.
Director Incentive Compensation Recovery Policy
In September 2019, our Board of Directors adopted an Incentive Compensation Recovery Policy ("Director Recovery
Policy") that applies to our current and former directors ("Covered Director").
The Director Recovery Policy provides that, in the event of a required revision of our previously issued financial
statements to reflect the correction of one or more errors that are material to those financial statements, our Board of Directors
will require reimbursement or forfeiture of any excess covered deferred compensation received by any Covered Director during
the three completed fiscal years immediately preceding the date on which we determine that we are required to prepare an
accounting restatement. For purposes of the Director Recovery Policy, covered deferred compensation includes contributions
made to a Covered Director's retirement plan account under the Deferred Compensation Plan, or any successor plan, provided
that such contributions are made based wholly or in part on the attainment of a financial performance measure. The amount of
excess retirement plan account contribution will be equal to the amount by which the Covered Director's retirement account
contribution for the relevant period exceeded the amount that would have been contributed based on the restated financial
results, as determined by our Board of Directors. The method used to recover the applicable excess contribution will be
determined by our Board of Directors, in its sole discretion, and may include forfeiting any deferred compensation contribution
made under the Deferred Compensation Plan or taking any other remedial or recovery action permitted by law.
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2019 Director Compensation
Name
Fees Earned or
Paid in Cash (1)(2)
Change in Pension
Value and Nonqualified
Deferred Compensation
Earnings (3)
All Other
Compensation (4)(5)
Total
Donald Anthony
David Beckman
Clinton J. Blew
Dennis Carlson (6)
Scott Cordes
Jon Erickson
Mark Farrell
Steve Fritel
Alan Holm
David Johnsrud
Tracy Jones
David Kayser
Russell Kehl
Randy Knecht
Edward Malesich
Perry Meyer
Steve Riegel
Daniel Schurr
$
23,500
$
(Dollars)
19,827
$
22,624
$
60,500
102,100
95,000
93,250
96,000
88,750
93,750
97,250
101,100
88,250
91,568
96,500
88,250
90,250
95,500
87,750
110,000
—
9,355
68,525
5,122
1,580
—
40,698
269
507
—
36,587
—
38,503
2,696
365
20,921
50,635
30,001
50,459
42,175
24,035
39,807
25,427
38,691
38,691
38,691
42,175
49,641
45,059
38,691
38,691
38,291
38,691
45,643
65,951
90,501
161,914
205,700
122,407
137,387
114,177
173,139
136,210
140,298
130,425
177,796
141,559
165,444
131,637
134,156
147,362
206,278
(1) Of this amount, the following directors deferred the succeeding amounts to the Deferred Compensation Plan: Mr. Erickson, $9,000; Mr.
Johnsrud, $24,000; Mr. Kehl, $12,545; Mr. Knecht, $20,000; Mr. Malesich $10,000; and Mr. Meyer, $4,000.
(2) Excludes $1,432 of annual compensation that was voluntarily declined by Mr. Kayser in connection with our restated financial
statements.
(3) This column represents both changes in pension value and above-market earnings on deferred compensation. Change in pension value
is the aggregate change in the actuarial present value of the director’s benefit under his retirement program, and nonqualified earnings, if
applicable. The change in pension value will vary by director based on several factors including age, service, pension benefit elected (lump
sum or annuity, see above), discount rate and mortality factor used to calculate the benefit due. Future accruals under the plan were frozen
as of August 31, 2011, as stated above.
Above-market earnings represent earnings exceeding 120% of the Federal Reserve long-term rate as determined by the IRS on applicable
funds. The following directors had above market earnings during fiscal 2019: Mr. Anthony, $1,941; Mr. Beckman, $0; Mr. Blew, $1,118;
Mr. Carlson, $1,972; Mr. Cordes, $5,122; Mr. Erickson, $1,580; Mr. Farrell, $0; Mr. Fritel, $90; Mr. Holm, $269; Mr. Johnsrud, $507; Mr.
Jones, $0; Mr. Kayser, $1,977; Mr. Kehl, $0; Mr. Knecht, $1,788; Mr. Malesich, $2,696; Mr. Meyer, $365; Mr. Riegel, $764; and Mr.
Schurr, $1,002.
(4) All other compensation includes health insurance premiums, conference and registration fees, meals and related spousal expenses for
trips made with a director on CHS business. Total amounts vary primarily due to the variations in health insurance premiums, which are
due to the number of dependents covered.
Health care premiums paid for directors: Mr. Anthony, $4,688; Mr. Farrell, $1,392; Mr. Beckman, $12,000; Mr. Meyer, $14,256; Mr. Fritel,
Mr. Holm, Mr. Johnsrud, Mr. Knecht, Mr. Malesich and Mr. Riegel, $14,656; Mr. Carlson and Mr. Jones, $18,140; Mr. Erickson, $15,772;
Mr. Kehl, $21,024; Mr. Schurr, $21,608; Mr. Blew $26,424; and Mr. Cordes, $0.
(5) All other compensation includes fiscal 2019 director retirement plan Deferred Compensation Plan contributions of $23,725 for each
director except for newly elected director, Mr. Beckman, $17,794 and for former director Mr. Anthony, $8,333.
(6) Made a one-time irrevocable retirement election in 2005 to receive a lump sum benefit under the director retirement plan. All other
directors that were first elected on or prior to August 31, 2011, will receive a monthly annuity upon retirement. The director retirement plan
benefit was frozen as of August 31, 2011. Accordingly, directors who are first elected after that date are not eligible for benefits under that
plan.
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Compensation Committee Interlocks and Insider Participation
Our Board of Directors does not have a compensation committee. The Executive Committee of our Board of Directors
recommends to the entire Board of Directors salary actions relative to our CEO. The entire Board of Directors determines the
compensation and the terms of the employment agreement with our CEO. Our CEO decides base compensation levels for the
other Named Executive Officers with input from a third-party consultant if necessary, and recommends for our Board of
Directors' approval the annual and long-term incentive plan performance goals applicable to the other Named Executive
Officers.
Prior to January 2019, the Governance Committee of our Board of Directors performed the equivalent functions of a
compensation committee. Beginning in January 2019, the Executive Committee of our Board of Directors began performing
the equivalent functions of a compensation committee with respect to our CEO and the Governance Committee of our Board of
Directors continued to perform the equivalent functions of a compensation committee, other than with respect to our CEO.
During fiscal 2019, the members of the Executive Committee were Messrs. Schurr (chair), Blew (vice chair), Johnsrud,
Erickson and Riegel, and the members of the Governance Committee were Messrs. Malesich (chair), Kehl (vice chair),
Carlson, Johnsrud, Jones and Riegel. During fiscal 2019, no executive officer of CHS served on the compensation committee
(or other board committee performing equivalent functions) or board of directors of any other entity that had any executive
officer who also served on our Executive Committee, Governance Committee or Board of Directors. None of the directors who
served as a member of the Executive Committee or Governance Committee during fiscal 2019 are, or have been, officers or
employees of CHS.
See Item 13, Certain Relationships and Related Transactions, and Director Independence, of this Annual Report on
Form 10-K for directors, including Messrs. Kehl, Carlson, Johnsrud and Jones, who were a party to related-person transactions.
Compensation Committee Report
The Executive Committee (the committee of our Board of Directors that performs the equivalent functions of a
compensation committee with respect to our CEO) and the Governance Committee (the committee of our Board of Directors
that performs the equivalent functions of a compensation committee, other than with respect to our CEO) have each reviewed
and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K promulgated by the SEC
with management and, based on such review and discussion, each of the Executive Committee and the Governance Committee
recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on
Form 10-K.
Respectfully submitted,
Executive Committee
Daniel Schurr, Chair
Clinton J. Blew
Jon Erickson
David Junsrud
Steve Riegel
Governance Committee
Edward Malesich, Chair
Dennis Carlson
David Johnsrud
Tracy Jones
Russell Kehl
Steve Riegel
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ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
Beneficial ownership of our equity securities by each member of our Board of Directors, each of our Named
Executive Officers and all members of our Board of Directors and executive officers as a group as of October 18, 2019, is
shown below. Except as indicated in the footnotes to the following table, each person has sole voting and investment power
with respect to all shares attributable to such person.
Name of Beneficial Owner
Directors:
Title of Class
8% Cumulative Redeemable
Preferred Stock
Class B Cumulative Redeemable
Preferred Stock
Amount of
Beneficial
Ownership
(Shares)
% of Class (1)
Amount of
Beneficial
Ownership
(Shares)
% of Class (2)
David Beckman
Clinton J. Blew
Dennis Carlson
Scott Cordes (3)
Jon Erickson
Mark Farrell
Steven Fritel
Alan Holm
David Johnsrud
Tracy Jones
David Kayser
Russell Kehl
Randy Knecht (3)
Edward Malesich
Perry Meyer (3)
Steve Riegel
Daniel Schurr
Named Executive Officers:
Jay Debertin (3)
Richard Dusek
Darin Hunhoff
Timothy Skidmore (3)
James Zappa
All other executive officers
Directors and executive officers as a group
*Less than 1%
—
—
60
200
300
6,000
—
—
—
—
—
—
1,027
—
120
245
—
1,200
—
596
—
—
—
9,748
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
—
—
—
11,400
1,508
—
—
—
1,650
—
630
—
229
—
—
1,460
—
—
—
—
16,002
—
400
33,279
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(1) As of October 18, 2019, there were 12,272,003 shares of 8% Cumulative Redeemable Preferred Stock outstanding.
(2) As of October 18, 2019, there were 78,659,066 shares of Class B Cumulative Redeemable Preferred Stock outstanding with
21,459,066, 16,800,000, 19,700,000 and 20,700,000 attributed to Series 1, Series 2, Series 3 and Series 4, respectively.
(3) Includes shares held by spouse, children and Individual Retirement Accounts.
We have no compensation plans under which our equity securities are authorized for issuance.
To our knowledge, there is no person or group who is a beneficial owner of more than 5% of any class or series of our
preferred stock.
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ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Because our directors must be active patrons of CHS or of an affiliated association, transactions between us and our
directors are customary and expected. Transactions include the sales of commodities to us and the purchases of products and
services from us, as well as patronage refunds and equity redemptions received from us. During the year ended August 31,
2019, the value of those transactions between a particular director (and any immediate family member of a director, which
includes any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law and any person (other than a tenant or employee) sharing the household of such director) and us
in which the total amount involved exceeded $120,000 is shown below.
Name
Purchases from CHS
Patronage Dividends
Transaction Type
Dennis Carlson
Jon Erickson
Steve Fritel
David Johnsrud
Tracy Jones
David Kayser
Russell Kehl
(Dollars)
$
407,905
$
678,090
411,703
2,056,295
1,937,656
521,090
3,727,877
198
1,715
1,176
7,779
4,528
3,999
12,951
Additionally, Kehl Farms, LLC, which is owned by our director Russell Kehl, entered into a 2019 crop inputs loan
with CHS Capital for the purchase of crop inputs, seeds, supplies and fuel in April 2019 ("Kehl Loan"). The Kehl Loan bears
interest at the rate of 7.25% per annum, which is payable upon maturity in January 2020. The largest aggregate amount of
principal outstanding under the Kehl Loan during the year ended August 31, 2019, and the balance on August 31, 2019, was
$1,591,049. During the year ended August 31, 2019, no principal or interest was paid on the Kehl Loan. Also, in December
2018 our director David Kayser entered into a 2019 crop inputs loan with CHS Capital for the purchase of crop inputs ("Kayser
Loan") with a maturity date in December 2019. No interest accrues or is payable under the Kayser Loan. The largest aggregate
amount of principal outstanding under the Kayser Loan during the year ended August 31, 2019, was $135,700 and the balance
on August 31, 2019, was $23,649. During the year ended August 31, 2019, principal paid on the Kayser Loan was $112,051.
The terms of these financing arrangements were provided pursuant to financing programs widely available to our qualified
customers
Review, Approval or Ratification of Related Party Transactions
Pursuant to its amended and restated charter, our Audit Committee has responsibility for the review and approval of all
transactions between CHS and any related parties or affiliates of CHS, including its officers and directors, other than
transactions in the ordinary course of business and on market terms as described above.
Related persons can include any of our directors or executive officers and any of their immediate family members, as
defined by the SEC. In evaluating related person transactions, the committee members apply the same standards they apply to
their general responsibilities as members of the Audit Committee. The committee will approve a related person transaction
when, in its good faith judgment, the transaction is in the best interest of CHS. To identify related person transactions, each
year we require our directors and officers to complete a questionnaire identifying any transactions with CHS in which the
officer or director or their family members have an interest. We also review our business records to identify potentially
qualifying transactions between a related party and us. In addition, we have a written policy addressing related persons
(included in our Code of Conduct) that describes our expectation that all directors, officers and employees who may have a
potential or apparent conflict of interest will notify our legal department of any such transactions.
Director Independence
We are a Minnesota cooperative corporation managed by a Board of Directors made up of 17 members. Nomination
and election of the directors is done by eight separate regions. In addition to meeting other requirements for directorship,
candidates must reside in the region from which they are elected. Directors are elected for three-year terms. The terms of
directors are staggered and no more than seven director positions are elected at an annual meeting of members. Nominations
for director elections are made by the voting members at each region caucus held during our annual meeting of members.
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Neither the Board of Directors nor management of CHS participates in the nomination process. Accordingly, we have no
nominating committee.
The following directors satisfy the definition of director independence set forth in the rules of the Nasdaq Stock
Market LLC ("Nasdaq"):
David Beckman
Clinton J. Blew
Dennis Carlson
Scott Cordes
John Erickson
Independent Directors
Mark Farrell
Steve Fritel
Alan Holm
David Kayser
Russell Kehl
Randy Knecht
Edward Malesich
Perry Meyer
Steve Riegel
Daniel Schurr
Further, although we do not need to rely upon an exemption for the Board of Directors as a whole, we are exempt
pursuant to the Nasdaq rules from the Nasdaq director independence requirements as they relate to the makeup of the Board of
Directors as a whole and the makeup of the committee performing the functions of a compensation committee. The Nasdaq
exemption applies to cooperatives that are structured to comply with relevant state law and federal tax law and that do not have
a publicly traded class of common stock. All of the members of our Audit Committee are independent. All of the members of
our Governance Committee and Executive Committee (the committees of our Board of Directors that perform the equivalent
functions of a compensation committee) are independent other than Mr. Johnsrud and Mr. Jones.
Independence of CEO and Board Chair Positions
Our bylaws prohibit any employee of CHS from serving on the Board of Directors. Accordingly, our CEO may not
serve as chair of the Board or in any CHS Board capacity. We believe this leadership structure creates independence between
the Board and management and is an important feature of appropriate checks and balances in the governance of CHS.
Board of Directors Role in Risk Oversight
It is senior management's responsibility to identify, assess and manage our exposures to risk. Our Board of Directors
plays an important and significant role in overseeing the overall risk management approach, including the review and, where
appropriate, approval of guidelines and policies that govern our risk management process. Our management and Board of
Directors have jointly identified multiple broad categories of risk exposure, each of which could impact operations and affect
results at an enterprise level. Each such significant enterprise level risk is reviewed periodically by management with the Board
of Directors and/or a committee of the Board as appropriate. The review includes an analysis by management of the continued
applicability of the risk, our performance in managing or mitigating the risk, and possible additional or emerging risks to
consider. As additional areas of risk are identified, our Board of Directors and/or a committee of the Board provides review and
oversight of management's actions to identify, assess, and manage that risk. We continue to develop a formal enterprise risk
management program intended to support integration of the risk assessment and management discipline and controls into major
decision making and business processes. The Corporate Risk Committee is involved in reviewing and approving the enterprise
risk management framework and is responsible for overseeing its effectiveness on an ongoing basis. When appropriate, the
Corporate Risk Committee meets jointly with the Audit Committee to discuss common financial or other risks across CHS that
may have potential material impact to our financial statements.
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ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the aggregate fees billed to us by PricewaterhouseCoopers LLP for services rendered
during the years ended August 31, 2019 and 2018:
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
2019
2018
(Dollars in thousands)
6,368
$
6,985
13
115
76
294
53
218
6,572
$
7,550
$
$
(1) Includes fees for audit of annual financial statements and reviews of the related quarterly financial statements, certain statutory audits
and work related to filings of registration statements.
(2) Includes fees for employee benefit plan audits, due diligence on acquisitions and internal control and system audit procedures.
(3) Includes fees related to tax compliance, tax advice and tax planning.
(4) Includes fees related to other professional services performed.
In accordance with the CHS Inc. Audit Committee Charter, as amended, our Audit Committee adopted the following
policies and procedures for the approval of the engagement of an independent registered public accounting firm for audit,
review or attest services and for pre-approval of certain permissible non-audit services, all to ensure auditor independence.
Our independent registered public accounting firm will provide audit, review and attest services only at the direction
of, and pursuant to engagement fees and terms approved by our Audit Committee. Our Audit Committee approves, in advance,
all non-audit services to be performed by the independent auditors and the fees and compensation to be paid to the independent
auditors. Our Audit Committee approved 100% of the services listed above in advance.
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ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) FINANCIAL STATEMENTS
PART IV
The following financial statements are filed as part of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of August 31, 2019 and 2018
Consolidated Statements of Operations for the years ended August 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended August 31, 2019, 2018 and 2017
Consolidated Statements of Changes in Equities for the years ended August 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended August 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page No.
F-1
F-2
F-3
F-4
F-5
F-6
F-7
(a)(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowances for doubtful accounts
2019
2018
2017
Valuation allowance for deferred tax assets
2019
2018
2017
Reserve for supplier advance payments
2019
2018
*Net of reserve adjustments
Balance at
Beginning
of Year
Additions:
Charged to Costs
and Expenses*
Deductions:
Write-offs, Net
of Recoveries
Balance at
End
of Year
(Dollars in thousands)
$
221,813
$
57,380
$
225,726
163,644
2,748
191,581
$
230,374
$
41,260
$
289,083
213,583
61,854
115,893
(102,388) $
(6,661)
(129,499)
(25,290) $
(120,563)
(40,393)
176,805
221,813
225,726
246,344
230,374
289,083
$
110,613
$
130,705
— $
—
(44,728) $
(20,092)
65,885
110,613
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(a)(3) EXHIBITS
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.2A
EXHIBIT INDEX
Second Amended and Restated Limited Liability Company Agreement dated as of December 18, 2015 between
CHS Inc. and CF Industries Sales, LLC. (Incorporated by reference to our Current Report on Form 8-K, filed
December 21, 2015).(**)(***)
Amended and Restated Articles of Incorporation of CHS Inc. (Incorporated by reference to our Current Report on
Form 8-K, filed December 5, 2016).
Amended and Restated Bylaws of CHS Inc. (Incorporated by reference to our Current Report on Form 8-K, filed
December 5, 2016).
Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.
(Incorporated by reference to Amendment No. 1 to our Registration Statement on Form S-2 (File No.
333-101916), filed January 14, 2003).
Form of Certificate Representing 8% Cumulative Redeemable Preferred Stock. (Incorporated by reference to
Amendment No. 2 to our Registration Statement on Form S-2 (File No. 333-101916), filed January 23, 2003).
Unanimous Written Consent Resolution of the Board of Directors Amending the Amended and Restated
Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock.
(Incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-2 (File No.
333-101916), filed January 23, 2003).
Unanimous Written Consent Resolution of the Board of Directors Amending the Amended and Restated
Resolution Creating a Series of Preferred Equity to be Designated 8% Cumulative Redeemable Preferred Stock to
change the record date for dividends. (Incorporated by reference to our Form 10-Q for the quarterly period ended
May 31, 2003, filed July 2, 2003).
Resolution Amending the Terms of the 8% Cumulative Redeemable Preferred Stock to Provide for Call Protection.
(Incorporated by reference to our Current Report on Form 8-K, filed July 19, 2013).
Resolution Creating Class B Cumulative Redeemable Preferred Stock. (Incorporated by reference to Amendment
No. 2 to our Registration Statement on Form S-1 (File No. 333-190019), filed September 13, 2013).
Unanimous Written Consent Resolution of the Board of Directors of CHS Inc. Relating to the Terms of the Class B
Cumulative Redeemable Preferred Stock, Series 1. (Incorporated by reference to our Registration Statement on
Form 8-A (File No. 001-36079), filed September 20, 2013).
Form of Certificate Representing Class B Cumulative Redeemable Preferred Stock, Series 1. (Incorporated by
reference to Amendment No. 2 to our Registration Statement on Form S-1 (File No. 333-190019), filed September
13, 2013).
Unanimous Written Consent Resolution of the Board of Directors Relating to the Terms of the Class B Reset Rate
Cumulative Redeemable Preferred Stock, Series 2. (Incorporated by reference to our Registration Statement on
Form 8-A (File No. 001-36079), filed March 5, 2014).
Form of Certificate Representing Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2.
(Incorporated by reference to Amendment No. 1 to our Registration Statement on Form S-1 (File No.
333-193891), filed February 26, 2014).
Unanimous Written Consent Resolution of the Board of Directors Relating to the Terms of the Class B Reset Rate
Cumulative Redeemable Preferred Stock, Series 3. (Incorporated by reference to our Registration Statement on
Form 8-A (File No. 001-36079), filed September 10, 2014).
Form of Certificate Representing Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3.
(Incorporated by reference to our Registration Statement on Form 8-A (File No. 001-36079), filed September 10,
2014).
Unanimous Written Consent Resolution of the Board of Directors Relating to the Terms of the Class B Cumulative
Redeemable Preferred Stock, Series 4. (Incorporated by reference to our Registration Statement on Form 8-A (File
No. 001-36079), filed January 14, 2015).
Form of Certificate Representing Class B Cumulative Redeemable Preferred Stock, Series 4. (Incorporated by
reference to our Registration Statement on Form 8-A (File No. 001-36079), filed January 14, 2015).
