e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
August 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file
number: 0-50150
CHS Inc.
(Exact name of registrant as specified in its charter)
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Minnesota
(State or other jurisdiction of
incorporation or organization)
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41-0251095
(I.R.S. Employer
Identification Number)
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5500 Cenex Drive
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Inver Grove Heights, Minnesota 55077
(Address of principal executive office,
including zip code)
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(651) 355-6000
(Registrants Telephone number,
including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
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8% Cumulative Redeemable Preferred Stock
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The NASDAQ Global Select Market
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(Title of Class)
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(Name of Each Exchange on Which Registered)
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Indicate by check mark whether the Registrant is a well-known
seasoned issuer (as defined in Rule 405 of the Securities
Act).
YES o NO þ
Indicate by check mark whether the Registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the Exchange Act.
YES o NO þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation T during the
preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files).
YES o NO o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K: o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
YES o NO þ
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 Registrants most recently
completed second fiscal quarter:
The Registrants voting and non-voting common equity has no
market value (the Registrant is a member cooperative).
Indicate the number of shares outstanding of each of the
Registrants classes of common stock, as of the latest
practicable date: The Registrant has no common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I.
THE
COMPANY
CHS Inc. (referred to herein as CHS, we
or us) is one of the nations leading
integrated agricultural companies. 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 stockholders that own shares of
our 8% Cumulative Redeemable Preferred Stock, which is listed on
the NASDAQ Global Select Market under the symbol CHSCP. On
August 31, 2010, we had 12,272,003 shares of preferred
stock outstanding. We buy commodities from and provide products
and services to patrons (including our members and other
non-member customers), both domestic and international. 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. 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. For the fiscal year ended August 31,
2010, our total revenues were $25.3 billion and our net
income was $502.2 million.
We have aligned our segments based on an assessment of how our
businesses operate and the products and services they sell. Our
three segments: Energy, Ag Business and Processing, create
vertical integration to link producers with consumers. Our
Energy segment derives its revenues through refining,
wholesaling and retailing of petroleum products. Our Ag Business
segment derives its revenues through the origination and
marketing of grain, including service activities conducted at
export terminals, through the wholesale sales of crop nutrients,
and through the retail sales of petroleum and agronomy products,
processed sunflowers, feed and farm supplies, and records equity
income from investments in our agronomy joint venture, grain
export joint ventures and other investments. Our Processing
segment derives its revenues from the sales of soybean meal and
soybean refined oil, and records equity income from wheat
milling joint ventures, a vegetable oil-based food manufacturing
and distribution joint venture, and through March 2008, an
ethanol manufacturing company. We include other business
operations in Corporate and Other because of the nature of their
products and services, as well as the relative revenues of those
businesses. These businesses primarily include our financing,
insurance, hedging and other service activities related to crop
production.
Membership in CHS is restricted to certain producers of
agricultural products and to associations of producers of
agricultural products that are organized and operating so as to
adhere to the provisions of the Agricultural Marketing Act and
the Capper-Volstead Act, as amended. Our Board of Directors may
establish other qualifications for membership from time to time
as it may deem advisable.
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) in cash and patrons equities (capital
equity certificates), which may be redeemed over time at the
discretion of our Board of Directors. Earnings derived from
non-members, which are not allocated patronage, are taxed at
federal and state statutory corporate rates and are retained by
us as unallocated capital reserve. 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
the predecessor companies of 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.
1
The following table presents a summary of our primary subsidiary
holdings and equity investments for each of our business
segments at August 31, 2010:
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CHS
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Income
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Business Segment
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Entity Name
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Business Activity
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Ownership%
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Recognition
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Energy
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National Cooperative Refinery Association
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Petroleum refining
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74.5
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%
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Consolidated
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Front Range Pipeline, LLC
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Crude oil transportation
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100
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%
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Consolidated
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Cenex Pipeline, LLC
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Finished product transportation
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100
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%
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Consolidated
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Ag Business
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Agriliance LLC
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Retail distribution of agronomy products
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50
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%
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Equity Method
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CHS do Brasil Ltda.
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Soybean procurement in Brazil
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100
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%
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Consolidated
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United Harvest, LLC
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Grain exporter
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50
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%
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Equity Method
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TEMCO, LLC
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Grain exporter
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50
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%
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Equity Method
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Multigrain A.G.
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Grain procurement and production farmland in Brazil
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45
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%
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Equity Method
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CHS Europe S.A.
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Grain merchandising in Europe
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100
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%
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Consolidated
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CHS Ukraine, LLC
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Grain procurement and merchandising in Ukraine
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100
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%
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Consolidated
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CHS Vostok, LLC
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Grain procurement and merchandising in Russia
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100
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%
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Consolidated
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ACG Trade S.A.
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Grain procurement and merchandising in Russia
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50
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%
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Equity Method
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CHSINC Iberica S.L.
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Grain merchandising in Spain
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100
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%
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Consolidated
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CHS de Argentina
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Grain merchandising in Argentina
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100
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%
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Consolidated
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Processing
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Horizon Milling, LLC
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Wheat milling in U.S.
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24
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%
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Equity Method
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Horizon Milling General Partnership
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Wheat milling in Canada
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24
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%
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Equity Method
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Ventura Foods, LLC
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Food manufacturing and distributing
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50
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%
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Equity Method
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Corporate and Other
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Country Hedging, Inc.
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Risk management products broker
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100
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%
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Consolidated
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Ag States Agency, LLC
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Insurance agency
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100
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%
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Consolidated
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Impact Risk Solutions, LLC
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Insurance brokerage
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100
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%
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Consolidated
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Cofina Financial, LLC
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Finance company
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100
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%
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Consolidated
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Our segment and international sales information in Note 11
of the Notes to Consolidated Financial Statements, as well as
Item 6 of this Annual Report on
Form 10-K,
are incorporated by reference into the following segment
descriptions.
The segment financial information presented below may not
represent the results that would have been obtained had the
relevant segment been operated as an independent business due to
efficiencies in scale, corporate cost allocations and
intersegment activity.
ENERGY
Overview
We are the nations largest cooperative energy company
based on revenues and identifiable assets, with operations that
include petroleum refining and pipelines; the supply, marketing
(including ethanol and biodiesel) and distribution of refined
fuels (gasoline, diesel fuel and other energy products); the
blending, sale and distribution of lubricants; and the wholesale
supply of propane. Our Energy segment processes crude oil into
refined petroleum products at refineries in Laurel, Montana
(wholly-owned) and McPherson, Kansas (an entity in which we have
an approximate 74.5% ownership interest) and sells those
products under the
Cenex®
brand to member cooperatives and others through a network of
approximately 1,450 independent retail sites, of which 55% are
convenience stores marketing
Cenex®
branded fuels. For fiscal 2010, our Energy revenues, after
elimination of inter-segment revenues, were $8.5 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
and asphalt. Our Laurel refinery sources approximately 85% of
its crude oil supply from Canada, with the balance obtained from
domestic sources, and we have access to Canadian and northwest
Montana crude through our wholly-owned Front Range Pipeline, LLC
and other common carrier pipelines. Our Laurel refinery also has
access to Wyoming crude via common carrier pipelines from the
south.
2
Our Laurel facility processes approximately 55,000 barrels
of crude oil per day to produce refined products that consist of
approximately 45% gasoline, 34% diesel fuel and other
distillates, and 21% asphalt and other products. During fiscal
2005, our Board of Directors approved the installation of a
coker unit at Laurel, along with other refinery improvements,
which allows us to extract a greater volume of high value
gasoline and diesel fuel from a barrel of crude oil and less
relatively low value asphalt. The project became operational in
April 2008, and had a total cost of $418.0 million. Refined
fuels produced at Laurel are available via the Yellowstone
Pipeline to western Montana terminals and to Spokane and Moses
Lake, 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 and Fargo,
North Dakota. Primarily during fiscal 2008, we incurred
approximately $28 million in capital expenditures to
construct two product terminals. Both terminals include rail
capabilities and one is tied into the Yellowstone Pipeline.
These investments were undertaken to preserve our long-term
ability to participate in western U.S. markets.
McPherson Refinery. The McPherson, Kansas
refinery is owned and operated by National Cooperative Refinery
Association (NCRA), of which we own approximately 74.5%. The
McPherson refinery processes approximately 85% low and medium
sulfur crude oil and 15% heavy sulfur crude oil into gasoline,
diesel fuel and other distillates, propane and other products.
NCRA sources its crude oil through its own pipelines as well as
common carrier pipelines. The low and medium sulfur crude oil is
sourced from Kansas, Oklahoma and Texas, and the heavy sulfur
crude oil is sourced from Canada.
The McPherson refinery processes approximately
83,000 barrels of crude oil per day to produce refined
products that consist of approximately 49% gasoline, 45% diesel
fuel and other distillates, and 6% propane and other products.
Approximately 32% of the refined fuels are loaded into trucks at
the McPherson refinery or shipped via NCRAs proprietary
products pipeline to its terminal in Council Bluffs, Iowa. The
remaining refined fuel products are shipped to other markets via
common carrier pipelines.
Renewable Fuels Marketing. In fiscal 2006, we
acquired a 50% ownership interest in an ethanol and biodiesel
marketing and distribution company, Provista Renewable Fuels
Marketing, LLC (Provista), formerly known as United BioEnergy
Fuels, LLC. In fiscal 2008, we acquired the remaining 50%
ownership interest of Provista, and in fiscal 2009, Provista was
merged into CHS. This business has been consolidated within our
financial statements since 2006, and contracts with ethanol and
biodiesel production plants to market and distribute their
finished products. During fiscal 2010, total sales volumes were
615 million gallons.
Other Energy Operations. We own and operate a
propane terminal, 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 are used to 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 provides transportation services. We obtain
the petroleum products that we sell from our Laurel and
McPherson refineries, and from third parties. For fiscal 2010,
we obtained approximately 61% of the refined products we sold
from our Laurel and McPherson refineries, and approximately 39%
from third parties.
Sales
and Marketing; Customers
We make approximately 75% of our refined fuel sales 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/Ampride tradename. We sold approximately 1.2 billion
gallons of gasoline and approximately 1.5 billion gallons
of diesel fuel in fiscal 2010, excluding NCRAs sales to
minority owners and others totaling approximately
345 million gallons. We also blend, package and wholesale
auto and farm machinery lubricants to both members and
non-members. In fiscal 2010, our lubricants operations sold
approximately 24 million gallons of lube oil. We are one of
the nations largest propane wholesalers based on revenues.
In fiscal 2010, our propane operations sold approximately
699 million
3
gallons of propane. 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.
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. Most of
our energy product market is located in rural areas, so sales
activity tends to follow the planting and harvesting cycles.
More fuel-efficient equipment, reduced crop tillage, depressed
prices for crops, weather conditions and government programs
which 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 segments operations are subject to laws and
related regulations and rules designed to protect the
environment that are administered by the Environmental
Protection Agency (EPA), the Department of Transportation and
similar government agencies. These laws, regulations and rules
govern the discharge of materials to the environment, air and
water; reporting storage of hazardous wastes; the
transportation, handling and disposition of wastes; and the
labeling of pesticides and similar substances. Failure to comply
with these laws, regulations and rules could subject us (and, in
the case of the McPherson refinery, NCRA) to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. We believe that we and NCRA are in
compliance with these laws, regulations and rules in all
material respects and do not expect continued compliance to have
a material effect on capital expenditures, earnings or
competitive position, of either us or NCRA.
Like many other refineries, our Energy segments refineries
recently focused their capital spending on reducing pollution
emissions and, at the same time, increasing production to help
pay for those expenditures. In particular, our refineries have
completed work to comply with the EPA low sulfur fuel
regulations that were required by 2006, which lowered the sulfur
content of gasoline and diesel fuel. We incurred capital
expenditures from fiscal 2003 through 2006 related to this
compliance of $88.1 million for our Laurel, Montana
refinery and $328.7 million for NCRAs McPherson,
Kansas refinery. The EPA has passed a regulation that requires
the reduction of the benzene level in gasoline to be less than
0.62% volume by January 1, 2011. As a result of this
regulation, our refineries have and will incur capital
expenditures to reduce the current gasoline benzene levels to
the regulated levels. We anticipate the combined capital
expenditures related to this project for our Laurel, Montana and
NCRAs McPherson, Kansas refineries to be approximately
$114 million, of which $76 million has been spent
through August 31, 2010. Our Laurel refinerys unit
was operational and producing gasoline at 2011 benzene levels by
August 31, 2010, and NCRAs unit is on target to meet
requirements.
Competition. The petroleum refining and
wholesale fuels business is very competitive. Among our
competitors are some of the worlds 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 refining and marketing 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 much larger
competitors that have greater brand recognition and distribution
outlets throughout the country and the world. Our owned and
non-owned retail outlets are located primarily in the
northwestern, midwestern and southern United States.
We market refined fuels, motor gasoline and distillate products
in five principal geographic areas. The first area includes the
midwest and northern plains. Competition at the wholesale level
in this area includes the major oil companies ConocoPhillips,
Valero and Citgo, independent refiners including Flint Hills
Resources and Growmark, Inc., and wholesale brokers/suppliers
including Western Petroleum Company. This area has a robust spot
market and is influenced by the large refinery center along the
gulf coast.
4
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. CHS
principally competes with the major oil companies Marathon, BP
Amoco and ExxonMobil, independent refineries including Flint
Hills Resources and Growmark, Inc., and wholesale
brokers/suppliers including U.S. Oil.
Another market area is located south of Chicago, Illinois. Most
of this area includes Arkansas, Missouri and the northern part
of Texas. Competition in this area includes the major oil
companies Valero and ExxonMobil, and independent refiners
including Lion. 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 ExxonMobil and ConocoPhillips, and
independent refiners including Frontier Refining and Sinclair.
This area is also noted for being fairly well balanced in demand
and supply, but is typically influenced by Canadian refined
fuels moving into the U.S. through terminals in Canada and
by rail from independent Canadian refiners.
The last area includes much of Washington and Oregon. We compete
with the major oil companies Tesoro, BP Amoco and Chevron in
this area. This area is also known for volatile prices and an
active spot market.
Summary
Operating Results
Summary operating results and identifiable assets for our Energy
segment for the fiscal years ended August 31, 2010, 2009
and 2008 are shown below:
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2010
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2009
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2008
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(Dollars in thousands)
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Revenues
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$
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8,799,890
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$
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7,639,838
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$
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11,499,814
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Cost of goods sold
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8,437,504
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7,110,324
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11,027,459
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Gross profit
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362,386
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529,514
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472,355
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Marketing, general and administrative
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123,834
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125,104
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111,121
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Operating earnings
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238,552
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404,410
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361,234
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Gain on investments
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(269
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)
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(15,748
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)
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(35
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)
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Interest, net
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9,939
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5,483
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(5,227
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)
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Equity income from investments
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(5,554
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(4,044
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(5,054
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Income before income taxes
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$
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234,436
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$
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418,719
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$
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371,550
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Intersegment revenues
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$
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(295,536
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$
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(251,626
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$
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(322,522
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Total identifiable assets August 31
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$
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3,004,471
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$
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3,025,522
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$
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3,216,852
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AG
BUSINESS
Our Ag Business segment includes agronomy, country operations
and grain marketing. Our revenues in our Ag Business segment
primarily include grain sales, which were $12.1 billion for
fiscal 2010 after elimination of inter-segment revenues.
Agronomy
Overview
Through our fiscal year ended August 31, 2007, we conducted
our wholesale, and some of our retail, agronomy operations
through our 50% ownership interest in Agriliance LLC
(Agriliance), in which Land
5
OLakes, Inc. (Land OLakes) holds the other 50%
ownership interest. Prior to September 2007, Agriliance was one
of North Americas largest wholesale distributors of crop
nutrients, crop protection products and other agronomy products
based upon annual sales. Our 50% ownership interest in
Agriliance is treated as an equity method investment, and
therefore, Agriliances revenues and expenses are not
reflected in our operating results. At August 31, 2010, our
equity investment in Agriliance was $18.4 million.
In September 2007, Agriliance distributed the assets of the crop
nutrients business to us, and the assets of the crop protection
business to Land OLakes. Due to our 50% ownership interest
in Agriliance and the 50% ownership interest of Land
OLakes, each company was entitled to receive 50% of the
distributions from Agriliance. Given the different preliminary
values assigned to the assets of the crop nutrients and the crop
protection businesses of Agriliance, at the closing of the
distribution transactions Land OLakes owed us
$133.5 million. Land OLakes paid us
$32.6 million in cash, and in order to maintain equal
capital accounts in Agriliance, they also paid down certain
portions of Agriliances debt on our behalf in the amount
of $100.9 million. Values of the distributed assets were
finalized after the closing, and in October 2007, we made a
true-up
payment to Land OLakes in the amount of
$45.7 million, plus interest. During fiscal 2009, the final
true-up
amount was determined, and we received $0.9 million from
Land OLakes.
The distribution of assets we received from Agriliance for the
crop nutrients business had a book value of $248.2 million.
We recorded 50% of the value of the net assets received at book
value due to our ownership interest in those assets when they
were held by Agriliance, and 50% of the value of the net assets
at fair value using the purchase method of accounting. Values
assigned to the net assets distributed to us totaled
$268.7 million.
During the year ended August 31, 2008, our net contribution
to Agriliance was $235.0 million which supported its
working capital requirements for ongoing operations, with Land
OLakes making equal contributions to Agriliance. During
the years ended August 31, 2010 and 2009, we received
$105.0 million and $25.0 million of distributions from
Agriliance as a return of capital, respectively. The
distributions received during the year ended August 31,
2010, were primarily for proceeds Agriliance received from the
sale of many of its retail facilities. Agriliance continues to
exist as a
50-50 joint
venture as the company winds down its business activity, and
primarily holds long-term liabilities.
After a fiscal 2005 initial public offering (IPO) transaction
for CF Industries, Inc., a crop nutrients manufacturer and
distributor, we held an ownership interest in the post-IPO
company named CF Industries Holdings, Inc. (CF) of approximately
3.9% or 2,150,396 shares. During our year ended
August 31, 2007, we sold 540,000 shares of our CF
stock for proceeds of $10.9 million, and recorded a pretax
gain of $5.3 million, reducing our ownership in CF to
approximately 2.9%. During the year ended August 31, 2008,
we sold our remaining 1,610,396 shares of CF stock for
proceeds of $108.3 million and recorded a pretax gain of
$91.7 million.
There is significant seasonality in the sale of agronomy
products and services, with peak activity coinciding with the
planting and input seasons. There is also significant volatility
in the prices for the crop nutrient products we purchase and
sell.
Operations
Our wholesale crop nutrients business sells approximately
5.1 million tons of fertilizer annually, based on an
average of fiscal years 2010 and 2009, making it one of the
largest wholesale fertilizer operations in the United States
based on tons sold. Tons sold include sales to our country
operations business. Product is either delivered directly to the
customer from the manufacturer, or through our 15 inland or
river warehouse terminals and other non-owned storage facilities
located throughout the country. In addition, our Galveston,
Texas deep water port and terminal receives fertilizer by vessel
from originations such as the Middle East and Caribbean basin
where less expensive natural gas tends to give a price advantage
over domestically produced fertilizer. The fertilizer is then
shipped by rail to destinations within crop producing regions of
the country. Based on fertilizer market data, our wholesale crop
nutrients sales account for approximately 11% of the
U.S. market.
6
Primary suppliers for our wholesale crop nutrients business
include CF, Potash Corporation of Saskatchewan, Mosaic Company,
Koch Industries, Yara International, Petrochemical Industries
Company (PIC) in Kuwait and Sabic America.
Products
and Services
Our wholesale crop nutrients business sells nitrogen,
phosphorus, potassium and sulfate based products. During the
year ended August 31, 2010, the primary crop nutrients
products purchased by us were urea, potash, UAN, phosphates and
ammonia.
Sales
and Marketing; Customers
Our wholesale crop nutrients business sells product to
approximately 2,100 local retailers from New York to the west
coast and from the Canadian border to Texas. Our largest
customer is our own country operations business, which is also
included in our Ag Business segment. Many of the customers of
our crop nutrients business are also customers of our Energy
segment or suppliers to our grain marketing business.
Industry;
Competition
Regulation. Our wholesale crop nutrients
operations are subject to laws and related regulations and rules
designed to protect the environment that are administered by the
EPA, the Department of Transportation and similar government
agencies. These laws, regulations and rules govern the discharge
of materials to the environment, air and water; reporting
storage of hazardous wastes; the transportation, handling and
disposition of wastes; and the labeling of pesticides and
similar substances. Failure to comply with these laws,
regulations and rules could subject us to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. We believe that we are in compliance with
these laws, regulations and rules in all material respects and
do not expect continued compliance to have a material effect on
our capital expenditures, earnings or competitive position.
Competition. The wholesale distribution of
crop nutrients products is highly competitive and dependent upon
relationships with local cooperatives and private retailers,
proximity to the customer and competitive pricing. We compete
with other large agronomy distributors, as well as other
regional or local distributors, retailers and manufacturers.
Major competitors in crop nutrients distribution include Koch
Industries, Agrium and a variety of traders and brokers.
Country
Operations
Overview
Our country operations business purchases a variety of grains
from our producer members and other third parties, and provides
cooperative members and customers with access to a full range of
products, programs and services for production agriculture.
Country operations operates 386 locations dispersed throughout
Colorado, Idaho, Illinois, Iowa, Kansas, Minnesota, Montana,
Nebraska, North Dakota, Oklahoma, Oregon, South Dakota, Texas
and Washington. 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.
Products
and Services
Grain Purchasing. We are one of the largest
country elevator operators in North America based on revenues.
Through a majority of our locations, our country operations
business purchases grain from member and non-member producers
and other elevators and grain dealers. Most of the grain
purchased is sold through our grain marketing operations, used
for livestock feed production or sold to other processing
companies. For the year ended August 31, 2010, country
operations purchased approximately 582 million bushels of
grain, primarily wheat, corn and soybeans. Of these bushels,
541 million were purchased from members and
346 million were sold through our grain marketing
operations.
7
Other Products. Our country operations
business manufactures and sells other products, both directly
and through ownership interests in other entities. These include
seed, crop nutrients, crop protection products, energy products,
animal feed, animal health products and processed sunflower
products. We sell agronomy products at 263 locations, feed
products at 157 locations and energy products at 180 locations.
Industry;
Competition
Regulation. Our country operations business is
subject to laws and related regulations and rules designed to
protect the environment that are administered by the EPA, the
Department of Transportation and similar government agencies.
These laws, regulations and rules govern the discharge of
materials to the environment, air and water; reporting storage
of hazardous wastes; the transportation, handling and
disposition of wastes; and the labeling of pesticides and
similar substances. Our country operations business is also
subject to laws and related regulations and rules administered
by the United States Department of Agriculture, the United
States Food and Drug Administration, and other federal, state,
local and foreign governmental agencies that govern the
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. We believe that we
are in compliance with these laws, regulations and rules in all
material respects and do not expect continued compliance to have
a material effect on our capital expenditures, earnings or
competitive position.
Competition. We compete primarily on the basis
of price, services and patronage. Competitors for the purchase
of grain include Archer Daniels Midland (ADM), Cargill,
Incorporated (Cargill), local cooperatives, private grain
companies and processors at the majority of our locations in our
trade territory, as previously defined in the
Overview. In addition, Columbia Grain and Gavilon
are also our competitors in Montana and North Dakota.
Competitors for our farm supply businesses include Cargill,
Agrium, Simplot, Helena, Wilbur Ellis, local cooperatives and
smaller private companies at the majority of locations
throughout our trade territory. In addition, Land OLakes
Purina Feed, Hubbard Milling, ADM and Cargill are our major
competitors for the sale of feed products.
Grain
Marketing
Overview
We are the nations largest cooperative marketer of grain
and oilseed based on grain storage capacity and grain sales,
handling almost 1.9 billion bushels annually. During fiscal
2010, we purchased approximately 62% of our total grain volumes
from individual and cooperative association members and our
country operations business, with the balance purchased from
third parties. We arrange for the transportation of the grains
either directly to customers or to our owned or leased grain
terminals and elevators awaiting delivery to domestic and
foreign purchasers. We primarily conduct our grain marketing
operations directly, but do conduct some of our business through
joint ventures.
Operations
Our grain marketing operations purchases grain directly and
indirectly from agricultural producers primarily in the
midwestern and western United States. The purchased grain is
typically contracted for sale for future delivery at a specified
location, and we are responsible for handling the grain and
arranging for its transportation to that location. The sale of
grain is recorded after title to the commodity has transferred
and final weights, grades and settlement price have been agreed
upon. Amounts billed to the customer as part of a sales
transaction include the costs for shipping and handling. Our
ability to arrange efficient transportation, including loading
capabilities onto unit trains, ocean-going vessels and barges,
is a significant part of the services we offer to our customers.
Rail, vessel, barge and truck transportation is carried out by
third parties, often under long-term freight agreements with us.
Grain intended for export is usually shipped by rail or barge to
an export terminal, where it is loaded onto ocean-going vessels.
Grain intended for domestic use is usually shipped by rail or
truck to various locations throughout the country.
8
We own and operate export terminals, river terminals and
elevators involved in the handling and transport of grain. Our
river terminals are used to load grain onto barges for shipment
to both domestic and export customers via the Mississippi River
system. These river terminals are located at Savage and Winona,
Minnesota and Davenport, Iowa, as well as terminals in which we
have put-through agreements located at St. Louis, Missouri
and Beardstown and Havana, Illinois. Our export terminal at
Superior, Wisconsin provides access to the Great Lakes and St.
Lawrence Seaway, and our export terminal at Myrtle Grove,
Louisiana serves the gulf market. In the Pacific Northwest, we
conduct our grain marketing operations through United Harvest,
LLC (a 50% joint venture with United Grain Corporation, a
subsidiary of Mitsui & Co., Ltd. (Mitsui)), and TEMCO,
LLC (a 50% joint venture with Cargill). United Harvest, LLC,
operates grain terminals in Vancouver and Kalama, Washington,
and primarily exports wheat. TEMCO, LLC operates an export
terminal in Tacoma, Washington, and primarily exports corn and
soybeans. These facilities serve the Pacific market, as well as
domestic grain customers in the western United States. We also
own two 110-car shuttle-receiving elevator facilities in Friona,
Texas and Collins, Mississippi that serve large-scale feeder
cattle, dairy and poultry producers in those regions.
In 2003, we opened an office in Sao Paulo, Brazil for the
procurement of soybeans for our grain marketing operations
international customers. This business has expanded its
operations into the procurement and marketing of multiple
commodities, including fertilizers. During the year ended
August 31, 2007, we invested $22.2 million in
Multigrain AG (Multigrain) for a 37.5% equity position in a
Brazil-based grain handling and merchandising company,
Multigrain S.A., an agricultural commodities business
headquartered in Sao Paulo, Brazil. The venture, which includes
grain storage and export facilities, builds on our South
American soybean origination and helps meet customer needs
year-round. During the year ended August 31, 2008, we
increased our equity position through a purchase from an
existing equity holder for $10.0 million, and also invested
an additional $30.3 million which was used by Multigrain to
invest in a joint venture that acquired production farmland and
related operations, which include production of soybeans, corn,
cotton and sugarcane, as well as cotton processing, at four
locations. During fiscal 2009, we invested $76.3 million
for Multigrains increased capital needs resulting from
expansion of their operations, and during fiscal 2010, we
invested an additional $24.0 million. On August 31,
2010, our investment in Multigrain was $148.5 million, with
an ownership interest of approximately 45%.
We have opened additional international offices between July
2007 and fiscal 2010. These include Geneva, Switzerland; Kiev,
Ukraine; and Vostok, Russia for sourcing and marketing grains
and oilseeds through the Black Sea and Mediterranean Basin
regions to customers worldwide. We have invested approximately
$30.7 million in a construction project in the port of
Odessa, Ukraine during the year ended August 31, 2010. The
resulting port facility is now complete and has a grain storage
capacity of 120,000 metric tons, and the ability to load Panamax
vessels at a pace of 20,000 metric tons per day. Offices in Hong
Kong and Shanghai, China serve Pacific Rim customers receiving
grains and oilseeds from our origination points in North and
South America. The most recent grain merchandising offices were
opened in fiscal 2009 and 2010, and are located in Barcelona,
Spain, and Buenos Aires, Argentina, respectively.
Our grain marketing operations may have significant working
capital needs, at any time, depending on commodity prices and
other factors. The amount of borrowings for this purpose, and
the interest rate charged on those borrowings, directly affects
the profitability of our grain marketing operations.
Products
and Services
Our grain marketing operations purchased approximately
1.9 billion bushels of grain during the year ended
August 31, 2010, which primarily included corn, soybeans,
wheat and distillers dried grains with solubles (DDGS). Of the
total grains purchased by our grain marketing operations,
825 million bushels were from our individual and
cooperative association members, 346 million bushels were
from our country operations business and the remainder was from
third parties.
Sales
and Marketing; Customers
Purchasers of our grain and oilseed include domestic and foreign
millers, maltsters, feeders, crushers and other processors. To a
much lesser extent purchasers include intermediaries and
distributors. Our grain
9
marketing operations are not dependent on any one customer, and
its supply relationships call for delivery of grain at
prevailing market prices.
Industry;
Competition
Regulation. Our grain marketing operations are
subject to laws and related regulations and rules designed to
protect the environment that are administered by the EPA, the
Department of Transportation and similar government agencies.
These laws, regulations and rules govern the discharge of
materials to environment, air and water; reporting storage of
hazardous wastes; and the transportation, handling and
disposition of wastes. Our grain marketing operations are also
subject to laws and related regulations and rules administered
by the United States Department of Agriculture, the United
States Food and Drug Administration, and other federal, state,
local and foreign governmental agencies that govern the
processing, packaging, storage, distribution, advertising,
labeling, quality and safety of food 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. We believe that we
are in compliance with these laws, regulations and rules in all
material respects and do not expect continued compliance to have
a material effect on our capital expenditures, earnings or
competitive position.