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934. (*)
Employment Agreement between CHS Inc. and Jay D. Debertin dated and effective May 22, 2017. (Incorporated
by reference to our Current Report on Form 8-K, filed May 22, 2017). (+)
CHS Inc. Supplemental Executive Retirement Plan (2013 Restatement). (Incorporated by reference to Amendment
No. 1 to our Registration Statement on Form S-1 (File No. 333-190019), filed September 3, 2013). (+)
Amendment No. 1 to the CHS Inc. Supplemental Executive Retirement Plan (2013 Restatement). (Incorporated by
reference to our Form 10-K for the year ended August 31, 2016, filed November 3, 2016). (+)
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10.2B
10.3
10.3A
10.4
10.4A
10.4B
10.5
10.5A
10.5B
10.6
10.7
10.8
10.8A
10.9
10.9A
10.9B
10.10
10.10A
10.10B
10.10C
10.10D
10.10E
10.10F
10.11
10.12
10.12A
Amendment No. 2 to the CHS Inc. Supplemental Executive Retirement Plan (2013 Restatement). (Incorporated by
reference to our Form 10-Q for the quarterly period ended May 31, 2016, filed July 7, 2016). (+)
CHS Inc. 2019 Annual Variable Pay Plan Master Plan Document. (*) (+)
CHS Inc. 2019 Annual Variable Pay Plan Appendix, Plan Details. (*) (+)
CHS Inc. Long-Term Incentive Plan XIV Plan Appendix (2017-2019)(Incorporated by reference to our Form 10-K
for the year ended August 31, 2017, filed November 9, 2017).(+)
CHS Inc. Long-Term Incentive Plan XIV Plan Appendix (2018-2020)(Incorporated by reference to our Form 10-K
for the year ended August 31, 2017, filed November 9, 2017).(+)
CHS Inc. Long-Term Incentive Plan XIV Plan Appendix (2019-2021). (*) (+)
CHS Inc. Nonemployee Director Retirement Plan. (Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2010, filed July 8, 2010). (+)
Amendment No. 1 to the CHS Inc. Nonemployee Director Retirement Plan. (Incorporated by reference to our
Form 10-K for the year ended August 31, 2011, filed November 14, 2011). (+)
Amendment No. 2 to the CHS Inc. Nonemployee Director Retirement Plan. (Incorporated by reference to our
Form 10-K for the year ended August 31, 2012, filed November 7, 2012). (+)
Trust Under the CHS Inc. Nonemployee Director Retirement Plan. (Incorporated by reference to our Form 10-Q
for the quarterly period ended May 31, 2010, filed July 8, 2010). (+)
CHS Inc. Senior Leadership Team Retention Award Document. (Incorporated by reference to our Form 10-K for
the year ended August 31, 2018, filed December 3, 2018) (+)
$225,000,000 Note Agreement (Private Placement Agreement) dated as of June 19, 1998 among Cenex Harvest
States Cooperatives and each of the Purchasers of the Notes. (Incorporated by Reference to our Form 10-Q
Transition Report for the period June 1, 1998 to August 31, 1998, filed October 14, 1998).
First Amendment to Note Agreement ($225,000,000 Private Placement), effective September 10, 2003, among
CHS Inc. and each of the Purchasers of the Notes. (Incorporated by reference to our Form 10-K for the year ended
August 31, 2003, filed November 21, 2003).
Note Purchase Agreement and Series D & E Senior Notes dated October 18, 2002. (Incorporated by reference to
our Form 10-K for the year ended August 31, 2002, filed November 25, 2002).
Amendment No. 1 to Note Purchase Agreement dated as of June 9, 2011, between CHS Inc. and the purchasers of
notes party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed September 11, 2015).
Amendment No. 2 to Note Purchase Agreement dated as of September 4, 2015, between CHS Inc. and the
purchasers of notes party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed September
11, 2015).
Note Purchase and Private Shelf Agreement between CHS Inc. and Prudential Capital Group dated as of April 13,
2004. (Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2004, filed July 12,
2004).
Amendment No. 1 to Note Purchase and Private Shelf Agreement dated April 9, 2007, among CHS Inc., Prudential
Investment Management, Inc. and the Prudential Affiliate parties. (Incorporated by reference to our Form 10-Q for
the quarterly period ended February 28, 2007, filed April 9, 2007).
Amendment No. 2 to Note Purchase and Private Shelf Agreement and Senior Series J Notes totaling $50 million
issued February 8, 2008. (Incorporated by reference to our Current Report on Form 8-K, filed February 11, 2008).
Amendment No. 3 to Note Purchase and Private Shelf Agreement, effective as of November 1, 2010. (Incorporated
by reference to our Form 10-Q for the quarterly period ended November 30, 2010, filed January 11, 2011).
Amendment No. 4 to Note Purchase and Private Shelf Agreement dated as of June 9, 2011, between CHS Inc. and
the purchasers of notes party thereto. (Incorporated by reference to our Form 10-K for the year ended August 31,
2015, filed November 23, 2015).
Amendment No. 5 to Note Purchase and Private Shelf Agreement dated as of December 21, 2012, between CHS
Inc. and the purchasers of notes party thereto. (Incorporated by reference to our Form 10-K for the year ended
August 31, 2015, filed November 23, 2015).
Amendment No. 6 to Note Purchase and Private Shelf Agreement dated as of September 4, 2015, between CHS
Inc. and the purchasers of notes party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed
September 11, 2015).
Note Purchase Agreement for Series H Senior Notes ($125,000,000 Private Placement) dated September 21, 2004.
(Incorporated by reference to our Current Report on Form 8-K, filed September 22, 2004).
CHS Inc. Deferred Compensation Plan Master Plan Document (2015 Restatement). (Incorporated by reference to
our Form 10-Q for the quarterly period ended May 31, 2015, filed July 10, 2015). (+)
Amendment No. 1 to the CHS Inc. Deferred Compensation Plan (2015 Restatement). (Incorporated by reference to
our Form 10-Q for the quarterly period ended May 31, 2016, filed July 7, 2016). (+)
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10.12B
10.13
10.14
10.15
10.16
10.17
10.17A
10.17B
10.18
10.19
10.19A
10.19B
10.19C
10.19D
10.19E
10.20
10.20A
10.20B
10.20C
10.20D
10.21
Amendment No. 2 to the CHS Inc. Deferred Compensation Plan (2015 Restatement). (Incorporated by reference to
our Form 10-K for the year ended August 31, 2017, filed November 9, 2017).(+)
Beneficiary Designation Form for the CHS Inc. Deferred Compensation Plan (Incorporated by reference to our
Form 10-K for the year ended August 31, 2009, filed November 10, 2009). (+)
New Plan Participants 2011 Plan Agreement and Election Form for the CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our Registration Statement on Form S-8 (File No. 333-177326), filed October 14,
2011). (+)
Loan Agreement (Term Loan) between CHS Inc. and European Bank for Reconstruction and Development, dated
January 5, 2011. (Incorporated by reference to our Current Report on Form 8-K, filed January 18, 2011).
Revolving Loan Agreement between CHS Inc. and European Bank for Reconstruction and Development, dated
November 30, 2010. (Incorporated by reference to our Current Report on Form 8-K, filed January 18, 2011).
Note Purchase Agreement ($400,000,000 Private Placement) and Series I Senior Notes dated as of October 4,
2007. (Incorporated by reference to our Current Report on Form 8-K, filed October 4, 2007).
Amendment No. 1 to Note Purchase Agreement ($400,000,000 Private Placement) and Series I Senior Notes dated
as of June 9, 2011 (Incorporated by reference to our Form 10-K for the year ended August 31, 2018, filed
December 3, 2018).
Amendment No. 2 to Note Purchase Agreement dated as of September 4, 2015, between CHS Inc. and the
purchasers of notes party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed September
11, 2015).
Agreement Regarding Distribution of Assets, by and among CHS Inc., United Country Brands, LLC, Land
O’Lakes, Inc. and Winfield Solutions, LLC, made as of September 4, 2007. (Incorporated by reference to our
Form 10-K for the year ended August 31, 2007, filed November 20, 2007).
$150 Million Term Loan Credit Agreement by and between CHS Inc., CoBank, ACB and the Syndication Parties
dated as of December 12, 2007. (Incorporated by reference to our Registration Statement on Form S-1 (File No.
333-148091), filed December 14, 2007).
First Amendment to $150 Million Term Loan Credit Agreement by and between CHS Inc., CoBank, ACB and the
Syndication Parties dated as of May 1, 2008. (Incorporated by reference to our Form 10-Q for the quarterly period
ended May 31, 2008, filed July 10, 2008).
Second Amendment to $150 Million Term Loan Credit Agreement by and between CHS Inc., CoBank, ACB and
the Syndication Parties dated as of June 2, 2010. (Incorporated by reference to our Current Report on Form 8-K,
filed June 3, 2010).
Third Amendment to $150 Million Term Loan Credit Agreement by and between CHS Inc., CoBank, ACB and the
Syndication Parties dated as of September 27, 2011 (Incorporated by reference to our Form 10-K for the year
ended August 31, 2018, filed December 3, 2018).
Fourth Amendment to $150 Million Term Loan Credit Agreement by and between CHS Inc., CoBank, ACB and
the Syndication Parties dated as of June 26, 2013 (Incorporated by reference to our Form 10-K for the year ended
August 31, 2018, filed December 3, 2018).
Fifth Amendment and Waiver, dated as of September 4, 2015, to that certain Credit Agreement (10-Year Term
Loan), dated as of December 12, 2007, by and between CHS Inc., CoBank, ACB, as a syndication party and as the
administrative agent for the benefit of all present and future syndication parties, and the other syndication parties
party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed September 11, 2015).
Amended and Restated Loan Origination and Participation Agreement dated as of September 1, 2011, by and
among AgStar Financial Services, PCA, d/b/a ProPartners Financial, and CHS Capital, LLC. (Incorporated by
reference to our Form 10-K for the year ended August 31, 2011, filed November 14, 2011).
Amendment No. 1 to Amended and Restated Loan Origination and Participation Agreement dated as of
September 1, 2011, by and among AgStar Financial Services, PCA, d/b/a ProPartners Financial, and CHS Capital,
LLC. (Incorporated by reference to our Form 10-K for the year ended August 31, 2012, filed November 7, 2012).
Amendment No. 2 to Amended and Restated Loan Origination and Participation Agreement dated as of September
1, 2011, by and among AgStar Financial Services, PCA, d/b/a ProPartners Financial, and CHS Capital, LLC.
(Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2017, filed July 14, 2017).
Amendment No. 3 to Amended and Restated Loan Origination and Participation Agreement dated as of September
1, 2011, by and among AgStar Financial Services, PCA, d/b/a ProPartners Financial, and CHS Capital, LLC.
(Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2017, filed July 14, 2017).
Amendment No. 4 to Amended and Restated Loan Origination and Participation Agreement dated as of September
1, 2011, by and among AgStar Financial Services, PCA, d/b/a ProPartners Financial, and CHS Capital, LLC.
(Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2017, filed July 14, 2017).
Stock Transfer Agreement, dated as of November 17, 2011, between CHS Inc. and GROWMARK, Inc.
(Incorporated by reference to our Form 10-Q for the quarterly period ended November 30, 2011, filed January 11,
2012).
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10.22
10.23
10.24
10.24A
10.25
10.25A
10.25B
10.25C
10.25D
10.25E
10.26
10.27
10.27A
10.28
10.29
10.30
10.30A
10.30B
10.31
Stock Transfer Agreement, dated as of November 17, 2011, between CHS Inc. and MFA Oil Company.
(Incorporated by reference to our Form 10-Q for the quarterly period ended November 30, 2011, filed January 11,
2012).
Amended and Restated Limited Liability Company Agreement, dated February 1, 2012, between CHS Inc. and
Cargill, Incorporated. (Incorporated by reference to our Current Report on Form 8-K, filed February 1, 2012).
Note Purchase Agreement between CHS Inc. and certain accredited investors ($500,000,000) dated as of June 9,
2011. (Incorporated by reference to our Current Report on Form 8-K, filed June 13, 2011).
Amendment No. 1 to Note Purchase Agreement dated as of September 4, 2015, between CHS Inc. and the
purchasers of notes party thereto. (Incorporated by reference to our Current Report on Form 8-K, filed September
11, 2015).
Joint venture agreement among CHS Inc., Cargill, Incorporated, and ConAgra Foods, Inc., dated March 4, 2013.
(Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2013, filed July 10, 2013).
Amendment No. 1 to the joint venture agreement among CHS Inc., Cargill Incorporated, and ConAgra Foods, Inc.,
dated April 30, 2013. (Incorporated by reference to our Form 10-K for the year ended August 31, 2015, filed
November 23, 2015).
Amendment No. 2 to the joint venture agreement among CHS Inc., Cargill Incorporated, and ConAgra Foods, Inc.,
dated May 31, 2013. (Incorporated by reference to our Form 10-K for the year ended August 31, 2015, filed
November 23, 2015).
Amendment No. 3 to the joint venture agreement among CHS Inc., Cargill Incorporated, and ConAgra Foods, Inc.,
dated July 24, 2013. (Incorporated by reference to our Form 10-K for the year ended August 31, 2015, filed
November 23, 2015).
Amendment No. 4 to the joint venture agreement among CHS Inc., Cargill Incorporated, and ConAgra Foods, Inc.,
dated March 27, 2014. (Incorporated by reference to our Form 10-Q for the quarterly period ended February 28,
2014, filed April 3, 2014).
Amendment No. 5 to the joint venture agreement among CHS Inc., Cargill Incorporated, and ConAgra Foods, Inc.,
dated May 25, 2014. (Incorporated by reference to our Form 10-Q for the quarterly period ended May 31, 2014,
filed July 9, 2014).
Resolutions Amending the Long-Term Incentive Plan. (Incorporated by reference to our Current Report on Form
8-K, filed September 3, 2013). (+)
Pre-Export Credit Agreement dated as of September 24, 2013 between CHS Agronegocio Industria e Comercio
Ltda., as borrower, CHS Inc., as guarantor, and Credit Agricole Corporate and Investment Bank (Credit Agricole),
as administrative agent, Credit Agricole and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead
arrangers and joint bookrunners, and the other syndication parties thereto from time to time. (Incorporated by
reference to our Current Report on Form 8-K, filed October 4, 2013).
First Amendment to Pre-Export Credit Agreement dated as of October 9, 2015, among CHS Agronegocio Industria
e Comercio Ltda., as borrower, CHS Inc., as guarantor, Credit Agricole Corporate and Investment Bank, as
administrative agent, and the lenders party thereto. (Incorporated by reference to our Form 10-K for the year ended
August 31, 2015, filed November 23, 2015).
Amended and Restated Supply Agreement dated as of December 18, 2015 between CHS Inc. and CF Industries
Nitrogen LLC. (Incorporated by reference to our Current Report on Form 8-K, filed December 21, 2015). (***)
2019 Amended and Restated Credit Agreement (5-Year Revolving Loan), dated as of July 16, 2019, by and
between CHS Inc., CoBank, ACB, for its own benefit as a syndication party and as the administrative agent for the
benefit of the present and future syndication parties, Coöperatieve Rabobank U.A., New York Branch and
Sumitomo Mitsui Banking Corporation, for their own benefit as syndication parties and as syndication agents, and
the other syndication parties party thereto (Incorporated by reference to our Current Report on Form 8-K, filed
July 19, 2019).
2015 Credit Agreement (10-Year Term Loan) dated as of September 4, 2015, by and between CHS Inc., CoBank,
ACB, as a syndication party and as the administrative agent for the benefit of all present and future syndication
parties, and the other syndication parties party thereto. (Incorporated by reference to our Current Report on Form
8-K, filed September 11, 2015).
Amendment No. 1 to 2015 Credit Agreement. (10-Year Term Loan), dated as of June 30, 2016, by and between
CHS Inc., CoBank, ACB, as a syndication party and as the administrative agent for the benefit of all present and
future syndication parties, and the other syndication parties thereto. (Incorporated by reference to our Form 10-Q
for the quarterly period ended May 31, 2016, filed July 7, 2016).
Amendment No. 2 to 2015 Credit Agreement (10-Year Term Loan), dated as of July 16, 2019, by and between
CHS Inc., CoBank, ACB, for its own benefit as a syndication party and as the administrative agent for the benefit
of the present and future syndication parties, and the other syndication parties party thereto. (Incorporated by
reference to our Current Report on Form 8-K filed July 19, 2019).
Note Purchase Agreement, dated as of January 14, 2016, among CHS Inc. and each of the Purchasers signatory
thereto. (Incorporated by reference to our Current Report on Form 8-K, filed January 21, 2016).
84
Table of Contents
10.32
10.32A
10.32B
10.32C
10.32D
10.33
10.33A
10.33B
10.34
10.35
10.36
10.37
10.38
10.39
Sale and Contribution Agreement, dated as of July 22, 2016, by and among CHS Inc., CHS Capital, LLC and
Cofina Funding, LLC. (Incorporated by reference to our Form 10-K for the year ended August 31, 2016, filed
November 3, 2016).
Omnibus Amendment No. 1, dated as of February 14, 2017, by and among Cofina Funding, LLC, as seller, CHS
Inc., as servicer and as an originator, CHS Capital, LLC, as an originator, the conduit purchasers, committed
purchasers and purchaser agents set forth on the signature pages thereto, the Bank of Tokyo-Mitsubishi UFJ, Ltd.,
New York Branch, as administrative agent, and U.S. Bank National Association, as custodian. (Incorporated by
reference to our Current Report on 8-K, filed February 15, 2017).
Omnibus Amendment No. 2, dated as of July 18, 2017, by and among Cofina Funding, LLC, as seller, CHS Inc.,
as servicer and as an originator, CHS Capital, LLC, as an originator, the conduit purchasers, committed purchasers
and purchaser agents set forth on the signature pages thereto, the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York
Branch, as administrative agent, and U.S. Bank National Association, as custodian. (Incorporated by reference to
our Form 10-K for the year ended August 31, 2017, filed November 9, 2017).
Omnibus Amendment No. 3, dated as of September 4, 2018, by and among Cofina Funding, LLC, as seller, CHS
Inc., as servicer and as an originator, CHS Capital, LLC, as an originator, the conduit purchasers, committed
purchasers and purchaser agents set forth on the signature pages thereto, the Bank of Tokyo-Mitsubishi UFJ, Ltd.,
New York Branch, as administrative agent, and U.S. Bank National Association, as custodian (Incorporated by
reference to our Form 10-K for the year ended August 31, 2018, filed December 3, 2018).
Omnibus Amendment No. 5, dated as of June 27, 2019, by and among Cofina Funding, LLC, as seller, CHS Inc.,
as servicer and as an originator, CHS Capital, LLC, as an originator, PNC Bank, National Association, as an
alternate purchaser and as a purchaser agent, each of the other conduit purchasers, committed purchasers and
purchaser agents set forth on the signature pages thereto and MUFG Bank Ltd. f/k/a The Bank of Tokyo-
Mitsubishi UFJ, Ltd., New York Branch, as administrative agent. (*)
Receivables Financing Agreement dated July 22, 2016, by and among CHS Inc., individually and as a Servicer,
Cofina Funding, LLC, as Seller, Victory Receivables Corporation and Nieuw Amsterdam Receivables Corporation
B.V., as Conduit Purchasers, Coöperatieve Rabobank U.A., as a Committed Purchaser, Coöperatieve Rabobank
U.A., New York Branch, as Purchaser Agent, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as a
Committed Purchaser, Purchaser Agent and as Administrative Agent. (Incorporated by reference to our Form 10-K
for the year ended August 31, 2016, filed November 3, 2016).
Amended and Restated Receivables Purchase Agreement dated July 18, 2017, by and among CHS Inc.,
individually and as a Servicer, Cofina Funding, LLC, as Seller, Victory Receivables Corporation and Nieuw
Amsterdam Receivables Corporation B.V., as Conduit Purchasers, Coöperatieve Rabobank U.A., as a Committed
Purchaser, Coöperatieve Rabobank U.A., New York Branch, as Purchaser Agent, and the Bank of Tokyo-
Mitsubishi UFJ, Ltd., New York Branch, as a Committed Purchaser, Purchaser Agent and as Administrative Agent.
(Incorporated by reference to our Form 10-K for the year ended August 31, 2017, filed November 9, 2017).
First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of June 28, 2018, by and
among Cofina Funding, LLC, as Seller, CHS Inc., as Servicer, the Conduit Purchasers, Committed Purchasers and
Purchaser Agents set forth on the signature pages thereto and MUFG Bank Ltd. (f/k/a The Bank of Tokyo-
Mitsubishi UFJ, Ltd.), as Administrative Agent. (Incorporated by reference to our Current Report on Form 8-K,
filed July 5, 2018).
Reaffirmation of Performance Guaranty dated July 18, 2017, by and among CHS Inc., individually and as a
Servicer, Cofina Funding, LLC, as Seller, Victory Receivables Corporation and Nieuw Amsterdam Receivables
Corporation B.V., as Conduit Purchasers, Coöperatieve Rabobank U.A., as a Committed Purchaser, Coöperatieve
Rabobank U.A., New York Branch, as Purchaser Agent, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York
Branch, as a Committed Purchaser, Purchaser Agent and as Administrative Agent. (Incorporated by reference to
our Form 10-K for the year ended August 31, 2017, filed November 9, 2017).
Master Framework Agreement, dated as of September 4, 2018 (the “Framework Agreement”), by and among,
MUFG Bank, Ltd. (f/k/a The Bank of Tokyo-Mitsubishi UFJ, Ltd.) and each other financial institution from time
to time party thereto, as MFA Buyers, MUFG Bank, Ltd., as agent for the MFA Buyers, CHS Inc. and CHS
Capital, LLC, as sellers, and CHS Inc., as agent for the sellers (Incorporated by reference to our Form 10-K for the
year ended August 31, 2018, filed December 3, 2018).
1996 SIFMA Master Repurchase Agreement, dated as of September 4, 2018, between CHS Inc. and the buyer
under the Framework Agreement, including Annex I thereto (and as amended thereby) (Incorporated by reference
to our Form 10-K for the year ended August 31, 2018, filed December 3, 2018).
1996 SIFMA Master Repurchase Agreement, dated as of September 4, 2018, between CHS Capital, LLC and the
buyer under the Framework Agreement, including Annex I thereto (and as amended thereby) (Incorporated by
reference to our Form 10-K for the year ended August 31, 2018, filed December 3, 2018).
Guaranty, dated as of September 4, 2018, by CHS Inc. in favor of the buyer under the Framework Agreement
(Incorporated by reference to our Form 10-K for the year ended August 31, 2018, filed December 3, 2018).
CHS Inc. Strategic Leadership Team 2018 Retention Award Document. (Incorporated by reference to our Form 10-
Q for the quarterly period ended February 28, 2019, filed April 3, 2019).(+)
85
Table of Contents
10.40
Letter Agreement, dated as of July 26, 2019, by and between Timothy N. Skidmore and CHS Inc. (Incorporated by
reference to our Current Report on Form 8-K filed July 29, 2019).(+)
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Subsidiaries of the Registrant.(*)
Consent of Independent Registered Public Accounting Firm.(*)
Power of Attorney. (*)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(*)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(*)
The following financial information from CHS Inc.’s Annual Report on Form 10-K for the year ended August 31,
2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of
Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv)
the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the
Notes to the Consolidated Financial Statements. (*)
(*) Filed herewith.
(**) Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. CHS hereby undertakes to furnish supplemental copies of any of the
omitted schedules to the U.S. Securities and Exchange Commission upon request.
(***) Portions of Exhibits 2.1 and 10.28 have been omitted pursuant to a confidential treatment order under the Exchange Act.
(+) Indicates management contract or compensatory plan or agreement.
(b) EXHIBITS
The exhibits shown in Item 15(a)(3) of this Annual Report on Form 10-K are being filed herewith.
(c) SCHEDULES
None.
ITEM 16.
FORM 10-K SUMMARY
None.
86
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on November 6, 2019.
CHS INC.
By:
/s/ Jay D. Debertin
Jay D. Debertin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on November 6, 2019:
Signature
/s/ Jay D. Debertin
Jay D. Debertin
/s/ Timothy Skidmore
Timothy Skidmore
/s/ Daniel Lehmann
Daniel Lehmann
*
Daniel Schurr
*
David Beckman
*
Clinton J. Blew
*
Dennis Carlson
*
Scott Cordes
*
Jon Erickson
*
Mark Farrell
*
Steve Fritel
*
Alan Holm
Title
President and Chief Executive Officer
(principal executive officer)
Executive Vice President and Chief Financial Officer
(principal financial officer)
Vice President Finance, Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
Chair of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
87
Table of Contents
*
David Johnsrud
*
Tracy Jones
*
David Kayser
*
Russell Kehl
*
Randy Knecht
*
Edward Malesich
*
Perry Meyer
*
Steve Riegel
*By
/s/ Jay D. Debertin
Jay D. Debertin
Attorney-in-fact
Director
Director
Director
Director
Director
Director
Director
Director
88
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors, Members and Patrons of CHS Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CHS Inc. and its subsidiaries (the "Company") as of
August 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, changes in equities
and cash flows for each of the three years in the period ended August 31, 2019, including the related notes and schedule of
valuation and qualifying accounts and reserves for each of the three years in the period ended August 31, 2019, appearing
under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2019, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 6, 2019
We have served as the Company's auditor since 1998.
F-1
CHS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Table of Contents
Current assets:
Cash and cash equivalents
Receivables
Inventories
Derivative assets
Margin and related deposits
Supplier advance payments
Other current assets
Total current assets
Investments
Property, plant and equipment
Other assets
Total assets
LIABILITIES AND EQUITIES
Current liabilities:
Notes payable
Current portion of long-term debt
Customer margin deposits and credit balances
Customer advance payments
Accounts payable
Derivative liabilities
Accrued expenses
Dividends and equities payable
Total current liabilities
Long-term debt
Long-term deferred tax liabilities
Other liabilities
Commitments and contingencies (Note 15)
Equities:
Preferred stock
Equity certificates
Accumulated other comprehensive loss
Capital reserves
Total CHS Inc. equities
Noncontrolling interests
Total equities
Total liabilities and equities
August 31,
2019
2018
(Dollars in thousands)
$
211,179
2,731,209
2,854,288
253,341
155,306
197,290
259,982
6,662,595
3,683,996
5,088,708
1,012,195
$ 16,447,494
$
450,617
2,460,401
2,768,649
329,757
151,150
288,423
244,208
6,693,205
3,711,925
5,141,719
834,329
$ 16,381,178
$
$
2,156,108
39,210
143,049
336,645
1,931,415
241,957
555,323
180,000
5,583,707
1,749,901
143,061
353,295
2,272,196
167,565
137,395
409,088
1,844,489
438,465
511,032
153,941
5,934,171
1,762,690
182,770
336,519
2,264,038
4,988,877
(226,933)
1,584,158
8,610,140
7,390
8,617,530
$ 16,447,494
2,264,038
4,609,456
(199,915)
1,482,003
8,155,582
9,446
8,165,028
$ 16,381,178
The accompanying notes are an integral part of the consolidated financial statements.
F-2
Table of Contents
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues
Cost of goods sold
Gross profit
Marketing, general and administrative expenses
Reserve and impairment charges (recoveries), net
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to CHS Inc.
$
For the Years Ended August 31,
2019
2018
2017
(Dollars in thousands)
$ 31,900,453
$ 32,683,347
$ 32,037,426
30,516,120
31,591,227
31,143,549
1,384,333
1,092,120
737,636
(12,905)
659,602
(3,886)
167,065
(82,423)
(236,755)
815,601
(12,456)
828,057
(1,823)
829,880
$
677,465
(37,709)
452,364
(131,816)
149,202
(82,737)
(153,515)
671,230
(104,076)
775,306
(601)
775,907
$
893,877
611,076
456,679
(173,878)
2,190
171,239
(99,803)
(137,338)
(110,166)
(181,124)
70,958
(634)
71,592
The accompanying notes are an integral part of the consolidated financial statements.
F-3
Table of Contents
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income (loss)
Other comprehensive income (loss), net of tax:
Pension and other postretirement benefits
Unrealized net gain (loss) on available for sale investments
Cash flow hedges
Foreign currency translation adjustment
Other comprehensive income (loss), net of tax
Comprehensive income
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to CHS Inc.
$
For the Years Ended August 31,
2019
2018
2017
(Dollars in thousands)
$
828,057
$
775,306
$
70,958
(32,559)
—
20,196
(9,949)
(22,312)
805,745
(1,823)
807,568
$
20,066
(3,148)
2,540
(12,021)
7,437
782,743
(601)
783,344
$
32,702
4,385
2,242
(8,159)
31,170
102,128
(634)
102,762
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Table of Contents
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITIES
For the Years Ended August 31, 2019, 2018 and 2017
Equity Certificates
Capital
Equity
Certificates
Nonpatronage
Equity
Certificates
Nonqualified
Equity
Certificates
Preferred
Stock
Accumulated
Other
Comprehensive
Loss
(Dollars in thousands)
Capital
Reserves
Noncontrolling
Interests
Total
Equities
Balances, August 31, 2016
$
3,918,711
$
22,894
$
281,767
$
2,244,132
$
(211,530)
$
1,488,999
$
14,186
$
7,759,159
Reversal of prior year patronage and
redemption estimates
Distribution of 2016 patronage refunds
Redemptions of equities
Equities issued
Capital equity certificates exchanged for
preferred stock
Preferred stock dividends
Other, net
Net income (loss)
Other comprehensive income (loss), net
of tax
Estimated 2017 patronage refunds
(95,019)
153,589
(35,041)
3,194
(19,985)
—
(9,023)
—
—
—
Estimated 2017 equity redemptions
(10,000)
—
—
—
—
(389)
(1,960)
—
—
—
—
—
—
7,331
(753)
—
—
—
—
—
—
126,333
—
—
—
—
—
19,960
—
(54)
—
—
—
—
—
—
—
—
—
—
—
—
31,170
—
—
257,458
(257,468)
—
—
25
(167,643)
1,178
71,592
—
(126,333)
—
—
—
—
—
—
—
(1,047)
(634)
—
—
—
162,439
(103,879)
(37,390)
3,194
—
(167,643)
(2,368)
70,958
31,170
—
(10,000)
Balances, August 31, 2017
3,906,426
29,836
405,387
2,264,038
(180,360)
1,267,808
12,505
7,705,640
Reversal of prior year patronage and
redemption estimates
Distribution of 2017 patronage refunds
Redemptions of equities
Preferred stock dividends
Other, net
Net income (loss)
Other comprehensive income (loss), net
of tax
Reclassification of tax effects to capital
reserves
Estimated 2018 patronage refunds
6,058
—
(6,064)
—
(3,840)
—
—
—
—
Estimated 2018 equity redemptions
(65,000)
—
—
(185)
—
(153)
—
—
—
—
—
(126,333)
128,831
(476)
—
(361)
—
—
—
345,330
(10,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
126,333
(128,831)
—
(168,668)
2,792
775,907
7,437
—
(26,992)
—
—
26,992
(420,330)
—
—
—
—
—
(2,458)
(601)
—
—
—
—
6,058
—
(6,725)
(168,668)
(4,020)
775,306
7,437
—
(75,000)
(75,000)
Balances, August 31, 2018
3,837,580
29,498
742,378
2,264,038
(199,915)
1,482,003
9,446
8,165,028
Reversal of prior year patronage and
redemption estimates
Distribution of 2018 patronage refunds
Redemptions of equities
Preferred stock dividends
Other, net
Net income (loss)
Other comprehensive income (loss), net
of tax
Reclassification of tax effects to capital
reserves
Estimated 2019 patronage refunds
78,941
—
(70,859)
—
(2,169)
—
—
—
—
Estimated 2019 equity redemptions
(90,000)
—
—
(409)
—
(15)
—
—
—
—
—
(345,330)
352,980
(14,272)
—
(1,844)
—
—
—
472,398
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
420,330
(428,756)
—
(168,668)
7,061
829,880
(22,312)
—
(4,706)
—
—
4,706
(562,398)
—
—
—
—
—
(233)
(1,823)
—
—
—
—
153,941
(75,776)
(85,540)
(168,668)
2,800
828,057
(22,312)
—
(90,000)
(90,000)
Balances, August 31, 2019
$
3,753,493
$
29,074
$
1,206,310
$
2,264,038
$
(226,933)
$
1,584,158
$
7,390
$
8,617,530
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Table of Contents
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
$
828,057
$
775,306
$
70,958
For the Years Ended August 31,
2018
2017
2019
(Dollars in thousands)
Depreciation and amortization
Amortization of deferred major maintenance costs
Equity (income) loss from investments
Distributions from equity investments
Provision for doubtful accounts
(Gain/recovery) loss on disposal of business
Unrealized (gain) loss on crack spread contingent liability
Long-lived asset impairment, net of recoveries
Reserve against supplier advance payments
Deferred taxes
Other, net
Changes in operating assets and liabilities, net of acquisitions:
Receivables
Inventories
Derivative assets
Margin and related deposits
Supplier advance payments
Other current assets and other assets
Customer margin deposits and credit balances
Customer advance payments
Accounts payable and accrued expenses
Derivative liabilities
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from disposition of property, plant and equipment
Proceeds from sale of business
Expenditures for major maintenance
Investments redeemed
Changes in CHS Capital notes receivable, net
Financing extended to customers
Payments from customer financing
Business acquisitions, net of cash acquired
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from notes payable and long-term borrowings
Payments on notes payable, long-term debt and capital lease obligations
Preferred stock dividends paid
Redemptions of equities
Cash patronage dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
473,211
68,296
(236,755)
249,315
57,745
(3,886)
—
40,340
—
(13,852)
(34,246)
(218,192)
284,694
105,708
(4,188)
42,659
(25,442)
945
(211,761)
(38,229)
(203,383)
(21,105)
1,139,931
(443,216)
53,974
5,044
(232,094)
(5,086)
(10,903)
(12,210)
90,193
(119,421)
12,436
(661,283)
478,050
61,686
(153,515)
190,297
2,085
(131,816)
—
(10,352)
—
(146,961)
6,653
210,775
(169,581)
(102,368)
54,912
(39,189)
(11,021)
(20,518)
(14,682)
(78,388)
132,495
40,629
1,074,497
(355,412)
91,153
234,914
(80,514)
(21,679)
25,335
(74,402)
52,453
—
48,628
(79,524)
480,223
67,058
(137,338)
213,352
177,969
2,190
(15,051)
145,042
130,705
(194,467)
20,173
146,788
(333,479)
114,023
97,804
(33,952)
(15,147)
(50,920)
(1,329)
227,967
(132,423)
(25,446)
954,700
(444,397)
19,541
—
(2,340)
(16,645)
322
(67,225)
88,154
—
17,549
(405,041)
29,071,363
(29,450,339)
(168,668)
(85,540)
(75,776)
(16,686)
(725,646)
2,733
(244,265)
543,940
299,675
$
36,040,240
(36,525,136)
(168,668)
(8,847)
—
(69,759)
(732,170)
8,864
271,667
272,273
543,940
$
37,295,236
(37,584,011)
(167,642)
(35,268)
(103,879)
(22,694)
(618,258)
(4,713)
(73,312)
345,584
272,273
$
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Organization, Basis of Presentation and Significant Accounting Policies
Organization
CHS Inc. (referred to herein as "CHS," "we," "us" or "our") is the nation’s leading integrated agricultural cooperative.
As a cooperative, CHS is owned by farmers and ranchers and their member cooperatives ("members") across the United States.
We also have preferred shareholders that own shares of our various series of preferred stock, which are each listed and traded
on the Global Select Market of the Nasdaq Stock Market LLC ("Nasdaq"). See Note 10, Equities, for more detailed
information.
We buy commodities from and provide products and services to individual agricultural producers, local cooperatives
and other companies (including member and other non-member customers), both domestic and international. Those products
and services include initial agricultural inputs such as fuels, farm supplies, crop nutrients and crop protection products; as well
as agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products, and ethanol production
and marketing. A portion of our operations are conducted through equity investments and joint ventures whose operating results
are not fully consolidated with our results; rather, a proportionate share of the income or loss from those entities is included as a
component in our net income under the equity method of accounting.
Basis of Presentation
The consolidated financial statements include the accounts of CHS and all our subsidiaries and limited liability
companies in which we have a controlling interest. The effects of all significant intercompany transactions have been
eliminated.
The notes to our consolidated financial statements refer to our Energy, Ag and Nitrogen Production reportable
segments, as well as our Corporate and Other category, which represents an aggregation of individually immaterial operating
segments. The Nitrogen Production reportable segment resulted from our investment in CF Industries Nitrogen, LLC ("CF
Nitrogen"). See Note 12, Segment Reporting, for more information.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our
estimates on assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities. Due to the inherent uncertainty involved in making estimates, actual results could differ
from those estimates. We evaluate our estimates and assumptions on an ongoing basis.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original maturities of three months or less at the
date of acquisition. The fair value of cash and cash equivalents approximates the carrying value due to the short-term nature of
the instruments.
Restricted Cash
Restricted cash is included in our Consolidated Balance Sheets within other current assets (current portion) and other
assets (non-current portion), as appropriate, and primarily relates to customer deposits for futures and option contracts
associated with regulated commodities held in separate accounts as required under federal and other regulations. Pursuant to
the requirements of the Commodity Exchange Act, such funds must be carried in separate accounts that are designated as
segregated customer accounts, as applicable. Restricted cash also includes funds held in escrow pursuant to applicable
regulations limiting their usage.
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Table of Contents
The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported within our
Consolidated Balance Sheets that aggregates to the amount presented in our Consolidated Statements of Cash Flows. During
the years ended August 31, 2019, 2018 and 2017, we updated the presentation of our Consolidated Statements of Cash Flows to
include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on our Consolidated Statements of Cash Flows.
Cash and cash equivalents
Restricted cash included in other current assets
Restricted cash included in other assets
For the year ended August 31,
2019
2018
2017
(Dollars in thousands)
$
211,179
$
450,617
$
181,379
88,496
—
90,193
3,130
83,561
7,333
Total cash and cash equivalents and restricted cash
$
299,675
$
543,940
$
272,273
Inventories
Grain, processed grain, oilseed, processed oilseed and other minimally processed soy-based inventories are stated at
net realizable value. These inventories are agricultural commodity inventories that are readily convertible to cash because of
their commodity characteristics, widely available markets and international pricing mechanisms. Agricultural commodity
inventories have quoted market prices in active markets, may be sold without significant further processing and have
predictable and insignificant disposal costs. Changes in the net realizable value of merchandisable agricultural commodities
inventories are recognized in earnings as a component of cost of goods sold.
All other inventories are stated at the lower of cost or net realizable value. Costs for inventories produced or modified
by us through a manufacturing process include fixed and variable production and raw material costs, and in-bound freight costs
for raw materials. Costs for inventories purchased for resale include the cost of products and freight incurred to place the
products at our points of sale. The costs of certain energy inventories (wholesale refined products, crude oil and asphalt) are
determined on the last-in, first-out ("LIFO") method; all other inventories of non-grain products purchased for resale are valued
on the first-in, first-out ("FIFO") and average cost methods.
Derivative Financial Instruments and Hedging Activities
We enter into various derivative instruments to manage our exposure to movements primarily associated with
agricultural and energy commodity prices and, to a lesser degree, foreign currency exchange rates and interest rates. Except for
certain interest rate swap and certain pay-fixed, receive-variable, cash-settled swaps related to future crude oil purchases, which
are accounted for as fair value hedges and cash flow hedges, respectively, our derivative instruments represent economic
hedges of price risk for which hedge accounting under Accounting Standards Codification ("ASC") Topic 815, Derivatives and
Hedging, is not applied. Rather, the derivative instruments are recorded on our Consolidated Balance Sheets at fair value with
changes in fair value being recorded directly to earnings, primarily within cost of goods sold in our Consolidated Statements of
Operations. See Note 13, Derivative Financial Instruments and Hedging Activities, and Note 14, Fair Value Measurements, for
additional information.
Although we have certain netting arrangements for our exchange-traded futures and options contracts and certain
over-the-counter ("OTC") contracts, we have elected to report our derivative instruments on a gross basis on our Consolidated
Balance Sheets under ASC Topic 210-20, Balance Sheet - Offsetting.
Margin and Related Deposits
Many of our derivative contracts with futures and options brokers require us to make margin deposits of cash or other
assets. Subsequent margin deposits may also be necessary when changes in commodity prices result in a loss on the contract
value to comply with applicable regulations. Our margin and related deposit assets are generally held by external brokers in
segregated accounts to support the associated derivative contracts and may be used to fund or partially fund the settlement of
those contracts as they expire. Similar to our derivative financial instruments, margin and related deposits are reported on a
gross basis.
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Supplier Advance Payments and Rebates
Supplier advance payments are typically for periods less than 12 months and primarily include amounts paid for grain
purchases from suppliers and amounts paid to crop nutrient and crop protection product suppliers to lock in future supply and
pricing.
We receive volume-based rebates from certain vendors during the year. These vendor rebates are accounted for in
accordance with ASC 705, Cost of Sales and Services, based on the terms of the volume rebate program. For rebates that meet
the definition of a binding arrangement and are both probable and estimable, we estimate the amount of the rebate we will
receive and accrue it as a reduction of the cost of inventory and cost of goods sold over the period in which the rebate is earned.
Investments
As described in the "Recent Accounting Pronouncements" section below, we adopted Accounting Standards Update
("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which was effective for us
September 1, 2018. As a result, all equity securities that do not result in consolidation and are not accounted for under the
equity method are measured at fair value with changes therein reflected in net income. We have elected to utilize the
measurement alternative for equity investments that do not have readily determinable fair values and measure these
investments at cost less impairment plus or minus observable price changes in orderly transactions. Our equity in the income or
loss of these equity method investments is recorded within equity (income) loss from investments in the Consolidated
Statements of Operations. We account for our investment in CF Nitrogen using the hypothetical liquidation at book value
method which is discussed further in Note 5, Investments.
Investments in other cooperatives are recorded in a manner similar to equity investments without readily determinable
fair values, plus patronage dividends received in the form of capital stock and other equities. Patronage dividends are recorded
as a reduction to cost of goods sold at the time qualified written notices of allocation are received. Investments in debt and
equity instruments are carried at amounts that approximate fair values.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided on the straight-line method by charges to operations at rates based on the expected useful lives of
individual or groups of assets (generally 15 to 20 years for land improvements; 20 to 40 years for buildings; 5 to 20 years for
machinery and equipment; and 3 to 10 years for office equipment and other). Expenditures for maintenance and minor repairs
and renewals are expensed, while the costs for major maintenance activities are capitalized and amortized on a straight-line
basis over the period estimated to lapse until the next major maintenance activity occurs. We also capitalize and amortize
eligible costs to acquire or develop internal-use software that are incurred during the application development stage. When
assets are sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the
related accounts and resulting gains or losses are reflected in operations.
Property, plant and equipment and other long-lived assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amounts may not be recoverable. This evaluation of recoverability is based on various
indicators, including the nature, future economic benefits and geographic locations of the assets, historical or future
profitability measures and other external market conditions. If these indicators suggest the carrying amounts of an asset or asset
group may not be recoverable, potential impairment is evaluated using undiscounted estimated future cash flows. Should the
sum of the expected future net cash flows be less than the carrying value, an impairment loss would be recognized. An
impairment loss would be measured as the amount by which the carrying value of the asset or asset group exceeds its fair value.
We have asset retirement obligations with respect to certain of our refineries and other assets due to various legal
obligations to clean and/or dispose of the component parts at the time they are retired. In most cases, these assets can be used
for extended and indeterminate periods of time if they are properly maintained and/or upgraded. It is our practice and current
intent to maintain refineries and related assets and to continue making improvements to those assets based on technological
advances. As a result, we believe our refineries and related assets have indeterminate lives for purposes of estimating asset
retirement obligations because dates or ranges of dates upon which we would retire a refinery and related assets cannot
reasonably be estimated at this time. When a date or range of dates can reasonably be estimated for the retirement of any
component part of a refinery or other asset, we estimate the cost of performing the retirement activities and record a liability for
the fair value of that future cost.
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We have other assets that we may be obligated to dismantle at the end of corresponding lease terms subject to lessor
discretion for which we have recorded asset retirement obligations. Based on our estimates of timing, cost and probability of
removal, these obligations are not material.
Major Maintenance Activities
Within our Energy segment, major maintenance activities (“turnarounds”) are performed at our Laurel, Montana, and
McPherson, Kansas, refineries regularly. Turnarounds are the planned and required shutdowns of refinery processing units,
which include replacement or overhaul of equipment that has experienced decreased efficiency in resource conversion. Because
turnarounds are performed to extend the life, increase the capacity and/or improve the safety or efficiency of refinery
processing assets, we follow the deferral method of accounting for turnarounds. Expenditures for turnarounds are capitalized
(deferred) when incurred and amortized on a straight-line basis over a period of 2 to 5 years, which is the estimated time lapse
between turnarounds. Should the estimated period between turnarounds change, we may be required to amortize the remaining
cost of the turnaround over a shorter period, which would result in higher depreciation and amortization costs. Capitalized
turnaround costs are included in other assets (long-term) on our Consolidated Balance Sheets and amortization expense related
to the capitalized turnaround costs is included in cost of goods sold in our Consolidated Statements of Operations.
Selection of the deferral method, as opposed to expensing turnaround costs when incurred, results in deferring
recognition of turnaround expenditures. The deferral method also results in classification of related cash outflows as investing
activities in our Consolidated Statements of Cash Flows, whereas expensing these costs as incurred would result in classifying
the cash outflows as operating activities. Repair, maintenance and related labor costs are expensed as incurred and are included
in operating cash flows.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are included in other assets (long-term) on our Consolidated Balance Sheets.
Goodwill represents the excess of cost over the fair value of identifiable assets acquired. Goodwill is tested for impairment on
an annual basis as of July 31 or more frequently if triggering events or other circumstances occur that could indicate
impairment. Goodwill is tested for impairment at the reporting unit level, which has been determined to be our operating
segments or one level below our operating segments in certain instances.
Other intangible assets consist primarily of customer lists, trademarks and non-compete agreements. Intangible assets
subject to amortization are expensed over their respective useful lives, which generally range from 2 to 30 years. We have no
material intangible assets with indefinite useful lives. See Note 7, Other Assets, for more information on goodwill and other
intangible assets.
Revenue Recognition
We provide a wide variety of products and services, ranging from agricultural inputs, such as fuels, farm supplies and
agronomy products, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products, and
ethanol production and marketing. Revenue is recognized when performance obligations under the terms of a contract with a
customer are satisfied, which generally occurs when control of the goods has transferred to the customer. For the majority of
our contracts with customers, control transfers to customers at a point-in-time when the goods/services have been delivered, as
that is generally when legal title, physical possession and risks and rewards of goods/services transfer to the customer. In
limited arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits of the
service as we complete the performance obligation(s). Shipping and handling amounts billed to a customer as part of a sales
transaction are included in revenues, and the related costs are included in cost of goods sold.