Competition. Our grain marketing operations
compete for both the purchase and the sale of grain. Competition
is intense and margins are low. Some competitors are integrated
food producers, which may also be customers. A few major
competitors have substantially greater financial resources than
we have.
In the purchase of grain from producers, location of a delivery
facility is a prime consideration, but producers are
increasingly willing to transport grain longer distances for
sale. Price is affected by the capabilities of the facility; for
example, if it is cheaper to deliver to a customer by unit train
than by truck, a facility with unit train capabilities provides
a price advantage. We believe that our relationships with
individual members serviced by our local country operations
locations and with our cooperative members give us a broad
origination capability.
Our grain marketing operations compete for grain sales based on
price, services and ability to provide the desired quantity and
quality of grains. Location of facilities is a major factor in
the ability to compete. Our grain marketing operations compete
with numerous grain merchandisers, including major grain
merchandising companies such as ADM, Cargill, Bunge and Louis
Dreyfus, each of which handles significant grain volumes.
The results of our grain marketing operations may be adversely
affected by relative levels of supply and demand, both domestic
and international, commodity price levels (including grain
prices reported on national markets) and transportation costs
and conditions. Supply is affected by weather conditions,
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, the 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, the level of per
capita consumption of some products and the level of renewable
fuels production.
10
Summary
Operating Results
Summary operating results and identifiable assets for our Ag
Business segment for the fiscal years ended August 31,
2010, 2009 and 2008 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
15,678,160
|
|
|
$
|
17,196,448
|
|
|
$
|
19,696,907
|
|
Cost of goods sold
|
|
|
15,261,056
|
|
|
|
16,937,877
|
|
|
|
19,088,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
417,104
|
|
|
|
258,571
|
|
|
|
608,828
|
|
Marketing, general and administrative
|
|
|
173,766
|
|
|
|
158,395
|
|
|
|
160,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
243,338
|
|
|
|
100,176
|
|
|
|
448,464
|
|
Gain on investments
|
|
|
(28,807
|
)
|
|
|
(2,285
|
)
|
|
|
(100,830
|
)
|
Interest, net
|
|
|
28,033
|
|
|
|
46,995
|
|
|
|
63,665
|
|
Equity income from investments
|
|
|
(25,173
|
)
|
|
|
(18,222
|
)
|
|
|
(83,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
269,285
|
|
|
$
|
73,688
|
|
|
$
|
568,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(19,259
|
)
|
|
$
|
(39,919
|
)
|
|
$
|
(36,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
3,583,341
|
|
|
$
|
2,987,394
|
|
|
$
|
4,172,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCESSING
Overview
Our Processing segment converts raw agricultural commodities
into ingredients for finished food products or into finished
consumer food products. We have focused on areas that allow us
to utilize the products supplied by our member producers. These
areas currently include oilseed processing and our joint
ventures in wheat milling and foods.
Regulation. Our Processing segments
operations are subject to laws and related regulations and rules
designed to protect the environment that are administered by the
EPA, the Department of Transportation and similar government
agencies. These laws, regulations and rules govern the discharge
of materials to environment, air and water; reporting storage of
hazardous wastes; and the transportation, handling and
disposition of wastes. Our Processing segments operations
are also subject to laws and related regulations and rules
administered by the United States Department of Agriculture, the
United States Food and Drug Administration, and other federal,
state, local and foreign governmental agencies that govern the
processing, packaging, storage, distribution, advertising,
labeling, quality and safety of food and grain products. Failure
to comply with these laws, regulations and rules could subject
us, or our foods partners to administrative penalties,
injunctive relief, civil remedies and possible recalls of
products. We believe that we are in compliance with these laws,
regulations and rules in all material respects and do not expect
continued compliance to have a material effect on our capital
expenditures, earnings or competitive position.
Oilseed
Processing
Our oilseed processing operations convert soybeans into soybean
meal, soyflour, crude soybean oil, refined soybean oil and
associated by-products. These operations are conducted at a
facility in Mankato, Minnesota that can crush approximately
40 million bushels of soybeans on an annual basis,
producing approximately 960,000 short tons of soybean meal and
460 million pounds of crude soybean oil. The same facility
is able to process approximately 1 billion pounds of
refined soybean oil annually. Another crushing facility in
Fairmont, Minnesota has a crushing capacity of over
45 million bushels of soybeans on an annual basis.
11
Our oilseed processing operations produce three primary
products: refined oils, soybean meal and soyflour. Refined oils
are used in processed foods, such as margarine, shortening,
salad dressings and baked goods, as well as methyl
ester/biodiesel production, and to a lesser extent, for certain
industrial uses such as plastics, inks and paints. Soybean meal
has high protein content and is used for feeding livestock.
Soyflour is used in the baking industry, as a milk replacement
in animal feed and in industrial applications. We produce
approximately 60,000 tons of soyflour annually, and
approximately 20% is further processed at our manufacturing
facility in Hutchinson, Kansas, which was a business acquisition
in April 2008. This facility manufactures unflavored and
flavored textured soy proteins used in human and pet food
products, and accounted for approximately 2% of our oilseed
processing annual sales in fiscal 2010.
Our soy processing facilities are located in areas with a strong
production base of soybeans and end-user market for the meal and
soyflour. We purchase virtually all of our soybeans from
members. Our oilseed crushing operations currently produce
approximately 95% of the crude soybean oil that we refine, and
purchase the balance from outside suppliers.
Our customers for refined oil are principally large food product
companies located throughout the United States. However, over
50% of our customers are located in the midwest due to
relatively lower freight costs and slightly higher profitability
potential. Our largest customer for refined oil products is
Ventura Foods, LLC (Ventura Foods), in which we hold a 50%
ownership interest and with which we have a long-term supply
agreement to supply minimum quantities of edible soybean oils as
long as we maintain a minimum 25.5% ownership interest and our
price is competitive with other suppliers of the product. Our
sales to Ventura Foods accounted for 26% of our soybean oil sold
during fiscal 2010. We also sell soymeal to about 350 customers,
primarily feed lots and feed mills in southern Minnesota. In
fiscal 2010, Commodity Specialists Company accounted for 14% of
our soymeal sold and Interstate Commodities accounted for 12%.
We sell soyflour to customers in the baking industry both
domestically and for export.
The refined soybean products industry is highly competitive.
Major industry competitors include ADM, Cargill, Ag Processing
Inc. and Bunge. These and other competitors have acquired other
processors, expanded existing plants or constructed new plants,
both domestically and internationally. Price, transportation
costs, services and product quality drive competition. We
estimate that we have a market share of approximately 4% to 5%
of the domestic refined soybean oil and also the domestic
soybean crushing capacity.
Soybeans are a commodity and their price can fluctuate
significantly depending on production levels, demand for the
products and other supply factors.
Wheat
Milling
In January 2002, we formed a joint venture with Cargill named
Horizon Milling, LLC (Horizon Milling), in which we hold an
ownership interest of 24%, with Cargill owning the remaining
76%. Horizon Milling is the largest U.S. wheat miller based
on output volume. We own five mills that we lease to Horizon
Milling. During fiscal 2008, we invested $1.6 million in
Horizon Milling, and during fiscal 2010 we invested
$2.1 million. Sales and purchases of wheat and durum by us
to Horizon Milling during fiscal 2010 were $339.2 million
and $4.7 million, respectively. Horizon Millings
advance payments on grain to us were $12.7 million on
August 31, 2010, and are included in customer advance
payments on our Consolidated Balance Sheet. We account for
Horizon Milling using the equity method of accounting and on
August 31, 2010, our investment was $69.9 million. On
August 31, 2010, our net book value of assets leased to
Horizon Milling was $59.3 million.
During fiscal 2007, we formed Horizon Milling G.P. (24% CHS
ownership with Cargill owning the remaining 76%), a joint
venture that acquired the Canadian grain-based foodservice and
industrial businesses of Smucker Foods of Canada, which includes
two flour milling operations and two dry baking mixing
facilities in Canada. During fiscal 2008, we invested
$1.9 million in Horizon Milling G.P, and during fiscal 2010
we invested $0.4 million. We account for the investment
using the equity method of accounting and on August 31,
2010, our investment was $20.2 million.
12
Foods
Our primary focus in the foods area is Ventura Foods, LLC
(Ventura Foods) which produces and distributes vegetable
oil-based products such as margarine, salad dressing and other
food products. Ventura Foods was created in 1996, and is owned
50% by us and 50% by Wilsey Foods, Inc., a majority owned
subsidiary of Mitsui. We account for our Ventura Foods
investment under the equity method of accounting and on
August 31, 2010, our investment was $262.6 million.
Ventura Foods manufactures, packages, distributes and markets
bulk margarine, salad dressings, mayonnaise, salad oils, syrups,
soup bases and sauces, many of which utilize soybean oil as a
primary ingredient. Approximately 40% of Ventura Foods
volume, based on sales, comes from products for which Ventura
Foods owns the brand, and the remainder comes from products that
it produces for third parties. A variety of Ventura Foods
product formulations and processes are proprietary to it or its
customers. Ventura Foods is the largest manufacturer of
margarine for the foodservice sector in the U.S. and is a
major producer of many other products.
Ventura Foods currently has 11 manufacturing and distribution
locations across the United States. Ventura Foods sources its
raw materials, which consist primarily of soybean oil, canola
oil, cottonseed oil, peanut oil and other ingredients and
supplies, from various national suppliers, including our oilseed
processing operations. It sells the products it manufactures to
third parties as a contract manufacturer, as well as directly to
retailers, food distribution companies and large institutional
food service companies. Ventura Foods sales are approximately
60% in foodservice and the remainder is split between retail and
industrial customers who use edible oil products as ingredients
in foods they manufacture for resale. During Ventura Foods
2010 fiscal year, Sysco accounted for 23% of its net sales.
Ventura Foods competes with a variety of large companies in the
food manufacturing industry. Major competitors include ADM,
Cargill, Bunge, Unilever, ConAgra, ACH Food Companies, Smuckers,
Kraft and CF Sauer, Kens, Marzetti and Nestle.
Renewable
Fuels
In fiscal 2006, we purchased common stock in US BioEnergy, an
ethanol production company, representing an approximate 24%
ownership interest on August 31, 2006. Through
March 31, 2008, we were recognizing our share of the
earnings of US BioEnergy, using the equity method of accounting.
Effective April 1, 2008, US BioEnergy and VeraSun Energy
Corporation (VeraSun) completed a merger, and our ownership
interest in the combined entity was reduced to approximately 8%,
compared to an approximate 20% interest in US BioEnergy prior to
the merger. As part of the merger transaction, our shares held
in US BioEnergy were converted to shares held in the surviving
company, VeraSun, at 0.810 per share. As a result of our change
in ownership interest, we no longer had significant influence,
and therefore, no longer accounted for VeraSun using the equity
method. Due to the continued decline of the ethanol industry and
other considerations, we determined that an impairment of our
VeraSun investment was necessary during fiscal 2008, and as a
result, based on VeraSuns market value of $5.76 per share
on August 29, 2008, an impairment charge of
$71.7 million was recorded in (gain) loss on investments.
Subsequent to August 31, 2008, the market value of
VeraSuns stock price continued to decline, and on
October 31, 2008, VeraSun filed for relief under
Chapter 11 of the U.S. Bankruptcy Code. Consequently,
we determined an additional impairment was necessary based on
VeraSuns market value of $0.28 per share on
November 3, 2008, and recorded an impairment charge of
$70.7 million during our first quarter of fiscal 2009. Due
to the outcome of the VeraSun bankruptcy, during the third
quarter of fiscal 2009, we wrote off the remaining investment of
$3.6 million. The impairments did not affect our cash flows
and did not have a bearing upon our compliance with any
covenants under our credit facilities.
13
Summary
Operating Results
Summary operating results and identifiable assets for our
Processing segment for the fiscal years ended August 31,
2010, 2009 and 2008 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
1,061,654
|
|
|
$
|
1,142,636
|
|
|
$
|
1,299,209
|
|
Cost of goods sold
|
|
|
1,018,731
|
|
|
|
1,099,177
|
|
|
|
1,240,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
42,923
|
|
|
|
43,459
|
|
|
|
58,265
|
|
Marketing, general and administrative
|
|
|
25,764
|
|
|
|
25,724
|
|
|
|
26,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
17,159
|
|
|
|
17,735
|
|
|
|
32,176
|
|
Loss on investments
|
|
|
|
|
|
|
74,338
|
|
|
|
72,602
|
|
Interest, net
|
|
|
19,605
|
|
|
|
21,841
|
|
|
|
21,995
|
|
Equity income from investments
|
|
|
(77,159
|
)
|
|
|
(82,525
|
)
|
|
|
(56,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
74,713
|
|
|
$
|
4,081
|
|
|
$
|
(5,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(1,900
|
)
|
|
$
|
(2,759
|
)
|
|
$
|
(338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
696,738
|
|
|
$
|
685,865
|
|
|
$
|
748,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE
AND OTHER
Business
Solutions
Financial Services. We have provided open
account financing to approximately 100 of our members that are
cooperatives (cooperative association members) in the past year.
These arrangements involve the discretionary extension of credit
in the form of a clearing account for settlement of grain
purchases and as a cash management tool.
Cofina Financial, LLC. Cofina Financial, LLC
(Cofina Financial), a finance company formed in fiscal 2005,
makes seasonal and term loans to member cooperatives and
individuals. Through August 31, 2008, we accounted for our
49% ownership interest in Cofina Financial using the equity
method of accounting. On September 1, 2008, Cofina
Financial became a wholly-owned subsidiary when we purchased the
remaining 51% ownership interest for $53.3 million, which
included cash of $48.5 million and the assumption of
certain liabilities of $4.8 million.
Country Hedging, Inc. Our wholly-owned
subsidiary, Country Hedging, Inc., is a registered futures
commission merchant and a clearing member of both the
Minneapolis Grain Exchange and the Kansas City Board of Trade,
and is also a full-service commodity futures and options broker.
Ag States Group. Our wholly-owned subsidiary,
Ag States Agency, LLC, is an independent insurance agency. It
sells insurance, including group benefits, property and
casualty, and bonding programs. Its approximately 2,000
customers are primarily agricultural businesses, including local
cooperatives and independent elevators, petroleum outlets,
agronomy, feed and seed plants, implement dealers, fruit and
vegetable packers/warehouses and food processors. Impact Risk
Solutions, LLC, a wholly-owned subsidiary of Ag States Agency,
LLC, conducts the insurance brokerage business of Ag States
Group.
PRICE
RISK AND HEDGING
When we enter into a commodity purchase or sales commitment, we
incur risks related to price change and performance (including
delivery, quality, quantity and shipment period). We are exposed
to risk of loss in the market value of positions held,
consisting of inventory and purchase contracts at a fixed or
partially fixed
14
price in the event market prices decrease. We are also exposed
to risk of loss on our fixed or partially fixed price sales
contracts in the event market prices increase.
Our hedging activities reduce the effects of price volatility,
thereby protecting against adverse short-term price movements,
but also limit the benefits of short-term price movements. To
reduce the price change risks associated with holding fixed
price commitments, we generally take opposite and offsetting
positions by entering into commodity futures contracts or
options, to the extent practical, in order to arrive at a net
commodity position within the formal position limits we have
established and deemed prudent for each commodity. These
contracts are purchased and sold on regulated commodity futures
exchanges for grain, and regulated mercantile exchanges for
refined products and crude oil. We also use
over-the-counter
(OTC) instruments to hedge our exposure on flat price
fluctuations. The price risk we encounter for crude oil and most
of the grain and oilseed volume we handle can be hedged. Price
risk associated with fertilizer and certain grains cannot be
hedged because there are no futures for these commodities and,
as a result, risk is managed through the use of forward sales
contracts and other pricing arrangements and, to some extent,
cross-commodity futures hedging. These contracts are economic
hedges of price risk, but are not designated or accounted for as
hedging instruments for accounting purposes in any of our
operations with the exception of some contracts included in our
Energy segment. The contracts are recorded on our Consolidated
Balance Sheets at fair values based on quotes listed on
regulated commodity exchanges or are based on the market prices
of the underlying products listed on the exchanges, with the
exception of fertilizer and propane contracts, which are
accounted for as normal purchase and normal sales transactions.
With the exception of some contracts included in our Energy
segment, unrealized gains and losses on these contracts are
recognized in cost of goods sold in our Consolidated Statements
of Operations using market-based prices. Beginning in the third
quarter of fiscal 2010, certain contracts within our Energy
segment were entered into for the spread between heavy and light
crude oil purchase prices, and have been designated and
accounted for as hedging instruments (cash flow hedges). The
unrealized gains or losses of these contracts are deferred to
accumulated comprehensive loss in the equity section of our
Consolidated Balance Sheet and will be included in earnings upon
settlement.
When a futures contract is entered into, an initial margin
deposit must be sent to the applicable exchange or broker. The
amount of the deposit is set by the exchange and varies by
commodity. If the market price of a short futures contract
increases, then an additional maintenance margin deposit would
be required. Similarly, if the price of a long futures contract
decreases, a maintenance margin deposit would be required and
sent to the applicable exchange. Subsequent price changes could
require additional maintenance margins or could result in the
return of maintenance margins.
Our policy is to primarily maintain hedged positions in grain
and oilseed. 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 and procedures that include net
position limits. These limits are defined for each commodity and
include both trader and management limits. This policy and
computerized procedures in our grain marketing operations
require a review by operations management when any trader is
outside of position limits and also a review by our senior
management if operating areas are outside of position limits. A
similar process is used in our energy and wholesale crop
nutrients operations. The position limits are reviewed, at least
annually, with our management 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. In addition, all purchase and sales contracts are
subject to credit approvals and appropriate terms and conditions.
Hedging arrangements do not protect against nonperformance by
counterparties to contracts. We primarily use exchange traded
instruments, which minimize our counterparty exposure. We
evaluate that 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 counterpartys financial condition and
also 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 our 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
15
internally evaluated. 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.
EMPLOYEES
On August 31, 2010, we had 8,812 full, part-time, temporary
and seasonal employees, which included 653 employees of
NCRA. Of that total, 2,762 were employed in our Energy segment,
4,507 in our country operations business (including
approximately 1,171 seasonal and temporary employees), 151 in
our crop nutrients operations, 616 in our grain marketing
operations, 323 in our Processing segment and 453 in Corporate
and Other. In addition to those employed directly by us, many
employees work for joint ventures in which we have a 50% or less
ownership interest, and are not included in these totals. A
portion of all of our segments and Corporate and Other are
employed in this manner.
Employees in certain areas are represented by collective
bargaining agreements. Refinery and pipeline workers in Laurel,
Montana are represented by agreements with two separate unions:
the United Steel Worker (USW) Union Local 11- 443 represents 190
refinery employees for which agreements are in place through
February 1, 2012 and the Oil Basin Pipeliners Union (OBP)
represents 18 pipeline employees for which agreements are in
place through September 1, 2011. The contracts covering the
NCRA McPherson, Kansas refinery include 306 employees
represented by the United Steel Workers of America (USWA) that
are in place through June 2012. There are approximately 152 CHS
employees in transportation and lubricant plant operations that
are covered by other collective bargaining agreements that
expire at various times including a labor contract with the
Teamsters which covers 34 employees in the Pacific
Northwest trade territory that expired on July 31, 2010.
Work continues under the terms of the expired Teamster agreement
and negotiations are continuing. Certain production workers in
our oilseed processing operations are subject to collective
bargaining agreements with the Bakery, Confectionary, Tobacco
Worker and Grain Millers (BTWGM) (120 employees) which
expires on June 30, 2013 and the Pipefitters Union
(2 employees), which expires on April 30, 2011. The
BTWGM also represents 44 employees at our Superior,
Wisconsin grain export terminal with a contract expiring on
June 30, 2013. Various union contracts cover employees in
other grain and crop nutrient terminal operations: the USWA
represents 77 employees at our Myrtle Grove, Louisiana
grain export terminal with a contract expiring on May 31,
2013; the Teamsters represent 8 employees at our Winona,
Minnesota river terminal with a contract expiring on
February 28, 2011; the Chauffeurs, Teamsters, Warehousemen
and Helpers unions represent 4 employees at our
Indianapolis, Indiana crop nutrients facility with a contract
expiring in December 2012 and the International
Longshoremens and Warehousemens Union (ILWU)
represents 32 employees at our Kalama, Washington export
terminal with a contract in place through September 2014.
Finally, certain employees in our country operations business
are represented by collective bargaining agreements with the
BTWGM which represents 23 employees in two locations, with
contracts expiring on December 31, 2011 and July 1,
2014.
MEMBERSHIP
IN CHS AND AUTHORIZED CAPITAL
Introduction
We are an agricultural membership cooperative organized under
Minnesota cooperative law to do business with member and
non-member patrons. Our patrons, not us, are subject to income
taxes on income from patronage sources, which is distributed to
them. We are subject to income taxes on undistributed patronage
income and non-patronage-sourced income. See
Tax Treatment below.
Distribution
of Net Income; Patronage Dividends
We are required by our organizational documents annually to
distribute net earnings derived from patronage business with
members, after payment of dividends on equity capital, to
members on the basis of patronage, except that the Board of
Directors may elect to retain and add to our unallocated capital
reserve an
16
amount not to exceed 10% of the distributable net income from
patronage business. We may also distribute net income derived
from patronage business with a non-member if we have agreed to
conduct business with the non-member on a patronage basis. Net
income from non-patronage business may be distributed to members
or added to the unallocated capital reserve, in whatever
proportions the Board of Directors deems appropriate.
These distributions, referred to as patronage
dividends, may be made in cash, patrons equities,
revolving fund certificates, our securities, securities of
others or any combination designated by the Board of Directors.
Beginning in fiscal 2006, the Board of Directors approved the
distributed patronage dividends to be in the form of 35% cash
and 65% patrons equities (see
Patrons Equities below). The Board
of Directors may change the mix in the form of the patronage
dividends in the future. In making distributions, the Board of
Directors may use any method of allocation that, in its
judgment, is reasonable and equitable.
Patronage dividends distributed during the years ended
August 31, 2010, 2009 and 2008, were $438.0 million
($153.9 million in cash), $648.9 million
($227.6 million in cash) and $557.2 million
($195.0 million in cash), respectively.
By action of the Board of Directors, patronage losses incurred
in fiscal 2009 from our wholesale crop nutrients business,
totaling $60.2 million, were offset against the fiscal 2008
wholesale crop nutrients operating earnings and the gain on the
sale of our CF Industries stock through the cancellation of
capital equity certificates in fiscal 2010.
Patrons
Equities
Patrons equities are in the form of book entries and
represent a right to receive cash or other property when we
redeem them. Patrons equities form part of our capital, do
not bear interest, and are not subject to redemption upon
request of a member. Patrons equities are redeemable only
at the discretion of the Board of Directors and in accordance
with the terms of the redemption policy adopted by the Board of
Directors, which may be modified at any time without member
consent. 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 pro-rata program for equities held by
them and another for individuals who are eligible for equity
redemptions at age 70 or upon death. The amount that each
non-individual receives under the pro-rata program in any year
will be determined by multiplying the dollars available for
pro-rata redemptions, if any that year, as determined by the
Board of Directors, by a fraction, the numerator of which is the
face value of patronage certificates eligible for redemption
held by them, and the denominator of which is the sum of the
patronage certificates eligible for redemption held by all
eligible holders of patronage certificates that are not
individuals. In addition to the annual pro-rata program, the
Board of Directors approved additional equity redemptions to
non-individuals in prior years targeting older capital equity
certificates which were redeemed in cash in fiscal 2008 and
2007. In accordance with authorization from the Board of
Directors, we expect total redemptions related to the year ended
August 31, 2010, that will be distributed in fiscal 2011,
to be approximately $67.6 million.
Cash redemptions of patrons and other equities during the years
ended August 31, 2010, 2009 and 2008 were
$23.1 million, $49.7 million and $81.8 million,
respectively. An additional $36.7 million,
$49.9 million and $46.4 million of equities were
redeemed by issuance of shares of our 8% Cumulative Redeemable
Preferred Stock during the years ended August 31, 2010,
2009 and 2008, respectively.
Governance
We are managed by a Board of Directors of not less than
17 persons elected by the members at our annual meeting.
Terms of directors are staggered so that no more than six
directors are elected in any year. The Board of Directors is
currently comprised of 16 directors, due to the death of a
director during fiscal 2010. Our articles of incorporation and
bylaws may be amended only upon approval of a majority of the
votes cast at an annual or special meeting of our members,
except for the higher vote described under
Certain Antitakeover Measures below.
17
Membership
Membership in CHS is restricted to certain producers of
agricultural products and to associations of producers of
agricultural products that are organized and operating so as to
adhere to the provisions of the Agricultural Marketing Act and
the Capper-Volstead Act, as amended. The Board of Directors may
establish other qualifications for membership, as it may from
time to time deem advisable.
As a membership cooperative, we do not have common stock. We may
issue equity or debt instruments, on a patronage basis or
otherwise, to our members. We have two classes of outstanding
membership. Individual members are individuals actually engaged
in the production of agricultural products. Cooperative
associations are associations of agricultural producers and may
be either cooperatives or other associations organized and
operated under the provisions of the Agricultural Marketing Act
and the Capper-Volstead Act, as amended.
Voting
Rights
Voting rights arise by virtue of membership in CHS, not because
of ownership of any equity or debt instruments. Members that are
cooperative associations are entitled to vote based upon a
formula that takes into account the equity held by the
cooperative in CHS and the average amount of business done with
us over the previous three years.
Members who are individuals are entitled to one vote each.
Individual members may exercise their voting power directly or
through patrons associations affiliated with a grain
elevator, feed mill, seed plant or any other of our facilities
(with certain historical exceptions) recognized by the Board of
Directors. The number of votes of patrons associations is
determined under the same formula as cooperative association
members.
Most matters submitted to a vote of the members require the
approval of a majority of the votes cast at a meeting of the
members, although certain actions require a greater vote. See
Certain Antitakeover Measures below.
Debt and
Equity Instruments
We may issue debt and equity instruments to our current members
and patrons, on a patronage basis or otherwise, and to persons
who are neither members nor patrons. Capital Equity Certificates
issued by us are subject to a first lien in favor of us for all
indebtedness of the holder to us. On August 31, 2010, our
outstanding capital includes patrons equities (consisting
of Capital Equity Certificates and Non-patronage Equity
Certificates), 8% Cumulative Redeemable Preferred Stock and
certain capital reserves.
Distribution
of Assets upon Dissolution; Merger and Consolidation
In the event of our dissolution, liquidation or winding up,
whether voluntary or involuntary, all of our debts and
liabilities would be paid first according to their respective
priorities. After such payment, the holders of each share of our
preferred stock would then be entitled to receive out of
available assets, up to $25.00 per share, plus all dividends
accumulated and unpaid on that share, whether or not declared,
to and including the date of distribution. This distribution to
the holders of our preferred stock would be made before any
payment is made or assets distributed to the holders of any
security that ranks junior to the preferred stock but after the
payment of the liquidation preference of any of our securities
that rank senior to the preferred stock. After such distribution
to the holders of equity capital, any excess would be paid to
patrons on the basis of their past patronage with us. Our bylaws
provide for the allocation among our members and nonmember
patrons of the consideration received in any merger or
consolidation to which we are a party.
Certain
Antitakeover Measures
Our governing documents may be amended upon the approval of a
majority of the votes cast at an annual or special meeting.
However, if the Board of Directors, in its sole discretion,
declares that a proposed amendment to our governing documents
involves or is related to a hostile takeover, the
amendment must be adopted by 80% of the total voting power of
our members.
18
The approval of not less than two-thirds of the votes cast at a
meeting is required to approve a change of control
transaction which would include a merger, consolidation,
liquidation, dissolution or sale of all or substantially all of
our assets. If the Board of Directors determines that a proposed
change of control transaction involves a hostile takeover, the
80% approval requirement applies. The term hostile
takeover is not further defined in the Minnesota
cooperative law or our governing documents.
Tax
Treatment
Subchapter T of the Internal Revenue Code sets forth rules for
the tax treatment of cooperatives and applies to both
cooperatives exempt from taxation under Section 521 of the
Internal Revenue Code and to nonexempt corporations operating on
a cooperative basis. We are a nonexempt cooperative.
As a cooperative, we are not taxed on qualified patronage
(minimum cash requirement of 20%) allocated to our members
either in the form of equities or cash. Consequently, those
amounts are taxed only at the patron level. However, the amounts
of any allocated but undistributed patronage earnings (called
non-qualified written notices of allocation) are taxable to us
when allocated. Upon redemption of any non-qualified written
notices of allocation, the amount is deductible to us and
taxable to the member.
Income derived by us from non-patronage sources is not entitled
to the single tax benefit of Subchapter T and
is taxed to us at corporate income tax rates.
NCRA is not consolidated for tax purposes.
CAUTIONARY
STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The information in this Annual Report on
Form 10-K
for the year ended August 31, 2010, includes
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to
CHS. In addition, CHS and its representatives and agents may
from time to time make other written or oral forward-looking
statements, including statements contained in its filings with
the Securities and Exchange Commission and its reports to its
members and securityholders. Words and phrases such as
will likely result, are expected to,
is anticipated, estimate,
project and similar expressions identify
forward-looking statements. We wish to caution readers not to
place undue reliance on any forward-looking statements, which
speak only as of the date made.
Our forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking
statements. This Cautionary Statement is for the purpose of
qualifying for the safe harbor provisions of the Act
and is intended to be a readily available written document that
contains factors which could cause results to differ materially
from those projected in the forward-looking statements. The
following matters, among others, may have a material adverse
effect on our business, financial condition, liquidity, results
of operations or prospects, financial or otherwise. Reference to
this Cautionary Statement in the context of a forward-looking
statement shall be deemed to be a statement that any one or more
of the following factors may cause actual results to differ
materially from those which might be projected, forecasted,
estimated or budgeted by us in the forward-looking statement or
statements.
The following factors are in addition to any other cautionary
statements, written or oral, which may be made or referred to in
connection with any particular forward-looking statement. The
following review should not be construed as exhaustive.
We undertake no obligation to revise any forward-looking
statements to reflect future events or circumstances.
19
Our
revenues and operating results could be adversely affected by
changes in commodity prices.
Our revenues, earnings and cash flows are affected by market
prices for commodities such as crude oil, natural gas,
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,
disease, insect damage, drought, the 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. In addition, we are exposed to the risk of
nonperformance by counterparties to contracts. Risk of
nonperformance by counterparties includes the inability to
perform because of a counterpartys financial condition and
also the risk that the counterparty will refuse to perform a
contract during a period of price fluctuations where contract
prices are significantly different than the current market
prices. Increases in market prices for commodities that we
purchase without a corresponding increase in the prices of our
products or our sales volume or a decrease in our other
operating expenses could reduce our revenues and net income.
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. Although
the prices for crude oil reached historical highs during 2008,
the prices for both 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;
|
|
|
|
the ability of the members of the Organization of Petroleum
Exporting Countries (OPEC) to agree to and maintain oil price
and production controls, and the price and level of foreign
imports;
|
|
|
|
disruption in supply;
|
|
|
|
political instability or armed conflict in oil-producing regions;
|
|
|
|
the level of consumer demand;
|
|
|
|
the price and availability of alternative fuels;
|
|
|
|
the 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 could reduce our net income. Accordingly, we expect our
margins on, and the profitability of our energy business to
fluctuate, possibly significantly, over time.
Our
operating results could be 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 would
decline and our results of operations could be adversely
affected.
20
We
participate in highly competitive business markets in which we
may not be able to continue to compete successfully.
We operate in several highly competitive business segments and
our competitors may succeed in developing new or enhanced
products that are better than ours, and may be more successful
in marketing and selling their products than we are with ours.
Competitive factors include price, service level, proximity to
markets, product quality and marketing. In some of our business
segments, such as Energy, we compete with companies that are
larger, better known and have greater marketing, financial,
personnel and other resources. As a result, we may not be able
to continue to compete successfully with our competitors.
Changes
in federal income tax laws or in our tax status could increase
our tax liability and reduce our net income.
Current federal income tax laws, regulations and interpretations
regarding the taxation of cooperatives, which allow us to
exclude income generated through business with or for a member
(patronage income) from our taxable income, could be changed. If
this occurred, 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 significantly decrease.
We incur
significant costs in complying with applicable laws and
regulations. Any failure to make the capital investments
necessary to comply with these laws and regulations could expose
us to financial liability.
We are subject to numerous federal, state and local provisions
regulating our business and operations and 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, capital expenditures for upgrading
our refineries, largely to comply with regulations requiring the
reduction of sulfur levels in refined petroleum products, were
completed in fiscal 2006. We incurred capital expenditures from
fiscal years 2003 through 2006 related to these upgrades of
$88.1 million for our Laurel, Montana refinery and
$328.7 million for the National Cooperative Refinery
Associations (NCRA) McPherson, Kansas refinery. The
Environmental Protection Agency has passed a regulation that
requires the reduction of the benzene level in gasoline to be
less than 0.62% volume by January 1, 2011. As a result of
this regulation, our refineries will incur capital expenditures
to reduce the current gasoline benzene levels to the regulated
levels. We anticipate the combined capital expenditures for our
Laurel, Montana and NCRAs McPherson, Kansas refineries to
be approximately $114 million, of which $76 million
has been spent through August 31, 2010. Our Laurel
refinerys unit was operational and producing gasoline at
2011 benzene levels by August 31, 2010, and NCRAs
unit is on target to meet requirements.
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, and recalls of
our products.
Changing
environmental and energy laws and regulation, including those
related to climate change and Green House Gas (GHG)
emissions, may result in increased operating costs and capital
expenditures and may have an adverse effect on our business
operations.
New environmental laws and regulations, including new
regulations relating to alternative energy sources and the risk
of global climate change, new interpretations of existing laws
and regulations, increased governmental enforcement or other
developments could require us to make additional unforeseen
expenditures. It is expected that some form of regulation will
be forthcoming at the federal level in the United States with
respect to emissions of GHGs, (including carbon dioxide, methane
and nitrous oxides). Also, new federal or state legislation or
regulatory programs that restrict emissions of GHGs in areas
where we conduct business
21
could adversely affect our operations and demand for our energy
products. New legislation or regulator programs could require
substantial expenditures for the installation and operation of
systems and equipment that we do not currently possess.
From time to time, new federal energy policy legislation is
enacted by the U.S. Congress. For example, in December
2007, the U.S. Congress passed the Energy Independence and
Security Act, which, among other provisions, mandates annually
increasing levels for the use of renewable fuels such as
ethanol, commencing in 2008 and escalating for 15 years, as
well as increasing energy efficiency goals, including higher
fuel economy standards for motor vehicles, among other steps.
These statutory mandates may have the impact over time of
offsetting projected increases in the demand for refined
petroleum products in certain markets, particularly gasoline.
Other legislative changes may similarly alter the expected
demand and supply projections for refined petroleum products in
ways that cannot be predicted.
On December 15, 2009, the Environmental Protection Agency
(EPA) officially published its findings that emissions of carbon
dioxide, methane and other GHGs present an endangerment to human
health and the environment because emissions of such gases are,
according to the EPA, contributing to warming of the
Earths atmosphere and other climatic changes. These
findings by the EPA allow the agency to proceed with the
adoption and implementation of regulations that would restrict
emissions of GHGs under existing provisions of the federal Clean
Air Act (CAA). In late September 2009, the EPA had proposed two
sets of regulations in anticipation of finalizing its findings
that would require a reduction in emissions of GHGs from motor
vehicles and that could also lead to the imposition of GHG
emission limitations in CAA permits for certain stationary
sources. In addition, on September 22, 2009, the EPA issued
a final rule requiring the reporting of GHG emissions from
specified large GHG emission sources in the United States
beginning in 2011 for emissions occurring in 2010. Our
refineries, and possibly other of our facilities, will be
required to report GHG emissions from certain sources under the
rule.
Also, on June 26, 2009, the U.S. House of
Representatives approved adoption of the American Clean
Energy and Security Act of 2009, (ACESA), also
known as the Waxman-Markey
cap-and-trade
legislation. The purpose of ACESA is to control and reduce
emissions of GHGs in the United States. ACESA would establish an
economy-wide cap on emissions of GHGs in the United States and
would require an overall reduction in GHG emissions of 17% (from
2005 levels) by 2020, and by over 80% by 2050. Under ACESA, most
sources of GHG emissions would be required to obtain GHG
emission allowances corresponding to their annual
emissions of GHGs. The number of emission allowances issued each
year would decline as necessary to meet ACESAs overall
emission reduction goals. As the number of GHG emission
allowances permitted by ACESA declines each year, the cost or
value of allowances would be expected to increase. The net
effect of ACESA would be to impose increasing costs on the
combustion of carbon-based fuels such as oil, refined petroleum
products and gas. The U.S. Senate had begun work in 2010 on
its own legislation for controlling and reducing emissions of
GHGs in the United States. If the Senate adopts GHG legislation
that is different from ACESA, the Senate legislation would need
to be reconciled with ACESA and both chambers would be required
to approve identical legislation before it could become law.
It is not possible at this time to predict whether climate
change legislation will be enacted or in what form. However, the
adoption and implementation of any regulations imposing
reporting obligations on, or limiting emissions of GHGs from,
our equipment and operations could require us to incur costs to
reduce emissions of GHGs associated with our operations or could
adversely affect demand for the energy products that we produce.
Further, we may be required to purchase allowances
under the proposed
cap-and-trade
legislation. We believe that a significant part, if not all, of
these costs would be passed on in the price of our products.
However, the extent of our ability to pass on such costs is
unknown. Further, a change in consumer practices could result in
a reduction in consumption of carbon-based fuels resulting in a
decrease in the demand for our energy products.
In response to proposed
cap-and-trade
legislation, we are developing the expertise to trade emission
allowances and could potentially generate revenues from such
business. The extent of such revenues which could be obtained
is, however, unknown at this time.
22
Finally, it should be noted that some scientists believe that
increasing concentrations of GHGs in the Earths atmosphere
may produce climate changes that have significant physical
effects, such as increased frequency and severity of storms,
droughts, floods and other climatic events. However, the
potential physical impacts of such climate change are uncertain
and may vary by region. If any such effects were to occur, they
could have an adverse effect on our operations. Significant
climate changes may, for example, affect crop production
including a possible shift in crop production to other
geographic territories. The impact of climate changes could be
positive or negative for our Ag Business segment. Crop failures
due to weather conditions could also adversely affect the demand
for our crop input products such as fertilizer and chemicals. We
believe, however, that the effects of climate change will be
over the long term and would likely only have an impact over
many decades.
Because our refineries are inland facilities, a possibility of
increased hurricane activity due to climate change, which may
result in the temporary closure of coastal refineries, could
result in increased revenues and margins to us due to the
decrease in supply of refined products in the marketplace. The
actual effects of climate change on our businesses are, however,
unknown and undeterminable at this time.
Environmental
liabilities could adversely affect our results and financial
condition.
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 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 and injunctions. Moreover, future or unknown
past releases of hazardous substances could subject us to
private lawsuits claiming damages and to adverse publicity.
Liabilities, including legal costs, related to remediation of
contaminated properties are not recognized until the related
costs are considered probable and can be reasonable estimated.
Actual or
perceived quality, safety or health risks associated with our
products could subject us to liability and damage our business
and reputation.
If any of our food or feed products became adulterated or
misbranded, we would need to recall those items and could
experience product liability claims if consumers were 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 a loss of consumer confidence in our
products. Even if a product liability claim is unsuccessful or
is not fully pursued, the negative publicity surrounding any
assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential
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 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 products that satisfy new consumer preferences, there
will be a decreased demand for our products.
Our
operations are subject to business interruptions and casualty
losses; we do not insure against all potential losses and could
be seriously harmed by unexpected liabilities.
Our 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, inclement weather and labor
disputes. For example:
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our oil refineries and other facilities are potential targets
for terrorist attacks that could halt or discontinue production;
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23
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our inability to negotiate acceptable contracts with unionized
workers in our operations could result in strikes or work
stoppages;
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our corporate headquarters, the facilities we own, or the
significant inventories that we carry could be damaged or
destroyed by catastrophic events, extreme weather conditions or
contamination;
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someone may accidentally or intentionally introduce a computer
virus to our information technology systems; and
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an occurrence of a pandemic flu or other disease affecting a
substantial part of our workforce or our customers could cause
an interruption in our business operations, the affects of which
could be significant.
|
We maintain insurance coverages 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
our financial position or results of operations.
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 contain limitations on dividends of 8% of any preferred
stock that we may issue. 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.
Consolidation
among the producers of products we purchase and customers for
products we sell could adversely affect our revenues and
operating results.
Consolidation has occurred among the producers of products we
purchase, including crude oil, fertilizer and grain, and it is
likely to continue in the future. Consolidation could increase
the price of these products and allow suppliers to negotiate
pricing, supply availability and other contract terms that are
less favorable to us. Consolidation also may increase the
competition among consumers of these products to enter into
supply relationships with a smaller number of producers
resulting in potentially higher prices for the products we
purchase.
Consolidation among purchasers of our products and in wholesale
and retail distribution channels has resulted in a smaller
customer base for our products and intensified the competition
for these customers. For example, 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 distributors, brokers and retailers elect not to
purchase our products, our sales volumes, revenues and
profitability could be significantly reduced.
In the fertilizer market, consolidation at both the producer and
customer level increases the threat of direct sales from the
producer to the consumer.
If our
customers choose alternatives to our refined petroleum products
our revenues and profits may decline.
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
products for environmental or other reasons, demand for our
energy products would decline. Demand for our gasoline, diesel
fuel and other refined petroleum products also could be
adversely affected by increased fuel efficiencies.
24
Operating
results from our agronomy business could be volatile and are
dependent upon certain factors outside of our control.
Planted acreage, and consequently the volume of fertilizer and
crop protection products applied, is partially dependent upon
government programs, grain prices and the perception held by the
producer of demand for production. Weather conditions during the
spring planting season and early summer spraying season also
affect agronomy product volumes and profitability.
Technological
improvements in agriculture 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 that 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.
We
operate some of our business through joint ventures in which our
rights to control business decisions are limited.
Several parts of our business, including in particular, portions
of our grain marketing, wheat milling and foods operations, are
operated through joint ventures with third parties. By operating
a business through a joint venture, we have less control over
business decisions than we have in our wholly-owned or
majority-owned businesses. In particular, we generally cannot
act on major business initiatives in our joint ventures without
the consent of the other party or parties in those ventures.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
|
As of August 31, 2010, there were no unresolved comments
from the Securities and Exchange Commission staff regarding our
periodic or current reports.
We own or lease energy, agronomy, grain handling and processing
facilities throughout the United States. Below is a summary of
these locations.
25
Energy
Facilities in our Energy segment include the following, all of
which are owned except where indicated as leased:
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Refinery
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Laurel, Montana
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Propane terminals
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Glenwood, Minnesota; Black Creek, Wisconsin (leased to another
entity)
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Transportation terminals/repair facilities
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12 locations in Iowa, Kansas, Minnesota, Montana, North Dakota,
South Dakota, Texas, Washington and Wisconsin, 3 of which are
leased
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Petroleum and asphalt terminals/storage facilities
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11 locations in Montana, North Dakota and Wisconsin
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Pump stations
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11 locations in Montana and North Dakota
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Pipelines:
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Cenex Pipeline, LLC
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Laurel, Montana to Fargo, North Dakota
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Front Range Pipeline, LLC
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Canadian border to Laurel, Montana and on to Billings, Montana
|
Convenience stores/gas stations
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66 locations in Idaho, Minnesota, Montana, North Dakota, South
Dakota, Washington and Wyoming, 20 of which are leased. We own
an additional 6 locations which we do not operate, but are on
capital leases to others
|
Lubricant plants/warehouses
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3 locations in Minnesota, Ohio and Texas, 1 of which is leased
|
We have an approximate 74.5% interest in NCRA, which owns and
operates the following facilities:
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Refinery
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|
McPherson, Kansas
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Petroleum terminals/storage
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2 locations in Iowa and Kansas
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Pipeline
|
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McPherson, Kansas to Council Bluffs, Iowa
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Jayhawk Pipeline, LLC
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Throughout Kansas, with branches in Nebraska, Oklahoma and Texas
|
Jayhawk stations
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26 locations located in Kansas, Nebraska and Oklahoma
|
Osage Pipeline (50% owned by NCRA)
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Oklahoma to Kansas
|
Kaw Pipeline (67% owned by NCRA)
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Throughout Kansas
|
Ag
Business
Within our Ag Business segment, we own or lease the following
facilities:
Crop
Nutrients
We use ports and terminals in our crop nutrients operations at
the following locations:
Briggs, Indiana (terminal, owned)
Crescent City, Illinois (terminal, owned)
Crestline, Ohio (terminal, owned)
Fostoria, Ohio (terminal, owned)
Galveston, Texas (deep water port, land leased from port
authority)
Grand Forks, North Dakota (terminal, owned)
Green Bay, Wisconsin (terminal, owned)
Indianapolis, Indiana (terminal, leased)
Little Rock, Arkansas (river terminal, leased)
Memphis, Tennessee (river terminal, owned)
Muscatine, Iowa (river terminal, owned)
Post Falls, Idaho (terminal, owned)
St. Paul, Minnesota (river terminal, owned)
Watertown, South Dakota (terminal, owned)
Winona, Minnesota (2 river terminals, owned)
26
Country
Operations
In our country operations business, we own 373 agri-operations
locations (of which some of the facilities are on leased land),
3 sunflower plants and 9 feed manufacturing facilities of which
we operate 8 and lease one to a joint venture of which we are a
partner. These operations are located in Colorado, Idaho,
Illinois, Iowa, Kansas, Minnesota, Montana, Nebraska, North
Dakota, Oklahoma, Oregon, South Dakota, Texas and Washington.
Grain
Marketing
We use grain terminals in our grain marketing operations at the
following locations:
Collins, Mississippi (owned)
Davenport, Iowa (2 owned)
Friona, Texas (owned)
Kalama, Washington (leased)
Myrtle Grove, Louisiana (owned)
Savage, Minnesota (owned)
Spokane, Washington (owned)
Superior, Wisconsin (owned)
Winona, Minnesota (1 owned, 1 leased)
In addition to office space at our corporate headquarters, we
have grain marketing offices at the following leased locations,
unless otherwise noted:
Barcelona, Spain
Buenos Aires, Argentina (2 locations)
Davenport, Iowa (owned)
Geneva, Switzerland
Hong Kong
Kansas City, Missouri
Kiev, Ukraine
Lincoln, Nebraska
Sao Paulo, Maringa and Cruz Alta, Brazil
Shanghai, China
Vostok, Russia
Winona, Minnesota (owned)
Processing
Within our Processing segment, we own and lease the following
facilities:
Oilseed
Processing
We own a campus in Mankato, Minnesota, comprised of a soybean
crushing plant, an oilseed refinery, a soyflour plant, a quality
control laboratory and an administration office. We also own a
crushing plant in Fairmont, Minnesota. In addition, we own a
textured soy protein manufacturing plant in Hutchinson, Kansas.
Wheat
Milling
We own five milling facilities at the following locations, all
of which are leased to Horizon Milling:
Fairmount, North Dakota
Houston, Texas
Kenosha, Wisconsin
Mount Pocono, Pennsylvania
Rush City, Minnesota
27
Corporate
and Other
Business
Solutions
In addition to office space at our corporate headquarters, we
have offices at the following leased locations:
Houston, Texas (Ag States Group)
Indianapolis, Indiana (Ag States Group and Country Hedging,
Inc.)
Kansas City, Missouri (Country Hedging, Inc.)
Kewanee, Illinois (Ag States Group)
Corporate
Headquarters
We are headquartered in Inver Grove Heights, Minnesota. We own a
33-acre
campus consisting of one main building with approximately
320,000 square feet of office space and two smaller
buildings with approximately 13,400 and 9,000 square feet
of space. We also have an office in Washington, D.C. which
is leased.
Our internet address is www.chsinc.com.
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ITEM 3.
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LEGAL
PROCEEDINGS
|
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.
In October 2003, we and NCRA reached agreements with the
Environmental Protection Agency (EPA) and the State of
Montanas Department of Environmental Quality and the State
of Kansas Department of Health and Environment, regarding the
terms of settlements with respect to reducing air emissions at
our Laurel, Montana and NCRAs McPherson, Kansas
refineries. These settlements are part of a series of similar
settlements that the EPA has negotiated with major refiners
under the EPAs Petroleum Refinery Initiative. The
settlements take the form of consent decrees filed with the
U.S. District Court for the District of Montana (Billings
Division) and the U.S. District Court for the District of
Kansas. Each consent decree details potential capital
improvements, supplemental environmental projects and
operational changes that we and NCRA have agreed to implement at
the relevant refinery over several years. The consent decrees
also required us, and NCRA, to pay approximately
$0.5 million in aggregate civil cash penalties. As of
August 31, 2010, the aggregate capital expenditures for us
and NCRA related to these settlements are complete, and totaled
approximately $37 million. These settlements did not have a
material adverse affect on us or NCRA.
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ITEM 4.
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(Removed
and Reserved)
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PART II.
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
We have approximately 66,600 members, of which approximately
1,300 are cooperative association members and approximately
65,300 are individual members. As a cooperative, we do not have
any common stock that is traded.
On August 31, 2010, we had 12,272,003 shares of 8%
Cumulative Redeemable Preferred Stock outstanding, which is
listed on the NASDAQ Global Select Market under the symbol CHSCP.
We have not sold any equity securities during the three years
ended August 31, 2010, that were not registered under the
Securities Act of 1933, as amended.
28
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ITEM 6.
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SELECTED
FINANCIAL DATA
|
The selected financial information below has been derived from
our consolidated financial statements for the years ended
August 31. The selected consolidated financial information
for August 31, 2010, 2009 and 2008, should be read in
conjunction with our consolidated financial statements and notes
thereto included elsewhere in this filing. In May 2005, we sold
the majority of our Mexican foods business and have recorded the
Mexican foods business as discontinued operations.
Summary
Consolidated Financial Data
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2010
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2009
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2008
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2007
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2006
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(Dollars in thousands)
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Income Statement Data:
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Revenues
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$
|
25,267,931
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|
|
$
|
25,729,916
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$
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32,167,461
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|
|
$
|
17,215,992
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|
|
$
|
14,383,835
|
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Cost of goods sold
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24,397,410
|
|
|
|
24,849,901
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|
|
|
30,993,899
|
|
|
|
16,129,233
|
|
|
|
13,540,285
|
|
|
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|
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Gross profit
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870,521
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|
|
|
880,015
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|
1,173,562
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|
|
|
1,086,759
|
|
|
|
843,550
|
|
Marketing, general and administrative
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366,582
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|
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355,299
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|
|
|
329,965
|
|
|
|
245,357
|
|
|
|
231,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Operating earnings
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|
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503,939
|
|
|
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524,716
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|
|
|
843,597
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|
|
|
841,402
|
|
|
|
612,312
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|
(Gain) loss on investments
|
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|
(29,433
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)
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|
|
56,305
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|
|
|
(29,193
|
)
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|
|
(20,616
|
)
|
|
|
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Interest, net
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|
|
58,324
|
|
|
|
70,487
|
|
|
|
76,460
|
|
|
|
31,098
|
|
|
|
41,305
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|
Equity income from investments
|
|
|
(108,787
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)
|
|
|
(105,754
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)
|
|
|
(150,413
|
)
|
|
|
(109,685
|
)
|
|
|
(84,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from continuing operations before income taxes
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|
|
583,835
|
|
|
|
503,678
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|
|
|
946,743
|
|
|
|
940,605
|
|
|
|
655,195
|
|
Income taxes
|
|
|
48,438
|
|
|
|
63,304
|
|
|
|
71,861
|
|
|
|
37,784
|
|
|
|
59,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from continuing operations
|
|
|
535,397
|
|
|
|
440,374
|
|
|
|
874,882
|
|
|
|
902,821
|
|
|
|
595,845
|
|
Income on discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
535,397
|
|
|
|
440,374
|
|
|
|
874,882
|
|
|
|
902,821
|
|
|
|
596,470
|
|
Net income attributable to noncontrolling interests
|
|
|
33,238
|
|
|
|
58,967
|
|
|
|
71,837
|
|
|
|
146,098
|
|
|
|
91,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to CHS Inc.
|
|
$
|
502,159
|
|
|
$
|
381,407
|
|
|
$
|
803,045
|
|
|
$
|
756,723
|
|
|
$
|
505,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (August 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,603,994
|
|
|
$
|
1,626,352
|
|
|
$
|
1,738,600
|
|
|
$
|
821,878
|
|
|
$
|
848,344
|
|
Net property, plant and equipment
|
|
|
2,253,071
|
|
|
|
2,099,325
|
|
|
|
1,948,305
|
|
|
|
1,728,171
|
|
|
|
1,476,239
|
|
Total assets
|
|
|
8,666,128
|
|
|
|
7,869,845
|
|
|
|
8,771,978
|
|
|
|
6,754,373
|
|
|
|
4,994,166
|
|
Long-term debt, including current maturities
|
|
|
986,241
|
|
|
|
1,071,953
|
|
|
|
1,194,855
|
|
|
|
688,321
|
|
|
|
744,745
|
|
Total equities
|
|
|
3,604,451
|
|
|
|
3,333,164
|
|
|
|
3,161,418
|
|
|
|
2,672,841
|
|
|
|
2,201,397
|
|
29
The selected financial information below has been derived from
our three business segments, and Corporate and Other, for the
fiscal years ended August 31, 2010, 2009 and 2008. The
intercompany revenues between segments were $316.7 million,
$294.3 million and $359.8 million for the fiscal years
ended August 31, 2010, 2009 and 2008, respectively.
Summary
Financial Data By Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Ag Business
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
8,799,890
|
|
|
$
|
7,639,838
|
|
|
$
|
11,499,814
|
|
|
$
|
15,678,160
|
|
|
$
|
17,196,448
|
|
|
$
|
19,696,907
|
|
Cost of goods sold
|
|
|
8,437,504
|
|
|
|
7,110,324
|
|
|
|
11,027,459
|
|
|
|
15,261,056
|
|
|
|
16,937,877
|
|
|
|
19,088,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
362,386
|
|
|
|
529,514
|
|
|
|
472,355
|
|
|
|
417,104
|
|
|
|
258,571
|
|
|
|
608,828
|
|
Marketing, general and administrative
|
|
|
123,834
|
|
|
|
125,104
|
|
|
|
111,121
|
|
|
|
173,766
|
|
|
|
158,395
|
|
|
|
160,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
238,552
|
|
|
|
404,410
|
|
|
|
361,234
|
|
|
|
243,338
|
|
|
|
100,176
|
|
|
|
448,464
|
|
Gain on investments
|
|
|
(269
|
)
|
|
|
(15,748
|
)
|
|
|
(35
|
)
|
|
|
(28,807
|
)
|
|
|
(2,285
|
)
|
|
|
(100,830
|
)
|
Interest, net
|
|
|
9,939
|
|
|
|
5,483
|
|
|
|
(5,227
|
)
|
|
|
28,033
|
|
|
|
46,995
|
|
|
|
63,665
|
|
Equity income from investments
|
|
|
(5,554
|
)
|
|
|
(4,044
|
)
|
|
|
(5,054
|
)
|
|
|
(25,173
|
)
|
|
|
(18,222
|
)
|
|
|
(83,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
234,436
|
|
|
$
|
418,719
|
|
|
$
|
371,550
|
|
|
$
|
269,285
|
|
|
$
|
73,688
|
|
|
$
|
568,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(295,536
|
)
|
|
$
|
(251,626
|
)
|
|
$
|
(322,522
|
)
|
|
$
|
(19,259
|
)
|
|
$
|
(39,919
|
)
|
|
$
|
(36,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
3,004,471
|
|
|
$
|
3,025,522
|
|
|
$
|
3,216,852
|
|
|
$
|
3,583,341
|
|
|
$
|
2,987,394
|
|
|
$
|
4,172,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing
|
|
|
Corporate and Other
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,061,654
|
|
|
$
|
1,142,636
|
|
|
$
|
1,299,209
|
|
|
$
|
44,922
|
|
|
$
|
45,298
|
|
|
$
|
31,363
|
|
Cost of goods sold
|
|
|
1,018,731
|
|
|
|
1,099,177
|
|
|
|
1,240,944
|
|
|
|
(3,186
|
)
|
|
|
(3,173
|
)
|
|
|
(2,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
42,923
|
|
|
|
43,459
|
|
|
|
58,265
|
|
|
|
48,108
|
|
|
|
48,471
|
|
|
|
34,114
|
|
Marketing, general and administrative
|
|
|
25,764
|
|
|
|
25,724
|
|
|
|
26,089
|
|
|
|
43,218
|
|
|
|
46,076
|
|
|
|
32,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
17,159
|
|
|
|
17,735
|
|
|
|
32,176
|
|
|
|
4,890
|
|
|
|
2,395
|
|
|
|
1,723
|
|
Loss (gain) on investments
|
|
|
|
|
|
|
74,338
|
|
|
|
72,602
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
(930
|
)
|
Interest, net
|
|
|
19,605
|
|
|
|
21,841
|
|
|
|
21,995
|
|
|
|
747
|
|
|
|
(3,832
|
)
|
|
|
(3,973
|
)
|
Equity income from investments
|
|
|
(77,159
|
)
|
|
|
(82,525
|
)
|
|
|
(56,615
|
)
|
|
|
(901
|
)
|
|
|
(963
|
)
|
|
|
(5,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
74,713
|
|
|
$
|
4,081
|
|
|
$
|
(5,806
|
)
|
|
$
|
5,401
|
|
|
$
|
7,190
|
|
|
$
|
12,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(1,900
|
)
|
|
$
|
(2,759
|
)
|
|
$
|
(338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
696,738
|
|
|
$
|
685,865
|
|
|
$
|
748,989
|
|
|
$
|
1,381,578
|
|
|
$
|
1,171,064
|
|
|
$
|
633,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
The following discussions of financial condition and results of
operations should be read in conjunction with the accompanying
audited financial statements and notes to such statements and
the cautionary statement regarding forward-looking statements
found in Part I, Item 1A of this
Form 10-K.
This discussion contains forward-looking statements based on
current expectations, assumptions, estimates and projections of
our management. Actual results could differ materially from
those anticipated in these forward-looking statements as a
result of certain factors, as more fully described in the
cautionary statement and elsewhere in this
Form 10-K.
CHS Inc. (CHS, we or us) is a diversified company, which
provides grain, foods and energy resources to businesses and
consumers on a global basis. As a cooperative, we are owned by
farmers, ranchers and their member cooperatives across the
United States. We also have preferred stockholders that own
shares of our 8% Cumulative Redeemable Preferred Stock.
We provide a full range of production agricultural inputs such
as refined fuels, propane, farm supplies, animal nutrition and
agronomy products, as well as services, which include hedging,
financing and insurance. We own and operate petroleum refineries
and pipelines and market and distribute refined fuels and other
energy products under the
Cenex®
brand through a network of member cooperatives and independent
retailers. We purchase grains and oilseeds directly and
indirectly from agricultural producers primarily in the
midwestern and western United States. These grains and oilseeds
are either sold to domestic and international customers, or
further processed into a variety of grain-based food products.