Revenue is recognized at the transaction price that we expect to be entitled to in exchange for transferring goods or
services to a customer, excluding amounts collected on behalf of third parties. We follow a policy of recognizing revenue at the
point-in-time or over the period of time we satisfy our performance obligation by transferring control over a product or service
to a customer in accordance with the underlying contract. For physically settled derivative sales contracts that are outside the
scope of the revenue guidance, we recognize revenue when control of the inventory is transferred within the meaning of ASC
Topic 606. See Note 2, Revenues, for more information on revenue recognition.
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Environmental Expenditures
We are subject to various federal, state, and local environmental laws and regulations. Environmental expenditures are
expensed or capitalized depending on their future economic benefit. Liabilities, including legal costs, related to remediation of
contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated.
Estimates of environmental costs are based on current available facts, existing technology, undiscounted site-specific costs and
currently enacted laws and regulations. Recoveries, if any, are recorded in the period in which recovery is received. Liabilities
are monitored and adjusted as new facts or changes in law or technology occur.
Income Taxes
CHS is a nonexempt agricultural cooperative and files a consolidated federal income tax return within our tax return
period. We are subject to tax on income from nonpatronage sources, non-qualified patronage distributions and undistributed
patronage-sourced income. Income tax expense is primarily the current tax payable for the period and the change during the
period in certain deferred tax assets and liabilities. Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for federal and
state income tax purposes, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. Reserves are recorded against unrecognized tax benefits when we believe certain fully
supportable tax return positions are likely to be challenged and we may or may not prevail. If we determine that a tax position
is more likely than not to be sustained upon audit, based on the technical merits of the position, we recognize the benefit by
measuring the amount that is greater than 50% likely of being realized. We reevaluate the technical merits of our tax positions
and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax
audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv)
expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves.
Recent Accounting Pronouncements
Adopted
In March 2017, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2017-07, Compensation -
Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Costs and Net Postretirement Benefit
Cost. This ASU changes the presentation of net periodic pension cost and net periodic postretirement benefit cost in the
Consolidated Statements of Operations. This ASU provides that the service cost component should be included in the same
income statement line item as other compensation costs arising from services rendered by the employees during the period. The
other components of net periodic benefit cost (such as interest, expected return on plan assets, prior service cost amortization
and actuarial gain/loss amortization) are required to be presented in the Consolidated Statements of Operations separately
outside of operating income. Additionally, only service cost may be capitalized in assets. This ASU was effective for us
beginning September 1, 2018, for our fiscal year 2019 and for interim periods within that fiscal year. The guidance on the
presentation of the components of net periodic benefit cost in the Consolidated Statements of Operations has been applied
retrospectively, and the guidance regarding the capitalization of the service cost component in assets has been applied
prospectively. The adoption of this guidance had no impact on previously reported income (loss) before income taxes or net
income attributable to CHS; however, non-service cost components of net periodic benefit costs in prior periods have been
reclassified from cost of goods sold and marketing, general and administrative expenses, and are now reported outside of
operating income within other (income) loss. The amounts of the retrospective reclassification adjustments recorded as a result
of adoption of this guidance are shown in the table below.
For the year ended August 31, 2018
For the year ended August 31, 2017
As Previously
Reported
Accounting
Change
As Presented
As Previously
Reported
Accounting
Change
As Presented
Cost of goods sold
Gross profit
Marketing, general and
administrative expenses
Operating earnings (loss)
Other (income) loss
$ 31,589,887
$
1,093,460
674,083
457,086
(78,015)
(Dollars in thousands)
$ 31,591,227
$ 31,142,766
$
1,092,120
894,660
677,465
452,364
(82,737)
612,007
(174,026)
(99,951)
783
(783)
(931)
148
148
$ 31,143,549
893,877
611,076
(173,878)
(99,803)
1,340
(1,340)
3,382
(4,722)
(4,722)
F-11
Table of Contents
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of
a Business. The amendments within this ASU narrow the existing definition of a business and provide a more robust framework
for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The
definition of a business impacts various areas of accounting, including acquisitions, disposals and goodwill. Under the new
guidance, fewer acquisitions are expected to be considered businesses. This ASU was effective for us beginning September 1,
2018, for our fiscal year 2019 and for interim periods within that fiscal year. The guidance has been applied prospectively. The
adoption of this amended guidance did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This
ASU requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows, as well as
disclosure about the nature of restrictions on cash, cash equivalents and amounts generally described as restricted cash.
Additionally, the guidance requires disclosure of the total amount of cash, cash equivalents and restricted cash for each
comparative period for which a Consolidated Balance Sheet is presented. This ASU was effective for us beginning September
1, 2018, for our fiscal year 2019 and for interim periods within that fiscal year. The amendments in this ASU were applied
retrospectively to all periods presented. Refer to the additional disclosures pertaining to restricted cash within the Restricted
Cash significant accounting policy above. The adoption of this amended guidance did not have a material impact on our
Consolidated Statements of Cash Flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments. This ASU is intended to reduce existing diversity in practice in how certain cash receipts
and payments are presented and classified in the Consolidated Statements of Cash Flows. This ASU was effective for us
beginning September 1, 2018, for our fiscal year 2019 and for interim periods within that fiscal year. The adoption of this
amended guidance did not have a material impact on our Consolidated Statements of Cash Flows.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and
Financial Liabilities, which requires equity investments (except those accounted for under the equity method of accounting or
those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net
income. This guidance eliminates the previous cost method of accounting for certain equity securities that did not have readily
determinable fair values. This guidance also simplifies the impairment assessment and allows for a fair value measurement
alternative for equity investments without readily determinable fair values and includes presentation and disclosure changes.
This ASU was effective for us beginning September 1, 2018, for our fiscal year 2019 and for interim periods within that fiscal
year and was applied following a prospective basis. We have elected to utilize the measurement alternative for equity
investments that do not have readily determinable fair values and measure these investments at cost less impairment plus or
minus observable price changes in orderly transactions. As a result of the adoption of this amended guidance, we reclassified
approximately $4.7 million from accumulated other comprehensive loss to the opening balance of capital reserves within our
Consolidated Balance Sheet as of September 1, 2018, which did not have a material impact on our consolidated financial
statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The
amendments within this ASU, as well as within the additional clarifying ASUs issued by the FASB, provide a single
comprehensive model to be used to determine the measurement of revenue and timing of recognition for revenue arising from
contracts with customers. The core principle of the amended guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be
entitled in exchange for those goods or services. The new revenue recognition guidance includes a five-step model for the
recognition of revenue, including (1) identifying the contract with a customer, (2) identifying the performance obligations in the
contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5)
recognizing revenue when (or as) an entity satisfies a performance obligation. This ASU was effective for us beginning
September 1, 2018, for our fiscal year 2019 and for interim periods within that fiscal year, and we elected to apply the modified
retrospective method of adoption to all contracts as of the date of initial application. The majority of our revenues are
attributable to forward commodity sales contracts, which are considered to be physically settled derivatives under ASC 815,
Derivatives and Hedging (Topic 815). Revenues arising from derivative contracts accounted for under ASC Topic 815 are
specifically outside the scope of ASC Topic 606 and therefore not subject to the provisions of the new revenue recognition
guidance. As such, the impact of adoption of the new revenue guidance has only been assessed for our revenue contracts that
are not accounted for as derivative arrangements. The primary impact of adoption was changes to the timing of revenue
recognition for certain revenue streams that had an immaterial impact. Following the modified retrospective method of
adoption, we determined the cumulative effect of adoption for all contracts with customers that had not been completed as of
the adoption date was less than $1.0 million. Additionally, the impact of applying ASC Topic 606 compared to previous
guidance during the year ended August 31, 2019, was an overall decrease to revenues and cost of goods sold of $52.1 million.
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Table of Contents
Other financial statement impacts related to our adoption of ASC Topic 606 were not material. Our revenue recognition
accounting policy and additional information related to our revenue streams and related performance obligations required to be
satisfied to recognize revenue can be found within the Significant Accounting Policies section above and within Note 2,
Revenues.
Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software:
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This
ASU reduces the complexity of accounting for implementation, setup and other upfront costs incurred in a cloud computing
service arrangement that is hosted by a vendor. This ASU aligns accounting for implementation costs of hosting arrangements,
irrespective of whether the arrangements convey a license to the hosted software. This ASU permits either a prospective or
retrospective transition approach. This ASU is effective for us beginning September 1, 2020, for our fiscal year 2021 and for
interim periods within that fiscal year, with early adoption permitted. Adoption of this amended guidance is not expected to
have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework - Changes to the Disclosure
Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation - Retirement Benefits - Defined Benefit
Plans - General. This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other
postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the
amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next
fiscal year and (b) the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic
benefit costs and the benefit obligation for postretirement health care benefits. The new disclosures include the interest
crediting rates for cash balance plans and an explanation of significant gains and losses related to changes in benefit
obligations. This ASU is effective for us beginning September 1, 2021, for our fiscal year 2022 and for interim periods within
that fiscal year, with early adoption permitted. Adoption of this amended guidance is not expected to have a material impact on
our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the
disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. Specifically, the
guidance removes the requirement to disclose the amount and reasons for any transfers between Level 1 and Level 2 of the fair
value hierarchy and removes the requirement to disclose a description of the valuation processes used to value Level 3 fair
value measurements. The guidance also requires additional disclosures surrounding Level 3 changes in unrealized gains/losses
included in other comprehensive income, as well as the range and weighted average of significant unobservable inputs
calculation. This ASU is effective for us beginning September 1, 2020, for our fiscal year 2021 and for interim periods within
that fiscal year. Early adoption is permitted. We elected to remove the disclosures permitted by ASU No. 2018-13 during the
fourth quarter of fiscal 2018, but have not early adopted the new required additional disclosures, which is permitted by the
guidance. Adoption of this amended guidance is not expected to have a material impact on our consolidated financial
statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. The amendments in this ASU introduce a new approach, based on expected losses, to
estimate credit losses on certain types of financial instruments. This ASU is intended to provide financial statement users with
more decision-useful information about the expected credit losses associated with most financial assets measured at amortized
cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments
in leases and off-balance sheet credit exposures. Entities are required to apply the provisions of this ASU as a cumulative-effect
adjustment to capital reserves as of the beginning of the first reporting period in which the guidance is adopted. This ASU is
effective for us beginning September 1, 2020, for our fiscal year 2021 and for interim periods within that fiscal year. We are
currently evaluating the impact the adoption will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which replaces the existing guidance
within ASC 840, Leases. The amendments within this ASU, as well as within additional clarifying ASUs issued by the FASB,
introduce a lessee model requiring entities to recognize assets and liabilities for most leases, but continue recognizing the
associated expenses in a manner similar to existing accounting guidance. In July 2018, the FASB issued ASU No. 2018-10,
Codification Improvements to Topic 842, Leases, which amends ASU No. 2016-02, Leases. This ASU is effective for us
beginning September 1, 2019, for our fiscal year 2020 and for interim periods within that fiscal year. In conjunction with our
implementation of the new lease guidance, we have completed detailed lease contract reviews and considered expanded
disclosure requirements, in addition to initiating the implementation of a new lease software system to improve collection,
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maintenance, and aggregation of lease data necessary for the expanded reporting and disclosure requirements under the new
lease standard. We will adopt and implement the new guidance utilizing the additional optional transition method and package
of practical expedients in the period of adoption without retrospective adjustment to previous periods presented, although we
have elected not to apply the hindsight practical expedient available under the standard. It is expected that the primary impact
upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating
leases as right of use assets and liabilities on our Consolidated Balance Sheets, and we expect to record approximately $240.0
million to $280.0 million of lease assets and lease liabilities related to our operating leases and an immaterial adjustment to
capital reserves related to transition upon adoption of this ASU. We will provide expanded disclosures upon adoption of ASU
No. 2016-02 as required under the guidance, and it is not expected that adoption of this standard will have a material impact on
our consolidated results of operations.
Note 2
Revenues
Adoption of New Revenue Guidance
As described in Note 1, Organization, Basis of Presentation and Significant Accounting Policies, we adopted the
guidance within ASU 2014-09 as of September 1, 2018, using the modified retrospective transition approach. Consistent with
other companies that actively trade commodities, a majority of our revenues are attributable to forward commodity sales
contracts that are considered to be physically settled derivatives under ASC Topic 815 and therefore fall outside the scope of
ASC Topic 606. As a result, these revenues are not subject to provisions of the new revenue guidance and the impact of
adoption is limited to our revenue streams that fall within the scope of the new revenue guidance.
The majority of our revenue streams that fall within the scope of the new revenue guidance are recognized at a point-
in-time; however, adoption of ASU 2014-09 resulted in a minimal number of changes to the timing of revenue recognition for
certain revenue streams. Under the modified retrospective method of adoption, we determined the cumulative effect of adoption
for all contracts with customers that had not been completed as of the adoption date and recognized an adjustment of less than
$1.0 million to the opening capital reserves balance within the Consolidated Balance Sheet as of September 1, 2018.
Additionally, the impact of applying ASC Topic 606 compared to previous guidance during the year ended August 31, 2019,
was an overall decrease to revenues and cost of goods sold of $52.1 million, which was primarily related to the change in
revenue recognition for certain contracts from a gross basis to a net basis.
Other changes in accounting for revenue recognition under ASU 2014-09 did not have a material impact on our
Consolidated Statements of Operations for the year ended August 31, 2019, or Consolidated Balance Sheet as of August 31,
2019.
Revenue Recognition Accounting Policy and Performance Obligations
We provide a wide variety of products and services, from agricultural inputs such as fuels, farm supplies and
agronomy products, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products, and
ethanol production and marketing. We primarily conduct our operations and derive revenues within our Energy and Ag
businesses. Our Energy business derives its revenues through refining, wholesaling and retailing of petroleum products. Our Ag
business derives its revenues through origination and marketing of grain, including service activities conducted at export
terminals; through wholesale sales of agronomy products and processed sunflowers; from sales of soybean meal, soybean
refined oil and soyflour products; through production and marketing of renewable fuels; and through retail sales of petroleum
and agronomy products, and feed and farm supplies.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied,
which generally occurs when control of the goods has transferred to customers. For the majority of our contracts with
customers, control transfers to customers at a point-in-time when goods/services have been delivered, as that is generally when
legal title, physical possession and risks and rewards of goods/services transfer to the customer. In limited arrangements,
control transfers over time as the customer simultaneously receives and consumes the benefits of the service as we complete
our performance obligation(s).
Revenue is recognized as the transaction price we expect to be entitled to in exchange for transferring goods or
services to a customer, excluding amounts collected on behalf of third parties. We follow a policy of recognizing revenue at the
point-in-time or over the period of time that we satisfy our performance obligation by transferring control of a product or
service to a customer in accordance with the underlying contract. For physically settled derivative sales contracts that are
outside the scope of the revenue guidance, we recognize revenue when control of the inventory is transferred within the
meaning of ASC Topic 606.
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The amount of revenues recognized during the year ended August 31, 2019, for performance obligations that were
fully satisfied in previous periods was not material.
Shipping and Handling Costs
Shipping and handling amounts billed to a customer as part of a sales transaction are included in revenues, and the
related costs are included in cost of goods sold. Shipping and handling is treated as a fulfillment activity rather than a promised
service, and therefore is not considered a separate performance obligation.
Taxes Collected from Customers and Remitted to Governmental Authorities
Revenues are recorded net of taxes collected from customers that are remitted to governmental authorities, with the
collected taxes recorded as current liabilities until remitted to the relevant government authority.
Contract Costs
Commissions related to contracts with a duration of less than one year are expensed as incurred. We recognize
incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets we otherwise
would have recognized is one year or less.
Disaggregation of Revenues
The following table presents revenues recognized under ASC Topic 606 disaggregated by reportable segment, as well
as the amount of revenues recognized under ASC Topic 815 and other applicable accounting guidance for the year ended
August 31, 2019. Other applicable accounting guidance primarily includes revenues recognized under ASC Topic 840, Leases,
and ASC Topic 470, Debt, that fall outside the scope of ASC Topic 606.
Reportable Segment*
ASC 606
ASC 815
Other Guidance
Total Revenues
Energy
Ag
Corporate and Other
Total revenues
(Dollars in thousands)
$
6,393,075
$
726,001
$
— $
7,119,076
6,319,304
18,268,977
20,262
—
131,791
41,043
24,720,072
61,305
$
12,732,641
$
18,994,978
$
172,834
$
31,900,453
*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.
Less than 1% of revenues accounted for under ASC Topic 606 included within the table above are recorded over time
and relate primarily to service contracts.
Our Energy segment derives its revenues through refining, wholesaling and retailing of petroleum products. Our
Energy segment produces and sells (primarily wholesale) gasoline, diesel fuel, propane, asphalt, lubricants and other related
products and provides transportation services. We are the nation's largest cooperative energy company, with operations that
include petroleum refining and pipelines; supply, marketing and distribution of refined fuels (gasoline, diesel fuel and other
energy products); blending, sale and distribution of lubricants; and wholesale supply of propane and other natural gas liquids.
For the majority of revenues arising from sales to energy customers, we satisfy our performance obligation of providing energy
products such as gasoline, diesel fuel, propane, asphalt, lubricants and other related products at the point-in-time that the
finished petroleum product is delivered or made available to the wholesale or retail customer, at which point control is
considered to have been transferred to the customer and revenue can be recognized, as there are no remaining performance
obligations that we need to satisfy to be entitled to the agreed-upon transaction price as stated in the contract. For fixed and
provisionally priced derivative sales contracts that are accounted for under the provisions of the derivative accounting guidance
and are outside the scope of the revenue recognition guidance, we recognize revenue when control of the inventory is
transferred within the meaning of ASC Topic 606.
Our Ag segment derives its revenues through origination and marketing of grain, including service activities
conducted at export terminals; wholesale sales of agronomy products and processed sunflowers; sales of soybean meal,
soybean refined oil and soyflour products; production and marketing of renewable fuels; and retail sales of petroleum and
agronomy products, and feed and farm supplies. For the majority of revenues arising from sales to Ag customers, we satisfy our
performance obligation of delivering a commodity or other agricultural end product to a customer at the point-in-time the
commodity or other end product (wholesale grain, agronomy products, soybean products, ethanol or country operations retail
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products) has been delivered or is made available to the customer, at which point control is considered to have been transferred
to the customer and revenue can be recognized, as there are no remaining performance obligations that need to be satisfied to
be entitled to the agreed-upon transaction price as stated in the contract. The amount of revenue recognized follows the
contractually specified price, which may include freight or other contractually specified cost components. For fixed and
provisionally priced derivative sales contracts that are accounted for under the provisions of the derivative accounting guidance
and are outside the scope of the revenue recognition guidance, we recognize revenue when control of the inventory is
transferred within the meaning of ASC Topic 606.
Corporate and Other primarily consists of our financing and hedging businesses, which are presented together due to
the similar nature of their products and services, as well as the relatively lower amount of revenues for those businesses
compared to our Ag and Energy businesses. Prior to its sale on May 4, 2018, our insurance business was also included in
Corporate and Other. Revenues from our hedging business are primarily recognized at the point-in-time that the hedging
transaction is completed after we have fully satisfied all performance obligations under the contract, and revenues arising from
our financing business are recognized in accordance with ASC Topic 470, Debt, and fall outside the scope of ASC Topic 606.
Contract Assets and Contract Liabilities
Contract assets relate to unbilled amounts arising from goods that have already been transferred to the customer where
the right to payment is not conditional on the passage of time. This results in the recognition of an asset, as the amount of
revenue recognized at a certain point-in-time exceeds the amount billed to the customer. Contract assets are recorded in
accounts receivable within our Consolidated Balance Sheets and were immaterial as of August 31, 2019 and 2018.
Contract liabilities relate to advance payments from customers for goods and services that we have yet to provide.
Contract liabilities of $207.5 million and $172.0 million as of August 31, 2019 and 2018, respectively, are recorded within
customer advance payments on our Consolidated Balance Sheets. For the year ended August 31, 2019, we recognized revenues
of $170.7 million, which were included in the customer advance payments balance at the beginning of the period.
Practical Expedients
We applied ASC Topic 606 utilizing the following allowable exemptions or practical expedients:
• Election to not disclose the unfulfilled performance obligation balance for contracts with an original duration
of one year or less;
• Recognition of the incremental costs of obtaining a contract as an expense when incurred if the amortization
period of the asset that would otherwise have been recognized is one year or less;
• Election to present revenues net of sales taxes and other similar taxes; and
•
Practical expedient to treat shipping and handling as a fulfillment activity rather than a promised service,
resulting in the conclusion that shipping and handling is not a separate performance obligation.
Note 3
Receivables
Receivables as of August 31, 2019 and 2018, are as follows:
Trade accounts receivable
CHS Capital short-term notes receivable
Other
Gross receivables
Less allowances and reserves
Total receivables
Trade Accounts
2019
2018
(Dollars in thousands)
$
1,803,284
$
1,578,764
592,909
511,821
2,908,014
176,805
569,379
534,071
2,682,214
221,813
$
2,731,209
$
2,460,401
Trade accounts receivable are initially recorded at a selling price that approximates fair value upon the sale of goods or
services to customers. Subsequently, trade accounts receivable are carried at net realizable value, which includes an allowance
for estimated uncollectible amounts. We calculate this allowance based on our history of write-offs, level of past due accounts
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and our relationships with and the economic status of our customers. Receivables from related parties are disclosed in Note 17,
Related Party Transactions. No third-party customer accounted for more than 10% of the total receivables balance as of
August 31, 2019 or 2018.
CHS Capital
Notes Receivable
CHS Capital, our wholly-owned subsidiary, has short-term notes receivable from commercial and producer borrowers.
The short-term notes receivable have maturity terms of 12 months or less and are reported at their outstanding unpaid principal
balances, adjusted for the allowance of loan losses, as CHS Capital has the intent and ability to hold the applicable loans for the
foreseeable future or until maturity or pay-off. The carrying value of CHS Capital short-term notes receivable approximates fair
value given the notes' short-term duration and use of market pricing adjusted for risk.
Notes receivable from commercial borrowers are collateralized by various combinations of mortgages, personal
property, accounts and notes receivable, inventories and assignments of certain regional cooperative's capital stock. These loans
are primarily originated in the states of North Dakota and Minnesota. CHS Capital also has loans receivable from producer
borrowers that are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable,
personal property and supplemental mortgages and are originated in the same states as the commercial notes.
In addition to the short-term balances included in the table above, CHS Capital had long-term notes receivable, with
durations of generally not more than 10 years, totaling $180.0 million and $203.0 million at August 31, 2019 and 2018,
respectively. The long-term notes receivable are included in other assets on our Consolidated Balance Sheets. As of August 31,
2019 and 2018, commercial notes represented 41% and 40%, respectively, and producer notes represented 59% and 60%,
respectively, of total CHS Capital notes receivable.
CHS Capital has commitments to extend credit to customers if there are no violations of any contractually established
conditions. As of August 31, 2019, CHS Capital customers had additional available credit of $650.6 million.
Allowance for Loan Losses and Impairments
CHS Capital maintains an allowance for loan losses that is an estimate of potential incurred losses inherent in the
loans receivable portfolio. In accordance with FASB ASC 450-20, Accounting for Loss Contingencies, and ASC 310-10,
Accounting by Creditors for Impairment of a Loan, the allowance for loan losses consists of general and specific components.
The general component is based on historical loss experience and qualitative factors addressing operational risks and industry
trends. The specific component relates to loans receivable that are classified as impaired. Additions to the allowance for loan
losses are reflected within reserve and impairment charges (recoveries), net in the Consolidated Statements of Operations. The
portion of loans receivable deemed uncollectible is charged off against the allowance. Recoveries of previously charged off
amounts increase the allowance for loan losses. No significant amounts of CHS Capital notes were past due as of August 31,
2019 or 2018, and specific and general loan loss reserves related to CHS Capital notes were not material as of either date.
Interest Income
Interest income is recognized on the accrual basis using a method that computes simple interest on a daily basis.
Accrual of interest on commercial loans receivable is discontinued at the time the receivable is 90 days past due unless the
credit is well-collateralized and in process of collection. Past due status is based on contractual terms of the loan. Producer
loans receivable are placed in non-accrual status based on estimates and analysis due to the annual debt service terms inherent
to CHS Capital's producer loans. In all cases, loans are placed in non-accrual status or charged off at an earlier date if collection
of principal or interest is considered doubtful.
Troubled Debt Restructurings
Restructuring of a loan constitutes a troubled debt restructuring, or restructured loan, if the creditor for economic
reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would otherwise not consider.
Concessions vary by program and borrower. Concessions may include interest rate reductions, term extensions, payment
deferrals or the acceptance of additional collateral in lieu of payments. In limited circumstances, principal may be forgiven.
When a restructured loan constitutes a troubled debt restructuring, CHS includes these loans within its impaired loans. CHS
Capital had no significant troubled debt restructurings and no third-party borrowers that accounted for more than 10% of the
total CHS Capital notes receivable or total receivables as of August 31, 2019 or 2018.
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Loan Participations
During fiscal 2019, CHS Capital sold $92.3 million of notes receivable to numerous counterparties under a master
participation agreement. The sale resulted in the removal of notes receivable from the Consolidated Balance Sheet. CHS
Capital has no retained interests in the transferred notes receivable, other than collection and administrative services. Proceeds
from sales of notes receivable have been included in investing activities in the Consolidated Statement of Cash Flows. Fees
received related to the servicing of notes receivable are recorded in other income in the Consolidated Statements of Operations.
We consider the fees received adequate compensation for services rendered and, accordingly, have recorded no servicing asset
or liability.
Other Receivables
Other receivables are comprised of certain other amounts recorded in the normal course of business, including
receivables related to value-added taxes, certain financing receivables and pre-crop financing, primarily to Brazilian farmers, to
finance a portion of supplier production costs. We do not bear costs or operational risks associated with the related growing
crops, although our ability to be paid depends on the crops actually being produced. The financing is collateralized by future
crops, land and physical assets of the suppliers, carries a local market interest rate and settles when the farmer's crop is
harvested and sold. No significant troubled debt restructurings occurred and no third-party customer or borrower accounted for
more than 10% of the total receivables balance as of August 31, 2019 or 2018.
We identified and recorded an out-of-period adjustment to correct an error related to multiple years that increased bad
debt expense for other receivables by $25.5 million during the year ended August 31, 2019. We concluded that the error is not
material to the previously reported financial statements and its correction is not material to the financial statements for the year
ended August 31, 2019.
Note 4
Inventories
Inventories as of August 31, 2019 and 2018, are as follows:
Grain and oilseed
Energy
Agronomy
Processed grain and oilseed
Other
Total inventories
2019
2018
(Dollars in thousands)
$
1,024,645
$
1,298,522
717,378
954,037
109,900
48,328
737,639
560,675
99,426
72,387
$
2,854,288
$
2,768,649
As of August 31, 2019 and 2018, we valued approximately 16% of inventories, primarily crude oil and refined fuels
within our Energy segment, using the lower of cost, determined on the LIFO method, or net realizable value. If the FIFO
method of accounting had been used, inventories would have been higher than the reported amount by $215.0 million and
$345.0 million as of August 31, 2019 and 2018, respectively. Inventory previously classified as feed and farm supplies
inventory represented non-grain and oilseed inventories held at our country operations locations. During fiscal 2019, these
inventories were reclassified to better align with their underlying inventory types, primarily agronomy and energy inventories.
Prior year feed and farm supply inventory amounts have been reclassified as agronomy, energy and other inventories in the
amounts of $314.4 million, $22.4 million and $55.1 million, respectively.
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Note 5
Investments
Investments as of August 31, 2019 and 2018, are as follows:
Equity method investments:
CF Industries Nitrogen, LLC
Ventura Foods, LLC
Ardent Mills, LLC
Other equity method investments
Other investments
Total investments
2019
2018
(Dollars in thousands)
$
2,708,942
$
2,735,073
374,516
209,027
267,247
124,264
360,150
205,898
288,016
122,788
$
3,683,996
$
3,711,925
Joint ventures and other investments in which we have significant ownership and influence but not control, are
accounted for in our consolidated financial statements using the equity method of accounting. Our significant equity method
investments consist of CF Nitrogen, Ventura Foods, LLC ("Ventura Foods"), and Ardent Mills, LLC ("Ardent Mills"), which
are summarized below. In addition to the recognition of our share of income from our equity method investments, our equity
method investments are evaluated for indicators of other-than-temporary impairment on an ongoing basis in accordance with
U.S. GAAP. Other investments consist primarily of investments in cooperatives without readily determinable fair values and
are generally recorded at cost, unless an impairment or other observable market price change occurs requiring an adjustment.
CF Nitrogen
We have a $2.7 billion investment in CF Nitrogen, a strategic venture with CF Industries Holdings, Inc. ("CF
Industries"). The investment consists of an approximate 10% membership interest (based on product tons) in CF Nitrogen. At
the time we entered into the strategic venture on February 1, 2016, we also entered into an 80-year supply agreement that
entitles us to purchase up to 1.1 million tons of granular urea and 580,000 tons of urea ammonium nitrate ("UAN") annually
from CF Nitrogen for ratable delivery. Our purchases under the supply agreement are based on prevailing market prices and we
receive semi-annual cash distributions (in January and July of each year) from CF Nitrogen via our membership interest. These
distributions are based on actual volumes purchased from CF Nitrogen under the strategic venture and will have the effect of
reducing our investment to zero over 80 years on a straight-line basis. We account for this investment using the hypothetical
liquidation at book value method, recognizing our share of the earnings and losses of CF Nitrogen based on our contractual
claims on the entity's net assets pursuant to the liquidation provisions of CF Nitrogen's Limited Liability Company Agreement,
adjusted for the semi-annual cash distributions. For the years ended August 31, 2019 and 2018, equity earnings were $160.4
million and $106.9 million, respectively, and are included as equity income from investments in our Nitrogen Production
segment. Cash distributions received from CF Nitrogen for the years ended August 31, 2019 and 2018, were $186.5 million and
$127.9 million, respectively.
The following tables provide aggregate summarized financial information for CF Nitrogen for the balance sheets as of
August 31, 2019 and 2018, and the statements of operations for the 12 months ended August 31, 2019, 2018 and 2017:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net sales
Gross profit
Net earnings
Earnings attributable to CHS Inc.
2019
2018
(Dollars in thousands)
$
590,057
$
576,076
7,028,766
228,324
2,455
7,447,594
215,104
71
2019
2018
2017
(Dollars in thousands)
$
2,894,795
$
2,449,695
$
2,051,159
737,168
706,291
160,373
423,612
401,295
106,895
195,142
123,965
66,530
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Ventura Foods and Ardent Mills
We have a 50% interest in Ventura Foods, which is a joint venture with Wilsey Foods, Inc., a majority-owned
subsidiary of MBK USA Holdings, Inc., that produces and distributes primarily vegetable oil-based products, and we have a
12% interest in Ardent Mills, which is a joint venture with Cargill Incorporated and ConAgra Foods, Inc., which combines the
North American flour milling operations of the three parent companies. We account for Ventura Foods and Ardent Mills as
equity method investments included in Corporate and Other.
The following tables provide aggregate summarized financial information for our equity method investments in
Ventura Foods and Ardent Mills for balance sheets as of August 31, 2019 and 2018, and statements of operations for the 12
months ended August 31, 2019, 2018 and 2017:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net sales
Gross profit
Net earnings
Earnings attributable to CHS Inc.
2019
2018
(Dollars in thousands)
$
1,469,003
$
1,462,590
2,327,217
2,331,295
535,579
790,401
671,928
693,360
2019
2018
2017
(Dollars in thousands)
$
5,752,368
$
5,882,035
$
5,762,849
565,784
248,303
69,157
601,927
226,776
46,069
673,329
265,126
60,716
Our investments in other equity method investees are not significant in relation to our consolidated financial
statements, either individually or in the aggregate.
Note 6
Property, Plant and Equipment
As of August 31, 2019 and 2018, major classes of property, plant and equipment, which include capital lease assets,
consisted of the amounts in the table below.
Land and land improvements
Buildings
Machinery and equipment
Office equipment and other
Construction in progress
Gross property, plant and equipment
Less accumulated depreciation and amortization
Total property, plant and equipment
2019
2018
(Dollars in thousands)
$
319,452
$
341,767
1,079,073
7,392,767
346,649
329,297
9,467,238
4,378,530
1,034,860
7,199,509
316,946
204,207
9,097,289
3,955,570
$
5,088,708
$
5,141,719
We have various assets under capital leases totaling $62.7 million and $50.0 million as of August 31, 2019 and 2018,
respectively. Accumulated amortization on assets under capital leases was $20.6 million and $18.9 million as of August 31,
2019 and 2018, respectively.
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The following is a schedule by fiscal year of future minimum lease payments under capital leases together with the
present value of the net minimum lease payments as of August 31, 2019:
2020
2021
2022
2023
2024
Thereafter
Total minimum future lease payments
Less amount representing interest
Present value of net minimum lease payments
(Dollars in thousands)
$
$
6,761
6,199
5,021
4,548
2,638
6,517
31,684
3,445
28,239
We continuously monitor our long-lived assets, including property, plant and equipment, for potential indicators of
impairment in accordance with U.S. GAAP. As a result of these monitoring activities, our Ag segment recorded impairment
charges of approximately $12.2 million associated with certain non-strategic long-lived assets that ceased operation during
fiscal 2019. During fiscal 2017 our Ag segment recorded an impairment charge of $30.4 million from the reduction in the fair
value of agricultural assets held, which was determined using a market-based approach. In addition, our Energy segment
recorded an impairment charge of $32.7 million associated with the cancellation of a capital project in fiscal 2017. These
impairments were included in the reserve and impairment charges (recoveries), net line of the Consolidated Statements of
Operations.
Depreciation expense, including amortization of capital lease assets, for the years ended August 31, 2019, 2018 and
2017, was $495.3 million, $475.8 million and $475.9 million, respectively.
Note 7
Other Assets
Other assets as of August 31, 2019 and 2018, are as follows:
Goodwill
Customer lists, trademarks and other intangible assets
Notes receivable
Long-term derivative assets
Prepaid pension and other benefits
Capitalized major maintenance
Cash value life insurance
Other
Total other assets
2019
2018
(Dollars in thousands)
$
172,404
$
138,464
71,206
189,045
36,408
73,100
286,890
122,792
60,350
29,338
211,986
23,084
101,539
130,780
123,010
76,128
$
1,012,195
$
834,329
Changes in the net carrying amount of goodwill for the years ended August 31, 2019 and 2018, by segment, are as
follows:
Energy
Ag
Corporate
and Other
Total
Balances, August 31, 2017
Effect of foreign currency translation adjustments
Balances, August 31, 2018
Goodwill acquired during the period
Impairment
Balances, August 31, 2019
552
—
552
—
—
552
$
$
$
$
F-21
$
(Dollars in thousands)
127,328
10
127,338
61,358
(27,418)
161,278
10,574
—
10,574
—
—
10,574
$
$
$
138,454
10
138,464
61,358
(27,418)
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Goodwill of $61.4 million acquired during the third quarter of fiscal 2019 was related to our acquisition of the
remaining 75% ownership in West Central Distribution ("WCD") that we did not previously own. See Note 18, Acquisitions,
for additional information related to the acquisition. No goodwill has been allocated to our Nitrogen Production segment, which
consists of a single investment accounted for under the equity method.
All long-lived assets, including goodwill and other identifiable intangible assets, are evaluated for impairment in
accordance with U.S. GAAP. Goodwill is evaluated for impairment annually as of July 31. All long-lived assets, including
goodwill, are also evaluated for impairment whenever triggering events or other circumstances indicate the carrying amount of
an asset group or reporting unit may not be recoverable.
As a result of our annual goodwill impairment analyses performed as of July 31, 2019, we recorded a goodwill
impairment charge of $27.4 million associated with a reporting unit in our Ag segment. The impairment charge primarily
resulted from changing market dynamics that have reduced future profitability within the reporting unit, as well as strategy
changes and the challenging economic environment in the agriculture industry. The impairment charge was recorded in the
reserve and impairment charges (recoveries), net line item in the Consolidated Statements of Operations for the year ended
August 31, 2019. No material impairments related to long-lived assets were recorded, and no goodwill impairments were
identified as a result of CHS’s annual goodwill analyses performed as of July 31, 2018.
Intangible assets subject to amortization primarily include customer lists, trademarks and non-compete agreements,
and are amortized over their respective useful lives (ranging from 2 to 30 years). Intangible assets of $47.2 million were
acquired during fiscal 2019 related to the acquisition of the remaining 75% ownership interest in WCD that we did not
previously own. See Note 18, Acquisitions, for additional information related to the acquisition. Information regarding
intangible assets included in other assets on our Consolidated Balance Sheets is as follows:
August 31, 2019
August 31, 2018
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Accumulated
Amortization
Net
(Dollars in thousands)
Customer lists
Trademarks and other intangible assets
Total intangible assets
$ 84,815
9,736
$ 94,551
$ (17,609) $ 67,206
4,000
$ (23,345) $ 71,206
(5,736)
$ 40,815
6,536
$ 47,351
$ (13,082) $ 27,733
1,605
$ (18,013) $ 29,338
(4,931)
Intangible asset amortization expense for the years ended August 31, 2019, 2018 and 2017, was $5.3 million, $3.4
million and $4.3 million, respectively. The estimated annual amortization expense related to intangible assets subject to
amortization for the next five years is as follows:
2020
2021
2022
2023
2024
Thereafter
Total
(Dollars in thousands)
$
$
5,271
4,874
4,706
4,576
4,576
47,107
71,110
Activity related to capitalized major maintenance costs at our refineries for the years ended August 31, 2019, 2018
and 2017, is summarized below:
2019
2018
2017
Balance at
Beginning
of Year
$
$
130,780
105,006
169,054
F-22
Cost
Deferred
Amortization
Balance at
End of Year
$
(Dollars in thousands)
224,406
87,460
3,010
(68,296) $
(61,686)
(67,058)
286,890
130,780
105,006
Table of Contents
Note 8
Notes Payable and Long-Term Debt
Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum
consolidated net worth and other financial ratios. We were in compliance with our debt covenants as of August 31, 2019.
Notes Payable
Notes payable as of August 31, 2019 and 2018, consisted of the following:
Notes payable
CHS Capital notes payable
Total notes payable
Weighted-average Interest Rate
2019
2018
2019
2018
3.36%
2.90%
3.50%
2.82%
(Dollars in thousands)
$
$
1,330,550
825,558
2,156,108
$
$
1,437,264
834,932
2,272,196
On July 16, 2019, we amended and restated our primary line of credit, which is a five-year unsecured revolving credit
facility with a syndicate of domestic and international banks. The credit facility provides a committed amount of $2.75 billion
that expires on July 16, 2024.
We maintain a series of uncommitted bilateral facilities that are renewed annually. Amounts borrowed under these
short-term credit facilities are used to fund our working capital. The following table summarizes our primary lines of credit as
of August 31, 2019 and 2018:
Primary Revolving Credit Facilities
Fiscal Year
of Maturity
Total
Capacity
2019
Borrowings Outstanding
Interest Rates
2019
2018
(Dollars in thousands)
Committed five-year unsecured facility
2024
$ 2,750,000
$
335,000
$
—
Uncommitted bilateral facilities
2020
630,000
430,000
515,000
LIBOR or base rate
+0.00% to 1.45%
LIBOR or base rate
+0.00% to 1.20%
In addition to our primary revolving lines of credit, we have a three-year $315.0 million committed revolving pre-
export credit facility for CHS Agronegocio Industria e Comercio Ltda ("CHS Agronegocio"), our wholly-owned subsidiary, to
provide financing for its working capital needs arising from its purchases and sales of grains, fertilizers and other agricultural
products that expires in April 2020. As of August 31, 2019, no amounts were outstanding under the facility.
In addition to our uncommitted bilateral facilities above, our wholly-owned subsidiaries, CHS Europe S.a.r.l. and CHS
Agronegocio, had uncommitted lines of credit with $342.7 million outstanding as of August 31, 2019. In addition, our other
international subsidiaries had lines of credit with a total of $155.8 million outstanding as of August 31, 2019, of which $13.8
million was collateralized.
CHS Capital Notes Payable
We have a receivables and loans securitization facility ("Securitization Facility") with certain unaffiliated financial
institutions ("Purchasers"). Under the Securitization Facility, we and certain of our subsidiaries ("Originators") sell trade
accounts and notes receivable ("Receivables") to Cofina Funding, LLC ("Cofina"), a wholly-owned bankruptcy-remote indirect
subsidiary of CHS. Cofina in turn transfers the Receivables to the Purchasers, which is accounted for as a secured borrowing.
We use the proceeds from the sale of Receivables under the Securitization Facility for general corporate purposes and
settlements are made on a monthly basis. The Securitization Facility was amended on June 27, 2019, to extend its termination
date to June 26, 2020. The termination date may be extended.
F-23
Table of Contents
During the period from July 2017 through an amendment of the Securitization Facility in June 2018, CHS accounted
for Receivables sold under the Securitization Facility as a sale of financial assets pursuant to ASC 860, Transfers and Servicing,
and the Receivables sold were derecognized from our Consolidated Balance Sheets. The following table is a reconciliation of
the beginning and ending balances of the Deferred Purchase Price ("DPP") receivable, including the long-term portion included
in other assets, for the year ended August 31, 2018.
Balance - beginning of year
Cash collections on DPP receivable
Transfer of receivables
Monthly settlements, net
Fair value adjustment
Balance - end of year
2018
(Dollars in thousands)
$
$
548,602
(10,961)
(386,900)
(169,827)
19,086
—
On September 4, 2018, we entered into a repurchase facility ("Repurchase Facility") related to the Securitization
Facility. Under the Repurchase Facility, we are able to borrow up to $150.0 million, collateralized by a subordinated note
issued by Cofina in favor of the Originators and representing a portion of the outstanding balance of the Receivables sold by
the Originators to Cofina under the Securitization Facility. As of August 31, 2019, the outstanding balance under the
Repurchase Facility was $150.0 million.
CHS Capital has available credit under a master participation agreement with one counterparty. Borrowings under this
agreement are accounted for as secured borrowings and bear interest at 4.19% as of August 31, 2019. As of August 31, 2019,
the total funding commitment under this agreement was $5.0 million, of which $2.3 million was borrowed.
CHS Capital sells loan commitments it has originated to ProPartners Financial on a recourse basis. The total
outstanding commitments under the program were $65.8 million as of August 31, 2019, of which $42.3 million was borrowed
under these commitments with an interest rate of 3.36%.
CHS Capital borrows funds under short-term notes issued as part of a surplus funds program. Borrowings under this
program are unsecured and bear interest at variable rates ranging from 0.35% to 1.40% as of August 31, 2019, and are due upon
demand. Borrowings under these notes totaled $63.8 million as of August 31, 2019.
F-24
Table of Contents
Long-Term Debt
During the year ended August 31, 2019, we repaid approximately $153.6 million of long-term debt consisting of
scheduled debt maturities and optional prepayments. There were no new material borrowings of long-term debt during fiscal
2019. Amounts included in long-term debt on our Consolidated Balance Sheets as of August 31, 2019 and 2018, are presented
in the table below.
4.00% unsecured notes $100 million face amount, due in equal installments beginning in
fiscal 2017 through fiscal 2021
4.08% unsecured notes $130 million face amount, due in fiscal 2019 (a)
4.52% unsecured notes $160 million face amount, due in fiscal 2021 (a)
4.67% unsecured notes $130 million face amount, due in fiscal 2023 (a)
4.39% unsecured notes $152 million face amount, due in fiscal 2023
3.85% unsecured notes $80 million face amount, due in fiscal 2025
3.80% unsecured notes $100 million face amount, due in fiscal 2025
4.58% unsecured notes $150 million face amount, due in fiscal 2025
4.82% unsecured notes $80 million face amount, due in fiscal 2026
4.69% unsecured notes $58 million face amount, due in fiscal 2027
4.74% unsecured notes $95 million face amount, due in fiscal 2028
4.89% unsecured notes $100 million face amount, due in fiscal 2031
4.71% unsecured notes $100 million face amount, due in fiscal 2033
5.40% unsecured notes $125 million face amount, due in fiscal 2036
Private Placement debt
2.25% unsecured term loans from cooperative and other banks, due in fiscal 2025 (b)
Bank financing
Capital lease obligations
Other notes and contracts with interest rates from 1.30% to 15.25%
Deferred financing costs
Total long-term debt
Less current portion
Long-term portion
2019
2018
(Dollars in thousands)
$
40,000
$
—
161,978
136,086
152,000
80,000
100,000
151,776
80,000
58,000
95,000
100,000
100,000
125,000
60,000
129,229
157,528
128,577
152,000
80,000
100,000
145,213
80,000
58,000
95,000
100,000
100,000
125,000
1,379,840
1,510,547
366,000
366,000
28,239
18,601
(3,569)
1,789,111
39,210
366,000
366,000
25,280
32,607
(4,179)
1,930,255
167,565
$
1,749,901
$
1,762,690
(a) We have entered into interest rate swaps designated as fair value hedging relationships with these notes. Changes in the fair value of the swaps are
recorded each period with a corresponding adjustment to the carrying value of the debt. See Note 13, Derivative Financial Instruments and Hedging
Activities, for more information.
(b) Borrowings are variable under the agreement and bear interest at a base rate (or LIBOR) plus an applicable margin.
As of August 31, 2019, the carrying value of our long-term debt approximated its fair value, which is estimated to be
$1.9 billion based on quoted market prices of similar debt (a Level 2 fair value measurement based on the classification
hierarchy of ASC Topic 820, Fair Value Measurement). We have outstanding interest rate swaps designated as fair value hedges
of select portions of our fixed-rate debt. During fiscal 2019, we recorded corresponding fair value adjustments of $21.2 million,
which are included in the amounts in the table above. See Note 13, Derivative Financial Instruments and Hedging Activities,
for additional information.