The consolidated financial statements include the accounts of
CHS and all of our wholly-owned and majority-owned subsidiaries,
primarily the National Cooperative Refinery Association (NCRA),
which is in our Energy segment. All significant intercompany
accounts and transactions have been eliminated.
We have aligned our segments based on an assessment of how our
businesses operate and the products and services they sell. Our
three segments: Energy, Ag Business and Processing, create
vertical integration to link producers with consumers. Our
Energy segment produces and provides primarily for the wholesale
distribution of petroleum products and transports those
products. Our Ag Business segment purchases and resells grains
and oilseeds originated by our country operations business, by
our member cooperatives and by third parties, and also serves as
wholesaler and retailer of crop inputs. Our Processing segment
converts grains and oilseeds into value-added products.
Corporate and Other primarily represents our business solutions
operations, which consists of commodities hedging, insurance and
financial services related to crop production.
Summary data for each of our segments for the fiscal years ended
August 31, 2010, 2009 and 2008, is provided in Item 6
Selected Financial Data. Except as otherwise
specified, references to years indicate our fiscal year ended
August 31, 2010, or ended August 31 of the year referenced.
Corporate administrative expenses are allocated to all three
segments, and Corporate and Other, based on either 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 will vary throughout the year. Overall, our
income is generally lowest during the second fiscal quarter and
highest during the third fiscal quarter. Our segments are
subject to varying seasonal fluctuations. For example, in our Ag
Business segment, our retail agronomy, wholesale crop nutrients
and country operations businesses generally experience higher
volumes and income during the spring planting season and in the
fall, which corresponds to harvest. Also in our Ag Business
segment, our grain marketing operations are 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
31
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 disease or insects, drought, the 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 from
businesses and operations which are wholly-owned and
majority-owned, a portion of our business operations are
conducted through companies in which we hold ownership interests
of 50% or less and 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. These
investments principally include our 50% ownership in each of the
following companies: Agriliance LLC (Agriliance), TEMCO, LLC
(TEMCO) and United Harvest, LLC (United Harvest), and our 45%
ownership in Multigrain S.A. included in our Ag Business
segment; our 50% ownership in Ventura Foods, LLC (Ventura
Foods), and our 24% ownerships in Horizon Milling, LLC (Horizon
Milling) and Horizon Milling G.P., included in our Processing
segment.
In December 2007, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Codification (ASC)
860-10-65-1,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin (ARB)
No. 51. ASC
860-10-65-1
establishes accounting and reporting standards that require: the
ownership interest in subsidiaries held by parties other than
the parent to be clearly identified and presented in the
consolidated balance sheets within equity, but separate from the
parents equity; the amount of consolidated net earnings
attributable to the parent and the noncontrolling interest to be
clearly identified and presented on the face of the consolidated
statements of operations; and changes in a parents
ownership interest while the parent retains its controlling
financial interest in its subsidiary to be accounted for
consistently.
We adopted
ASC 860-10-65-1
at the beginning of fiscal 2010. In accordance with the
accounting guidance, in order to conform to the current period
presentation, we made reclassifications within our Consolidated
Statements of Operations to net income to present the income
attributable to noncontrolling interests as a reconciling item
between net income and net income attributable to CHS Inc. Also,
noncontrolling interests previously reported as minority
interests have been reclassified to a separate section in equity
on our Consolidated Balance Sheets. In addition, certain other
reclassifications to our previously reported financial
information have been made to conform to the current period
presentation.
Results
of Operations
Comparison
of the years ended August 31, 2010 and 2009
General. We recorded income before income
taxes of $583.8 million in fiscal 2010 compared to
$503.7 million in fiscal 2009, an increase of
$80.1 million (16%). These results reflected increased
pretax earnings in our Ag Business and Processing segments,
while our Energy segment and Corporate and Other reflected
decreased pretax earnings.
Our Energy segment generated income before income taxes of
$234.4 million for the year ended August 31, 2010
compared to $418.7 million in fiscal 2009. This decrease in
earnings of $184.3 million (44%) is primarily from lower
margins on refined fuels mostly from our NCRA and Laurel,
Montana refineries. In addition, during fiscal 2009, we sold
180,000 shares of our NYMEX Holdings common stock for
proceeds of $16.1 million and recorded a pretax gain of
$15.7 million. Earnings in propane, lubricants, renewable
fuels marketing and transportation businesses improved during
fiscal 2010 compared to fiscal 2009, while our petroleum
equipment operations experienced lower earnings.
32
Our Ag Business segment generated income before income taxes of
$269.3 million for the year ended August 31, 2010
compared to $73.7 million in fiscal 2009, an increase in
earnings of $195.6 million (265%). Earnings from our
wholesale crop nutrients business were $124.1 million
higher during fiscal 2010 compared to fiscal 2009. The market
for crop nutrients products fell significantly during fiscal
2009 as declining fertilizer prices, an input to grain
production, followed the declining grain prices. During the late
fall of 2008, rains impeded the application of fertilizer, and
as a result, we had a higher quantity of inventories on hand at
the end of our first fiscal quarter of 2009 than is typical at
that time of year. Because there are no futures contracts or
other derivatives that can be used to hedge fertilizer
inventories and contracts effectively, a long inventory position
with falling prices creates losses. Depreciation in fertilizer
prices continued throughout fiscal 2009, which had the effect of
dramatically reducing gross margins on this product. The 2009
spring fertilizer volumes also declined compared to the prior
year because of inclement weather that again delayed the
application season, and because producers were reluctant to buy
fertilizer when the price was still in a rapid decline. To
reflect our wholesale crop nutrients inventories at net
realizable values, we made
lower-of-cost
or market adjustments during fiscal 2009 totaling approximately
$92 million, of which $8.6 million remained at
August 31, 2009. The price fluctuations for fiscal 2010
were far less volatile and we carried lower unhedged positions
as well, which has the effect of reducing both the potential for
large earnings or large losses. During fiscal 2010, we recorded
a gain related to the sales of many of the southern retail
facilities of Agriliance of $28.4 million. In addition,
Agriliance saw improved margins during fiscal 2010, partially
offset by reduced earnings from a Canadian equity investment
that was sold during the second quarter of fiscal 2009. Combined
agronomy equity investments resulted in a $39.9 million net
increase in earnings, net of allocated internal expenses. We
anticipate the repositioning of the majority of the remaining
Agriliance retail operations to occur during fiscal 2011. Our
grain marketing earnings decreased by $5.9 million during
fiscal 2010 when compared to fiscal 2009, primarily the result
of slightly higher expenses and net reduced earnings from joint
ventures, partially offset by higher grain margins and volumes.
Our country operations earnings increased $37.5 million,
primarily as a result of improved crop nutrients and grain
margins.
Our Processing segment generated income before income taxes of
$74.7 million for the year ended August 31, 2010,
compared to $4.1 million in fiscal 2009, an improvement in
earnings of $70.6 million. During fiscal 2009, we recorded
losses related to VeraSun Energy Corporation (VeraSun), net of
allocated expenses, of $84.3 million. Effective
April 1, 2008, US BioEnergy and VeraSun completed a merger,
and as a result of our change in ownership interest, we no
longer had significant influence, and therefore no longer
accounted for VeraSun, the surviving entity, using the equity
method. During fiscal 2009, we reflected a $74.3 million
loss on our investment in VeraSun, which declared bankruptcy in
October 2008. The write-off eliminated our remaining investment
in that company, as we had reflected an impairment of
$71.7 million during fiscal 2008, based on the market value
of the VeraSun stock on August 31, 2008. Further discussion
is contained below in (Gain) Loss on Investments.
Oilseed processing earnings increased $0.9 million during
fiscal 2010 compared to fiscal 2009, primarily due to improved
margins and volumes in our crushing operations, partially offset
by reduced margins in our refining operations. Our share of
earnings from our wheat milling joint ventures, net of allocated
internal expenses, increased $7.1 million in fiscal 2010
compared to fiscal 2009, primarily the result of improved
margins on the products sold. Our share of earnings from Ventura
Foods, our packaged foods joint venture, net of allocated
internal expenses, reflected a decrease of $21.7 million
during fiscal 2010 compared to fiscal 2009, primarily the result
of increased commodity prices for inputs, reducing margins on
the products sold.
Corporate and Other generated income before income taxes of
$5.4 million for the year ended August 31, 2010
compared to $7.2 million in fiscal 2009, which represents a
decrease in earnings of $1.8 million (25%). This decrease
in earnings is attributable to our business solutions
insurance services, due to a soft insurance market and financial
services, due to less lending activity.
Net Income attributable to CHS
Inc. Consolidated net income attributable to CHS
Inc. for the year ended August 31, 2010 was
$502.2 million compared to $381.4 million for the year
ended August 31, 2009, which represents a
$120.8 million (32%) increase.
Revenues. Consolidated revenues of
$25.3 billion for the year ended August 31, 2010
compared to $25.7 billion for the year ended
August 31, 2009, which represents a $462.0 million
(2%) decrease.
33
Total revenues include other revenues generated
primarily within our Ag Business segment and Corporate and
Other. Our Ag Business segments country operations
elevators and agri-service centers derive other revenues from
activities related to production agriculture, which include
grain storage, grain cleaning, fertilizer spreading, crop
protection spraying and other services of this nature, and our
grain marketing operations receive other revenues at our export
terminals from activities related to loading vessels. Corporate
and Other derives revenues primarily from our financing, hedging
and insurance operations.
Our Energy segment revenues, after elimination of intersegment
revenues, of $8.5 billion increased by $1.1 billion
(15%) during the year ended August 31, 2010 compared to
fiscal 2009. During the years ended August 31, 2010 and
2009, our Energy segment recorded revenues from our Ag Business
segment of $295.5 million and $251.6 million,
respectively, which are eliminated as part of the consolidation
process. The net increase in revenues of $1.1 billion is
comprised of a net increase of $0.8 billion related to
higher prices on refined fuels and renewable fuels marketing
products, partially offset by reduced prices on propane, and
$0.3 billion, primarily related to an increase in sales
volume in our renewable fuels marketing and propane operations.
Renewable fuels marketing revenues increased $0.5 billion
(84%), mostly the result of a 79% increase in volumes, coupled
with an increase in the average selling price of $0.05 per
gallon (3%), when compared with fiscal 2009. Refined fuels
revenues increased $0.4 billion (8%), of which
$0.6 billion was related to a net average selling price
increase, partially offset by $0.2 billion, which was
attributable to decreased volumes, compared to fiscal 2009. The
average selling price of refined fuels increased $0.25 per
gallon (14%), while volumes decreased 5% when comparing fiscal
2010 with fiscal 2009. The volume decrease in refined fuels
reflects an overall industry decrease. Propane revenues
decreased $20.5 million (3%), of which $77.1 million
was due to a lower average selling price, partially offset by an
8% increase in volumes or $56.6 million, when compared to
fiscal 2009. The average selling price of propane decreased
$0.12 (10%) compared to fiscal 2009. The increase in propane
volumes primarily reflects increased demand including an
improved crop drying season and an earlier home heating season.
Our Ag Business segment revenues, after elimination of
intersegment revenues, of $15.7 billion decreased
$1.5 billion (9%) during the year ended August 31,
2010 compared to fiscal 2009. Grain revenues in our Ag Business
segment totaled $12.1 billion and $13.0 billion during
the years ended August 31, 2010 and 2009, respectively. Of
the grain revenues decrease of $0.9 billion (7%),
$2.0 billion is attributable to decreased average grain
selling prices, partially offset by $1.1 billion due to
increased volumes during fiscal 2010 compared to fiscal 2009.
The average sales price of all grain and oilseed commodities
sold reflected a decrease of $1.06 per bushel (14%). The average
month-end market price per bushel of spring wheat, soybeans and
corn decreased approximately $1.05, $0.50 and $0.10,
respectively, when compared to the prices of those same grains
for fiscal 2009. Volumes increased 8% during fiscal 2010
compared with fiscal 2009. Wheat, corn, durum and distillers
dried grains reflected the largest volume increases, partially
offset by decreased volumes of soybeans, compared to fiscal 2009.
Wholesale crop nutrient revenues in our Ag Business segment
totaled $1.6 billion and $2.0 billion during the years
ended August 31, 2010 and 2009, respectively. Of the
wholesale crop nutrient revenues decrease of $474.3 million
(23%), $550.2 million is attributable to decreased average
fertilizer selling prices, partially offset by
$75.9 million due to increased volumes during fiscal 2010
compared to fiscal 2009. The average sales price of all
fertilizers sold reflected a decrease of $117 per ton (26%)
compared with fiscal 2009. Volumes increased 4% during the year
ended August 31, 2010 compared to fiscal 2009.
Our Ag Business segment non-grain and non-wholesale crop
nutrients product revenues of $1.8 billion decreased by
$68.4 million (4%) during fiscal 2010 compared to fiscal
2009, primarily due to decreased revenues of retail crop
nutrients, feed and processed sunflower products, partially
offset by increased prices in retail energy and seed products.
Other revenues within our Ag Business segment, which primarily
includes grain handling and service revenues, of
$186.8 million during fiscal 2010, decreased
$22.6 million (11%) when compared to fiscal 2009.
Our Processing segment revenues, after elimination of
intersegment revenues, of $1.1 billion decreased
$80.1 million (7%) during the year ended August 31,
2010 compared to fiscal 2009. Because our wheat milling and
packaged foods operations are conducted through non-consolidated
joint ventures, sales revenues reported in our Processing
segment consist entirely of revenues generated in our oilseed
processing operations.
34
Our oilseed operation net revenues decreased $80.1 million,
primarily from a decrease in the average selling price of
oilseed refined products, partially offset by increases in
refined and processed volumes, as compared to fiscal 2009.
Typically, changes in average selling prices of oilseed products
are primarily driven by the average market prices of soybeans.
Cost of Goods Sold. Consolidated cost of goods
sold of $24.4 billion for the year ended August 31,
2010 compared to $24.8 billion for the year ended
August 31, 2009, which represents a $452.5 million
(2%) decrease.
Our Energy segment cost of goods sold, after elimination of
intersegment costs, of $8.1 billion increased by
$1.3 billion (19%) during the year ended August 31,
2010 compared to fiscal 2009. The increase in cost of goods sold
is primarily due to increased per unit costs for refined fuels
products. Specifically, the average cost of refined fuels
increased $0.28 per gallon (15%), while volumes decreased by 5%
compared to fiscal 2009. On average, we process approximately
55,000 barrels of crude oil per day at our Laurel, Montana
refinery and 80,000 barrels of crude oil per day at
NCRAs McPherson, Kansas refinery. The average cost
increase is primarily related to higher input costs at our two
crude oil refineries coupled with higher average prices for the
refined products that we purchased for resale compared to fiscal
2009. The aggregate average per unit cost of crude oil purchased
for the two refineries increased 24% compared to fiscal 2009.
Renewable fuels marketing costs increased $496.0 million
(84%), mostly from a 79% increase in volumes, in addition to an
increase in the average cost of $0.05 per gallon (3%), when
compared to fiscal 2009. The average cost of propane decreased
$0.13 per gallon (11%), while volumes increased 8% compared to
fiscal 2009. The increase in propane volumes primarily reflects
increased demand caused by an improved crop drying season and an
earlier home heating season.
Our Ag Business segment cost of goods sold, after elimination of
intersegment costs, of $15.2 billion decreased
$1.7 billion (10%) during the year ended August 31,
2010 compared to fiscal 2009. Grain cost of goods sold in our Ag
Business segment totaled $11.8 billion and
$12.7 billion during the years ended August 31, 2010
and 2009, respectively. The cost of grains and oilseed procured
through our Ag Business segment decreased $0.9 billion (8%)
compared to fiscal 2009. This is primarily the result of a $1.06
(15%) decrease in the average cost per bushel, partially offset
by a 9% net increase in bushels purchased as compared to fiscal
2009. Wheat, corn, durum and distillers dried grains reflected
the largest volume increases, partially offset by decreased
volumes of soybeans, compared to fiscal 2009.
Wholesale crop nutrients cost of goods sold in our Ag Business
segment totaled $1.5 billion and $2.1 billion during
the years ended August 31, 2010 and 2009, respectively. Of
this decrease of $0.6 billion (29%), approximately
$92 million is due to the net change in the
lower-of-cost
or market adjustments on inventories during fiscal 2009 as
compared to fiscal 2010, as previously discussed. The average
cost per ton of fertilizer decreased $142 (31%), partially
offset by a net volume increase of 4% when compared to fiscal
2009.
Our Ag Business segment cost of goods sold, excluding the cost
of grains and wholesale crop nutrients procured through this
segment, decreased during the year ended August 31, 2010
compared to fiscal 2009, primarily due to reduced retail
fertilizer prices.
Our Processing segment cost of goods sold, after elimination of
intersegment costs, of $1.0 billion, decreased
$79.6 million (7%) during the year ended August 31,
2010 compared to fiscal 2009, which was primarily due to
decreased costs of soybeans purchased.
Marketing, General and
Administrative. Marketing, general and
administrative expenses of $366.6 million for the year
ended August 31, 2010 increased by $11.3 million (3%)
compared to fiscal 2009. The net increase of $11.3 million
is primarily due to expansion of foreign operations and
acquisitions within our Ag Business segment, net of a
$4.6 million reduction of expenses in our wholesale crop
nutrient operations, also in our Ag Business segment.
(Gain) Loss on Investments. We recognized a
net gain on investments of $29.4 million for the year ended
August 31, 2010, of which $28.4 million relates to the
sales of many of our remaining Agriliance facilities, included
in our Ag Business segment and other gains on investments
included in our Ag Business
35
and Energy segments and Corporate and Other, of
$0.4 million, $0.3 million and $0.3 million,
respectively. During fiscal 2009, we recorded a net loss on
investments of $56.3 million, including a
$74.3 million loss on our investment in VeraSun in our
Processing segment, due to their bankruptcy. This loss was
partially offset by a gain on investments in our Energy segment.
We sold all of our 180,000 shares of NYMEX Holdings stock
for proceeds of $16.1 million and recorded a pretax gain of
$15.7 million. Also during fiscal 2009, included in our Ag
Business segment, were net gains on investments sold of
$2.3 million.
Interest, net. Net interest of
$58.3 million for the year ended August 31, 2010
decreased $12.2 million (17%) compared to fiscal 2009.
Interest expense for the years ended August 31, 2010 and
2009 was $69.9 million and $85.7 million,
respectively. The decrease in interest expense of
$15.8 million (18%) primarily relates to the average level
of short-term borrowings, which decreased $123.9 million
(36%) during fiscal 2010 compared to fiscal 2009, mostly due to
significantly reduced working capital needs resulting from
overall lower commodity prices, in addition to reduced interest
expense due to the principal payments on our long-term debt in
the past 12 months. For the years ended August 31,
2010 and 2009, we capitalized interest of $6.2 million and
$5.2 million, respectively, primarily related to
construction projects in our Energy segment. Interest income,
generated primarily from marketable securities, was
$5.4 million and $10.0 million for the years ended
August 31, 2010 and 2009, respectively. The net decrease in
interest income of $4.6 million (46%) was mostly within
Corporate and Other, which primarily relates to marketable
securities with interest yields considerably lower than a year
ago.
Equity Income from Investments. Equity income
from investments of $108.8 million for the year ended
August 31, 2010 increased $3.0 million (3%) compared
to fiscal 2009. We record equity income or loss from the
investments in which we have an ownership interest of 50% or
less and have significant influence, but not control, for our
proportionate share of income or loss reported by the entity,
without consolidating the revenues and expenses of the entity in
our Consolidated Statements of Operations. The net increase in
equity income from investments was attributable to improved
earnings from investments in our Ag Business and Energy segments
of $7.0 million and $1.5 million, respectively,
partially offset by reduced net earnings in our Processing
segment and Corporate and Other of $5.4 million and
$0.1 million, respectively.
Our Ag Business segment reflected improved equity investment
earnings of $7.0 million. Our share of equity investment
earnings or losses in agronomy improved earnings by
$11.2 million, primarily as a result of improved southern
retail margins and the reduced expenses from their operations
sold during fiscal 2010 and 2009, partially offset by reduced
earnings of a Canadian agronomy joint venture, which was sold
during the second quarter of fiscal 2009. We had a net decrease
of $4.4 million from our share of equity investment
earnings in our grain marketing joint ventures during fiscal
2010 compared to the previous year, which is primarily related
to an international investment, partially offset by improved
export margins. Our country operations and crop nutrient
businesses reported an aggregate increase in equity investment
earnings of $0.2 million from several small equity
investments.
Our Processing segment reflected reduced equity investment
earnings of $5.4 million. We recorded reduced earnings for
Ventura Foods, our vegetable oil-based products and packaged
foods joint venture, of $14.9 million compared to fiscal
2009. Gross margins were extremely strong in 2009 for Ventura
Foods because of rapidly declining ingredient costs, and as
these costs stabilized, gross margins have returned to a more
normal level. We recorded improved earnings for Horizon Milling,
our domestic and Canadian wheat milling joint ventures, of
$9.5 million, net. Volatility in the grain markets created
wheat procurement opportunities, which increased margins for
Horizon Milling during fiscal 2010 compared to fiscal 2009.
Our Energy segment reflected improved equity investment earnings
of $1.5 million related to higher margins in an equity
investment held by NCRA.
Corporate and Other reflected reduced equity investment earnings
of $0.1 million as compared to fiscal 2009.
Income Taxes. Income tax expense of
$48.4 million for the year ended August 31, 2010,
compared with $63.3 million for fiscal 2009, resulting in
effective tax rates of 8.3% and 12.6%, respectively. The federal
and state statutory rate applied to nonpatronage business
activity was 38.9% for the years ended August 31, 2010
36
and 2009. The income taxes and effective tax rate vary each year
based upon profitability and nonpatronage business activity
during each of the comparable years.
Noncontrolling interests. Noncontrolling
interests of $33.2 million for the year ended
August 31, 2010 decreased by $25.7 million (44%)
compared to fiscal 2009. This net decrease was a result of less
profitable operations within our majority-owned subsidiaries
compared to fiscal 2009. Substantially all noncontrolling
interests relate to NCRA, an approximately 74.5% owned
subsidiary, which we consolidate in our Energy segment.
Comparison
of the years ended August 31, 2009 and 2008
General. We recorded income before income
taxes of $503.7 million in fiscal 2009 compared to
$946.7 million in fiscal 2008, a decrease of
$443.0 million (47%). These results reflected decreased
pretax earnings in our Ag Business segment, and Corporate and
Other, while our Energy and Processing segments reflected
increased pretax earnings.
Our Energy segment generated income before income taxes of
$418.7 million for the year ended August 31, 2009
compared to $371.6 million in fiscal 2008. This increase in
earnings of $47.1 million (13%) was primarily from higher
margins on refined fuels mostly from our Laurel, Montana
refinery, where during fiscal 2008 we completed a coker project
along with other refinery improvements, which allowed us to
extract a greater volume of high value gasoline and diesel fuel
and less relatively low value asphalt. In addition, during
fiscal 2009, we sold 180,000 shares of our NYMEX Holdings
common stock for proceeds of $16.1 million and recorded a
pretax gain of $15.7 million. Earnings in propane and
petroleum equipment businesses also improved during fiscal 2009
compared to fiscal 2008, while our lubricants, transportation
and renewable fuels marketing operations experienced lower
earnings.
Our Ag Business segment generated income before income taxes of
$73.7 million for the year ended August 31, 2009
compared to $568.7 million in fiscal 2008, a decrease in
earnings of $495.0 million (87%). During fiscal 2008, we
sold all of our remaining 1,610,396 shares of CF Industries
Holdings, Inc. (CF) stock, a domestic fertilizer manufacturer,
in which we held a minority interest, and for which we received
proceeds of $108.3 million and recorded a pretax gain of
$91.7 million. Earnings from our wholesale crop nutrients
business were $235.8 million less for fiscal 2009 compared
with fiscal 2008. The market for crop nutrients products fell
significantly during fiscal 2009 as fertilizer prices, an input
to grain production, followed the declining grain prices. During
the late fall of 2008, rains impeded the application of
fertilizer during that time period, and as a result, we had a
higher quantity of inventories on hand at the end of our first
fiscal quarter than is typical at that time of year. Because
there are no futures contracts or other derivatives that can be
used to hedge fertilizer inventories and contracts effectively,
an inventory long position with falling prices, creates losses.
Depreciation in fertilizer prices continued throughout fiscal
2009, which had the affect of dramatically reducing gross
margins on this product. The 2009 spring fertilizer volumes also
declined compared to the prior year because of inclement weather
that again delayed the application season, and because producers
were reluctant to buy fertilizer when the price was still in a
rapid decline. This situation was just the opposite during
fiscal 2008, when fertilizer prices appreciated rapidly, and the
market produced significantly higher margins on inventory that
had been purchased at relatively low prices. To reflect our
wholesale crop nutrients inventories at net realizable values,
we made
lower-of-cost
or market adjustments during fiscal 2009 totaling approximately
$92 million, of which $8.6 million remained at
August 31, 2009. Reduced performance by Agriliance,
partially offset by a net gain on the sale of a Canadian
agronomy equity investment, resulted in a $10.6 million net
decrease in earnings from these investments, net of allocated
internal expenses. As previously discussed, the repositioning of
the majority of the remaining Agriliance retail operations
occurred during fiscal 2010 with the remaining operating
locations repositioned in fiscal 2011. Our grain marketing
earnings decreased by $123.0 million during fiscal 2009
when compared to fiscal 2008, primarily the result of lower
grain margins and reduced earnings from joint ventures.
Volatility in the grain markets created exceptional
opportunities for grain margins during fiscal 2008, and reduced
demand as a result of the world-wide recession lessened those
opportunities during fiscal 2009. Our country operations
earnings decreased $33.9 million, primarily as a result of
reduced grain and crop nutrients margins.
37
Our Processing segment generated income before income taxes of
$4.1 million for the year ended August 31, 2009,
compared to a net loss of $5.8 million in fiscal 2008, an
improvement in earnings of $9.9 million. Our share of
losses, net of allocated internal expenses, related to US
BioEnergy Corporation (US BioEnergy), an ethanol manufacturing
company in which we held a minority ownership interest,
increased $4.1 million for fiscal 2009 compared to fiscal
2008. Effective April 1, 2008, US BioEnergy and VeraSun
Energy Corporation (VeraSun) completed a merger, and as a result
of our change in ownership interest, we no longer had
significant influence, and therefore no longer accounted for
VeraSun, the surviving entity, using the equity method. During
fiscal 2009, we reflected a $74.3 million loss on our
investment in VeraSun, which declared bankruptcy in October
2008. The write-off eliminated our remaining investment in that
company, as we had reflected an impairment of $71.7 million
during fiscal 2008, based on the market value of the VeraSun
stock on August 31, 2008. Further discussion is contained
below in (Gain) Loss on Investments. Oilseed
processing earnings decreased $14.5 million during fiscal
2009 compared to fiscal 2008, primarily due to reduced margins
and volumes in our crushing operations, partially offset by
improved margins in our refining operations. Our share of
earnings from our wheat milling joint ventures, net of allocated
internal expenses, decreased $19.0 million in fiscal 2009
compared to fiscal 2008, primarily the result of reduced margins
on the products sold. Our share of earnings from Ventura Foods,
our packaged foods joint venture, net of allocated internal
expenses, reflected an increase of $47.5 million during
fiscal 2009 compared to fiscal 2008, primarily as the result of
decreased commodity prices for inputs, improving margins on the
products sold.
Corporate and Other generated income before income taxes of
$7.2 million for the year ended August 31, 2009
compared to $12.3 million in fiscal 2008, which represented
a decrease in earnings of $5.1 million (42%). This decrease
in earnings was attributable to our business solutions
financial and hedging services, due to less activity and our
insurance services, due to a soft insurance market.
Net Income attributable to CHS
Inc. Consolidated net income attributable to CHS
Inc. for the year ended August 31, 2009 was
$381.4 million compared to $803.0 million for the year
ended August 31, 2008, which represented a
$421.6 million (53%) decrease.
Revenues. Consolidated revenues of
$25.7 billion for the year ended August 31, 2009
compared to $32.2 billion for the year ended
August 31, 2008, which represented a $6.5 billion
(20%) decrease.
Total revenues include other revenues generated
primarily within our Ag Business segment and Corporate and
Other. Our Ag Business segments country operations
elevators and agri-service centers derive other revenues from
activities related to production agriculture, which include
grain storage, grain cleaning, fertilizer spreading, crop
protection spraying and other services of this nature, and our
grain marketing operations receive other revenues at our export
terminals from activities related to loading vessels. Corporate
and Other derives revenues primarily from our financing, hedging
and insurance operations.
Our Energy segment revenues, after elimination of intersegment
revenues, of $7.4 billion decreased by $3.8 billion
(34%) during the year ended August 31, 2009 compared to
fiscal 2008. During the years ended August 31, 2009 and
2008, our Energy segment recorded revenues from our Ag Business
segment of $251.6 million and $322.5 million,
respectively, which are eliminated as part of the consolidation
process. The net decrease in revenues of $3.8 billion was
comprised of a net decrease of $3.2 billion related to
lower prices on refined fuels, propane and renewable fuels
marketing products and $0.6 billion, primarily related to a
decrease in sales volume in our renewable fuels marketing
operations. Refined fuels revenues decreased $3.0 billion
(38%), of which $2.8 billion was related to a net average
selling price decrease and $149.8 million was attributable
to slightly decreased volumes, compared to fiscal 2008. The
average selling price of refined fuels decreased $1.07 per
gallon (36%) and volumes decreased 2% when comparing fiscal 2009
with fiscal 2008. Renewable fuels marketing revenues decreased
$549.7 million (48%), mostly from a 35% decrease in
volumes, coupled with a decrease in the average selling price of
$0.44 per gallon (20%), when compared with fiscal 2008. The
decrease in renewable fuels marketing volumes was primarily
attributable to the loss of two customers. Propane revenues
increased by $7.2 million (1%), of which
$145.2 million related to an increase in volumes, partially
offset by a decrease of $138.0 million due to a lower
average selling price, when compared to fiscal 2008. Propane
sales volume increased 20%, while the average selling price
decreased $0.23 per gallon
38
(16%) compared to fiscal 2008. The increase in propane volumes
primarily reflects increased demand caused by an improved crop
drying season, lower prices and a longer home heating season.