We have a 10-year term loan with a syndicate of banks. The agreement provides for committed term loans in an
amount up to $600.0 million. As of August 31, 2019, $236.0 million of term loans were outstanding under this agreement. The
agreement includes a revolving feature, whereby we are able to pay down and re-advance an amount up to $300.0 million of
the $600.0 million. During fiscal 2017, we re-advanced $130.0 million under the revolving provision of the loan. As of
August 31, 2019, $130.0 million of revolving loans were outstanding under this agreement. Principal on the outstanding
balances is payable in full in September 2025.
F-25
Table of Contents
Long-term debt outstanding as of August 31, 2019, has aggregate maturities, excluding fair value adjustments and
capital leases (see Note 6, Property, Plant and Equipment, for a schedule of minimum future lease payments under capital
leases), as follows:
2020
2021
2022
2023
2024
Thereafter
Total
(Dollars in thousands)
$
$
32,812
180,663
66
282,066
2,620
1,256,525
1,754,752
Interest expense for the years ended August 31, 2019, 2018 and 2017, was $167.1 million, $149.2 million and $171.2
million, respectively, net of capitalized interest of $9.4 million, $6.7 million and $6.9 million, respectively.
Note 9
Income Taxes
The provision for (benefit from) income taxes for the years ended August 31, 2019, 2018 and 2017 is as follows:
Current:
Federal
State
Foreign
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
Total
2019
2018
2017
(Dollars in thousands)
$
211
$
15,576
$
3,815
(2,630)
1,396
7,041
20,268
42,885
(4,923)
(8,491)
(438)
(13,852)
(12,456) $
(146,780)
(127)
(54)
(146,961)
(104,076) $
$
8,394
(1,787)
6,736
13,343
(173,184)
(13,244)
(8,039)
(194,467)
(181,124)
Domestic income before income taxes was $825.7 million, $717.4 million and $158.5 million for the years ended
August 31, 2019, 2018 and 2017, respectively. Foreign loss before income taxes was $3.1 million, $46.2 million and $268.7
million for the years ended August 31, 2019, 2018 and 2017, respectively.
On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted into law. The Tax Act provides for
significant U.S. tax law changes that reduced our federal corporate statutory tax rate from 35% to 21% as of January 1, 2018.
As a fiscal year-end taxpayer, our annual statutory federal corporate tax rate applicable to fiscal 2018 was a blended rate of
25.7%. For fiscal 2019, the annual statutory federal corporate tax rate was 21%.
The Tax Act initially repealed the Domestic Production Activities Deduction ("DPAD") and enacted the Deduction for
Qualified Business Income of Pass-Thru Entities ("QBI Deduction"); however, the Consolidated Appropriations Act, 2018
("Appropriations Act") enacted into law on March 23, 2018, impacted these deductions. The Appropriations Act modifies the
QBI Deduction under Section 199A of the Tax Act to reenact DPAD for agricultural and horticultural cooperatives as it existed
prior to enactment of the Tax Act and modifies the QBI Deduction available to cooperative patrons as enacted by the Tax Act.
All references to the Tax Act below include modifications introduced by the Appropriations Act.
F-26
Table of Contents
Deferred taxes are comprised of basis differences related to investments, accrued liabilities and certain federal and
state tax credits. Deferred tax assets and liabilities as of August 31, 2019 and 2018, are as follows:
Deferred tax assets:
Accrued expenses
Postretirement health care and deferred compensation
Tax credit carryforwards
Loss carryforwards
Nonqualified equity
Major maintenance
Other
Deferred tax assets valuation reserve
Total deferred tax assets
Deferred tax liabilities:
Pension
Investments
Major maintenance
Property, plant and equipment
Other
Total deferred tax liabilities
Net deferred tax liabilities
2019
2018
(Dollars in thousands)
$
62,245
$
138,417
42,747
152,347
136,435
290,447
—
97,071
(246,344)
534,948
11,237
99,838
4,679
560,334
1,760
677,848
$
142,900
$
41,797
154,240
104,519
178,046
5,484
83,580
(230,373)
475,710
19,397
98,608
—
513,238
26,828
658,071
182,361
We have total gross loss carryforwards of $626.4 million, of which $363.6 million will expire over periods ranging
from fiscal 2020 to fiscal 2041. The remainder will carry forward indefinitely. Based on estimates of future taxable profits and
losses in certain foreign tax jurisdictions, as well as consideration of other factors, we assessed whether a valuation allowance
was necessary to reduce specific foreign loss carryforwards to amounts we believe are more likely than not to be realized as of
August 31, 2019. If our estimates prove inaccurate, adjustments to the valuation allowances may be required in the future with
gains or losses being charged to income in the period such determination is made. During fiscal 2019, valuation allowances
related to foreign operations decreased by $15.1 million due to net operating loss carryforwards and other timing differences.
McPherson refinery's gross state tax credit carryforwards for income tax were approximately $123.3 million and $121.6 million
as of August 31, 2019 and 2018, respectively. During the year ended August 31, 2019, the valuation allowance for the
McPherson refinery increased by $0.8 million, net of federal tax, due to a change in the amount of state tax credits that will be
available for use and estimated to be utilized. McPherson refinery's valuation allowance on Kansas state credits is necessary
due to the limited amount of taxable income generated in Kansas by the combined group on an annual basis.
Our foreign tax credit of $11.2 million was generated in fiscal 2018 and will expire in 10 years. Our alternative
minimum tax credit of $14.1 million will not expire. Our general business credits of $79.3 million, comprised primarily of low-
sulfur diesel credits, will begin to expire on August 31, 2027, and our state tax credits of $123.0 million began to expire on
August 31, 2019.
As of August 31, 2019 and 2018, net deferred tax assets of $0.1 million and $0.4 million, respectively, were included
in other assets.
F-27
Table of Contents
The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31,
2019, 2018 and 2017 is as follows:
Statutory federal income tax rate
State and local income taxes, net of federal income tax benefit
Patronage earnings
Domestic production activities deduction
Export activities at rates other than the U.S. statutory rate
U.S. tax reform
Intercompany transfer of business assets
Increase in unrecognized tax benefits
Valuation allowance
Tax credits
Crack spread contingency
Other
Effective tax rate
2019
2018
2017
21.0 %
25.7 %
35.0%
(0.7)
(14.3)
(9.9)
0.2
—
—
0.2
0.3
0.4
—
1.3
0.7
(13.6)
(8.4)
6.1
(23.2)
(6.1)
6.8
(3.4)
0.7
—
(0.8)
(1.5)%
(15.5)%
12.1
91.7
30.5
51.6
—
—
—
(77.1)
22.8
4.8
(7.0)
164.4%
Primary drivers of the fiscal 2019 income tax benefit are retaining the current DPAD benefit and deducting previously
disallowed DPAD available from the carryback of excise tax credits, which were partially offset by an increase in our
unrecognized deferred tax benefit as described below. Primary drivers of the fiscal 2018 income tax benefit were recognition of
deferred benefits from revaluation of our net deferred tax liability resulting from the Tax Act, an intercompany transfer of a
business on December 1, 2017, and a current tax benefit from retaining a significant portion of the DPAD, which were partially
offset by deferred tax expense from an increase in our unrecognized tax benefit as described below.
Components of the income tax benefit disclosed as a percentage of income (loss) before income taxes in the
reconciliation of the statutory federal income tax rate for the year ended August 31, 2017, were magnified because our fiscal
2017 income tax benefit was unusually large in relation to our income (loss) before income taxes. Primary drivers of the fiscal
2017 income tax benefit were recognition of deferred tax benefits related to the issuance of non-qualified equity certificates for
fiscal 2013 and 2014, which is disclosed within "Patronage earnings" and U.S. and Brazil deductions related to a Brazilian
trading partner loss, which are disclosed within "Statutory federal income tax rate" and "Export activities at rates other than the
U.S. statutory rate," respectively, as well as a current tax benefit from retaining a significant portion of the DPAD. A significant
income tax expense within the fiscal 2017 income tax benefit is an increase in the valuation allowance against deferred tax
assets generated in a Brazilian trading partner loss and Kansas state tax credits.
We file income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Our
uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing
authorities. In addition to the current year, fiscal 2007 through 2018 remain subject to examination, at least for certain issues.
We account for our income tax provisions in accordance with ASC Topic 740, Income Taxes, which prescribes a
minimum threshold a tax provision is required to meet before being recognized in our consolidated financial statements. This
interpretation requires us to recognize in our consolidated financial statements tax positions determined more likely than not to
be sustained upon examination, based on the technical merits of the position. A reconciliation of the gross beginning and ending
amounts of unrecognized tax benefits for the periods presented follows:
Balance at beginning of period
Additions attributable to current year tax positions
Additions attributable to prior year tax positions
Reductions attributable to prior year tax positions
Balance at end of period
F-28
2019
2018
2017
(Dollars in thousands)
91,135
$
37,830
$
37,105
14,162
—
(4,169)
101,128
$
3,640
49,665
—
91,135
$
725
—
—
37,830
$
$
Table of Contents
During fiscal 2019, we increased our unrecognized tax benefits as a result of proposed tax regulations related to DPAD
and decreased our unrecognized tax benefits for excise tax credits related to blending and sales of renewable fuels deducted
from income taxes. During fiscal 2018, adverse judicial opinions received by other taxpayers with similar filing positions
resulted in an increase to our unrecognized tax benefits primarily for excise tax credits related to blending and sales of
renewable fuels deducted from income taxes. During fiscal 2017, we increased our unrecognized tax benefits for excise tax
credits related to blending and sales of renewable fuels deducted from income taxes.
If we were to prevail on all positions taken in relation to uncertain tax positions, $93.3 million of the unrecognized tax
benefits would ultimately benefit our effective tax rate. However, we do not believe it is reasonably possible that the total
amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes. We
recognized $1.7 million and $1.2 million for interest and penalties related to unrecognized tax benefits in our Consolidated
Statement of Operations for the year ended August 31, 2019 and 2018, respectively, and a related $2.9 million and $1.2 million
interest payable on our Consolidated Balance Sheet as of August 31, 2019 and 2018, respectively. No interest or penalties were
recognized in our Consolidated Statements of Operations for the year ended August 31, 2017, and no interest payable was
recorded on our Consolidated Balance Sheet as of August 31, 2017.
Note 10
Equities
In accordance with our bylaws and by action of the Board of Directors, annual net earnings from patronage sources are
distributed to consenting patrons following the close of each fiscal year and are based on amounts using financial statement
earnings. The cash portion of the qualified patronage distribution, if any, is determined annually by the Board of Directors, with
the balance issued in the form of qualified and/or non-qualified capital equity certificates. Total patronage distributions for
fiscal 2019 are estimated to be $562.4 million, with the qualified cash portion estimated to be $90.0 million and non-qualified
equity distributions of $472.4 million. No portion of annual net earnings for fiscal 2019 will be issued in the form of qualified
capital equity certificates. Patronage distributions for fiscal 2018 were $428.8 million, with a $75.8 million cash portion. The
actual patronage distributions and cash portion for fiscal 2017 and 2016 were $128.8 million (with no cash portion) and $257.5
million ($103.9 million in cash), respectively.
Annual net earnings from patronage or other sources may be added to the unallocated capital reserve or, upon action
by the Board of Directors, may be allocated to members in the form of nonpatronage equity certificates. The Board of Directors
authorized, in accordance with our bylaws, that 10% of the earnings from patronage business for fiscal 2019, 2018 and 2017 be
added to our capital reserves.
Redemptions of outstanding equity are at the discretion of the Board of Directors. Redemptions of capital equity
certificates approved by the Board of Directors are divided into two pools, one for non-individuals (primarily member
cooperatives) who may participate in an annual redemption program for qualified equities held by them and another for
individual members who are eligible for equity redemptions at age 70 or upon death. The CHS redemption policy includes a
redemption program for individuals similar to the one that is available to non-individual members, subject to CHS Board of
Directors overall discretion whether to redeem outstanding equity. In accordance with authorization from the Board of
Directors, we expect total redemptions related to the year ended August 31, 2019, that will be distributed in fiscal 2020, to be
approximately $90.0 million. This amount is classified as a current liability on our August 31, 2019, Consolidated Balance
Sheet. During the years ended August 31, 2019, 2018 and 2017, we redeemed in cash, outstanding owners' equities in
accordance with authorization from the Board of Directors, in the amounts of $85.5 million, $8.8 million and $35.3 million,
respectively.
In March 2017, we redeemed approximately $20.0 million of patrons' equities by issuing 695,390 shares of Class B
Cumulative Redeemable Preferred Stock, Series 1 ("Class B Series 1 Preferred Stock"), with a total redemption value of $17.4
million, excluding accumulated dividends. Each share of Class B Series 1 Preferred Stock was issued in redemption of $28.74
of patrons' equities in the form of capital equity certificates.
F-29
Table of Contents
Preferred Stock
The following is a summary of our outstanding preferred stock as of August 31, 2019, all shares of which are listed
and traded on the Global Select Market of Nasdaq:
Nasdaq
Symbol
Issuance
Date
Shares
Outstanding
Redemption
Value
Net
Proceeds
(a)
Dividend
Rate
(b) (c)
Dividend
Payment
Frequency
Redeemable
Beginning
(d)
(Dollars in millions)
CHSCP
CHSCO
(e)
(f)
12,272,003
$
306.8
$
311.2
8.00% Quarterly
7/18/2023
21,459,066
536.5
569.3
7.875% Quarterly
9/26/2023
CHSCN
3/11/2014
16,800,000
420.0
406.2
7.10% Quarterly
3/31/2024
CHSCM
9/15/2014
19,700,000
492.5
476.7
6.75% Quarterly
9/30/2024
CHSCL
1/21/2015
20,700,000
517.5
501.0
7.50% Quarterly
1/21/2025
8% Cumulative
Redeemable
Class B Cumulative
Redeemable, Series 1
Class B Reset Rate
Cumulative Redeemable,
Series 2
Class B Reset Rate
Cumulative Redeemable,
Series 3
Class B Cumulative
Redeemable, Series 4
(a) Includes patrons' equities redeemed with preferred stock.
(b) The Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2 accumulates dividends at a rate of 7.10% per year until March 31, 2024, and
then at a rate equal to the three-month LIBOR plus 4.298%, not to exceed 8.00% per annum, subsequent to March 31, 2024.
(c) The Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3 accumulates dividends at a rate of 6.75% per year until September 30, 2024,
and then at a rate equal to the three-month LIBOR plus 4.155%, not to exceed 8.00% per annum, subsequent to September 30, 2024.
(d) Preferred stock is redeemable for cash at our option, in whole or in part, at a per share price equal to the per share liquidation preference of $25.00 per
share, plus all dividends accumulated and unpaid on that share to and including the date of redemption, beginning on the dates set forth in this column.
(e) The 8% Cumulative Redeemable Preferred Stock was issued at various times from 2003 through 2010.
(f) Shares of Class B Cumulative Redeemable Preferred Stock, Series 1 were issued on September 26, 2013; August 25, 2014; March 31, 2016; and March
30, 2017.
Preferred Stock Dividends
We made dividend payments on our preferred stock of $168.7 million, $168.7 million and $167.6 million, during the
years ended August 31, 2019, 2018 and 2017, respectively. As of August 31, 2019, we have no authorized but unissued shares
of preferred stock.
The following is a summary of dividends per share by class of preferred stock for the years ended August 31, 2019 and
2018.
8% Cumulative Redeemable
Class B Cumulative Redeemable, Series 1
Class B Reset Rate Cumulative Redeemable, Series 2
Class B Reset Rate Cumulative Redeemable, Series 3
Class B Cumulative Redeemable, Series 4
For the Years Ended August 31,
Nasdaq Symbol
2019
2018
(Dollars per share)
$
CHSCP
CHSCO
CHSCN
CHSCM
CHSCL
$
2.00
1.97
1.78
1.69
1.88
2.00
1.97
1.78
1.69
1.88
F-30
Table of Contents
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component, for the years ended August 31, 2019, 2018
and 2017 are as follows:
Pension and
Other
Postretirement
Benefits
Unrealized Net
Gain (Loss) on
Available for
Sale
Investments
Cash Flow
Hedges
Foreign
Currency
Translation
Adjustment
Total
Balance as of August 31, 2016, net of tax
$
(165,146) $
(Dollars in thousands)
(9,196) $
$
5,656
Other comprehensive income (loss), before tax:
Amounts before reclassifications
Amounts reclassified out
Total other comprehensive income (loss), before tax
Tax effect
Other comprehensive income (loss), net of tax
Balance as of August 31, 2017, net of tax
Other comprehensive income (loss), before tax:
Amounts before reclassifications
Amounts reclassified out
Total other comprehensive income (loss), before tax
Tax effect
Other comprehensive income (loss), net of tax
Reclassification of tax effects to capital reserves
Balance as of August 31, 2018, net of tax
Other comprehensive income (loss), before tax:
Amounts before reclassifications
Amounts reclassified out
Total other comprehensive income (loss), before tax
Tax effect
Other comprehensive income (loss), net of tax
Reclassifications
25,216
26,174
51,390
(18,688)
32,702
(132,444)
7,633
21,804
29,437
(9,371)
20,066
(27,957)
(140,335)
(51,118)
10,279
(40,839)
8,280
(32,559)
416
7,117
—
7,117
(2,732)
4,385
10,041
21,078
(25,534)
(4,456)
1,308
(3,148)
1,968
8,861
—
—
—
—
—
(8,861)
1,892
1,742
3,634
(1,392)
2,242
(6,954)
1,031
1,704
2,735
(195)
2,540
(1,468)
(5,882)
37,709
(9,843)
27,866
(7,670)
20,196
983
Balance as of August 31, 2019, net of tax
$
(172,478) $
— $
15,297
$
(42,844) $
(211,530)
(7,960)
15
(7,945)
(214)
(8,159)
(51,003)
(10,062)
(2,042)
(12,104)
83
(12,021)
465
(62,559)
(9,990)
—
(9,990)
41
(9,949)
2,756
(69,752) $
26,265
27,931
54,196
(23,026)
31,170
(180,360)
19,680
(4,068)
15,612
(8,175)
7,437
(26,992)
(199,915)
(23,399)
436
(22,963)
651
(22,312)
(4,706)
(226,933)
Amounts reclassified from accumulated other comprehensive income (loss) were related to pension and other
postretirement benefits, cash flow hedges, available-for-sale investments and foreign currency translation adjustments. Pension
and other postretirement reclassifications include amortization of net actuarial loss, prior service credit and transition amounts
and are recorded as cost of goods sold and marketing, general and administrative expenses (see Note 11, Benefit Plans, for
further information). Gains or losses on the sale of available-for-sale investments are recorded to other income. Foreign
currency translation reclassifications related to sales of businesses are recorded to other income.
Note 11
Benefit Plans
We have various pension and other defined benefit as well as defined contribution plans in which substantially all
employees may participate. We also have non-qualified supplemental executive and Board retirement plans.
F-31
Table of Contents
Financial information on changes in projected benefit obligation, plan assets funded and balance sheet status as of
August 31, 2019 and 2018, is as follows:
Change in benefit obligation:
Projected benefit obligation at
beginning of period
Service cost
Interest cost
Actuarial (gain) loss
Assumption change
Plan amendments
Settlements
Benefits paid
Projected benefit obligation at end of
period
Change in plan assets:
Fair value of plan assets at beginning
of period
Actual gain (loss) on plan assets
Company contributions
Settlements
Benefits paid
Fair value of plan assets at end of
period
Funded status at end of period
Amounts recognized on balance sheet:
Non-current assets
Accrued benefit cost:
Current liabilities
Non-current liabilities
Qualified
Pension Benefits
Non-Qualified
Pension Benefits
Other Benefits
2019
2018
2019
2018
2019
2018
(Dollars in thousands)
$ 767,184
$
806,174
$
20,755
$
25,599
$
29,790
$
31,836
38,592
28,396
(9,606)
102,441
18
(615)
(49,714)
39,677
24,007
3,146
(36,515)
244
—
(69,549)
311
747
76
1,841
—
(3,975)
(708)
548
711
205
(783)
—
(4,824)
(701)
1,053
1,094
(2,596)
3,398
—
—
(1,641)
943
908
(623)
(1,612)
—
—
(1,662)
$ 876,696
$
767,184
$
19,047
$
20,755
$
31,098
$
29,790
$ 829,616
$
875,820
$
90,139
40,001
(615)
(49,714)
23,345
—
—
(69,549)
— $
—
— $
—
— $
—
4,683
(3,975)
(708)
5,525
(4,824)
(701)
1,641
—
(1,641)
—
—
1,662
—
(1,662)
$ 909,427
$
$
32,731
32,731
$
$
$
829,616
62,432
62,432
$
$
$
—
—
—
—
— $
— $
— $
—
(19,047) $
(20,755) $
(31,098) $
(29,790)
— $
— $
— $
—
(1,580)
(17,467)
(19,047) $
(1,780)
(18,975)
(20,755) $
(2,040)
(29,058)
(31,098) $
(2,040)
(27,750)
(29,790)
Ending balance
$
32,731
$
62,432
$
Amounts recognized in accumulated
other comprehensive loss (pretax):
Prior service cost (credit)
Net (gain) loss
Ending balance
$
1,117
244,164
$ 245,281
$
$
1,288
209,606
210,894
$
$
(616) $
2,151
1,535
$
(691) $
427
(264) $
(3,160) $
(15,445)
(18,605) $
(3,716)
(17,875)
(21,591)
The accumulated benefit obligation of the qualified pension plans was $833.2 million and $736.2 million at
August 31, 2019 and 2018, respectively. The accumulated benefit obligation of the non-qualified pension plans was $16.9
million and $18.6 million at August 31, 2019 and 2018, respectively.
Information for the pension plans with an accumulated benefit obligation in excess of plan assets is set forth below:
Projected benefit obligation
Accumulated benefit obligation
F-32
For the Years Ended August 31,
2019
2018
(Dollars in thousands)
$
$
19,047
16,907
20,755
18,586
Table of Contents
A significant assumption for pension plan accounting is the discount rate. We utilize a full-yield curve approach by
applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows.
Components of net periodic benefit costs for the years ended August 31, 2019, 2018 and 2017, are as follows:
Qualified
Pension Benefits
Non-Qualified
Pension Benefits
Other Benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
(Dollars in thousands)
Components of net periodic benefit costs:
Service cost
Interest cost
$ 38,592
$ 39,677
$ 42,149
$
28,396
24,007
22,999
Expected return on assets
(44,968)
(48,159)
(48,235)
Settlement of retiree obligations
Prior service cost (credit) amortization
51
190
Actuarial loss (gain) amortization
12,348
—
1,437
18,073
—
1,540
22,869
311
747
—
191
(75)
2
$
548
711
—
(112)
30
61
$ 1,206
$ 1,053
$
1,094
—
—
843
—
(30)
19
546
(556)
(565)
(1,627)
(1,224)
943
908
—
—
$ 1,160
930
—
—
(565)
(798)
Net periodic benefit cost (benefit)
$ 34,609
$ 35,035
$ 41,322
$ 1,176
$ 1,238
$ 2,584
$
(36)
$
62
$
727
Weighted-average assumptions to
determine the net periodic benefit cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
Weighted-average assumptions to
determine the benefit obligations:
Discount rate
Rate of compensation increase
4.23%
5.50%
5.14%
3.80%
5.75%
5.08%
3.60%
5.75%
5.60%
4.09%
N/A
5.14%
3.53%
N/A
5.08%
3.28%
N/A
5.60%
4.08%
3.56%
3.30%
N/A
N/A
N/A
N/A
N/A
N/A
3.06%
5.28%
4.23%
5.14%
3.80%
5.08%
2.70%
5.28%
4.09%
5.14%
3.53%
5.08%
2.89%
N/A
4.13%
N/A
3.56%
N/A
Components of net periodic benefit costs and amounts recognized in other comprehensive income (loss) for the years
ended August 31, 2019, 2018 and 2017, are as follows:
Qualified
Pension Benefits
Non-Qualified
Pension Benefits
Other Benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
(Dollars in thousands)
$
18
$
244
$
— $
— $
— $
— $
— $
— $
—
Other comprehensive income (loss):
Prior service cost (credit)
Net actuarial loss (gain)
47,556
(8,553)
(16,044)
1,917
Amortization of actuarial loss (gain)
(12,307)
(18,073)
(22,869)
(2)
Amortization of prior service costs
(credit)
(190)
(1,437)
(1,540)
Settlement of retiree obligations (a)
—
—
—
75
(191)
(578)
(61)
(30)
112
(6,345)
(546)
(19)
30
801
1,627
556
—
(2,234)
(5,427)
1,224
565
—
798
565
—
Total recognized in other comprehensive
income
$ 35,077
$ (27,819) $ (40,453) $
1,799
$
(557) $ (6,880) $
2,984
$
(445) $ (4,064)
(a) Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings.
Estimated amortization in fiscal 2020 from accumulated other comprehensive loss into net periodic benefit cost is as
follows:
Amortization of prior service cost (credit)
Amortization of actuarial (gain) loss
Qualified
Pension Benefits
Non-Qualified
Pension Benefits
Other
Benefits
(Dollars in thousands)
$
178
$
21,583
(114) $
98
(556)
(1,392)
For measurement purposes, a 7.1% annual rate of increase in the per capita cost of covered health care benefits was
assumed for the year ended August 31, 2019. The rate was assumed to decrease gradually to 4.5% by 2027 and remain at that
level thereafter.
F-33
Table of Contents
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-
percentage-point change in the assumed health care cost trend rates would have the following effects:
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
1% Increase
1% Decrease
(Dollars in thousands)
$
200
$
2,000
(170)
(1,700)
We provide defined life insurance and health care benefits for certain retired employees and Board of Directors
participants. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually.
Contributions depend primarily on market returns on the pension plan assets and minimum funding level
requirements. During fiscal 2019, we made a discretionary contribution of $40.0 million to the pension plans. Based on the
funded status of the qualified pension plans as of August 31, 2019, we do not believe we will be required to contribute to these
plans in fiscal 2020, although we may voluntarily elect to do so. We expect to pay $3.6 million to participants of the non-
qualified pension and postretirement benefit plans during fiscal 2020.
Our retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:
2020
2021
2022
2023
2024
2025-2029
Qualified
Pension Benefits
Non-Qualified
Pension Benefits
Other Benefits
(Dollars in thousands)
$
72,600
$
1,580
$
64,900
61,900
63,900
65,000
326,100
1,370
1,940
1,950
2,030
8,840
2,040
2,180
2,410
2,540
2,520
11,110
We have trusts that hold the assets for the defined benefit plans. CHS has a qualified plan committee that sets
investment guidelines with the assistance of external consultants. Investment objectives for the plans' assets are as follows:
•
optimization of the long-term returns on plan assets at an acceptable level of risk;
• maintenance of broad diversification across asset classes and among investment managers; and
•
focus on long-term return objectives.
Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time
horizon for fulfilling the obligations of the pension plans. The investment portfolio contains a diversified portfolio of
investment categories, including equities, fixed-income securities and real estate. Securities are also diversified in terms of
domestic and international securities, short- and long-term securities, growth and value equities, large and small cap stocks, as
well as active and passive management styles. Our pension plans' investment policy strategy is such that liabilities match
assets. This is being accomplished through the asset portfolio mix by reducing volatility and de-risking the plans. The plans'
target allocation percentages range between 45% and 65% for fixed income securities and range between 35% and 55% for
equity securities. An annual analysis of the risk versus the return of the investment portfolio is conducted to justify the expected
long-term rate of return assumption. We generally use long-term historical return information for the targeted asset mix
identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption, when
deemed necessary, based upon revised expectations of future investment performance of the overall investment markets.
The discount rate reflects the rate at which the associated benefits could be effectively settled as of the measurement
date. In estimating this rate, we look at rates of return on fixed-income investments of similar duration to the liabilities in the
plans that receive high investment-grade ratings by recognized ratings agencies.
The qualified plan committee believes that with prudent risk tolerance and asset diversification, the plans should be
able to meet pension obligations in the future.
F-34
Table of Contents
Our pension plans’ recurring fair value measurements by asset category at August 31, 2019 and 2018, are presented in
the tables below:
Cash and cash equivalents
Equities:
Common/collective trust at net asset value (1)
Fixed income securities:
Common/collective trust at net asset value (1)
Partnership and joint venture interests measured at net
asset value (1)
Other assets measured at net asset value (1)
Total
Cash and cash equivalents
Equities:
Mutual funds
Common/collective trust at net asset value (1)
Fixed income securities:
Common/collective trust at net asset value (1)
Partnership and joint venture interests measured at net
asset value (1)
Other assets measured at net asset value (1)
Total
2019
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
$
7,938
$
— $
— $
7,938
—
—
—
—
—
—
—
—
—
—
—
—
209,860
574,296
101,641
15,692
$
$
7,938
$
— $
— $
909,427
2018
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
7,424
$
— $
— $
7,424
692
—
—
—
—
—
—
—
—
—
—
—
—
—
—
692
216,962
500,637
101,954
1,947
$
8,116
$
— $
— $
829,616
(1) In accordance with ASC Topic 820-10, Fair Value Measurement, certain assets that are measured at fair value using the net asset value per share (or its
equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the tables above are intended to
permit reconciliation of the fair value hierarchy to the amounts presented in the statement of net assets.
Definitions for valuation levels are found in Note 14, Fair Value Measurements. We use the following valuation
methodologies for assets measured at fair value.
Mutual funds. Valued at quoted market prices, which are based on the net asset value of shares held by the plan at
year-end. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Mutual funds
measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value
hierarchy in accordance with ASC Topic 820-10, Fair Value Measurement.
Common/collective trusts. Common/collective trusts primarily consist of equity and fixed income funds and are valued
using other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds,
credit risks, referenced indices, quoted prices in inactive markets, adjusted quoted prices in active markets, adjusted quoted
prices on foreign equity securities that were adjusted in accordance with pricing procedures approved by the trust, etc.).
Common/collective trust investments can be redeemed daily and without restriction. Redemption of the entire investment
balance generally requires a 45- to 60-day notice period. The equity funds provide exposure to large, mid and small cap U.S.
equities, international large and small cap equities and emerging market equities. The fixed income funds provide exposure to
U.S., international and emerging market debt securities.
Partnership and joint venture interests. Valued at the net asset value of shares held by the plan at year-end as a
practical expedient for fair value. The net asset value is based on the fair value of the underlying assets owned by the trust,
minus its liabilities, then divided by the number of units outstanding. Redemptions of these interests generally require a 45- to
60-day notice period.
F-35
Table of Contents
Other assets. Other assets primarily include real estate funds and hedge funds held in the asset portfolio of our U.S.
defined benefit pension plans.
We are one of approximately 400 employers that contribute to the Co-op Retirement Plan ("Co-op Plan"), which is a
defined benefit plan constituting a "multiple employer plan" under the Internal Revenue Code of 1986, as amended, and a
"multiemployer plan" under the accounting standards. The risks of participating in these multiemployer plans are different from
single-employer plans in the following aspects:
• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers;
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers; and
If we choose to stop participating in the multiemployer plan, we may be required to pay the plan an amount based on
the underfunded status of the plan, referred to as a withdrawal liability.
Our participation in the Co-op Plan for the years ended August 31, 2019, 2018 and 2017, is outlined in the table
•
•
below:
Contributions of CHS
(Dollars in thousands)
Plan Name
EIN/Plan Number
2019
2018
2017
Co-op Retirement Plan
01-0689331 / 001
$ 1,712
$ 1,662
$ 1,653
Surcharge
Imposed
N/A
Expiration Date of Collective
Bargaining Agreement
N/A
Our contributions for the years stated above did not represent more than 5% of total contributions to the Co-op Plan as
indicated in the Co-op Plan's most recently available annual report (Form 5500).
Provisions of the Pension Protection Act of 2006 ("PPA") do not apply to the Co-op Plan because there is a special
exemption for cooperative plans if the plan is maintained by more than one employer and at least 85% of the employers are
rural cooperatives or cooperative organizations owned by agricultural producers. In the Co-op Plan, a "zone status"
determination is not required, and therefore not determined. In addition, the accumulated benefit obligations and plan assets are
not determined or allocated separately by individual employers. The most recent financial statements available in 2019 and
2018 are for the Co-op Plan's year-end at March 31, 2019 and 2018, respectively. In total, the Co-op Plan was at least 80%
funded on those dates based on the total plan assets and accumulated benefit obligations.
Because the provisions of the PPA do not apply to the Co-op Plan, funding improvement plans and surcharges are not
applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may
change as a result of plan experience.
In addition to the contributions to the Co-op Plan listed above, total contributions to individually insignificant multi-
employer pension plans were immaterial in fiscal 2019, 2018 and 2017.
We have other contributory defined contribution plans covering substantially all employees. Total contributions by us
to these plans were $31.0 million, $24.7 million and $19.9 million, for the years ended August 31, 2019, 2018 and 2017,
respectively.
Note 12
Segment Reporting
We are an integrated agricultural enterprise, providing grain, foods and energy resources to businesses and consumers
on a global basis. We provide a wide variety of products and services, from initial agricultural inputs such as fuels, farm
supplies, crop nutrients and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed
processing and food products, and the production and marketing of ethanol. We define our operating segments in accordance
with ASC Topic 280, Segment Reporting, to reflect the manner in which our chief operating decision maker, our Chief
Executive Officer, evaluates performance and allocates resources in managing the business. We have aggregated those
operating segments into three reportable segments: Energy, Ag and Nitrogen Production.
F-36
Table of Contents
Our Energy segment produces and provides primarily for the wholesale distribution of petroleum products and
transportation of those products. Our Ag segment purchases and further processes or resells grains and oilseeds originated by
our country operations business, by our member cooperatives and by third parties; serves as a wholesaler and retailer of crop
inputs; and produces and markets ethanol. Our Nitrogen Production segment consists solely of our equity method investment in
CF Nitrogen, which entitles us, pursuant to a supply agreement that we entered with CF Nitrogen, to purchase up to a specified
quantity of granular urea and UAN annually from CF Nitrogen. Corporate and Other represents our financing and hedging
businesses, which primarily consists of commodities hedging, financial services related to crop production, and insurance
which was disposed of in May 2018. Our non-consolidated investments in Ventura Foods and Ardent Mills are also included in
our Corporate and Other category.
Corporate administrative expenses and interest are allocated to each business segment and Corporate and Other, based
on direct usage for services that can be tracked, such as information technology and legal, and other factors or considerations
relevant to the costs incurred.
Many of our business activities are highly seasonal and operating results vary throughout the year. For example, in our
Ag segment, our country operations business generally experiences higher volumes and income during the spring planting
season and during the fall harvest season and our agronomy business generally experiences higher volumes and income during
the spring planting season. Our global grain marketing operations are also subject to fluctuations in volume and earnings based
on producer harvests, world grain prices and demand. Our Energy segment generally experiences higher volumes and
profitability in certain operating areas, such as refined products, in the summer and early fall when gasoline and diesel fuel
usage is highest and is subject to global supply and demand forces. Other energy products, such as propane, may experience
higher volumes and profitability during the winter heating and crop-drying seasons.
Our revenues, assets and cash flows can be significantly affected by global market prices for commodities such as
petroleum products, natural gas, grains, oilseeds, crop nutrients and flour. Changes in market prices for commodities that we
purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings.
Commodity prices are affected by a wide range of factors beyond our control, including the weather, crop damage due to plant
disease or insects, drought, availability and adequacy of supply, government regulations and policies, world events, and general
political and economic conditions.
While our revenues and operating results are derived primarily from businesses and operations that are wholly-owned
or subsidiaries and limited liability companies in which we have a controlling interest, a portion of our business operations are
conducted through companies in which we hold ownership interests of 50% or less or do not control the operations. We account
for these investments primarily using the equity method of accounting, wherein we record our proportionate share of income or
loss reported by the entity as equity income from investments, without consolidating the revenues and expenses of the entity in
our Consolidated Statements of Operations. In our Nitrogen Production segment, this consists of our approximate 10%
membership interest (based on product tons) in CF Nitrogen. In Corporate and Other, this principally includes our 50%
ownership in Ventura Foods and our 12% ownership in Ardent Mills. See Note 5, Investments, for more information related to
CF Nitrogen, Ventura Foods and Ardent Mills.
Reconciling amounts represent the elimination of revenues between segments. Such transactions are executed at
market prices to more accurately evaluate the profitability of the individual business segments.
F-37
Table of Contents
Segment information for the years ended August 31, 2019, 2018 and 2017 is presented in the tables below. The fiscal
2019 results for our Ag segment include results associated with our acquisition of the remaining 75% ownership interest in
WCD that we did not previously own on March 1, 2019, which were not included in our prior period results. Refer to further
details related to our acquisition of the remaining 75% ownership interest in WCD that we did not previously own within Note
18, Acquisitions.
Energy
Ag
Nitrogen
Production
Corporate
and Other
Reconciling
Amounts
Total
(Dollars in thousands)
For the year ended August 31, 2019:
Revenues, including intersegment
revenues
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Intersegment revenues
Capital expenditures
Depreciation and amortization
Total assets as of August 31, 2019
For the year ended August 31, 2018:
Revenues, including intersegment
revenues
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Intersegment revenues
Capital expenditures
Depreciation and amortization
Total assets as of August 31, 2018
$
7,581,450
$ 24,736,425
$
— $
68,710
$
(486,132) $ 31,900,453
$
$
615,662
—
5,719
(5,548)
(2,697)
65,181
(3,886)
101,386
(70,888)
(4,447)
(35,046)
—
55,226
(2,769)
(160,373)
13,805
—
11,684
(10,168)
(69,238)
—
—
(6,950)
6,950
659,602
(3,886)
167,065
(82,423)
—
(236,755)
618,188
$
43,016
$
72,870
$
81,527
$
— $
815,601
(462,374) $
(16,353) $
— $
(7,405) $
486,132
$
—
268,877
233,624
110,197
208,294
—
—
64,142
31,293
4,401,793
6,415,580
2,730,306
2,899,815
—
—
—
443,216
473,211
16,447,494
Energy
Ag
Nitrogen
Production
Corporate
and Other
Reconciling
Amounts
Total
(Dollars in thousands)
$
8,068,717
$ 25,052,395
$
— $
64,516
$
(502,281) $ 32,683,347
388,112
(65,862)
14,627
(9,698)
(3,063)
93,728
(7,707)
94,256
(68,471)
1,392
(20,619)
—
50,499
(3,061)
(106,895)
(8,857)
(58,247)
(7,712)
(3,975)
(44,949)
—
—
452,364
(131,816)
(2,468)
149,202
2,468
—
(82,737)
(153,515)
452,108
$
74,258
$
38,838
$
106,026
$
— $
671,230
(479,598) $
(14,914) $
— $
(7,769) $
502,281
$
—
248,207
230,230
77,962
218,716
—
—
29,243
29,104
4,168,239
6,534,777
2,758,668
2,919,494
—
—
—
355,412
478,050
16,381,178
$
$
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For the year ended August 31, 2017:
Revenues, including intersegment
revenues
Operating earnings (loss)
(Gain) loss on disposal of business
Interest expense
Other (income) loss
Equity (income) loss from investments
Income (loss) before income taxes
Intersegment revenues
Capital expenditures
Depreciation and amortization
Energy
Ag
Nitrogen
Production
Corporate
and Other
Reconciling
Amounts
Total
(Dollars in thousands)
$
6,620,680
$ 25,738,740
$
— $
95,414
$
(417,408) $ 32,037,426
75,203
(268,884)
(18,430)
—
18,365
(1,099)
(3,181)
2,190
71,986
(65,622)
(7,277)
—
48,893
(30,534)
(66,530)
38,233
—
33,250
(3,803)
(60,350)
—
—
(1,255)
1,255
—
(173,878)
2,190
171,239
(99,803)
(137,338)
61,118
$
(270,161) $
29,741
$
69,136
$
— $
(110,166)
(392,842) $
(20,312) $
— $
(4,254) $
417,408
$
—
260,543
223,229
146,139
232,443
—
—
37,715
24,551
—
—
444,397
480,223
$
$
We have international sales, which are predominantly in our Ag segment. The following table presents our sales, based
on the geographic location of the subsidiary making the sale, for the years ended August 31, 2019, 2018 and 2017:
North America (a)
South America
Europe, Middle East and Africa (EMEA)
Asia Pacific (APAC)
Total
2019
2018
2017
(Dollars in thousands)
$ 27,896,269
$ 29,475,724
$ 29,068,842
2,027,020
895,472
1,081,692
1,569,330
536,501
1,101,792
1,441,316
652,308
874,960
$ 31,900,453
$ 32,683,347
$ 32,037,426
(a) Revenues in North America are substantially all attributed to revenues from the United States.
Long-lived assets include our property, plant and equipment, capital lease assets and capitalized major maintenance
costs. The following table presents long-lived assets by geographical region based on physical location:
United States
International
Total
2019
2018
(Dollars in thousands)
$
$
5,295,752
79,846
5,375,598
$
$
5,185,572
86,927
5,272,499
Note 13
Derivative Financial Instruments and Hedging Activities
Our derivative instruments primarily consist of commodity and forward contracts and, to a minor degree, may include
foreign currency and interest rate swap contracts. These contracts are economic hedges of price risk, but we do not apply hedge
accounting under ASC Topic 815, Derivatives and Hedging, except with respect to certain interest rate swap contracts that are
accounted for as cash flow hedges and certain future crude oil purchases that are accounted for as cash flow hedges. Derivative
instruments are recorded on our Consolidated Balance Sheets at fair value as described in Note 14, Fair Value Measurements.
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The following tables present the gross fair values of derivative assets, derivative liabilities and margin deposits (cash
collateral) recorded on our Consolidated Balance Sheets, along with related amounts permitted to be offset in accordance with
U.S. GAAP. We have elected not to offset derivative assets and liabilities when we have the right of offset under ASC Topic
210-20, Balance Sheet - Offsetting, or when the instruments are subject to master netting arrangements under ASC Topic
815-10-45, Derivatives and Hedging - Overall.
Derivative Assets
Commodity derivatives
Foreign exchange derivatives
Embedded derivative asset
Total
Derivative Liabilities
Commodity derivatives
Foreign exchange derivatives
Total
Derivative Assets
Commodity derivatives
Foreign exchange derivatives
Embedded derivative asset
Total
Derivative Liabilities
Commodity derivatives
Foreign exchange derivatives
Total
August 31, 2019
Amounts Not Offset on the
Consolidated Balance Sheet but
Eligible for Offsetting
Gross Amounts
Recognized
Cash Collateral
Derivative
Instruments
Net Amounts
(Dollars in thousands)
$
$
$
$
215,030
$
10,334
21,364
246,728
223,410
20,609
244,019
$
$
$
— $
—
—
— $
4,191
—
4,191
$
$
58,726
$
7,108
—
65,834
41,647
7,108
48,755
$
$
$
156,304
3,226
21,364
180,894
177,572
13,501
191,073
August 31, 2018
Amounts Not Offset on the
Consolidated Balance Sheet but
Eligible for Offsetting
Gross Amounts
Recognized
Cash Collateral
Derivative
Instruments
Net Amounts
(Dollars in thousands)
$
$
$
$
313,033
$
15,401
23,595
352,029
421,054
24,701
445,755
$
$
$
— $
—
—
— $
12,983
—
12,983
$
$
26,781
$
8,703
—
35,484
26,781
8,703
35,484
$
$
$
286,252
6,698
23,595
316,545
381,290
15,998
397,288
Derivative assets and liabilities with maturities of less than 12 months are recorded in derivative assets and derivative
liabilities, respectively, on the Consolidated Balance Sheets. Derivative assets and liabilities with maturities greater than 12
months are recorded in other assets and other liabilities, respectively, on the Consolidated Balance Sheets. The amount of long-
term derivative assets, excluding derivatives accounted for as fair value hedges, recorded on the Consolidated Balance Sheet at
August 31, 2019 and 2018, was $26.6 million and $23.1 million, respectively. The amount of long-term derivative liabilities,
excluding derivatives accounted for as fair value hedges, recorded on the Consolidated Balance Sheet at August 31, 2019 and
2018, was $7.4 million and $7.9 million, respectively.
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Derivatives Not Designated as Hedging Instruments
The majority of our derivative instruments have not been designated as hedging instruments. The following table sets
forth the pretax gains (losses) on derivatives not accounted for as hedging instruments that have been included in our
Consolidated Statements of Operations for the years ended August 31, 2019, 2018 and 2017.
Derivative Type
Location of
Gain (Loss)
Commodity derivatives
Cost of goods sold
Foreign exchange derivatives
Cost of goods sold
Foreign exchange derivatives
Marketing, general and administrative expenses
Interest rate derivatives
Interest expense
Embedded derivative
Other income (loss)
Total
Commodity Contracts
2019
2018
2017
(Dollars in thousands)
$ 125,323
4,228
(1,229)
—
2,769
$
$ 162,321
(26,010)
596
(1)
3,061
168,569
(13,140)
(1,604)
8
30,533
$ 131,091
$ 139,967
$
184,366
When we enter a commodity purchase or sales commitment, we are exposed to risks related to price changes and
performance, including delivery, quality, quantity and shipment period. If market prices decrease, we are exposed to risk of loss
in the market value of inventory and purchase contracts with a fixed or partially fixed price. Conversely, we are exposed to risk
of loss on our fixed or partially fixed price sales contracts if market prices increase.
Our use of hedging reduces exposure to price volatility by protecting against adverse short-term price movements, but
also limits the benefits of favorable short-term price movements. To reduce price risk associated with fixed price commitments,
we generally enter into commodity derivative contracts, to the extent practical, to achieve a net commodity position within the
formal position limits we have established and deemed prudent for each commodity. These contracts are primarily transacted
on regulated commodity futures exchanges, but may also include over-the-counter derivative instruments when deemed
appropriate. For commodities where there is no liquid derivative contract, risk is managed using forward sales contracts, other
pricing arrangements and, to some extent, futures contracts in highly correlated commodities. These contracts are economic
hedges of price risk, but are not designated as hedging instruments for accounting purposes. The contracts are recorded on our
Consolidated Balance Sheets at fair values based on quotes listed on regulated commodity exchanges or the market prices of
the underlying products listed on the exchanges, except that fertilizer and certain propane contracts are accounted for as normal
purchase and normal sales transactions. Unrealized gains and losses on these contracts are recognized in cost of goods sold in
our Consolidated Statements of Operations.