Our Ag Business segment revenues, after elimination of
intersegment revenues, of $17.2 billion decreased
$2.5 billion (13%) during the year ended August 31,
2009 compared to fiscal 2008. Grain revenues in our Ag Business
segment totaled $13.0 billion and $15.0 billion during
the years ended August 31, 2009 and 2008, respectively. Of
the grain revenues decrease of $2.0 billion (13%),
$2.3 billion is attributable to decreased average grain
selling prices, partially offset by $339.5 million due to
increased volumes during fiscal 2009 compared to fiscal 2008.
The average sales price of all grain and oilseed commodities
sold reflected a decrease of $1.28 per bushel (15%). The average
month-end market price per bushel of spring wheat, soybeans and
corn decreased approximately $4.55, $2.44 and $1.38,
respectively, when compared to the prices of those same grains
for fiscal 2008. Volumes increased 2% during fiscal 2009
compared with fiscal 2008. Soybeans reflected a fiscal 2009
fourth quarter volume rally in bushels sold and exceeded fiscal
2008, partially offset by decreased volumes of wheat, durum and
barley, compared to fiscal 2008. Both price declines and
relatively flat volumes were reflective of reduced demand as a
result of the world-wide recession.
Wholesale crop nutrient revenues in our Ag Business segment
totaled $2.0 billion and $2.7 billion during the years
ended August 31, 2009 and 2008, respectively. Of the
wholesale crop nutrient revenues decrease of $648.6 million
(24%), $676.7 million is attributable to decreased volumes,
partially offset by $28.1 million due to increased average
fertilizer selling prices during fiscal 2009 compared to fiscal
2008. This slightly favorable price variance was created by high
priced sales contracts with customers before the collapse in
crop nutrient prices in the fall of 2008. The average sales
price of all fertilizers sold reflected an increase of $6 per
ton (1%) compared with fiscal 2008. Volumes decreased 25% during
the year ended August 31, 2009, compared with fiscal 2008,
mainly due to higher and volatile fertilizer prices and adverse
weather conditions during the fall of 2008 and which continued
in the spring of 2009.
Our Ag Business segment non-grain and non-wholesale crop
nutrients product revenues of $1.9 billion increased by
$34.5 million (2%) during fiscal 2009 compared to fiscal
2008, primarily on account of increased revenues of retail crop
nutrients, crop protection, seed, feed and processed sunflower
products, partially offset by decreased prices in retail energy.
This revenue increase was driven by incremental volumes sold
through facilities acquired during fiscal 2009. Other revenues
within our Ag Business segment of $209.4 million during
fiscal 2009 increased $32.0 million (18%) compared to
fiscal 2008, primarily from grain handling and service revenues.
Our Processing segment revenues, after elimination of
intersegment revenues, of $1.1 billion decreased
$159.0 million (12%) during the year ended August 31,
2009 compared to fiscal 2008. Because our wheat milling and
packaged foods operations are conducted through non-consolidated
joint ventures, sales revenues reported in our Processing
segment consist entirely of revenue generated in our oilseed
processing operations. Our oilseed operation net revenues
decreased $159.0 million, primarily from a decrease in
volume, in addition to a reduction in the average selling price
of oilseed products, as compared to fiscal 2008. Typically,
changes in average selling prices of oilseed products are
primarily driven by the average market prices of soybeans.
Cost of Goods Sold. Consolidated cost of goods
sold of $24.8 billion for the year ended August 31,
2009 compared to $31.0 billion for the year ended
August 31, 2008, which represents a $6.2 billion (20%)
decrease.
Our Energy segment cost of goods sold, after elimination of
intersegment costs, of $6.9 billion decreased by
$3.8 billion (36%) during the year ended August 31,
2009 compared to fiscal 2008. The decrease in cost of goods sold
was primarily due to decreased per unit costs for refined fuels
products. Specifically, the average cost of refined fuels
decreased $1.09 per gallon (38%), while volumes slightly
decreased by 2% compared to fiscal 2008. On average, we process
approximately 55,000 barrels of crude oil per day at our
Laurel, Montana refinery and 80,000 barrels of crude oil
per day at NCRAs McPherson, Kansas refinery. The average
cost decrease is primarily related to lower input costs at our
two crude oil refineries and lower average prices for the
refined products that we purchased for resale compared to fiscal
2008. The aggregate average per unit cost of crude oil purchased
for the two refineries decreased 41% compared to fiscal 2008.
Renewable fuels marketing costs decreased $545.4 million
(48%), mostly from a 35% decrease in volumes driven by the loss
of
39
two customers, in addition to a decrease in the average cost of
$0.44 per gallon (20%), when compared to fiscal 2008. The
average cost of propane decreased $0.24 per gallon (16%), while
volumes increased 20% compared to fiscal 2008. The increase in
propane volumes primarily reflects increased demand caused by an
improved crop drying season, lower prices and a more favorable
home heating season.
Our Ag Business segment cost of goods sold, after elimination of
intersegment costs, of $16.9 billion decreased
$2.2 billion (11%) during the year ended August 31,
2009 compared to fiscal 2008. Grain cost of goods sold in our Ag
Business segment totaled $12.7 billion and
$14.6 billion during the years ended August 31, 2009
and 2008, respectively. The cost of grains and oilseed procured
through our Ag Business segment decreased $1.9 billion
(13%) compared to fiscal 2008. This is primarily the result of a
$1.24 (15%) decrease in the average cost per bushel, partially
offset by a 2% net increase in bushels purchased as compared to
fiscal 2008. Wheat, durum and barley volumes decreased while
soybeans volumes increased compared to fiscal 2008.
Wholesale crop nutrients cost of goods sold in our Ag Business
segment totaled $2.1 billion and $2.5 billion during
the years ended August 31, 2009 and 2008, respectively.
This decrease of $408.8 million (17%) in wholesale crop
nutrients cost of goods sold was partially offset by additional
costs of goods sold of approximately $92 million, which was
due to
lower-of-cost
or market adjustments on inventories. The average cost per ton
of fertilizer increased $49 (12%), while net volumes decreased
25% when compared to fiscal 2008. The net volume decrease was
mainly due to higher and volatile prices and inclement fall and
spring weather, which made it difficult for farmers to apply
fertilizers.
Our Ag Business segment cost of goods sold, excluding the cost
of grains and wholesale crop nutrients procured through this
segment, increased during the year ended August 31, 2009
compared to fiscal 2008, primarily due to increased volumes sold
due to acquisitions.
Our Processing segment cost of goods sold, after elimination of
intersegment costs, of $1.1 billion, decreased
$144.2 million (12%) during the year ended August 31,
2009 compared to fiscal 2008, which was primarily due to
decreased costs of soybeans and volumes.
Marketing, General and
Administrative. Marketing, general and
administrative expenses of $355.3 million for the year
ended August 31, 2009 increased by $25.3 million (8%)
compared to fiscal 2008. The net increase of $25.3 million
included $7.6 million related to consolidating Cofina
Financial, expansion of foreign operations within our Ag
Business segment, other acquisitions and general inflation.
(Gain) Loss on Investments. We incurred a net
loss on investments of $56.3 million for the year ended
August 31, 2009, compared to a net gain on investments of
$29.2 million during fiscal 2008. During fiscal 2009, we
recorded a $74.3 million loss on our investments in VeraSun
in our Processing segment due to its bankruptcy, which was
partially offset by a gain on investments in our Energy segment
as we had sold 180,000 of our shares of NYMEX Holdings common
stock for proceeds of $16.1 million and recorded a pretax
gain of $15.7 million. Also during fiscal 2009, included in
our Ag Business segment, were net gains on investments sold of
$2.3 million.
As reported in our Ag Business segment for fiscal 2008, we sold
all of our remaining shares of CF stock, which generated
proceeds of $108.3 million and a pretax gain of
$91.7 million. Also during fiscal 2008, included in our
Energy and Ag Business segments and Corporate and Other, were
other gains on securities sold of $35 thousand,
$9.1 million and $0.9 million, respectively. These
gains were partially offset by losses on investments of
$72.6 million in our Processing segment. During fiscal
2008, we recorded an impairment of our investment in VeraSun of
$71.7 million based on VeraSuns market value of $5.76
per share on August 29, 2008.
Interest, net. Net interest of
$70.5 million for the year ended August 31, 2009
decreased $6.0 million (8%) compared to fiscal 2008.
Interest expense for the years ended August 31, 2009 and
2008 was $85.7 million and $100.1 million,
respectively. The interest expense decrease of
$14.4 million (14%) was after the effect of an additional
$9.3 million of interest expense resulting from the
consolidation of Cofina Financial. Through August 31, 2008,
we held a 49% ownership interest in Cofina Financial and
accounted for our investment using the equity method of
accounting. On September 1, 2008, we purchased the 51%
ownership
40
interest held by our joint venture partner. The increase in
interest expense related to Cofina Financial to finance its loan
portfolio was more than offset by decreases in the average
short-term interest rate and short-term borrowing volume used to
finance our remaining operations. The average short-term
interest rate decreased 3.38% (81%) for loans excluding Cofina
Financial, and the average level of short-term borrowings
decreased $485.6 million (89%) during the year ended
August 31, 2009 compared to fiscal 2008, mostly due to
significantly reduced working capital needs resulting from lower
commodity prices. For the years ended August 31, 2009 and
2008, we capitalized interest of $5.2 million and
$9.8 million, respectively, primarily related to
construction projects in our Energy segment. The decrease in
capitalized interest reflects the completion of our Laurel,
Montana coker project during fiscal 2008. Interest income,
generated primarily from marketable securities, was
$10.0 million and $13.9 million for the years ended
August 31, 2009 and 2008, respectively. The net decrease in
interest income of $3.9 million (28%) was mostly at NCRA
within our Energy segment, which primarily relates to marketable
securities with interest yields considerably lower than the
previous year.
Equity Income from Investments. Equity income
from investments of $105.8 million for the year ended
August 31, 2009 decreased $44.6 million (30%) compared
to fiscal 2008. We record equity income or loss from the
investments in which we have an ownership interest of 50% or
less and have significant influence, but not control, for our
proportionate share of income or loss reported by the entity,
without consolidating the revenues and expenses of the entity in
our Consolidated Statements of Operations. The net decrease in
equity income from investments was attributable to reduced
earnings from investments in our Ag Business and Energy
segments, and Corporate and Other of $64.8 million,
$1.0 million and $4.7 million, respectively, partially
offset by improved net earnings in our Processing segment of
$25.9 million.
Our Ag Business segment reflected reduced equity investment
earnings of $64.8 million. Our share of equity investment
earnings or losses in agronomy decreased earnings by
$12.2 million, primarily from reduced southern retail
margins. During fiscal 2008, our grain marketing export joint
ventures generated large earnings due to strong global demand,
while fiscal 2009 earnings in these same joint ventures returned
to more normal levels, resulting in a net decrease of
$51.4 million during fiscal 2009. Our country operations
business reported an aggregate decrease in equity investment
earnings of $1.2 million from several small equity
investments.
Our Processing segment reflected improved equity investment
earnings of $25.9 million. Ventura Foods, our vegetable
oil-based products and packaged foods joint venture, recorded
improved equity investment earnings of $47.0 million
compared to fiscal 2008. Ventura Foods increase in
earnings was primarily due to lower commodity prices for inputs,
resulting in improved margins on the products sold. Horizon
Milling, our domestic and Canadian wheat milling joint ventures,
along with a small milling investment, recorded combined reduced
equity investment earnings of $19.3 million compared to
fiscal 2008. Volatility in the grain markets created wheat
procurement opportunities, which increased margins for Horizon
Milling during fiscal 2008, and this profit opportunity has been
generally limited to normal milling margins during fiscal 2009.
During fiscal 2008, we recorded equity earnings of
$1.8 million related to US BioEnergy, an ethanol
manufacturing company in which we held a minority ownership
interest. Effective April 1, 2008, US BioEnergy and VeraSun
completed a merger, and as a result of our change in ownership
interest we no longer had significant influence and therefore no
longer recognized income or losses under the equity method of
accounting. At the end of fiscal 2009, we no longer held any
investment in this company.
Our Energy segment reflected reduced equity investment earnings
of $1.0 million related to reduced margins in an equity
investment held by NCRA.
Corporate and Other reflected reduced equity investment earnings
of $4.7 million, as compared to fiscal 2008, primarily due
to our consolidation of Cofina Financial which in fiscal 2008
had been reported under the equity method of accounting.
Income Taxes. Income tax expense of
$63.3 million for the year ended August 31, 2009,
compared with $71.9 million for fiscal 2008, resulting in
effective tax rates of 12.6% and 7.6%, respectively. The federal
and state statutory rate applied to nonpatronage business
activity was 38.9% for the years ended August 31, 2009 and
2008. The income taxes and effective tax rate vary each year
based upon profitability and nonpatronage business activity
during each of the comparable years.
41
Noncontrolling interests. Noncontrolling
interests of $59.0 million for the year ended
August 31, 2009 decreased by $12.9 million (18%)
compared to fiscal 2008. This net decrease was a result of less
profitable operations within our majority-owned subsidiaries
compared to fiscal 2008. Substantially all noncontrolling
interests relate to NCRA, an approximately 74.5% owned
subsidiary, which we consolidate in our Energy segment.
Liquidity
and Capital Resources
On August 31, 2010, we had working capital, defined as
current assets less current liabilities, of
$1,604.0 million and a current ratio, defined as current
assets divided by current liabilities, of 1.4 to 1.0 compared to
working capital of $1,626.4 million and a current ratio of
1.5 to 1.0 on August 31, 2009.
On August 31, 2010, we had two committed lines of credit.
One of these lines of credit was initially a five-year
$1.3 billion committed revolving facility, with no amount
outstanding on August 31, 2009. In June 2010, we amended
this facility and reduced the committed amount from
$1.3 billion to $700 million, with the May 2011
maturity date remaining the same, and with no amount outstanding
on August 31, 2010. Also in June 2010, we entered into a
new five-year $900 million committed facility that expires
in June 2015, which had no amount outstanding on August 31,
2010. We previously had a $300 million
364-day
revolving line of credit that expired in February 2010, which
had no amount outstanding on August 31, 2009. These credit
facilities are established with a syndication of domestic and
international banks, and our inventories and receivables
financed with them are highly liquid. In addition to these
revolving facilities, we have two commercial paper programs
totaling $125.0 million with banks participating in our
five-year revolving facility. On August 31, 2010 and 2009,
we had no commercial paper outstanding. Subsequent to
August 31, 2010, commodity prices have appreciated and
because of this, along with strong grain volumes produced by an
excellent harvest, we are now utilizing our committed lines of
short-term credit. We believe that we have adequate liquidity to
cover any increase in net operating assets and liabilities
created by commodity prices within the most probable range, as
well as expected capital expenditures in the foreseeable future.
We also believe that because of the low leverage ratios we
currently have, we could add additional borrowing capacity in
the event commodity prices appreciated still further, or our
volume of business increases.
In addition, our wholly-owned subsidiary, Cofina Financial,
makes seasonal and term loans to member cooperatives, businesses
and individual producers of agricultural products included in
our cash flows from investing activities, and has its own
financing explained in further detail below under Cash
Flows from Financing Activities.
Cash
Flows from Operations
Cash flows from operations are generally affected by commodity
prices and the seasonality of our businesses. These commodity
prices are affected by a wide range of factors beyond our
control, including weather, crop conditions, drought, the
availability and the adequacy of supply and transportation,
government regulations and policies, world events and general
political and economic conditions. These factors are described
in the cautionary statement in Part I, Item 1A of this
Annual Report on
Form 10-K,
and may affect net operating assets and liabilities, and
liquidity.
Cash flows provided by operating activities were
$150.0 million, $1,734.8 million and
$805.4 million for the years ended August 31, 2010,
2009 and 2008, respectively. The fluctuation in cash flows from
operations between fiscal 2010 and 2009 was primarily from a net
increase in operating assets and liabilities during fiscal 2010,
compared to a net decrease in fiscal 2009. Commodity prices
increased during fiscal 2010 after declining significantly
during fiscal 2009. The fluctuation in cash flows from
operations between fiscal 2009 and 2008 was primarily from a net
decrease in operating assets and liabilities during fiscal 2009
compared to a net increase in fiscal 2008, partially offset by
decreased operating earnings in fiscal 2009 compared to fiscal
2008.
Our operating activities provided net cash of
$150.0 million during the year ended August 31, 2010.
Net income including noncontrolling interests of
$535.4 million and net non-cash expenses and cash
distributions
42
from equity investments of $199.0 million were partially
offset by an increase in net operating assets and liabilities of
$584.4 million. The primary components of net non-cash
expenses and cash distributions from equity investments included
depreciation and amortization, including amortization of major
repair costs, of $221.5 million and deferred taxes of $39.5
million which were partially offset by gains on investments of
$29.4 million and income from equity investments, net of
redemptions from those investments, of $19.1 million. Gains
on investments were previously discussed in Results of
Operations, and includes a $28.4 million gain
recognized as a result of cash distributions received from
Agriliance, primarily from the sale of many of its retail
facilities. The increase in net operating assets and liabilities
was caused primarily by an increase in commodity prices in
addition to inventory quantities, and is reflected in increased
inventories, hedging deposits included in other current assets
and receivables, partially offset by an increase in accounts
payable, accrued expenses, customer credit balances and advance
payments on August 31, 2010 when compared to
August 31, 2009. On August 31, 2010, the per bushel
market prices of two of our three primary grain commodities,
spring wheat and corn, increased by $1.75 (34%) and $0.98 (30%),
respectively, while soybeans decreased by $0.92 (8%) when
compared to the spot prices on August 31, 2009. In general,
crude oil market prices increased $2 per barrel (3%) on
August 31, 2010 when compared to August 31, 2009. In
addition, on August 31, 2010, fertilizer commodity prices
affecting our wholesale crop nutrients and country operations
retail businesses generally reflected increases between 5% and
62%, depending on the specific products, compared to prices on
August 31, 2009, with the exception of potash, which
decreased approximately 20%. An increase in grain inventory
quantities in our Ag Business segment of 59.7 million
bushels (65%) also contributed to the increase in net operating
assets and liabilities when comparing inventories at
August 31, 2010 to August 31, 2009.
Our operating activities provided net cash of
$1,734.8 million during the year ended August 31,
2009. Net income including noncontrolling interests of
$440.4 million, net non-cash expenses and cash
distributions from equity investments of $285.9 million and
a decrease in net operating assets and liabilities of
$1,008.5 million provided the net cash from operating
activities. The primary components of net non-cash expenses and
cash distributions from equity investments included depreciation
and amortization, including amortization of major repair costs,
of $221.3 million, loss on investments of
$56.3 million and deferred taxes of $44.0 million,
which were partially offset by income from equity investments,
net of redemptions from those investments, of
$25.4 million. Loss on investments was previously discussed
in Results of Operations, and was primarily
comprised of the loss on our VeraSun investment, partially
offset by gains from the sales of an agronomy investment and our
NYMEX Holdings common stock. The decrease in net operating
assets and liabilities was caused primarily by a decline in
commodity prices reflected in decreased inventories and
receivables, partially offset by a decrease in accounts payable,
accrued expenses and customer advance payments on
August 31, 2009 when compared to August 31, 2008. On
August 31, 2009, the per bushel market prices of our three
primary grain commodities, corn, spring wheat and soybeans
decreased by $2.42 (43%), $3.40 (39%) and $2.32 (17%),
respectively, when compared to the spot prices on
August 31, 2008. In general, crude oil market prices
decreased $46 per barrel (39%) on August 31, 2009 when
compared to August 31, 2008. In addition, on
August 31, 2009, fertilizer commodity prices affecting our
wholesale crop nutrients and country operations retail
businesses reflected decreases between 45% and 71%, depending on
the specific products, compared to prices on August 31,
2008. A decrease in grain inventory quantities in our Ag
Business segment of 12.4 million bushels (12%) also
contributed to the decrease in net operating assets and
liabilities when comparing inventories at August 31, 2009
to August 31, 2008.
Our operating activities provided net cash of
$805.4 million during the year ended August 31, 2008.
Net income including noncontrolling interests of
$874.9 million and net non-cash expenses and cash
distributions from equity investments of $157.8 million
were partially offset by an increase in net operating assets and
liabilities of $227.3 million. The primary components of
net non-cash expenses and cash distributions from equity
investments included depreciation and amortization, including
amortization of major repair costs, of $210.4 million and
deferred taxes of $26.0 million, which were partially
offset by income from equity investments, net of distributions,
of $40.4 million and a pretax net gain on investments of
$29.2 million. Gains on investments were previously
discussed in Results of Operations, and were
primarily comprised of the gain on the sale of all of our shares
of CF common stock, partially offset by an impairment of our
VeraSun investment. The increase in net operating assets and
liabilities was caused primarily by increased commodity prices
reflected in increased inventories, receivables, derivative
assets and hedging deposits included in other
43
current assets, partially offset by an increase in accounts
payable, accrued expenses, customer advance payments and
derivative liabilities on August 31, 2008 when compared to
August 31, 2007. On August 31, 2008, the per bushel
market prices of our three primary grain commodities, corn,
soybeans and spring wheat, increased by $2.44 (75%), $4.64 (53%)
and $1.69 (24%), respectively, when compared to the spot prices
on August 31, 2007. The affect of increased grain prices on
our operating assets and liabilities was partially offset by a
decrease in our Ag Business segment grain inventories of
44.7 million bushels (30%) when comparing inventories at
August 31, 2008 to August 31, 2007. In general, crude
oil market prices increased $41 per barrel (56%) on
August 31, 2008 when compared to August 31, 2007. In
addition, on August 31, 2008, fertilizer commodity prices
affecting our country operations retail businesses reflected
increases between 73% and 248%, depending on the specific
products, compared to prices on August 31, 2007.
Subsequent to our fiscal year ended August 31, 2010, grain
prices continued to rise due to concerns of wheat supply from
the Black Sea region and an announcement from the United States
Department of Agriculture that corn yields in the
U.S. would likely be less than previously forecasted.
Because the largest share of our grain origination is
U.S. based, these conditions provide exceptional earnings
opportunities, but also cause us to carry inventories (that are
nearly fully hedged) and receivables of greater relative value
than a year ago. This would have the effect of reducing cash
flows from operations until commodity prices once again adjust
back to more normal levels.
Cash
Flows from Investing Activities
For the years ended August 31, 2010, 2009 and 2008, the net
cash flows used in our investing activities totaled
$289.6 million, $290.4 million and
$663.7 million, respectively.
The acquisition of property, plant and equipment comprised the
primary use of cash totaling $324.3 million,
$315.5 million and $318.6 million for the years ended
August 31, 2010, 2009 and 2008, respectively. Included in
our total acquisitions of property, plant and equipment for
fiscal 2010 and 2009, were capital expenditures for an
Environmental Protection Agency mandated regulation that
requires the reduction of the benzene level in gasoline to be
less than 0.62% volume by January 1, 2011. We anticipate
the combined capital expenditures to reduce the current gasoline
benzene levels to the regulated levels for our Laurel, Montana
and NCRA refineries to be approximately $114 million, of
which $43 million and $33 million were spent during
the years ended August 31, 2010 and 2009, respectively.
Included in our total acquisitions of property, plant and
equipment for fiscal 2008 were capital expenditures for the
installation of a coker unit at our Laurel, Montana refinery,
along with other refinery improvements, in the amount of
$132.5 million. The coker project was completed in fiscal
2008, and allows us to extract a greater volume of high value
gasoline and diesel fuel from a barrel of crude oil and less
relatively low value asphalt.
Expenditures for major repairs related to our refinery
turnarounds were $7.6 million, $1.8 million and
$21.7 million during the years ended August 31, 2010,
2009 and 2008, respectively. Refineries have planned major
maintenance to overhaul, repair, inspect and replace process
materials and equipment. Our Laurel refinery has scheduled
shutdowns on specific units which began in late September 2010
with anticipated startup dates in early November 2010. Other
areas of the refinery will continue operations. Our McPherson
refinery scheduled a complete shutdown of all units for the
month of October 2010, and anticipates a complete startup in
early November 2010.
For the year ending August 31, 2011, we expect total
expenditures for the acquisition of property, plant and
equipment and major repairs at our refineries to be
approximately $639.1 million.
In October 2003, we and NCRA reached agreements with the EPA and
the State of Montanas Department of Environmental Quality
and the State of Kansas Department of Health and Environment
regarding the terms of settlements with respect to reducing air
emissions at our Laurel, Montana and NCRAs McPherson,
Kansas refineries. These settlements are part of a series of
similar settlements that the EPA has negotiated with major
refiners under the EPAs Petroleum Refinery Initiative. The
settlements take the form of consent decrees filed with the
U.S. District Court for the District of Montana (Billings
Division) and the U.S. District Court for the District of
Kansas. Each consent decree details potential capital
improvements, supplemental environmental projects and
operational changes that we and NCRA have agreed to implement at
44
the relevant refinery over several years. The consent decrees
also required us, and NCRA, to pay approximately
$0.5 million in aggregate civil cash penalties. As of
August 31, 2010, the aggregate capital expenditures for us
and NCRA related to these settlements are complete, and totaled
approximately $37 million. These settlements did not have a
material adverse effect on us, or NCRA.
Investments made during the years ended August 31, 2010,
2009 and 2008, totaled $38.1 million, $120.2 million
and $370.2 million, respectively.
During the year ended August 31, 2007, we invested in
Multigrain AG (Multigrain) for a 37.5% equity position in a
Brazil-based grain handling and merchandising company,
Multigrain S.A., headquartered in Sao Paulo, Brazil. The
venture, included in our Ag Business segment, operates grain
storage, export facilities and grain production and builds on
our South American soybean origination. During the year ended
August 31, 2008, we increased our equity position through a
purchase from an existing equity holder for $10.0 million,
and also invested an additional $30.3 million which was
used by Multigrain to invest in a joint venture that acquired
production farmland and related operations. During fiscal 2009,
we invested $76.3 million for Multigrains increased
capital needs resulting from expansion of their operations, and
during the year ended August 31, 2010, we invested an
additional $24.0 million. Our current ownership interest is
approximately 45%.
We have opened additional international offices between July
2007 and fiscal 2010, which are included in our Ag Business
segment. These include Geneva, Switzerland; Kiev, Ukraine; and
Vostok, Russia for sourcing and marketing grains and oilseeds
through the Black Sea and Mediterranean Basin regions to
customers worldwide. Offices in Hong Kong and Shanghai, China
serve Pacific Rim customers receiving grains and oilseeds from
our origination points in North and South America. The most
recent grain merchandising offices were opened in fiscal 2009
and 2010, and are located in Barcelona, Spain, and Buenos Aires,
Argentina, respectively.
During the year ended August 31, 2010, we invested
$5.8 million in a grain procurement and merchandising joint
venture in Russia, included in our Ag Business segment. Our
current ownership interest is 50%.
We have a 50% interest in Ventura Foods, a joint venture which
produces and distributes primarily vegetable oil-based products,
and is included in our Processing segment. During the years
ended August 31, 2009 and 2008, we made capital
contributions to Ventura Foods of $35.0 million and
$20.0 million, respectively.
In September 2007, Agriliance distributed its wholesale crop
nutrients and crop protection assets to us and Land
OLakes, respectively, and continued to operate its retail
facilities. During the year ended August 31, 2008, we made
a $13.0 million net cash payment to Land OLakes in
order to maintain equal capital accounts in Agriliance, and Land
OLakes paid us $8.3 million for additional assets
distributed to them by Agriliance related to joint venture
ownership interests. In addition, during the year ended
August 31, 2008, our net contribution to Agriliance was
$235.0 million, which supported their working capital
requirements for ongoing operations, with Land OLakes
making equal contributions to Agriliance. During the years ended
August 31, 2010 and 2009, we received $105.0 million
and $25.0 million of distributions from Agriliance as a
return of capital, respectively. The distributions received
during the year ended August 31, 2010, were primarily for
proceeds Agriliance received from the sale of many of its retail
facilities. Agriliance continues to exist as a
50-50 joint
venture as the company winds down its business activity and
primarily holds long-term liabilities.
Cash acquisitions of businesses, net of cash received, totaled
$6.3 million, $76.4 million and $47.0 million
during the years ended August 31, 2010, 2009 and 2008,
respectively. During the year ended August 31, 2010, our Ag
Business segment had small acquisitions totaling
$6.3 million. In fiscal 2009, Cofina Financial became a
wholly-owned subsidiary when we purchased the remaining 51%
ownership interest for $53.3 million. The purchase included
cash of $40.2 million, representing a $48.5 million
payment net of cash received of $8.3 million, and the
assumption of certain liabilities of $4.8 million. Also
during fiscal 2009, our Ag Business segment had acquisitions of
$36.2 million. In fiscal 2008, we purchased a soy-based
food ingredients business included in our Processing segment and
an energy and convenience store business included in our Energy
45
segment. In addition, we acquired and paid for a distillers
dried grain business included in our Ag Business segment during
fiscal 2008 and 2007.
Various other cash acquisitions of intangible assets totaled
$1.0 million, $2.4 million and $3.4 million
during the years ended August 31, 2010, 2009 and 2008,
respectively.