When a futures position is established, initial margin must be deposited with the applicable exchange or broker. The
amount of margin required varies by commodity and is set by the applicable exchange at its sole discretion. If the market price
relative to a short futures position increases, an additional margin deposit would be required. Similarly, a margin deposit would
be required if the market price relative to a long futures position decreases. Conversely, if the market price increases relative to
a long futures position or decreases relative to a short futures position, margin deposits may be returned by the applicable
exchange or broker.
Our policy is to manage our commodity price risk exposure according to internal polices and in alignment with our
tolerance for risk. Our profitability from operations is primarily derived from margins on products sold and grain
merchandised, not from hedging transactions. At any one time, inventory and purchase contracts for delivery to us may be
substantial. We have risk management policies that include established net position limits. These limits are defined for each
commodity and business unit and may include both trader and management limits as appropriate. The limits policy is managed
within each individual business unit to ensure any limits overage is explained and exposures reduced, or a temporary limit
increase is established if needed. The position limits are reviewed at least annually with our senior leadership and Board of
Directors. We monitor current market conditions and may expand or reduce our net position limits in response to changes in
those conditions. In addition, all purchase and sales contracts are subject to credit approvals and appropriate terms and
conditions.
The use of hedging instruments does not protect against nonperformance by counterparties to cash contracts. We
evaluate counterparty exposure by reviewing contracts and adjusting the values to reflect potential nonperformance. Risk of
nonperformance by counterparties includes inability to perform because of a counterparty's financial condition and the risk that
the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are significantly
F-41
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different than the current market prices. We manage these risks by entering into fixed price purchase and sales contracts with
preapproved producers and by establishing appropriate limits for individual suppliers. Fixed price contracts are entered into
with customers of acceptable creditworthiness, as internally evaluated. Regarding our use of derivatives, we primarily transact
in exchange traded instruments or enter into over-the-counter derivatives that clear through a designated clearing organization,
which limits our counterparty exposure relative to hedging activities. Historically, we have not experienced significant events
of nonperformance on open contracts. Accordingly, we only adjust the estimated fair values of specifically identified contracts
for nonperformance. Although we have established policies and procedures, we make no assurances that historical
nonperformance experience will carry forward to future periods.
As of August 31, 2019 and 2018, we had outstanding commodity futures and options contracts that were used as
economic hedges, as well as fixed-price forward contracts related to physical purchases and sales of commodities. The table
below presents the notional volumes for all outstanding commodity contracts accounted for as derivative instruments.
Derivative Type
Long
Short
Long
Short
2019
2018
Grain and oilseed (bushels)
Energy products (barrels)
Processed grain and oilseed (tons)
Crop nutrients (tons)
Ocean freight (metric tons)
Natural gas (MMBtu)
Foreign Exchange Contracts
(Units in thousands)
547,096
13,895
597
76
295
130
717,522
4,663
2,454
23
85
—
715,866
17,011
1,064
11
227
610
929,873
8,329
2,875
76
45
—
We conduct a substantial portion of our business in U.S. dollars, but we are exposed to risks relating to foreign
currency fluctuations primarily due to global grain marketing transactions in South America, the Asia Pacific region and
Europe, and purchases of products from Canada. We use foreign currency derivative instruments to mitigate the impact of
exchange rate fluctuations. Although CHS has some risk exposure relating to foreign currency transactions, a larger impact
with exchange rate fluctuations is the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness
of U.S. agricultural products compared to the same products offered by alternative sources of world supply. The notional
amounts of our foreign exchange derivative contracts were $894.7 million and $988.8 million as of August 31, 2019 and
August 31, 2018, respectively.
Embedded Derivative Asset
Under the terms of our strategic investment in CF Nitrogen, if the CF Industries credit rating is reduced below certain
levels by two of three specified credit ratings agencies, we are entitled to receive a non-refundable annual payment of $5.0
million from CF Industries. These payments will continue on an annual basis until the date the CF Industries credit rating is
upgraded to or above certain levels by two of the three specified credit ratings agencies or February 1, 2026, whichever is
earlier.
Since the CF Industries credit rating was reduced below the specified levels during fiscal 2017, we have received an
annual payment of $5.0 million from CF Industries. Gains totaling $2.8 million, $3.1 million and $30.5 million were
recognized in other income (loss) in our Consolidated Statements of Operations during fiscal 2019, fiscal 2018 and fiscal 2017,
respectively. The fair value of the embedded derivative asset recorded on our Consolidated Balance Sheet as of August 31,
2019, was equal to $21.4 million. The current and long-term portions of the embedded derivative asset are included in
derivative assets and other assets on our Consolidated Balance Sheet, respectively. See Note 14, Fair Value Measurements, for
additional information regarding the valuation of the embedded derivative asset.
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Derivatives Designated as Cash Flow or Fair Value Hedging Strategies
Fair Value Hedges
As of August 31, 2019, we had outstanding interest rate swaps with an aggregate notional amount of $365.0 million
designated as fair value hedges of portions of our fixed-rate debt due between fiscal 2021 and fiscal 2025. As of August 31,
2018, we had outstanding interest rate swaps with an aggregate notional amount of $495.0 million. Our objective in entering
into these transactions is to offset changes in the fair value of the debt associated with the risk of variability in the three-month
U.S. dollar LIBOR interest rate, in essence converting the fixed-rate debt to variable-rate debt. Under these interest rate swaps,
we receive fixed-rate interest payments and make interest payments based on the three-month U.S. dollar LIBOR. Offsetting
changes in the fair values of both the swap instruments and the hedged debt are recorded contemporaneously each period and
only create an impact to earnings to the extent the hedge is ineffective.
The following table presents the fair value of our derivative interest rate swap instruments designated as fair value
hedges and the line items on our Consolidated Balance Sheets in which they are recorded as of August 31, 2019 and 2018.
Balance Sheet Location
Derivative Assets
Balance Sheet Location
2019
2018
(Dollars in thousands)
2019
2018
Derivative Liabilities
(Dollars in thousands)
Derivative assets
Other assets
Total
$
$
— $
9,841
9,841
$
— Derivative liabilities
— Other liabilities
— Total
$
$
— $
—
— $
771
8,681
9,452
The following table sets forth the pretax gains (losses) on derivatives accounted for as hedging instruments that have
been included in our Consolidated Statements of Operations for the years ended August 31, 2019, 2018 and 2017.
Gain (Loss) on Fair Value Hedging Relationships:
Interest rate swaps
Hedged item
Total
Location of
Gain (Loss)
Interest expense
Interest expense
2019
2018
2017
(Dollars in thousands)
$ 18,723
(18,723)
$ 21,158
(21,158)
$
— $
— $
$ 12,806
(12,806)
—
The following table provides the location and carrying amount of hedged liabilities in our Consolidated Balance
Sheets as of August 31, 2019 and 2018.
August 31, 2019
August 31, 2018
Balance Sheet Location
Carrying Amount of
Hedged Liabilities
Cumulative Amount
of Fair Value Hedging
Adjustments Included
in the Carrying
Amount of Hedged
Liabilities
Carrying Amount of
Hedged Liabilities
Cumulative Amount
of Fair Value Hedging
Adjustments Included
in the Carrying
Amount of Hedged
Liabilities
(Dollars in thousands)
Long-term debt
$
334,389
$
30,611
$
485,548
$
9,452
Cash Flow Hedges
In fiscal 2018, our Energy segment began designating certain of its pay-fixed, receive-variable, cash-settled swaps as
cash flow hedges of future crude oil purchases. We also began designating certain pay-variable, receive-fixed, cash-settled
swaps as cash flow hedges of future refined product sales. These hedging instruments and the related hedged items are exposed
to significant market price risk and potential volatility. As part of our risk management strategy, we look to hedge a portion of
our expected future crude oil needs and the resulting refined product output based on prevailing futures prices, management's
expectations about future commodity price changes and our risk appetite. As of August 31, 2019 and 2018, the aggregate
notional amount of cash flow hedges was 7.7 million and 1.1 million barrels, respectively.
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The following table presents the fair value of our commodity derivative instruments designated as cash flow hedges
and the line items on our Consolidated Balance Sheets in which they are recorded.
Balance Sheet Location
Derivative Assets
August 31,
2019
August 31,
2018
(Dollars in thousands)
Balance Sheet Location
Derivative Liabilities
August 31,
2019
August 31,
2018
(Dollars in thousands)
Derivative assets
$
33,179
$
812 Derivative liabilities
$
5,351
$
634
The following table presents the pretax gains (losses) recorded in other comprehensive income relating to cash flow
hedges for the years ended August 31, 2019, 2018 and 2017:
Commodity derivatives
2019
2018
2017
(Dollars in thousands)
$
27,650
$
178
$
—
The following table presents the pretax gains (losses) relating to cash flow hedges that were reclassified from
accumulated other comprehensive loss into our Consolidated Statements of Operations for the years ended August 31, 2019,
2018 and 2017:
Commodity derivatives
Cost of goods sold
$
11,497
$
— $
—
Location of
Gain (Loss)
2019
2018
2017
(Dollars in thousands)
Note 14
Fair Value Measurements
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.
We determine fair values of derivative instruments and certain other assets, based on the fair value hierarchy
established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants
would use in pricing the asset or liability based on the best information available in the circumstances. ASC Topic 820
describes three levels within its hierarchy that may be used to measure fair value, and our assessment of relevant instruments
within those levels is as follows:
Level 1. Values are based on unadjusted quoted prices in active markets for identical assets or liabilities. These assets
and liabilities may include exchange-traded derivative instruments, rabbi trust investments, deferred compensation investments
and available-for-sale investments.
Level 2. Values are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities. These assets and liabilities include interest rate,
foreign exchange and commodity swaps; forward commodity contracts with a fixed price component; and other OTC
derivatives whose value is determined with inputs that are based on exchange traded prices, adjusted for location specific inputs
that are primarily observable in the market or can be derived principally from, or corroborated by, observable market data.
Level 3. Values are generated from unobservable inputs that are supported by little or no market activity and that are a
significant component of the fair value of the assets or liabilities. These unobservable inputs would reflect our own estimates of
assumptions that market participants would use in pricing related assets or liabilities. Valuation techniques might include the
use of pricing models, discounted cash flow models or similar techniques.
The following tables present assets and liabilities, included on our Consolidated Balance Sheets, that are recognized at
fair value on a recurring basis and indicate the fair value hierarchy utilized to determine these fair values. Assets and liabilities
are classified in their entirety based on the lowest level of input that is a significant component of the fair value measurement.
The lowest level of input is considered Level 3. Our assessment of the significance of a particular input to the fair value
F-44
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measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value
hierarchy levels.
Recurring fair value measurements at August 31, 2019 and 2018, are as follows:
Assets
Commodity derivatives
Foreign currency derivatives
Interest rate swap derivatives
Deferred compensation assets
Embedded derivative asset
Segregated investments
Other assets
Total
Liabilities
Commodity derivatives
Foreign currency derivatives
Total
Assets
Commodity derivatives
Foreign currency derivatives
Deferred compensation assets
Embedded derivative asset
Other assets
Total
Liabilities
Commodity derivatives
Foreign currency derivatives
Interest rate swap derivatives
Total
2019
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(Dollars in thousands)
$
67,817
$
180,392
$
— $
248,209
—
—
40,368
—
77,777
6,519
192,481
40,305
—
40,305
$
$
$
$
$
$
10,339
9,841
—
21,364
—
—
221,936
188,455
20,701
209,156
$
$
$
2018
—
—
—
—
—
—
10,339
9,841
40,368
21,364
77,777
6,519
— $
414,417
— $
—
— $
228,760
20,701
249,461
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(Dollars in thousands)
$
$
$
$
54,487
$
259,359
$
— $
313,846
—
39,073
—
5,334
98,894
31,778
—
—
$
$
15,401
—
23,595
—
298,355
389,911
24,701
9,452
$
$
31,778
$
424,064
$
—
—
—
—
— $
— $
—
—
— $
15,401
39,073
23,595
5,334
397,249
421,689
24,701
9,452
455,842
Commodity and foreign currency derivatives. Exchange-traded futures and options contracts are valued based on
unadjusted quoted prices in active markets and are classified within Level 1. Our forward commodity purchase and sales
contracts with fixed-price components, select ocean freight contracts and other OTC derivatives are determined using inputs
that are generally based on exchange traded prices and/or recent market bids and offers, adjusted for location specific inputs,
and are classified within Level 2. Location-specific inputs are driven by local market supply and demand and are generally
based on broker or dealer quotations or market transactions in either listed or OTC markets. Changes in the fair values of these
contracts are recognized in our Consolidated Statements of Operations as a component of cost of goods sold.
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Interest rate swap derivatives. Fair values of our interest rate swap derivatives are determined utilizing valuation
models that are widely accepted in the market to value these OTC derivative contracts. The specific terms of the contracts, as
well as market observable inputs, such as interest rates and credit risk assumptions, are factored into the models. As all
significant inputs are market observable, all interest rate swaps are classified within Level 2. Changes in the fair values of
contracts not designated as hedging instruments for accounting purposes are recognized in our Consolidated Statements of
Operations as a component of interest expense. See Note 13, Derivative Financial Instruments and Hedging Activities, for
additional information about interest rates swaps designated as fair value and cash flow hedges.
Deferred compensation and other assets. Our deferred compensation investments consist primarily of rabbi trust assets
that are valued based on unadjusted quoted prices on active exchanges and classified within Level 1. Changes in the fair values
of these other assets are primarily recognized in our Consolidated Statements of Operations as a component of marketing,
general and administrative expenses.
Embedded derivative asset. The embedded derivative asset relates to contingent payments inherent to our investment
in CF Nitrogen. The inputs used in the fair value measurement include the probability of future upgrades and downgrades of
the CF Industries credit rating based on historical credit rating movements of other public companies and the discount rates
applied to potential annual payments based on applicable historical and current yield coupon rates. Based on these observable
inputs, our fair value measurement is classified within Level 2. See Note 13, Derivative Financial Instruments and Hedging
Activities, for additional information.
Segregated investments. Our segregated investments are comprised of U.S. Treasury securities, which are valued using
quoted market prices and classified within Level 1.
Note 15
Commitments and Contingencies
Environmental
We are required to comply with various environmental laws and regulations incidental to our normal business
operations. To meet our compliance requirements, we establish reserves for the probable future costs of remediation of
identified issues, which are included in cost of goods sold and marketing, general and administrative in our Consolidated
Statements of Operations. The resolution of any such matters may affect consolidated net income for any fiscal period;
however, we believe any resulting liabilities, individually or in the aggregate, will not have a material effect on our
consolidated financial position, results of operations or cash flows during any fiscal year.
Other Litigation and Claims
We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our
business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, we believe any
resulting liabilities, individually or in the aggregate, will not have a material effect on our consolidated financial position,
results of operations or cash flows during any fiscal year.
Guarantees
We are a guarantor for lines of credit and performance obligations of related, non-consolidated companies. Our bank
covenants allow maximum guarantees of $1.0 billion, of which $196.0 million were outstanding on August 31, 2019. We have
collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as
we do not expect to pay out any cash related to them, and the fair values are considered immaterial. The underlying loans to the
counterparties for which we provide these guarantees are current as of August 31, 2019.
Credit Commitments
CHS Capital has commitments to extend credit to customers if there is no violation of any condition established in the
contracts. As of August 31, 2019, CHS Capital customers have additional available credit of $650.6 million.
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Lease Commitments
We lease certain property, plant and equipment used in our operations under both capital and operating lease
agreements. Many leases contain renewal options and escalation clauses. Our operating leases, which are primarily for railcars,
equipment, vehicles and office space have remaining terms of one to 18 years. Total rental expense for operating leases was
$113.3 million, $88.5 million and $81.3 million for the years ended August 31, 2019, 2018 and 2017, respectively.
On November 30, 2017, we completed a sale-leaseback transaction for our primary corporate office building located
in Inver Grove Heights, Minnesota. Simultaneous with the closing of the sale of the building, we entered into a 20-year
operating lease arrangement with respect to the building, with base annual rent of approximately $3.4 million during the first
year, followed by annual increases of 2% through the remainder of the lease period.
We lease certain railcars, equipment, vehicles and other assets under capital lease arrangements. These assets are
included in property, plant and equipment on our Consolidated Balance Sheets while the corresponding capital lease obligations
are included in long-term debt. See Note 6, Property, Plant and Equipment, and Note 8, Notes Payable and Long-Term Debt,
for more information about capital leases.
Minimum future lease payments required under noncancelable operating leases as of August 31, 2019, are as follows:
2020
2021
2022
2023
2024
Thereafter
Total minimum future lease payments
Unconditional Purchase Obligations
(Dollars in thousands)
$
$
87,168
57,381
43,665
34,328
26,793
92,653
341,988
Unconditional purchase obligations are commitments to transfer funds in the future for fixed or minimum amounts or
quantities of goods or services at fixed or minimum prices. Our long-term unconditional purchase obligations primarily relate
to pipeline and grain handling take-or-pay and throughput agreements and are not recorded on our Consolidated Balance
Sheets. As of August 31, 2019, minimum future payments required under long-term commitments that are noncancelable, and
that third parties have used to secure financing for facilities that will provide contracted goods, are as follows:
Total
2020
2021
2022
2023
2024
Thereafter
Payments Due by Period
(Dollars in thousands)
Long-term unconditional purchase
obligations
$ 623,193
$ 81,607
$ 63,286
$ 58,965
$ 59,419
$ 58,804
$ 301,112
Total payments under these arrangements were $70.8 million, $61.4 million and $70.5 million for the years ended
August 31, 2019, 2018 and 2017, respectively.
F-47
Table of Contents
Note 16
Supplemental Cash Flow and Other Information
Additional information concerning supplemental disclosures of cash flow activities for the years ended August 31,
2019, 2018 and 2017, is included in the table below.
Net cash paid during the period for:
Interest
Income taxes
Other significant noncash investing and financing transactions:
Notes receivable reacquired under Securitization Facility
Trade receivables reacquired under Securitization Facility
Securitized debt reacquired under Securitization Facility
Deferred purchase price receivable extinguished under Securitization Facility
Notes receivable sold under Securitization Facility
Securitized debt extinguished under Securitization Facility
Deferred purchase price receivable recognized under Securitization Facility
Land and improvements received for notes receivable
Capital expenditures and major maintenance incurred but not yet paid
Capital lease obligations incurred
Capital equity certificates redeemed with preferred stock
Capital equity certificates issued in exchange for Ag acquisitions
Accrual of dividends and equities payable
Assets contributed to joint venture
Note 17
Related Party Transactions
2019
2018
2017
(Dollars in thousands)
$
172,259
$
148,874
$
160,040
19,918
13,410
14,571
—
—
—
—
—
—
—
—
28,478
7,351
—
—
615,089
402,421
634,000
386,900
—
—
—
—
53,453
396
—
—
180,000
153,941
7,353
—
—
—
—
—
747,345
554,000
547,553
138,699
22,490
6,832
19,985
2,928
12,121
—
We purchase and sell grain and other agricultural commodity products from certain equity investees, primarily CF
Nitrogen, Ventura Foods, Ardent Mills and TEMCO, LLC. Sales to and purchases from related parties for the years ended
August 31, 2019, 2018 and 2017, respectively, are as follows:
Sales
Purchases
2019
2018
2017
(Dollars in thousands)
$
2,628,670
$
2,928,984
$
3,183,944
901,812
2,505,185
2,610,887
Receivables due from and payables due to related parties as of August 31, 2019 and 2018, are as follows:
Due from related parties
Due to related parties
2019
2018
(Dollars in thousands)
$
26,785
$
60,156
31,063
52,284
As a cooperative, we are owned by farmers and ranchers and their member cooperatives, which are referred to as
members. We buy commodities from and provide products and services to our members. Individually, our members do not have
a significant ownership in CHS.
F-48
Table of Contents
Note 18
Acquisitions
On March 1, 2019, we completed our acquisition of the remaining 75% ownership interest in WCD, a full-service
wholesale distributor of agronomy products that operates primarily in the United States. The purchase price was equal to
$113.4 million, including $6.7 million that was previously paid and $106.7 million paid on March 1, 2019, of which the net
cash flows were reduced by $8.0 million of cash acquired. Prior to completing this acquisition and through February 28, 2019,
we had a 25% ownership interest in WCD, which was accounted for under the equity method of accounting whereby we shared
in the economics of WCD earnings on a pro-rata basis. Related party transactions through the date of the acquisition have been
included within Note 17, Related Party Transactions. By acquiring the remaining ownership interest in WCD, we were able to
expand our agronomy platform, position ourselves as a leading supply partner to cooperatives and retailers serving growers
throughout the United States and add value for our owners. The WCD enterprise value was determined using a discounted cash
flow model in which the fair value of the business was estimated based on the earning capacity of WCD. We estimated the fair
value of the previously held equity interest to be equal to 25% of the total fair value of WCD, which was implied based on the
purchase price we paid for the remaining 75% interest. The acquisition-date fair value of the previous equity interest was $37.8
million and is included in the measurement of the consideration transferred. We recognized a gain of approximately $19.1
million as a result of remeasuring our prior equity interest in WCD held before the acquisition of the remaining 75% interest.
The gain is included in other (income) loss in our Consolidated Statements of Operations.
Preliminary allocation of the purchase price for this transaction resulted in goodwill of $61.4 million, which is
nondeductible for tax purposes, and definite-lived intangible assets of $47.2 million. As this acquisition is not considered to
have a material impact on our financial statements, pro forma results of operations are not presented. The acquisition resulted in
fair value measurements that are not on a recurring basis and did not have a material impact on our consolidated results of
operations. Purchase accounting has not been finalized and preliminary fair values assigned to the net assets acquired are as
follows:
Cash
Other current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other non-current assets
Liabilities
Total net assets acquired
(Dollars in thousands)
8,033
708,764
44,064
61,358
47,200
55
(718,262)
151,212
$
$
Operating results for WCD are included in our Consolidated Statements of Operations from the day of the acquisition
on March 1, 2019, through August 31, 2019, including revenues and income (loss) before income taxes of $456.2 million and
$12.9 million, respectively.
F-49
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Jay D. Debertin, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended August 31, 2019, of CHS Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 6, 2019
/s/ Jay D. Debertin
Jay D. Debertin
President and Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Timothy Skidmore, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended August 31, 2019 of CHS Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 6, 2019
/s/ Timothy Skidmore
Timothy Skidmore
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.1
In connection with the Annual Report on Form 10-K of CHS Inc. (the “Company”) for the fiscal year ended
August 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay D. Debertin,
President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Jay D. Debertin
Jay D. Debertin
President and Chief Executive Officer
November 6, 2019
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.2
In connection with the Annual Report on Form 10-K of CHS Inc. (the “Company”) for the fiscal year ended
August 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy
Skidmore, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Timothy Skidmore
Timothy Skidmore
Executive Vice President and Chief Financial Officer
November 6, 2019