Changes in notes receivable for the year ended August 31,
2010, resulted in a net decrease in cash flows of
$41.9 million. The primary cause of the net decrease in
cash flows was additional Cofina Financial notes receivable from
its customers in the amount of $104.8 million on
August 31, 2010, compared to August 31, 2009, and was
partially offset by a net increase in cash flows of
$62.9 million, primarily from decreased related party notes
receivable at NCRA from its minority owners. Partially
offsetting our cash outlays for investing activities for the
year ended August 31, 2009, were changes in notes
receivable that resulted in a net increase in cash flows of
$123.3 million. This net increase primarily includes an
increase in cash flows of $161.2 million from Cofina
Financial notes receivable from its customers, partially offset
by a net decrease in cash flows of $37.9 million from
additional related party notes receivable at NCRA from its
minority owners and other notes. For the year ended
August 31, 2008, changes in notes receivable resulted in a
net decrease in cash flows of $67.1 million. During fiscal
2008, $46.0 million of the net decrease in cash flows
resulted from a note receivable from Cofina Financial, prior to
it becoming a wholly-owned subsidiary, and the balance was
primarily from related party notes receivable at NCRA from its
minority owners.
Partially offsetting our cash outlays for investing activities
during the years ended August 31, 2010, 2009 and 2008, were
redemptions of investments totaling $119.3 million,
$39.8 million and $43.0 million, respectively. During
fiscal 2010 and 2009, $105.0 million and $25.0 million
of the redemptions received, respectively, were from Agriliance
as a return of capital, as previously discussed. Also partially
offsetting our cash outlays for investing activities during the
years ended August 31, 2009 and 2008, were proceeds from
the sale of investments of $41.8 million and
$122.1 million, respectively, which were previously
discussed in Results of Operations. These proceeds
were primarily from the sale of an agronomy investment and our
NYMEX Holdings common stock during fiscal 2009, and the sale of
our CF common stock in fiscal 2008. In addition, for the years
ended August 31, 2010, 2009 and 2008, we received proceeds
from the disposition of property, plant and equipment of
$10.1 million, $10.8 million and $9.3 million,
respectively.
Cash
Flows from Financing Activities
Working
Capital Financing:
We finance our working capital needs through short-term lines of
credit with a syndication of domestic and international banks.
On August 31, 2010, we had two committed lines of credit.
One of these lines of credit was initially a five-year
$1.3 billion committed revolving facility. In June 2010, we
amended this facility and reduced the committed amount from
$1.3 billion to $700 million, with the May 2011
maturity date remaining the same. Also in June 2010, we entered
into a new five-year $900 million committed facility that
expires in June 2015. We previously had a $300 million
364-day
revolving line of credit that expired in February 2010. In
addition to these lines of credit, we have a committed revolving
credit facility dedicated to NCRA, with a syndication of banks
in the amount of $15.0 million. In December 2009, the line
of credit dedicated to NCRA was renewed for an additional year.
Our wholly-owned subsidiaries, CHS Europe S.A. and CHS do Brasil
Ltda., have uncommitted lines of credit to finance their normal
trade grain transactions, which are collateralized by
$27.1 million of inventories and receivables as of
August 31, 2010. On August 31, 2010 and 2009, we had
total short-term indebtedness outstanding on these various
facilities and other miscellaneous short-term notes payable
totaling $29.8 million and $19.2 million,
respectively, with interest rates ranging from 1.00% to 8.50% on
August 31, 2010. Proceeds from our long-term borrowings
totaling $600.0 million during the year ended
August 31, 2008, were used to pay down our five-year
revolving facility and are explained in further detail below.
We have two commercial paper programs totaling up to
$125.0 million, with two banks participating in our
five-year revolving credit facility. Terms of our five-year
revolving credit facility allow a maximum usage of commercial
paper of $200.0 million at any point in time. The
commercial paper programs do not increase our committed
borrowing capacity in that we are required to have at least an
equal amount of undrawn
46
capacity available on our five-year revolving facility as to the
amount of commercial paper issued. On August 31, 2010 and
2009, we had no commercial paper outstanding.
Cofina
Financial Financing:
Cofina Funding, LLC (Cofina Funding), a wholly-owned subsidiary
of Cofina Financial, has available credit totaling
$200.0 million as of August 31, 2010, under note
purchase agreements with various purchasers, through the
issuance of short-term notes payable. Cofina Financial sells
eligible commercial loans receivable it has originated to Cofina
Funding, which are then pledged as collateral under the note
purchase agreements. The notes payable issued by Cofina Funding
bear interest at variable rates based on commercial paper with a
weighted-average interest rate of 1.82% as of August 31,
2010. Borrowings by Cofina Funding utilizing the issuance of
commercial paper under the note purchase agreements totaled
$130.0 million as of August 31, 2010. As of
August 31, 2010, $55.0 million of related loans
receivable were accounted for as sales when they were
surrendered in accordance with authoritative guidance on
accounting for transfers of financial assets and extinguishments
of liabilities. As a result, the net borrowings under the note
purchase agreements were $75.0 million.
Cofina Financial also sells loan commitments it has originated
to ProPartners Financial (ProPartners) on a recourse basis. The
total capacity for commitments under the ProPartners program is
$120.0 million. The total outstanding commitments under the
program totaled $90.2 million as of August 31, 2010,
of which $71.4 million was borrowed under these commitments
with an interest rate of 2.29%.
Cofina Financial 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
0.85% to 1.35% as of August 31, 2010, and are due upon
demand. Borrowings under these notes totaled $85.9 million
as of August 31, 2010.
Long-term
Debt Financing:
We typically finance our long-term capital needs, primarily for
the acquisition of property, plant and equipment, with long-term
agreements with various insurance companies and banks.
On August 31, 2010, we had total long-term debt outstanding
of $986.2 million, of which $150.0 million was bank
financing, $818.1 million was private placement debt and
$18.1 million was industrial revenue bonds and other notes
and contracts payable. On August 31, 2009, we had long-term
debt outstanding of $1,072.0 million. Our long-term debt is
unsecured except for other notes and contracts in the amount of
$9.1 million; however, restrictive covenants under various
agreements have requirements for maintenance of minimum
consolidated net worth and other financial ratios. We were in
compliance with all debt covenants and restrictions as of
August 31, 2010. The aggregate amount of long-term debt
payable as of August 31, 2010 was as follows (dollars in
thousands):
|
|
|
|
|
2011
|
|
$
|
112,503
|
|
2012
|
|
|
92,481
|
|
2013
|
|
|
101,189
|
|
2014
|
|
|
155,020
|
|
2015
|
|
|
154,977
|
|
Thereafter
|
|
|
370,071
|
|
|
|
|
|
|
|
|
$
|
986,241
|
|
|
|
|
|
|
We did not have any new long-term borrowings during the years
ended August 31, 2010 and 2009. During the year ended
August 31, 2008, we borrowed $600.0 million on a
long-term basis. During the years ended August 31, 2010,
2009 and 2008, we repaid long-term debt of $84.8 million,
$118.9 million and $99.5 million, respectively.
47
Additional detail on our long-term borrowings and repayments are
as follows:
In June 1998, we established a long-term credit agreement
through cooperative banks, for which we paid the note in full
during the year ended August 31, 2009. The amount
outstanding on August 31, 2008, was $49.2 million.
Repayments of $49.2 million and $26.2 million were
made on this facility during the years ended August 31,
2009 and 2008, respectively.
Also in June 1998, we completed a private placement offering
with several insurance companies for long-term debt in the
amount of $225.0 million with an interest rate of 6.81%.
Repayments are due in equal annual installments during the years
2008 through 2013. During each of the years ended
August 31, 2010, 2009 and 2008, repayments totaled
$37.5 million.
In January 2001, we entered into a note purchase and private
shelf agreement with Prudential Insurance Company. The long-term
note in the amount of $25.0 million has an interest rate of
7.9% and is due in equal annual installments of approximately
$3.6 million in the years 2005 through 2011. A subsequent
note for $55.0 million was issued in March 2001, related to
the private shelf facility. The $55.0 million note has an
interest rate of 7.43% and is due in equal annual installments
of approximately $7.9 million in the years 2005 through
2011. During each of the years ended August 31, 2010, 2009
and 2008, repayments on these notes totaled $11.4 million.
In October 2002, we completed a private placement with several
insurance companies for long-term debt in the amount of
$175.0 million, which was layered into two series. The
first series of $115.0 million has an interest rate of
4.96% and is due in equal semi-annual installments of
approximately $8.8 million during the years 2007 through
2013. The second series of $60.0 million has an interest
rate of 5.60% and is due in equal semi-annual installments of
approximately $4.6 million during years 2012 through 2018.
Repayments of $17.7 million were made on the first series
notes during each of the years ended August 31, 2010, 2009
and 2008.
In March 2004, we entered into a note purchase and private shelf
agreement with Prudential Capital Group, and in April 2004, we
borrowed $30.0 million under this arrangement. One
long-term note in the amount of $15.0 million had an
interest rate of 4.08% for which the entire amount was paid in
full during the year ended August 31, 2010. Another
long-term note in the amount of $15.0 million has an
interest rate of 4.39% and is due in full at the end of the
seven-year term in 2011. In April 2007, we amended our Note
Purchase and Private Shelf Agreement with Prudential Investment
Management, Inc. and several other participating insurance
companies to expand the uncommitted facility from
$70.0 million to $150.0 million. We borrowed
$50.0 million under the shelf arrangement in February 2008,
for which the aggregate long-term notes have an interest rate of
5.78% and are due in equal annual installments of
$10.0 million during the years 2014 through 2018.
In September 2004, we entered into a private placement with
several insurance companies for long-term debt in the amount of
$125.0 million with an interest rate of 5.25%. The debt is
due in equal annual installments of $25.0 million during
years 2011 through 2015.
In October 2007, we entered into a private placement with
several insurance companies and banks for long-term debt in the
amount of $400.0 million with an interest rate of 6.18%.
Repayments are due in equal annual installments of
$80.0 million during the years 2013 through 2017.
In December 2007, we established a ten-year long-term credit
agreement through a syndication of cooperative banks in the
amount of $150.0 million, with an interest rate of 5.59%.
Repayments are due in equal semi-annual installments of
$15.0 million each, starting in June 2013 through December
2018.
Through NCRA, we had revolving term loans that were paid in full
during the year ended August 31, 2009. Repayments of
$0.5 million and $2.5 million were made during the
years ended August 31, 2009 and 2008, respectively.
48
Other
Financing:
Distributions to noncontrolling interests for the years ended
August 31, 2010, 2009 and 2008 were $4.9 million,
$21.1 million and $63.1 million, respectively, and
were primarily related to NCRA.
During the years ended August 31, 2010 and 2008, changes in
checks and drafts outstanding resulted in increases in cash
flows of $47.3 million and $61.1 million,
respectively, and during the year ended August 31, 2009,
resulted in a decrease in cash flows of $119.3 million.
In accordance with the 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. Patronage refunds are calculated based on amounts
using financial statement earnings. The cash portion of the
patronage distribution is determined annually by the Board of
Directors, with the balance issued in the form of capital equity
certificates. Consenting patrons have agreed to take both the
cash and capital equity certificate portion allocated to them
from our previous fiscal years income into their taxable
income, and as a result, we are allowed a deduction from our
taxable income for both the cash distribution and the allocated
capital equity certificates, as long as the cash distribution is
at least 20% of the total patronage dividend. The patronage
earnings from the fiscal year ended August 31, 2009, were
primarily distributed during the second fiscal quarter of the
year ended August 31, 2010, and totaled
$438.0 million. The cash portion of this distribution,
deemed by the Board of Directors to be 35% was
$153.9 million. By action of the Board of Directors,
patronage losses incurred in fiscal 2009 from our wholesale crop
nutrients business, totaling $60.2 million, were offset
against the fiscal 2008 wholesale crop nutrients operating
earnings and the gain on the sale of our CF Industries stock
through the cancellation of capital equity certificates in
fiscal 2010. During the years ended August 31, 2009 and
2008, we had patronage refunds of $648.9 million and
$557.2 million, respectively, of which the cash portion was
$227.6 million and $195.0 million, respectively.
Total patronage for the year ended August 31, 2010, is
expected to be approximately $396.5 million. The cash
portion of this distribution, determined by the Board of
Directors to be 35% and to be distributed in fiscal 2011, is
expected to be approximately $138.8 million and is
classified as a current liability on the August 31, 2010
Consolidated Balance Sheet in dividends and equities payable.
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
pro-rata program for equities held by them and another for
individuals who are eligible for equity redemptions at
age 70 or upon death. The amount that each non-individual
receives under the pro-rata program in any year is determined by
multiplying the dollars available for pro-rata redemptions, if
any that year, as determined by the Board of Directors, by a
fraction, the numerator of which is the amount of patronage
certificates eligible for redemption held by them, and the
denominator of which is the sum of the patronage certificates
eligible for redemption held by all eligible holders of
patronage certificates that are not individuals. In accordance
with authorization from the Board of Directors, we expect total
redemptions related to the year ended August 31, 2010, that
will be distributed in fiscal 2011, to be approximately
$67.6 million. These expected distributions are classified
as a current liability on the August 31, 2010 Consolidated
Balance Sheet.
For the years ended August 31, 2010, 2009 and 2008, we
redeemed in cash, equities in accordance with authorization from
the Board of Directors, in the amounts of $23.1 million,
$49.7 million and $81.8 million, respectively. An
additional $36.7 million, $49.9 million and
$46.4 million of capital equity certificates were redeemed
in fiscal 2010, 2009 and 2008, respectively, by issuance of
shares of our 8% Cumulative Redeemable Preferred Stock
(Preferred Stock). The amount of equities redeemed with each
share of Preferred Stock issued was $28.30, $25.90 and $25.65,
which was the closing price per share of the stock on the NASDAQ
Global Select Market on February 22, 2010, January 23,
2009 and February 11, 2008, respectively.
Our Preferred Stock is listed on the NASDAQ Global Select Market
under the symbol CHSCP. On August 31, 2010, we had
12,272,003 shares of Preferred Stock outstanding with a
total redemption value of approximately $306.8 million,
excluding accumulated dividends. Our Preferred Stock accumulates
dividends at a rate of 8% per year, which are payable quarterly,
and is redeemable at our option. At this time, we have no
49
current plan or intent to redeem any Preferred Stock. Dividends
paid on our preferred stock during the years ended
August 31, 2010, 2009 and 2008, were $23.2 million,
$20.0 million and $16.3 million, respectively.
Off
Balance Sheet Financing Arrangements
Lease
Commitments:
We have commitments under operating leases for various refinery,
manufacturing and transportation equipment, rail cars, vehicles
and office space. Some leases include purchase options at not
less than fair market value at the end of the lease term.
Total rental expense for all operating leases, net of rail car
mileage credits received from the railroad and sublease income
for the years ended August 31, 2010, 2009 and 2008, was
$64.3 million, $61.1 million and $58.3 million,
respectively.
Minimum future lease payments required under noncancellable
operating leases as of August 31, 2010 were as follows:
|
|
|
|
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2011
|
|
$
|
42.8
|
|
2012
|
|
|
33.4
|
|
2013
|
|
|
24.2
|
|
2014
|
|
|
15.7
|
|
2015
|
|
|
10.9
|
|
Thereafter
|
|
|
17.5
|
|
|
|
|
|
|
Total minimum future lease payments
|
|
$
|
144.5
|
|
|
|
|
|
|
Guarantees:
We are a guarantor for lines of credit and performance
obligations for related companies. Our bank covenants allow
maximum guarantees of $500.0 million, of which
$29.4 million was outstanding on August 31, 2010. 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
guarantees are current as of August 31, 2010.
Debt:
There is no material off balance sheet debt.
Cofina
Financial:
As of August 31, 2010, loans receivable of
$55.0 million were accounted for as sales when they were
surrendered in accordance with accounting guidance on transfers
of financial assets and extinguishments of liabilities.
50
Contractual
Obligations
We had certain contractual obligations at August 31, 2010
which require the following payments to be made:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 - 3
|
|
|
3 - 5
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Notes payable(1)
|
|
$
|
262,090
|
|
|
$
|
262,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
|
986,241
|
|
|
|
112,503
|
|
|
$
|
193,670
|
|
|
$
|
309,997
|
|
|
$
|
370,071
|
|
Interest payments(2)
|
|
|
236,747
|
|
|
|
57,479
|
|
|
|
94,903
|
|
|
|
57,825
|
|
|
|
26,540
|
|
Operating leases
|
|
|
144,558
|
|
|
|
42,846
|
|
|
|
57,648
|
|
|
|
26,552
|
|
|
|
17,512
|
|
Purchase obligations(3)
|
|
|
5,686,205
|
|
|
|
3,420,317
|
|
|
|
2,248,416
|
|
|
|
13,300
|
|
|
|
4,172
|
|
Other liabilities(4)
|
|
|
336,589
|
|
|
|
|
|
|
|
97,610
|
|
|
|
91,440
|
|
|
|
147,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
7,652,430
|
|
|
$
|
3,895,235
|
|
|
$
|
2,692,247
|
|
|
$
|
499,114
|
|
|
$
|
565,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included on our Consolidated Balance Sheet. |
|
(2) |
|
Based on interest rates and long-term debt balances as of
August 31, 2010. |
|
(3) |
|
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 time of the
transactions. Of our total purchase obligations at
August 31, 2010, $1,561.5 million is included in
accounts payable and accrued expenses on our Consolidated
Balance Sheet. |
|
(4) |
|
Other liabilities include the long-term portion of deferred
compensation, deferred income taxes and contractual redemptions,
and are included on our Consolidated Balance Sheet. Of our total
other liabilities on our Consolidated Balance Sheet at
August 31, 2010, in the amount of $475.5 million, the
timing of the payments of $138.9 million of such
liabilities cannot be determined. |
Critical
Accounting Policies
Our consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States of America. The preparation of these consolidated
financial statements requires the use of estimates as well as
managements 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 that
of our significant accounting policies, the following may
involve a higher degree of estimates, judgments and complexity.
Inventory
Valuation and Reserves
Grain, processed grains, oilseed and processed oilseeds are
stated at net realizable values which approximates market
values. All other inventories are stated at the lower of cost or
market. The cost of certain energy inventories (wholesale
refined products, crude oil and asphalt), are determined on the
last-in,
first-out (LIFO) method; all other energy inventories are valued
on the
first-in,
first-out (FIFO) and average cost methods. Estimates are used in
determining the net realizable value of grain and oilseed and
processed grains and oilseeds inventories. These estimates
include the measurement of grain in bins and other storage
facilities, which use formulas in addition to actual
measurements taken to arrive at appropriate quantity. Other
determinations made by management include quality of the
inventory and estimates for freight. Grain shrink reserves and
other reserves that account for spoilage also affect inventory
valuations. If estimates regarding the valuation of inventories,
or the adequacy of reserves, are less favorable than
managements assumptions, then additional reserves or
write-downs of inventories may be required.
51
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. We do not use derivatives for
speculative purposes. Futures and options contracts used for
hedging are purchased and sold through regulated commodity
exchanges. We also use
over-the-counter
(OTC) instruments to hedge our exposure on flat price
fluctuations. 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 value of futures and options
contracts is 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
counterpartys financial condition and also the risk that
the counterparty will refuse to perform 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
are dependent 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
accounting principles generally accepted in the United States of
America, actual results that differ from the assumptions are
accumulated and amortized over future periods and, therefore,
generally affect recognized expenses and the recorded
obligations in future periods. While our management believes
that 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 that 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 loss carryforwards and tax benefits
primarily passed to us from National Cooperative Refinery
Association (NCRA), which are associated with refinery upgrades
that enable NCRA to produce ultra-low sulfur fuels. 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. Our capital loss
carryforwards are available to offset future capital gains. If
we do not generate enough capital gains to offset these
carryforwards they will also 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.
52
Long-Lived
Assets
Depreciation and amortization of our property, plant and
equipment is provided on the straight-line method by charges to
operations at rates based upon the expected useful lives of
individual or groups of assets. Economic circumstances, or other
factors, may cause managements estimates of expected
useful lives to differ from actual.
All long-lived assets, including property plant and equipment,
goodwill, investments in unconsolidated affiliates and other
identifiable intangibles, are evaluated for impairment on the
basis of undiscounted cash flows, at least annually for
goodwill, and whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impaired asset is written down to its estimated
fair market value based on the best information available.
Estimated fair market value is generally measured by discounting
estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows and may
differ from actual.
We have asset retirement obligations with respect to certain of
our refineries and related assets due to various legal
obligations to clean
and/or
dispose of various component parts at the time they are retired.
However, 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
refinery and related assets and to continue making improvements
to those assets based on technological advances. As a result, we
believe that 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 related asset, we will estimate the cost of
performing the retirement activities and record a liability for
the fair value of that cost using established present value
techniques.
Effect of
Inflation and Foreign Currency Transactions
We believe that inflation and foreign currency fluctuations have
not had a significant effect on our operations during the three
years ended August 31, 2010, since we conduct essentially
all of our business in U.S. dollars.
Recent
Accounting Pronouncements
In June 2009, the FASB issued
ASC 860-10-65-3,
Accounting for Transfers of Financial Assets, which
requires additional disclosures concerning a transferors
continuing involvement with transferred financial assets.
ASC 860-10-65-3
eliminates the concept of a qualifying special-purpose
entity and changes the requirements for derecognizing
financial assets. The guidance is effective for fiscal years
beginning after November 15, 2009. We are currently
evaluating the impact that the adoption will have on our
consolidated financial statements in fiscal 2011.
In June 2009, the FASB issued
ASC 860-10-65-2,
Amendments to FASB Interpretation No. 46(R),
which requires an enterprise to conduct a qualitative analysis
for the purpose of determining whether, based on its variable
interests, it also has a controlling interest in a variable
interest entity.
ASC 860-10-65-2
clarifies that the determination of whether a company is
required to consolidate an entity is based on, among other
things, an entitys purpose and design and a companys
ability to direct the activities of the entity that most
significantly impact the entitys economic performance.
ASC 860-10-65-2
requires an ongoing reassessment of whether a company is the
primary beneficiary of a variable interest entity. It also
requires additional disclosures about a companys
involvement in variable interest entities and any significant
changes in risk exposure due to that involvement.
ASC 860-10-65-2
is effective for fiscal years beginning after November 15,
2009. We are currently evaluating the impact that the adoption
will have on our consolidated financial statements in fiscal
2011.
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements,
which amends existing disclosure requirements under ASC 820. ASU
No. 2010-06
requires new disclosures for significant transfers between
Levels 1 and 2 in the fair value
53
hierarchy and separate disclosures for purchases, sales,
issuances, and settlements in the reconciliation of activity for
Level 3 fair value measurements. This ASU also clarifies
the existing fair value disclosures regarding the level of
disaggregation and the valuation techniques and inputs used to
measure fair value. ASU
No. 2010-06
will only impact disclosures and is effective for interim and
annual reporting periods beginning after December 15, 2009,
except for the disclosures on purchases, sales, issuances and
settlements in the roll-forward of activity for Level 3
fair value measurements. Those disclosures are effective for
interim and annual periods beginning after December 15,
2010.
In July 2010, the FASB issued ASU
No. 2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU
2010-20
requires enhanced disclosures regarding the nature of credit
risk inherent in an entitys portfolio of financing
receivables, how that risk is analyzed, and the changes and
reasons for those changes in the allowance for credit losses. It
requires an entity to provide a greater level of disaggregated
information about the credit quality of its financing
receivables and its allowance for credit losses. ASU
2010-20 will
only impact disclosures. Disclosures related to information as
of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15,
2010. Disclosures regarding activities that occur during a
reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010.
|
|
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 change and performance (including
delivery, quality, quantity and shipment period). We are exposed
to risk of loss in the market value of positions held,
consisting of inventory and purchase contracts at a fixed or
partially fixed price in the event market prices decrease. We
are also exposed to risk of loss on our fixed or partially fixed
price sales contracts in the event market prices increase.
Our hedging activities reduce the effects of price volatility,
thereby protecting against adverse short-term price movements,
but also limit the benefits of short-term price movements. To
reduce the price change risks associated with holding fixed
price commitments, we generally take opposite and offsetting
positions by entering into commodity futures contracts or
options, to the extent practical, in order to arrive at a net
commodity position within the formal position limits we have
established and deemed prudent for each commodity. These
contracts are purchased and sold on regulated commodity futures
exchanges for grain, and regulated mercantile exchanges for
refined products and crude oil. We also use
over-the-counter
(OTC) instruments to hedge our exposure on flat price
fluctuations. The price risk we encounter for crude oil and most
of the grain and oilseed volume we handle can be hedged. Price
risk associated with fertilizer and certain grains cannot be
hedged because there are no futures for these commodities and,
as a result, risk is managed through the use of forward sales
contracts and other pricing arrangements and, to some extent,
cross-commodity futures hedging. These contracts are economic
hedges of price risk, but are not designated or accounted for as
hedging instruments for accounting purposes in any of our
operations with the exception of some contracts included in our
Energy segment. The contracts are recorded on our Consolidated
Balance Sheets at fair values based on quotes listed on
regulated commodity exchanges or are based on the market prices
of the underlying products listed on the exchanges, with the
exception of fertilizer and propane contracts, which are
accounted for as normal purchase and normal sales transactions.
With the exception of some contracts included in our Energy
segment, unrealized gains and losses on these contracts are
recognized in cost of goods sold in our Consolidated Statements
of Operations using market-based prices. Beginning in the third
quarter of fiscal 2010, certain contracts within our Energy
segment were entered into for the spread between crude oil
purchase price and distillate selling price, and have been
designated and accounted for as hedging instruments (cash flow
hedges). The unrealized gains or losses of these contracts are
deferred to accumulated comprehensive loss in the equity section
of our Consolidated Balance Sheet and will be included in
earnings upon settlement. A loss of $2.4 million, net of
taxes, was recorded in accumulated other comprehensive income
for the year ended August 31, 2010, for the change in the
fair value of cash flow hedges related to these derivatives. No
gains or losses were recorded in our Consolidated Statement of
Operations during the year ended August 31, 2010, since
there were no settlements. The contracts expire in
54
fiscal 2011, and we expect a loss of $2.4 million, net of
taxes, to be included in earnings during the next 12 months.
When a futures contract is entered into, an initial margin
deposit must be sent to the applicable exchange or broker. The
amount of the deposit is set by the exchange and varies by
commodity. If the market price of a short futures contract
increases, then an additional maintenance margin deposit would
be required. Similarly, if the price of a long futures contract
decreases, a maintenance margin deposit would be required and
sent to the applicable exchange. Subsequent price changes could
require additional maintenance margins or could result in the
return of maintenance margins.
Our policy is to primarily maintain hedged positions in grain
and oilseed. 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 and procedures that include net
position limits. These limits are defined for each commodity and
include both trader and management limits. This policy and
computerized procedures in our grain marketing operations
require a review by operations management when any trader is
outside of position limits and also a review by our senior
management if operating areas are outside of position limits. A
similar process is used in our energy and wholesale crop
nutrients operations. The position limits are reviewed, at least
annually, with our management 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. In addition, all purchase and sales contracts are
subject to credit approvals and appropriate terms and conditions.
Hedging arrangements do not protect against nonperformance by
counterparties to contracts. We primarily use exchange traded
instruments, which minimizes our counterparty exposure. We
evaluate that 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 counterpartys financial condition and
also 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 our 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. 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, financial position or
liquidity, since our operations have effective economic hedging
requirements as a general business practice.
INTEREST
RATE RISK
We use fixed and floating rate debt to lessen the effects of
interest rate fluctuations on interest expense. Short-term debt
used to finance inventories and receivables is represented by
notes payable with maturities of 30 days or less, so that
our blended interest rate for all such notes approximates
current market rates. During fiscal 2009, we entered into an
interest rate swap with a notional amount of
$150.0 million, expiring in September 2010, to lock in the
variable interest rate for $150.0 million of our five-year
revolving line of credit. Cofina Financial has interest rate
swaps that lock the interest rates of the underlying loans with
a combined notional amount of $16.8 million expiring at
various times through fiscal 2018, with $0.2 million of the
notional amount expiring during fiscal 2011 and the balance
expiring during or after fiscal 2013. As of August 31,
2010, all of our interest rate swaps, including those of Cofina
Financial, do not qualify for hedge accounting due to
ineffectiveness caused by repayment of the borrowings or
differences in underlying terms. As a result of these not
qualifying for hedge accounting, changes in fair value are
recorded in earnings within interest, net in our Consolidated
Statements of Operations. Long-term debt used to finance
non-current assets carries various fixed interest rates and is
payable at various dates to minimize the effects of market
interest
55
rate changes. Our weighted-average interest rate on fixed rate
debt outstanding on August 31, 2010 was approximately 5.9%.
The table below provides information about our outstanding debt
and derivative financial instruments that are sensitive to
change 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate miscellaneous short-term notes payable
|
|
$
|
29,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,776
|
|
|
$
|
29,776
|
|
Average interest rate
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
%
|
|
|
|
|
Variable rate Cofina Financial short-term notes payable
|
|
$
|
232,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
232,314
|
|
|
$
|
232,314
|
|
Average interest rate
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
%
|
|
|
|
|
Fixed rate long-term debt
|
|
$
|
112,503
|
|
|
$
|
92,481
|
|
|
$
|
101,189
|
|
|
$
|
155,020
|
|
|
$
|
154,977
|
|
|
$
|
370,071
|
|
|
$
|
986,241
|
|
|
$
|
1,020,927
|
|
Average interest rate
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
|
|
6.0
|
%
|
|
|
5.9
|
%
|
|
|
|
|
Interest Rate Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed notes payable interest rate swap
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
$
|
349
|
|
Average pay rate
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate(a)
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed Cofina Financial notes payable interest rate
swaps
|
|
$
|
16,793
|
|
|
$
|
16,560
|
|
|
$
|
10,521
|
|
|
$
|
9,054
|
|
|
$
|
6,466
|
|
|
$
|
2,662
|
|
|
$
|
62,056
|
|
|
$
|
878
|
|
Average pay rate(b)
|
|
|
range
|
|
|
|
range
|
|
|
|
range
|
|
|
|
range
|
|
|
|
range
|
|
|
|
range
|
|
|
|
|
|
|
|
|
|
Average receive rate(a)
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
One month London Interbank Offered Rate (LIBOR) at
August 31, 2010 |
|
(b) |
|
Swaps expiring in fiscal 2011 through fiscal 2018 (15 total)
with a range of rates from 1.00% to 5.23% |
FOREIGN
CURRENCY RISK
We conduct essentially all of our business in U.S. dollars,
except for grain marketing operations primarily in Brazil and
Switzerland, and purchases of products from Canada. We had
minimal risk regarding foreign currency fluctuations during
fiscal 2010 and in prior years, as substantially all
international sales were denominated in U.S. dollars. From
time to time, we enter into foreign currency contracts to
mitigate currency fluctuations. Foreign currency fluctuations
do, however, 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. As of
August 31, 2010, we had $0.2 million in foreign
currency contracts outstanding.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements listed in Item 15(a)(1) are set
forth beginning on
page F-1.
Financial statement schedules are included in Schedule II
in Item 15(a)(2). Supplementary financial information
required by
56
Item 302 of
Regulation S-K
for each quarter during the fiscal years ended August 31,
2010 and 2009 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
February 28,
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
6,195,241
|
|
|
$
|
5,878,493
|
|
|
$
|
6,575,978
|
|
|
$
|
6,618,219
|
|
Gross profit
|
|
|
202,661
|
|
|
|
166,725
|
|
|
|
251,978
|
|
|
|
249,157
|
|
Income before income taxes
|
|
|
138,109
|
|
|
|
93,120
|
|
|
|
181,478
|
|
|
|
171,128
|
|
Net income
|
|
|
122,535
|
|
|
|
86,159
|
|
|
|
159,495
|
|
|
|
167,208
|
|
Net income attributable to CHS Inc.
|
|
|
119,950
|
|
|
|
82,668
|
|
|
|
145,449
|
|
|
|
154,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
February 28,
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Revenues
|
|
$
|
7,733,919
|
|
|
$
|
5,177,069
|
|
|
$
|
6,163,119
|
|
|
$
|
6,655,809
|
|
Gross profit
|
|
|
320,507
|
|
|
|
214,977
|
|
|
|
158,268
|
|
|
|
186,263
|
|
Income before income taxes
|
|
|
178,338
|
|
|
|
115,618
|
|
|
|
90,798
|
|
|
|
118,924
|
|
Net income
|
|
|
159,407
|
|
|
|
101,597
|
|
|
|
76,572
|
|
|
|
102,798
|
|
Net income attributable to CHS Inc.
|
|
|
137,251
|
|
|
|
82,280
|
|
|
|
64,569
|
|
|
|
97,307
|
|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure of Controls and Procedures:
We maintain disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) that are
designed to provide reasonable assurance that information
required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time
periods specified by the Securities and Exchange
Commissions rules and forms and that such information is
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate to allow
timely decisions regarding disclosure. In designing and
evaluating our disclosure procedures, we recognize that any
controls and procedures, no matter how well designed and
operated can provide only reasonable assurance of achieving the
desired control objectives and we necessarily are required to
apply our judgment in evaluating the cost-benefit relationship
of possible controls and procedures.
Our management evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness
of the design and operation of our disclosure controls and
procedures as of August 31, 2010. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that our disclosure controls and
procedures were effective, at the reasonable assurance level, as
of August 31, 2010, the end of the period covered in this
Annual Report on
Form 10-K.
Managements Annual Report on Internal Control Over
Financial Reporting:
The financial statements, financial analyses and all other
information included in this Annual Report on
Form 10-K
were prepared by our management, which is responsible for
establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial
reporting is designed 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. Our internal control
over financial reporting includes those policies and procedures
that: pertain to the
57
maintenance of records that, in reasonable detail, accurately
and fairly reflect our transactions and our dispositions of
assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition and
use or disposition of our assets that could have a material
effect on the financial statements.
There are inherent limitations in the effectiveness of any
internal control, including the possibility of human error and
the circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable
assurances with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of
internal controls may vary over time.
Management assessed the design and operating effectiveness of
our internal control over financial reporting as of
August 31, 2010. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal
Control Integrated Framework. Based on
managements assessment using this framework, we believe
that, as of August 31, 2010, our internal control over
financial reporting is effective.
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. Managements 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 managements
report in this Annual Report on
Form 10-K.
Change in Internal Control over Financial Reporting:
During our fourth fiscal quarter, there was no change in our
internal control over financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III.
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
BOARD OF
DIRECTORS
The table below lists our directors as of August 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
Name and Address
|
|
Age
|
|
|
Region
|
|
|
Since
|
|
|
Bruce Anderson
|
|
|
58
|
|
|
|
3
|
|
|
|
1995
|
|
13500 42nd St NE
Glenburn, ND
58740-9564
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Anthony
|
|
|
60
|
|
|
|
8
|
|
|
|
2006
|
|
43970 Road 758
Lexington, NE 68850
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Bass
|
|
|
56
|
|
|
|
5
|
|
|
|
1994
|
|
E 6391 Bass Road
Reedsburg, WI 53959
|
|
|
|
|
|
|
|
|
|
|
|
|
David Bielenberg
|
|
|
61
|
|
|
|
6
|
|
|
|
2009
|
|
16425 Herigstad Road NE
Silverton, OR 97381
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
Name and Address
|
|
Age
|
|
|
Region
|
|
|
Since
|
|
|
Dennis Carlson
|
|
|
49
|
|
|
|
3
|
|
|
|
2001
|
|
3255 50th Street
Mandan, ND 58554
|
|
|
|
|
|
|
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|
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Curt Eischens
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58
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1
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1990
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2153 330th Street
North Minneota, MN
56264-1880
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Steve Fritel
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55
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3
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2003
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2851 77th Street NE
Barton, ND 58384
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Jerry Hasnedl
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64
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1
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1995
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12276 150th Avenue SE
St. Hilaire, MN 56754 -9776
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David Kayser
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51
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4
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2006
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42046 257th Street
Alexandria, SD 57311
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Randy Knecht
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60
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4
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2001
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40193 112th Street
Houghton, SD 57449
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Greg Kruger
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51
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5
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2008
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N 49494 County Road Y
Eleva, WI 54738
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Michael Mulcahey
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62
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1
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2003
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8109 360th Avenue
Waseca, MN 56093
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Richard Owen
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56
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2
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1999
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1591 Hawarden Road
Geraldine, MT 59446
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Steve Riegel
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58
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8
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2006
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12748 Ridge Road
Ford, KS 67842
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Daniel Schurr
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45
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7
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2006
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3009 Wisconsin Street
LeClaire, IA 52753
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Michael Toelle
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48
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1
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1992
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5085 St. Anthony Drive
Browns Valley, MN 56219
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The qualifications for our board of directors are listed below
under Director Elections and Voting. In general, our
directors operate large commercial agricultural enterprises
requiring expertise in all areas of management, including
financial oversight. They also have experience in serving on
local cooperative association boards, and participate in a
variety of agricultural and community organizations. Each
director has completed the National Association of Corporate
Directors comprehensive Director Professionalism course, and was
subsequently awarded the Certificate of Director Education.
Bruce Anderson, secretary-treasurer
(1995): Chairman of the Governance Committee.
Past director and vice chairman of the North Dakota Agricultural
Products Utilization Commission, and past board secretary for
North Dakota Farmers Union and Farmers Union Mutual Insurance
Company. Serves on North Dakota Coordinating Council for
Cooperatives and advisory board for Quentin Burdick Center for
Cooperatives. Served two terms in the North Dakota House of
Representatives. Raises small grains near Glenburn, N.D.
Mr. Andersons principal occupation has been farming
for the last five years or longer.
59
Donald Anthony (2006): Serves on Audit
and CHS Foundation Finance and Investment committees. Served as
director and chairman for All Points Cooperative of Gothenburg,
Neb., and Lexington (Neb.) Co-op Oil. Former director of
Farmland Industries. Serves as chairman of Nebraska Beginning
Farm Board and is a member of Ag Valley Co-op, CHS Agri-Service
Center, Ag Builders of Nebraska, Nebraska Farm Bureau and
Nebraska Corn Growers. Holds a bachelors degree in
agricultural economics from the University of Nebraska. Raises
corn, soybeans and alfalfa near Lexington, Neb.
Mr. Anthonys principal occupation has been farming
for the last five years or longer.
Robert Bass, first vice chairman
(1994): Chairman of Audit Committee. Director
and officer for the former Co-op Country Partners Cooperative,
Baraboo, Wis., and its predecessors for 15 years and is a
director for Cooperative Network. Holds a bachelors degree
in agricultural education from the University of
Wisconsin Madison. Operates a crop and dairy
operation near Reedsburg, Wis. Mr. Bass principal
occupation has been farming for the last five years or longer.
David Bielenberg (2009): Serves on
Audit and Government Relations committees. Previously served on
the CHS Board of Directors from
2002-2006.
Chair of the East Valley Water District and former director and
board president for Wilco Farmers Cooperative, Mount Angel, Ore.
Active in a broad range of agricultural and cooperative
organizations. Holds a bachelors of science degree in
agricultural engineering from Oregon State University, is a
graduate of Texas A & M University executive program
for agricultural producers and achieved accreditation from the
National Association of Corporate Directors. Operates a diverse
agricultural business near Silverton, Oregon, including seed
crops, vegetables, greenhouse plant production and timberland.
Mr. Bielenbergs principal occupation has been farming
for the last five years or longer.
Dennis Carlson (2001): Chairs CHS
Foundation Finance and Investment Committee and serves on
Capital Committee. Former director and past chairman of Farmers
Union Oil Company, Bismarck/Mandan, N.D., and is active in
several agricultural and cooperative organizations. Operates a
diverse grain and livestock operation near Mandan, N.D.
Mr. Carlsons principal occupation has been farming
for the last five years or longer.
Curt Eischens, second vice chairman
(1990): Chairs Corporate Responsibility
Committee. Served as a director and chairman of Farmers Co-op
Association, Canby, Minn., and as chairman for Cooperative
Network. Holds a certificate in farm management from Canby
Vocational-Technical College. Operates a corn and soybean farm
near Minneota, Minn. Mr. Eischens principal
occupation has been farming for the last five years or longer.
Steve Fritel (2003): Serves on
Corporate Responsibility and Government Relations committees.
Director for Rugby (N.D.) Farmers Union Oil Co., former director
and chairman for Rugby Farmers Union Elevator, and previous
member of the former CHS Wheat Milling Defined Member Board.
Director of North Central Experiment Station Board of Visitors,
past member of the Adult Farm and Ranch Business Management
Advisory Board and member of numerous agricultural and
cooperative organizations. Earned an associates degree
from North Dakota State College of Science, Wahpeton, N.D.
Raises small grains, corn, soybeans and sunflowers near Barton,
N.D. Mr. Fritels principal occupation has been
farming for the last five years or longer.
Jerry Hasnedl, secretary-treasurer
(1995): Chairs Capital Committee and serves
on Government Relations Committee. Previous chairman of the
former CHS Wheat Milling Defined Member Board. Former director
and secretary for St. Hilaire (Minn.) Cooperative Elevator and
Northwest Grain. Member of American Coalition for Ethanol and
Cooperative Network and serves on Minnesota Sunflower Research
and Promotion Council. Earned associates degree in
agricultural economics and has certification in advanced farm
business from Northland College, Thief River Falls, Minn.
Operates a diverse operation near St. Hilaire, Minn., which
includes small grains, soybeans, corn, sunflowers, malting
barley, canola and alfalfa. Mr. Hasnedls principal
occupation has been farming for the last five years or longer.
David Kayser (2006): Serves on
Governance and CHS Foundation Finance and Investment committees.
Past chairman of South Dakota Association of Cooperatives and
previously served on CHS Resolutions Committee. Former director
and chairman for Farmers Alliance, Mitchell, S.D., and
member of local school
60
and township boards. Raises corn, soybeans and hay near
Alexandria, S.D., and operates a cow-calf and feeder calf
business. Mr. Kaysers principal occupation has been
farming for the last five years or longer.
Randy Knecht, assistant secretary-treasurer
(2001): Chairs Government Relations Committee
and serves on Corporate Responsibility Committee. Serves on
board of Four Seasons Cooperative, Britton, S.D, and former
director and chairman of Northern Electric Cooperative and
director of Dakota Value Capture Cooperative. Involved in local
school, government and civic organizations, as well as
agricultural and cooperative associations, including the
American Coalition for Ethanol. Holds a bachelors degree
in agriculture from South Dakota State University. Operates a
diversified crop farm and cattle ranch near Houghton, S.D.
Mr. Knechts principal occupation has been farming for
the last five years or longer.
Greg Kruger (2008): Serves on
Government Relations and Corporate Responsibility committees.
Chairman of Countryside Cooperative, Durand, Wis., since its
creation in 1998, after more than a dozen years as a cooperative
director. Served two years each on the CHS Resolutions and CHS
Rules and Credentials committees. Serves a wide range of
agricultural and local government roles, including as president
of Trempealeau County Farm Bureau and chairman of the local land
use planning committee. Operates an
80-cow dairy
and crop enterprise near Eleva, Wis. Mr. Krugers
principal occupation has been farming for the last five years or
longer.
Michael Mulcahey (2003): Serves on
Capital and CHS Foundation Finance and Investment committees.
Served for three decades as a director and officer for Crystal
Valley Co-op, Mankato, Minn., and its predecessors. Has served
as a director and chairman for South Central Federated Feeds and
is active in many agricultural, cooperative and civic
organizations. Attended Minnesota State University-Mankato and
the University of Minnesota-Waseca. Operates a grain farm and
raises beef cattle near Waseca, Minn. Mr. Mulcaheys
principal occupation has been farming for the last five years or
longer.
Richard Owen (1999): Serves on
Governance and Government Relations committees. Director of
Mountain View, LLC, president of the Montana Cooperative
Development Center and president of ArmorAuto, LLC. Previously
served as director and officer for Central Montana Cooperative,
Lewistown, Mont., and its predecessor organization. Holds a
bachelors degree in agricultural economics from Montana
State University. Raises small grains and specialty crops near
Geraldine, Mont. Mr. Owens principal occupation has
been farming for the last five years or longer.
Steve Riegel (2006): Serves on Capital
and Government Relations committees. Director and chairman of
Dodge City (Kan.), Cooperative Exchange and its predecessor
companies. Previously served as director and officer for Co-op
Service, Inc., advisory director for Bucklin (Kan.) National
Bank, and has served on local school board. Attended
Fort Hays (Kan.) State University, majoring in agriculture,
business and animal science. Operates a 300-head cow-calf and
stocker cattle operation and raises irrigated corn, soybeans,
alfalfa, dryland wheat and milo near Ford, Kan.
Mr. Riegels principal occupation has been farming for
the last five years or longer.
Daniel Schurr (2006): Serves on Audit
and Government Relations committees. Served as director and
officer for River Valley Cooperative of Mt. Joy, Iowa. Serves on
Blackhawk Bank and Trust board and audit and trust committees.
Served eight years as director of Great River Bank and Trust.
Former local school board member and active in numerous
agricultural and community organizations. Named Iowa Jaycees
Outstanding Young Farmer in 2004. Holds bachelors degree
in agriculture from Iowa State University. Raises corn, soybeans
and alfalfa near LeClaire, Iowa. Also owns and manages a beef
feedlot and cow-calf herd. Mr. Schurrs principal
occupation has been farming for the last five years or longer.
Michael Toelle, chairman (elected in 1992;
chairman since 2002): Chairman of CHS Foundation.
Served more than 15 years as director and chairman of
Country Partners Cooperative of Browns Valley, Minn., and its
predecessor companies. Serves as a CHS representative on the
Nationwide Insurance sponsors committee, serves on the
25x25 Renewable Fuels Steering Committee, has served as
director and chairman of Agriculture Council of America, and is
active in several cooperative and commodity organizations. Holds
a bachelors degree in industrial technology from Moorhead
(Minn.) State University. Operates a grain, hog and
61
beef farm near Browns Valley, Minn. Mr. Toelles
principal occupation has been farming for the last five years or
longer.
Director
Elections and Voting
Director elections are for three-year terms and are open to any
qualified candidate. The qualifications for the office of
director are as follows:
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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.
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At the time of the election, the individual must be less than
the age of 68.
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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:
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The individual must be a member of this cooperative or a member
of a Cooperative Association Member.
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The individual must reside in the region from which he or she is
to be elected.
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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 ours or of a Cooperative Association Member.
|
The following positions on the Board of Directors will be up for
re-election at the 2010 Annual Meeting of Members:
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Region
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Current Incumbent
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Region 1 (Minnesota)
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Mike Toelle
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Region 3 (North Dakota)
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Dennis Carlson
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Region 4 (South Dakota)
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Randy Knecht
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Region 5 (Connecticut, Delaware, Illinois, Indiana, Kentucky,
Maine, Maryland, Massachusetts, Michigan, New Hampshire, New
Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont,
Virginia, West Virginia, Wisconsin)
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Bob Bass
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Region 8 (Colorado, Nebraska, Kansas, New Mexico, Oklahoma,
Texas)
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Steve Riegel
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Region 8 (Colorado, Nebraska, Kansas, New Mexico, Oklahoma,
Texas)
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Open *
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* |
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New position created through the transfer of a directorship from
Region 1 to Region 8. |
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
unless they are members of CHS.
62
EXECUTIVE
OFFICERS
The table below lists our executive officers as of
August 31, 2010. Officers are appointed by the Board of
Directors.
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Name
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Age
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Position
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John D. Johnson (1)
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62
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President and Chief Executive Officer
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Jay Debertin
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50
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Executive Vice President and Chief Operating Officer, Processing
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Patrick Kluempke
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62
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Executive Vice President Corporate Administration
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Thomas D. Larson (2)
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62
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Executive Vice President Business Solutions
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Mark Palmquist
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53
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Executive Vice President and Chief Operating Officer, Ag Business
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John Schmitz (2)
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59
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Executive Vice President and Chief Financial Officer
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Leon E. Westbrock (2)
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63
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Executive Vice President and Chief Operating Officer, Energy
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(1) |
|
We announced in a Current Report on
Form 8-K
filed on June 21, 2010, that Mr. Johnson is retiring
effective December 31, 2010. |
|
(2) |
|
We announced in a Current Report on
Form 8-K
filed on October 6, 2010, that Mr. Larsons and
Mr. Westbrocks retirements are effective
October 29, 2010, and that Mr. Schmitz is retiring
effective December 31, 2010. |
John D. Johnson, President and Chief Executive
Officer (CEO), began his career with the former Harvest States
in 1976 as a feed consultant in the GTA Feeds Division and later
became regional sales manager, director of sales and marketing,
and general manager of GTA Feeds. Named group vice president of
Harvest States Farm Marketing and Supply for Harvest States
Cooperatives in 1992 and president and CEO of Harvest States in
1995. Selected president and general manager of CHS upon its
creation in 1998 and was named president and CEO in 2000. Serves
on the boards of Ventura Foods, LLC, CF Industries Holdings,
Inc., National Council of Farmer Cooperatives and the Greater
Twin Cities United Way. Former board member of Goldkist, Inc.
Holds a degree in business administration from Black Hills State
University, Spearfish, S.D.
Jay Debertin, Executive Vice President and Chief
Operating Officer Processing, joined CHS in 1984 in
its energy division and held positions in energy marketing
operations. Named vice president of crude oil supply in 1998,
and added responsibilities for raw material supply, refining,
pipelines and terminals, trading and risk management, and
transportation in 2001. Named to his current position in 2005,
where he is responsible for oilseed processing operations and
CHS joint venture relationships in wheat milling through Horizon
Milling, LLC, and in vegetable oil-based foods through Ventura
Foods, LLC. Responsible for CHS strategic direction in renewable
energy. Serves on the boards of National Cooperative Refinery
Association and Ventura Foods, LLC. Former board member of
Horizon Milling, LLC and US BioEnergy Corporation. Earned a
bachelors degree in economics from the University of North
Dakota and a masters of business administration degree
from the University of Wisconsin Madison.
Patrick Kluempke, Executive Vice
President Corporate Administration, is responsible
for human resources, information technology, business risk
control, building and office services, board coordination,
corporate planning and international relations. Served in the
U.S. Army with tours in South Vietnam and South Korea as an
aide to General J. Guthrie. Began his career in grain trading
and export marketing. Joined CHS in 1983, has held various
positions in both the operations and corporate level, and was
named to his current position in 2000. Serves on the board of
Ventura Foods, LLC. Holds a bachelors degree from St.
Cloud (Minn.) State University.
Thomas D. Larson, Executive Vice
President Business Solutions, began his career as a
vocational agriculture teacher and later joined the former Cenex
in agronomy sales. Managed a local cooperative in Hoffman,
Minn., and then returned to Cenex to hold positions in
marketing, planning, agronomy services and
63
retail operation management. Was named Executive Vice
President Member and Public Affairs in 1999 and
named to his current position in 2005. Responsibilities include
Ag States Group; Country Hedging, Inc.; and Cofina Financial,
LLC; along with business solutions consulting, communications,
public and governmental affairs, and the CHS Foundation. Serves
on the boards of Cofina Financial, Ag States Group, Norick and
Country Hedging, Inc. Received the National FFA
Organizations Honorary American Farmer Degree in 2006.
Holds a bachelors degree in agricultural education from
South Dakota State University.
Mark Palmquist, Executive Vice President and Chief
Operating Officer Ag Business, joined the former
Harvest States in 1979 as a grain buyer, then moved into grain
merchandising. Named vice president and director of grain
marketing in 1990 and senior vice president in 1993. Assumed his
current responsibilities for grain, crop nutrients and country
operations businesses in 2005. Serves on the board of Agriliance
LLC. Former board member of Horizon Milling, LLC, InTrade/ACTI,
National Cooperative Refinery Association, Schnitzer Steel
Industries, Inc. and Multigrain AG. Graduated from Gustavus
Adolphus College, St. Peter, Minn., and attended the University
of Minnesota MBA program.
John Schmitz, Executive Vice President and Chief
Financial Officer (CFO), joined the former Harvest States
Cooperatives in 1974. Held accounting and finance positions
within the Company, including division controller. Named vice
president and controller in 1986 and became CFO for CHS in 1999.
Serves on the boards of National Cooperative Refinery
Association and Multigrain AG. Former board member of Ventura
Foods, LLC and Cofina Financial, LLC. Member of the American
Institute of Certified Public Accountants, the Minnesota Society
of Certified Public Accountants and the National Society of
Accountants for Cooperatives. Holds a bachelors degree in
accounting from St. Cloud (Minn.) State University.
Leon E. Westbrock, Executive Vice President and
Chief Operating Officer Energy, joined the former
Cenex in 1976 in merchandising, and managed local cooperatives
in North Dakota and Minnesota. Returned to Cenex to hold various
positions, including lubricants manager, director of retailing,
and executive vice president of energy. Named to his current
position in 2000. Serves as chairman of National Cooperative
Refinery Association. Former board member of Agriliance LLC and
Universal Cooperatives. Named 2009 Agribusiness Leader of the
Year by National Agri-Marketing Association. Holds a
bachelors degree from St. Cloud (Minn.) State University
and serves on the St. Cloud State University Foundation Board of
Directors.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our executive officers, directors and persons who
beneficially own more than 10% of our 8% Cumulative Redeemable
Preferred Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange
Commission. Such executive officers, directors and greater than
10% beneficial owners are required by the regulations of the
Commission 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 furnished to us during, and reports
on Form 5 and amendments thereto furnished to us with
respect to, the fiscal year ended August 31, 2010, 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. Larson was late
in filing a Form 4 relating to a transaction in April 2010
and Mr. Kluempke was late in filing a Form 4 relating
to a transaction in September 2010.
Code of
Ethics
We have adopted a code of ethics within the meaning of
Item 406(b) of
Regulation S-K
under the Exchange Act. This code of ethics applies to all of
our officers and employees. We will provide to any person,
without charge, upon request, a copy of such code of ethics. A
person may request a copy by writing or telephoning us at the
following:
CHS Inc.
Attention: Dave Kastelic
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-6000
64
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. The Audit Committee is comprised solely of directors
Mr. Anthony, Mr. Bass (Chairman), Mr. Bielenberg
and Mr. Schurr, each of whom is an independent director.
The Audit Committee has oversight responsibility to our 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 that any member of the Audit Committee of the
Board of Directors is an audit committee financial
expert as defined in the Sarbanes-Oxley Act of 2002 and
rules and regulations thereunder. As a cooperative, our
17-member Board of Directors is nominated and elected by our
members. To ensure geographic representation of our members, the
Board of Directors represent 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.
To be eligible for service as a director, a nominee must
(i) be an active farmer or rancher, (ii) be a member
of CHS or a 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 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 oversight responsibilities. The current Audit
Committee includes directors who have served as presidents or
chairmen 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.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Compensation
Discussion and Analysis
Executive
Compensation
Overview
CHS views employees as valued assets, and strives to provide
total reward programs that are equitable and competitive within
the market segments in which we compete, and within the
framework of the CHS vision, mission and values. In this
section, we will outline the compensation and benefit programs
as well as the materials and factors used to assist us in making
compensation decisions.
Compensation
Philosophy and Objectives
The Corporate Responsibility Committee of our CHS Board of
Directors oversees the administration of, and the fundamental
changes to, the executive compensation and benefits programs.
The primary principles and objectives in compensating executive
officers include:
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Maintaining a strong external market focus in order to attract
and retain top talent by:
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Aligning pay structures and total direct compensation at the
market median through our benchmarking process
|
65
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Obtaining applicable and available survey data of similar sized
companies
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Maintaining reasonable internal pay equity among executives in
order to allow for broad-based development opportunities in
support of our talent management objectives
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Driving strong business performance through annual and long-term
incentive programs by:
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Rewarding executives for company, business unit and individual
performance
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Aligning executive rewards with competitive returns to our owner
members
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Ensuring compensation components are mutually supportive and not
contradictory
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Aligning annual and long-term results with performance goals
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Ensuring compliance with federal and state regulations
|
There are no material changes anticipated to our compensation
philosophy or plans for fiscal 2011.
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 by achieving specified goals. The
compensation program links executive compensation directly to
our annual and long-term financial performance. A significant
portion of each executives compensation is dependent upon
meeting financial goals and a smaller portion is linked to other
individual performance objectives.
Each year, the Corporate Responsibility Committee of the Board
of Directors reviews our executive compensation policies with
respect to the correlation between executive compensation and
the creation of member-owner value, as well as the
competitiveness of the executive compensation programs. The
Corporate Responsibility 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 for the Named Executive Officers. The
third party consultant is chosen and hired directly by the
Corporate Responsibility Committee to provide guidance regarding
market competitive levels of base pay, annual incentive pay and
long-term incentive pay as well as market competitive
allocations between base pay, annual variable pay and long-term
incentive pay for the Chief Executive Officer (CEO). The data is
shared with our Board of Directors which makes final decisions
regarding the Chief Executive Officers base bay, 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 cash compensation other
than the intention of being competitive with the external market
median level of compensation for comparable positions and being
consistent with our compensation philosophy and objectives. The
Corporate Responsibility Committee recommends to the Board of
Directors salary actions relative to our CEO and approves annual
and long-term incentive awards based on goal attainment. In
turn, the Board of Directors communicates this pay information
to the CEO. The CEO is not involved with the selection of the
third party consultant and does not participate in, or observe,
Corporate Responsibility Committee meetings. Based on review of
compensation market data provided by our human resources
department (survey sources and pricing methodology are explained
under Components of Compensation), the Chief
Executive Officer decides base compensation levels for the other
Named Executive Officers, recommends for Board of Directors
approval the annual and long-term incentive levels for the other
Named Executive Officers and communicates base and incentive
compensation levels 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.
66
We intend to preserve the 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.
Components
of Compensation
The executive compensation and benefits programs consist 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 included a combination of any of the following
sources: Hay Executive Compensation Report, Hewitt Total
Compensation Measurement, Mercer US Benchmark Database-Executive
Positions, Towers Perrin US General Industry Executive Database
and Watson Wyatt Survey of Top Management Compensation. 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. The number of companies participating
in these surveys ranged from 389 to 2,486, with an average of
1,118. 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 the companys 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 to median
compensation in comparable industries, companies and markets. We
target the market median for base pay, annual variable pay and
long-term incentive pay. In actuality, the CEO and Named
Executive Officers are paid in line with market median base pay
and annual variable pay for comparable positions and are paid
less than the market median for long-term compensation in
relation to comparable positions. The following table presents a
more detailed breakout of each compensation element:
|
|
|
|
|
Pay Element
|
|
Definition of Pay Element
|
|
Purpose of Pay Element
|
|
Base Salary
|
|
Competitive base level of compensation provided relative to
skills, experience, knowledge and contributions
|
|
Provides the fundamental element of
compensation based on competitive market practice and internal
equity considerations
|
|
|
|
|
|
Annual Variable Pay
|
|
Broad-based employee short-term performance based variable pay
incentive for achieving predetermined annual financial and
individual performance objectives
|
|
Provide a direct link between pay and
annual business objectives
Pay for performance to motivate and
encourage the achievement of critical business initiatives
|
|
|
|
|
|
Profit Sharing
|
|
Broad-based employee short-term performance based variable pay
program for achieving predetermined return on equity performance
levels
|
|
Provide a direct link between employee
pay and CHSs profitability
Encourage proper expense control and
containment
|
67
|
|
|
|
|
Pay Element
|
|
Definition of Pay Element
|
|
Purpose of Pay Element
|
|
Long-Term Incentive Plans
|
|
Long-term performance based variable pay incentive for senior
management to achieve predetermined triennial return on equity
performance goals
|
|
Provide a direct link between senior
management pay and long-term strategic business objectives
Align management and member-owner
interests
Encourage retention of key management
|
Retirement Benefits
|
|
Retirement benefits under the qualified retirement benefits are
identical to the broad-based retirement plans generally
available to all full-time employees
|
|
These benefits are a part of our broad-based employee total
rewards program
|
|
|
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. In addition, the
plans allow participants to voluntarily defer receipt of a
portion of their income
|
|
These benefits are provided to attract and retain senior
managers with total rewards programs that are competitive with
comparable companies
|
Health & Welfare Benefits
|
|
Medical, dental, vision, life insurance and disability benefits
generally available to all full-time employees with supplemental
executive long-term disability
|
|
These benefits are a part of our broad-based employee total
rewards program
|
Additional Benefits and Perquisites
|
|
Additional benefits and perquisites provided to certain
officers, including our Named Executive Officers
|
|
These benefits are provided to remain competitive with
comparable companies, retain individuals who are critical to
CHS, facilitate the executives relationships with
customers and to support their roles in the community
|
Base
Pay:
Base salaries of the 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 revenue-size companies. The
individuals actual salary relative to the market median is
based on a number of factors, which include, but are not limited
to: scope of responsibilities, individual experience and
individual performance.
Base salaries for the 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 by competitive pay of comparable positions in the
market, 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. The Corporate Responsibility
Committee is responsible for this process for the President and
Chief Executive Officer. In accordance with
Mr. Johnsons contract, he
68
received no increase in base pay for fiscal 2010. None of the
other Named Executive Officers received a base salary increase
in fiscal 2010.
Annual
Variable Pay:
Each Named Executive Officer is eligible to participate in our
Annual Variable Pay Plan for our fiscal year ended
August 31, 2010. Target award levels are set with reference
to competitive market compensation levels and are intended to
motivate our executives by providing variable pay awards for the
achievement of predetermined goals. Our incentive program is
based on financial performance and specific management business
objectives with payout dependent on CHS triggering threshold
financial performance. The financial performance components
include return on equity (ROE) level for both CHS and the
executives business unit. The CHS threshold, target and
maximum ROE levels for fiscal 2010 were 8%, 10% and 14%,
respectively. The threshold, target and maximum ROE goals for
each business unit vary by unit. The management business
objectives include individual performance against specific goals
such as business profitability, strategic initiatives or talent
development.
For fiscal 2010, CHS financial performance goals and award
opportunities under our Annual Variable Pay Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
CHS Company
|
|
Business Unit
|
|
Management Business
|
|
Percent of Target
|
|
Performance Level
|
|
Performance Goal
|
|
Performance Goal
|
|
Objectives
|
|
Award
|
|
|
Maximum
Target
Threshold
Below Threshold
|
|
14% Return on Equity
10% Return on Equity
8% Return on Equity
|
|
Threshold, Target
and Maximum Return on Equity goals vary by business unit
|
|
Individual
performance goals
|
|
|
200%
100%
20%
0%
|
|
The annual variable pay awards for the Named Executive Officers
are calculated by applying the percent of target award to the
applicable fiscal 2010 salary range midpoint for the Named
Executive Officer.
The types and relative importance of specific financial and
other business objectives varies among executives depending upon
their positions and the particular business unit for which they
are responsible. Financial objectives are given greater weight
than other individual performance objectives in determining
individual awards.
The CHS Board of Directors approves the Annual Variable Pay Plan
total Company ROE objectives and determines the CEOs
individual goals. The weighting of the Chief Executive
Officers goals is 70% CHS total company ROE and 30%
principle accountabilities and personal goals. The CEO approves
business unit ROE objectives and determines non-financial
objectives for the Named Executive Officers. The weighting of
goals for the Named Executive Officers is 70% ROE and 30%
principle accountabilities and personal goals. The ROE goals for
the Named Executive Officers are either total CHS, or combined
CHS and business unit, depending on whether the position is
responsible for an operating group or not. The variable pay plan
is designed such that if one-year threshold non-financial and
financial performance is achieved, the annual variable pay award
would equal 20 percent of market competitive awards; if
target non-financial and financial performance goals are
achieved, the award would equal 100% of market competitive
awards and if maximum non-financial and financial performance
goals are achieved, the award would equal 200% of market
competitive awards.
In conjunction with the annual performance appraisal process,
the Board of Directors reviews the non-financial objectives, 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 for the CEO. Likewise, the CEO
uses the same process for determining individual goal attainment
for the other Named Executive Officers. Named Executive Officers
are covered by the same broad-based Annual Variable Pay Plan as
other employees, and based on the plan provisions, when they
retire they receive awards prorated to the number of months in
the plan.
69
For fiscal 2010, CHS achieved an ROE of 16.2%. Annual variable
pay payments for the Named Executive Officers are as follows:
|
|
|
|
|
John D. Johnson
|
|
$
|
1,800,000
|
|
John Schmitz
|
|
$
|
749,980
|
|
Leon E. Westbrock
|
|
$
|
763,146
|
|
Mark Palmquist
|
|
$
|
823,200
|
|
Jay Debertin
|
|
$
|
630,000
|
|
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 CHS 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 401(k)
plan account and Deferred Compensation Plan account of each
Named Executive Officer. The levels of profit sharing awards
vary in relation to the level of CHS ROE achieved and are
displayed in the following table:
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
Equates to Net
|
|
Sharing
|
|
Return On Equity
|
|
Income for Fiscal 2010
|
|
Award
|
|
|
14.0%
|
|
$432.6 Million
|
|
|
5
|
%
|
12.0%
|
|
$370.8 Million
|
|
|
4
|
%
|
10.0%
|
|
$309.0 Million
|
|
|
3
|
%
|
9.0%
|
|
$278.1 Million
|
|
|
2
|
%
|
8.0%
|
|
$247.2 Million
|
|
|
1
|
%
|
Effective for fiscal 2011, threshold, target and maximum ROE
goals are:
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
Equates to Net
|
|
Sharing
|
|
Return On Equity
|
|
Income for Fiscal 2011
|
|
Award
|
|
|
14.0%
|
|
$467.0 Million
|
|
|
5
|
%
|
12.0%
|
|
$400.3 Million
|
|
|
4
|
%
|
10.0%
|
|
$333.6 Million
|
|
|
3
|
%
|
9.0%
|
|
$300.2 Million
|
|
|
2
|
%
|
8.0%
|
|
$266.9 Million
|
|
|
1
|
%
|
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 results with long-term performance goals,
encourage our Named Executive Officers to maximize long-term
shareholder value, and retain key executives.
The LTIP consists of three-year performance periods to ensure
consideration is made for long-term CHS sustainability with a
new performance period beginning every year. The LTIP is based
on CHS ROE over three-year periods. The CHS Board of Directors
approves the LTIP ROE goals.
Award opportunities are expressed as a percentage of a
participants average salary range midpoint for the
three-year performance period. Threshold and maximum award
opportunities are set between 20 percent and
200 percent of target payout. CHS must meet a three-year
period threshold level of ROE for LTIP to trigger a payout. The
threshold, target and maximum ROE for fiscal
2008-2010
performance period were 8%, 10% and 14%, respectively.
Awards from the LTIP are contributed to the CHS Deferred
Compensation Plan after the end of each performance period.
These awards are earned over a three-year period and vest over
an additional
28-month
period following the performance period end date. The extended
earning and vesting provisions of the LTIP
70
are designed to help CHS retain key executives. Participants who
terminate from CHS prior to retirement forfeit all unearned and
unvested LTIP award balances. Like the Annual Variable Pay Plan,
award levels for the LTIP are set with regard to competitive
considerations.
For the fiscal year
2008-2010
performance period, CHS reached the maximum level ROE for
awards under the LTIP. Payments for the Named Executive Officers
under the LTIP are as follows:
|
|
|
|
|
John D. Johnson
|
|
$
|
1,800,000
|
|
John Schmitz
|
|
$
|
736,914
|
|
Leon E. Westbrock
|
|
$
|
814,800
|
|
Mark Palmquist
|
|
$
|
804,860
|
|
Jay Debertin
|
|
$
|
617,074
|
|
Retirement
Benefits:
We provide the following retirement and deferral programs to
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 (the Pension Plan) is a
tax-qualified defined benefit pension plan. Most full-time,
non-union CHS employees are eligible to participate in the plan.
All Named Executive Officers participate in the Pension Plan. A
Named Executive Officer is fully vested in the plan after three
years (depending on hire date) of vesting service. The Pension
Plan provides for a monthly benefit (or a lump sum if elected)
for the Named Executive Officers lifetime beginning at
normal retirement age. Compensation includes total salary and
annual variable pay. Compensation and benefits are limited based
on limits imposed by the Internal Revenue Code. 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 is a 50% joint and survivor annuity. Other annuity forms
are also available on an actuarial equivalent basis.
A Named Executive Officers benefit under the Pension Plan
depends on 1) pay credits to the employees
account, which are based on the Named Executive Officers
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 2) investment credits which are computed
using the interest crediting rate and the Named Executive
Officers account balance at the beginning of the plan year.
The amount of pay credits added to a Named Executive
Officers account each year is a percentage of the Named
Executive Officers base salary and annual variable pay
plus compensation reduction pursuant to the CHS Inc. 401(k)
Plan, (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.
71
Pay credits are earned according to the following schedule:
Regular
Pay Credits
|
|
|
|
|
|
|
|
|
|
|
Pay Below Social Security
|
|
|
Pay Above Social Security
|
|
Years of Benefit Service
|
|
Taxable Wage Base
|
|
|
Taxable Wage Base
|
|
|
1 - 3 years
|
|
|
3
|
%
|
|
|
6
|
%
|
4 - 7 years
|
|
|
4
|
%
|
|
|
8
|
%
|
8 - 11 years
|
|
|
5
|
%
|
|
|
10
|
%
|
12 - 15 years
|
|
|
6
|
%
|
|
|
12
|
%
|
16 years or more
|
|
|
7
|
%
|
|
|
14
|
%
|
Mid
Career Pay Credits
Employees hired after age 40 qualify for the following
minimum pay credit:
|
|
|
|
|
|
|
|
|
|
|
Minimum Pay Credit
|
|
|
|
Pay Below Social Security
|
|
|
Pay Above Social Security
|
|
Age at Date of Hire
|
|
Taxable Wage Base
|
|
|
Taxable Wage Base
|
|
|
Age 40 - 44
|
|
|
4
|
%
|
|
|
8
|
%
|
Age 45 - 49
|
|
|
5
|
%
|
|
|
10
|
%
|
Age 50 or more
|
|
|
6
|
%
|
|
|
12
|
%
|
Special
Career Credits
Participants who were in the former Harvest States Cooperative
Cash Balance Retirement Plan on January 1, 1988 and met
certain age and service requirements on January 1, 1988 are
eligible for additional credit. Mr. Johnson and
Mr. Schmitz meet the requirement to receive an additional
credit based on the following table:
|
|
|
|
|
Total Age and Service
|
|
|
|
As of 1/01/1988
|
|
Additional Credit of
|
|
|
50 - 54
|
|
|
1
|
%
|
55 - 59
|
|
|
2
|
%
|
60 - 64
|
|
|
3
|
%
|
65 - 69
|
|
|
4
|
%
|
70 or more
|
|
|
5
|
%
|
Investment
Credits
We credit a Named Executive Officers account at the end of
the 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%). The 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 participants behalf by CHS.
72
Non-participants are automatically enrolled in the plan at 3%
contribution rate and effective each January 1st, the
participants contribution will be automatically increased
by 1%. This escalation will stop once the participants
contribution reaches 6%. 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 tax-qualified plan, the CHS Inc. Supplemental
Executive Retirement Plan (the SERP) and CHS Inc.
Deferred Compensation Plan (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 President and Chief Executive
Officer to participate.
All Named Executive Officers are eligible to participate in the
Deferred Compensation Plan. Furthermore, Mr. Westbrock is
eligible for pension benefits determined under additional
formulas as described in the Pension Benefits table.
Mr. Johnson is eligible to participate in our Special
Supplemental Executive Retirement Plan (the Special
SERP). The Special SERP retirement benefit will be
credited at the end of each plan year for which the participant
completes a year of service. The amount credited shall be an
amount equal to that set forth in a schedule of benefits stated
in the Special SERP, as disclosed in the Pension Benefits table.
The Special SERP is not funded and does not qualify for special
tax treatment under the Internal Revenue Code.
Compensation includes total salary and annual variable pay
without regard to limitations on compensation imposed by the
Internal Revenue Code. Compensation waived under the Deferred
Compensation Plan is not eligible for pay credits or company
contributions under the Pension Plan and 401(k) Plan.
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. Some of the benefits from the SERP are funded in a
rabbi trust, with a balance at August 31, 2010 of
$4.5 million. No further contributions to the trust are
planned. Currently, the plans are not being funded and 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 30% 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 fiscal year ending
August 31, 2010, all of the Named Executive Officers
participated in the non-elective portion of the Deferred
Compensation Plan and only Mr. Debertin participated in the
elective portion of the Deferred Compensation Plan.
Some of the benefits from a previous deferred compensation plan
are funded in a rabbi trust, with a balance at August 31,
2010 of $46.3 million. No further contributions to the
trust are planned.
Health &
Welfare Benefits:
Like other CHS employees, each of the Named Executive Officers
is entitled to receive benefits under our comprehensive health
and welfare program. Like other non-executive full-time
employees, participation in the individual benefit plans is
based on each Named Executive Officers annual benefit
elections and varies by individual.
73
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 an opportunity to choose a
level of coverage and coverage options with varying deductibles
and co-pays in order to pay for hospitalization, physician and
prescription drugs expenses. The cost of this coverage is shared
by both CHS 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 both CHS 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 pay will be
provided at CHS 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.
Short-
and Long-term Disability
Named Executive Officers participate in our Short-Term
Disability (STD) Plan on the same basis as other
eligible full-time employees. The Named Executive Officers also
participate in an executive Long-Term Disability
(LTD) Plan. 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 CHS.
Flexible
Spending Accounts/Health Savings 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 plan provides Named Executive Officers an
opportunity to pay for certain eligible medical expenses on a
pretax basis. Contributions to these plans are made by the Named
Executive Officer.
Travel
Assistance Program
Like other non-executive full-time CHS employees, each of the
Named Executive Officers is covered by the travel assistance
program. This broad-based program provides accidental death and
dismemberment protection should a covered injury or death occur
while on a CHS business trip.
Additional
Benefits and Perquisites:
Certain benefits and perquisites such as a car allowance, club
membership, executive physical and limited financial planning
assistance are available to the Named Executive Officers. These
are provided as part of an overall total rewards package that
strives to be competitive with comparable companies, retain
individuals who are critical to CHS, facilitate the Named
Executive Officers relationships with customers and to
support their roles in the community.
74
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary(5)
|
|
Compensation(1)(5)
|
|
Earnings(2)(6)
|
|
Compensation(3)(4)
|
|
Total
|
|
John D. Johnson
|
|
|
2010
|
|
|
$
|
900,000
|
|
|
$
|
3,600,000
|
|
|
$
|
2,001,285
|
|
|
$
|
251,423
|
|
|
$
|
6,752,708
|
|
President &
|
|
|
2009
|
|
|
|
900,000
|
|
|
|
3,415,680
|
|
|
|
1,666,170
|
|
|
|
262,086
|
|
|
|
6,243,936
|
|
Chief Executive Officer
|
|
|
2008
|
|
|
|
900,000
|
|
|
|
3,557,000
|
|
|
|
1,161,571
|
|
|
|
279,193
|
|
|
|
5,897,764
|
|
John Schmitz
|
|
|
2010
|
|
|
|
535,700
|
|
|
|
1,486,894
|
|
|
|
438,452
|
|
|
|
115,595
|
|
|
|
2,576,641
|
|
Executive Vice President &
|
|
|
2009
|
|
|
|
535,700
|
|
|
|
1,394,997
|
|
|
|
362,542
|
|
|
|
118,721
|
|
|
|
2,411,960
|
|
Chief Financial Officer
|
|
|
2008
|
|
|
|
507,700
|
|
|
|
1,403,220
|
|
|
|
221,711
|
|
|
|
114,197
|
|
|
|
2,246,828
|
|
Leon E. Westbrock
|
|
|
2010
|
|
|
|
588,000
|
|
|
|
1,577,946
|
|
|
|
1,816,363
|
|
|
|
151,712
|
|
|
|
4,134,021
|
|
Executive Vice President
|
|
|
2009
|
|
|
|
588,000
|
|
|
|
1,588,346
|
|
|
|
1,653,176
|
|
|
|
138,083
|
|
|
|
3,967,605
|
|
|
|
|
2008
|
|
|
|
570,700
|
|
|
|
1,576,074
|
|
|
|
1,106,259
|
|
|
|
135,199
|
|
|
|
3,388,232
|
|
Mark Palmquist
|
|
|
2010
|
|
|
|
588,000
|
|
|
|
1,637,060
|
|
|
|
568,334
|
|
|
|
129,081
|
|
|
|
2,922,475
|
|
Executive Vice President
|
|
|
2009
|
|
|
|
588,000
|
|
|
|
1,433,448
|
|
|
|
393,335
|
|
|
|
145,841
|
|
|
|
2,560,624
|
|
|
|
|
2008
|
|
|
|
548,700
|
|
|
|
1,516,574
|
|
|
|
186,642
|
|
|
|
156,707
|
|
|
|
2,408,623
|
|
Jay Debertin
|
|
|
2010
|
|
|
|
450,000
|
|
|
|
1,247,074
|
|
|
|
458,099
|
|
|
|
112,656
|
|
|
|
2,267,829
|
|
Executive Vice President
|
|
|
2009
|
|
|
|
450,000
|
|
|
|
1,202,513
|
|
|
|
309,297
|
|
|
|
166,720
|
|
|
|
2,128,530
|
|
|
|
|
2008
|
|
|
|
422,300
|
|
|
|
1,163,586
|
|
|
|
115,784
|
|
|
|
102,039
|
|
|
|
1,803,709
|
|
|
|
|
(1) |
|
Amounts include CHS annual variable pay awards and long-term
incentive awards. |
|
(2) |
|
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 Officers benefit under their
retirement program and nonqualified earnings, if applicable. |
|
|
|
Above-market earnings represent earnings exceeding 120% of the
Federal Reserve long-term rate as determined by the Internal
Revenue Service (IRS) on applicable funds. The following Named
Executive Officers had above market earnings in 2010:
Mr. Johnson- $294,417; Mr. Schmitz- $43,836;
Mr. Westbrock- $46,090; Mr. Palmquist- $32,787; and
Mr. Debertin- $70,292, and above market earnings in 2009:
Mr. Johnson- $350,846; Mr. Schmitz- $58,418;
Mr. Westbrock- $63,714; Mr. Palmquist- $48,082; and
Mr. Debertin- $83,791, and above market earnings in 2008:
Mr. Johnson- $114,047; Mr. Schmitz- $9,951;
Mr. Westbrock- $12,893; Mr. Palmquist- $10,502; and
Mr. Debertin- $1,725. |
|
(3) |
|
Amounts include CHS paid executive LTD, travel accident
insurance, executive physical, CHS contributions to qualified
and non-qualified defined contribution plans, car allowance,
spousal travel, sporting tickets, club dues/memberships and
financial planning. |
|
(4) |
|
This column includes car allowance amounts as follows:
Mr. Johnson- $25,800; and $15,120 each for
Mr. Schmitz, Mr. Westbrock, Mr. Palmquist and
Mr. Debertin. |
|
(5) |
|
Amounts reflect the gross compensation and include any
applicable deferrals. Mr. Debertin deferred $483,286 in
2010, $517,976 in 2009, and $585,890 in 2008. |
|
(6) |
|
The 2008 Change in Pension value is for the period July 1,
2007 to June 30, 2008. The 2009 Change in Pension Value is
an annualized value based on the
14-month
period from June 30, 2008 to August 31, 2009. The
total change in value is annualized by multiplying by 12/14. The
2010 Change in Pension Value is for the period September 1,
2009 to August 31, 2010. |
Material
Terms of Named Executive Officer Employment Agreement
On August 1, 2007, CHS entered into an employment agreement
with Mr. Johnson, its President and Chief Executive
Officer. A copy of this agreement was previously filed and is
listed as Exhibit 10.1 to this Annual Report on
Form 10-K.
Under the Agreement, Mr. Johnsons employment renewed
for additional one year periods unless terminated by CHS upon at
least one years prior written notice to Mr. Johnson.
As previously announced, Mr. Johnson will be retiring from
CHS on December 31, 2010. In accordance with the provisions
of the CHS annual variable pay plan and the CHS three year long
term incentive plan,
75
Mr. Johnson will receive future prorated incentive awards
for the time he was employed during the terms of both plans. In
accordance with his employment agreement, Mr. Johnson will
be subject to a two year non-compete agreement following his
retirement.
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 in order to encourage executive officers and
employees to strive to achieve goals that benefit our
shareholders interests over the long term, and to better
align our programs with general market practices.
2010
Grants of Plan-Based Awards
Estimated Future Payouts Under Non-Equity Incentive Plan
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
John D. Johnson
|
|
|
9-1-09
|
(1)
|
|
$
|
180,000
|
|
|
$
|
900,000
|
|
|
$
|
1,800,000
|
|
|
|
|
9-1-09
|
(2)
|
|
|
180,000
|
|
|
|
900,000
|
|
|
|
1,800,000
|
|
John Schmitz
|
|
|
9-1-09
|
(1)
|
|
|
74,998
|
|
|
|
374,990
|
|
|
|
749,980
|
|
|
|
|
9-1-09
|
(2)
|
|
|
74,998
|
|
|
|
374,990
|
|
|
|
749,980
|
|
Leon E. Westbrock
|
|
|
9-1-09
|
(1)
|
|
|
82,320
|
|
|
|
411,600
|
|
|
|
823,200
|
|
|
|
|
9-1-09
|
(2)
|
|
|
82,320
|
|
|
|
411,600
|
|
|
|
823,200
|
|
Mark Palmquist
|
|
|
9-1-09
|
(1)
|
|
|
82,320
|
|
|
|
411,600
|
|
|
|
823,200
|
|
|
|
|
9-1-09
|
(2)
|
|
|
82,320
|
|
|
|
411,600
|
|
|
|
823,200
|
|
Jay Debertin
|
|
|
9-1-09
|
(1)
|
|
|
63,000
|
|
|
|
315,000
|
|
|
|
630,000
|
|
|
|
|
9-1-09
|
(2)
|
|
|
63,000
|
|
|
|
315,000
|
|
|
|
630,000
|
|
|
|
|
(1) |
|
Represents range of possible awards under our 2010 Annual
Variable Pay Plan. The actual amount of the award earned for
fiscal 2010 is presented in the Non-Equity Incentive Plan
Compensation column of our Summary Compensation Table. The
Annual Variable Pay Plan is described in the Compensation
Discussion and Analysis. |
|
(2) |
|
Represents range of possible awards under our Long-Term
Incentive Plan for the fiscal
2010-2012
performance period. Goals are based on achieving a three-year
ROE of 8%, 10% and 14%. Awards are earned over a three-year
period and vest over an additional
28-month
period. |
Grants
Based Award Table Material Terms of Awards Disclosed in
Table
The material terms of annual variable pay and long-term
incentive awards that are disclosed in this table, including the
vesting schedule, are discussed in the Compensation, Discussion
and Analysis.
76
Pension
Benefits Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Present
|
|
|
|
|
|
|
Years of
|
|
Value of
|
|
Payments
|
|
|
|
|
Credited
|
|
Accumulated
|
|
During Last
|
Name
|
|
Plan Name
|
|
Service
|
|
Benefits
|
|
Fiscal Year
|
|
John D. Johnson(1)
|
|
CHS Inc. Pension Plan
|
|
|
33.8333
|
|
|
$
|
753,441
|
|
|
$
|
0
|
|
|
|
SERP
|
|
|
33.8333
|
|
|
|
5,588,846
|
|
|
|
0
|
|
|
|
Special SERP
|
|
|
33.8333
|
|
|
|
3,640,873
|
|
|
|
0
|
|
John Schmitz(1)
|
|
CHS Inc. Pension Plan
|
|
|
35.9167
|
|
|
|
707,391
|
|
|
|
0
|
|
|
|
SERP
|
|
|
35.9167
|
|
|
|
1,402,370
|
|
|
|
0
|
|
Leon E. Westbrock(1)
|
|
CHS Inc. Pension Plan
|
|
|
29.1667
|
|
|
|
825,709
|
|
|
|
0
|
|
|
|
SERP
|
|
|
29.1667
|
|
|
|
8,644,927
|
|
|
|
0
|
|
Mark Palmquist
|
|
CHS Inc. Pension Plan
|
|
|
31.0000
|
|
|
|
625,870
|
|
|
|
0
|
|
|
|
SERP
|
|
|
31.0000
|
|
|
|
1,591,044
|
|
|
|
0
|
|
Jay Debertin
|
|
CHS Inc. Pension Plan
|
|
|
26.2500
|
|
|
|
477,843
|
|
|
|
0
|
|
|
|
SERP
|
|
|
26.2500
|
|
|
|
830,726
|
|
|
|
0
|
|
|
|
|
(1) |
|
An executive is eligible for early retirement in both the CHS
Inc. Pension Plan and the Supplemental Executive Retirement Plan. |
The above table shows the present value of accumulated
retirement benefits that Named Executive Officers are entitled
to under the CHS Inc. Pension Plan and CHS Inc. SERP. It also
includes the accrued benefit of Mr. Johnsons Special
SERP.
For a discussion of the material terms and conditions of the
Pension Plan, the SERP and the Special SERP, see the
Compensation Discussion and Analysis.
The present value of accumulated benefits is determined in
accordance with the same assumptions outlined in Note 10 of
our consolidated financial statements in Part II,
Item 8 to this Annual Report on
Form 10-K
for the fiscal year ended August 31, 2010.
|
|
|
|
|
Discount rate of 4.50%;
|
|
|
|
RP-2000 Combined Healthy Participant mortality table
(post-decrement only);
|
|
|
|
Each Named Executive Officer is assumed to retire at the
earliest retirement age at which unreduced benefits are
available (age 62 for Mr. Westbrock and age 65
for all others). The early retirement benefits under the CENEX
formula and the Farmers Union Central Exchange, Inc.
formula are both currently described under the Pension Benefits
Table. The early retirement benefit under the cash balance plan
formula is equal to the participants account balance.
Early retirement is not defined under the Special SERP; and
|
|
|
|
Payments under the cash balance formula of the Pension Plan
assume a lump sum payment and payments under the grandfather
formula of the Pension Plan assume a single-life annuity. SERP
benefits are payable as a lump sum.
|
The normal form of benefit for a single employee is a life only
annuity and for a married employee 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.
Mr. Johnsons benefit at retirement will be equal to
his accumulated benefit under the Pension Plan and SERP
converted to a monthly single-life only annuity.
As Chief Executive Officer of CHS, in addition to the Pension
Plan and Supplemental Executive Retirement Plan,
Mr. Johnson is also eligible for a Special SERP benefit.
Under the Special SERP, at the end of each year for which
Mr. Johnson completes a year of service, an amount is
credited to his account. There
77
are two components to the contribution amount: 1) a base
portion and 2) a performance-based portion. The base
portion is determined by the following table:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2003-2007
|
|
$
|
263,663
|
|
2008
|
|
|
306,163
|
|
2009
|
|
|
350,428
|
|
2010
|
|
|
395,481
|
|
The annual performance-based amount for any year shall not
exceed $83,272. This amount shall be computed as $83,272
multiplied by a percentage. The percentage is determined by the
Board of Directors and is based on Mr. Johnsons
performance for the plan year for which such determination is
made pursuant to the performance standards under the CHS Annual
Incentive Plan.
Mr. Johnsons Special SERP account will receive
interest at 8% per year. Vesting in this plan is immediate. At
retirement or termination, Mr. Johnson will receive a lump
sum.
Mr. Schmitzs retirement benefit at retirement will be
equal to his accumulated benefit under the Pension Plan and
SERP, as described in Components of Executive Compensation
and Benefits section converted to a life only monthly
annuity. The normal form of benefit for a single employee is a
life only annuity and for a married employee 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.
Mr. Westbrock will receive benefits under a combination of
qualified and non-qualified benefit formulas that produces the
greatest benefit at the earlier of termination of employment or
retirement.
Initial cash balance account balances in the CHS Inc. Pension
Plan were established January 1, 1999. All former CENEX
employees who were at least age 50 with 10 years of
credited service as of January 1, 1999, were eligible to
continue to accrue pension benefits determined under the prior
plan formula (CENEX formula). Mr. Westbrock was
eligible for this transition benefit. This plan provides for a
monthly benefit for the employees lifetime beginning at
normal retirement age (social security retirement age),
calculated according to the following formula: [[1.08% x Final
Average Pay] + [.75% x (Final Average Pay-Covered
Compensation)]] x years of credited service (up to a maximum of
30 years).
For the period from January 1, 1999 through
December 31, 2001, CENEX grandfathered participants
received the greater of the benefit derived under the CENEX
formula or the cash balance plan benefit. In late 2001 and
effective January 1, 2002, all CENEX grandfathered
participants were given a one-time choice of which plan formula
to continue benefit accruals under. Mr. Westbrock chose the
cash balance formula under the Pension Plan.
Because of prior CENEX service, Mr. Westbrock is also
grandfathered under the Farmers Union Central Exchange, Inc.
formula. This formula provides for a monthly benefit for the
employees lifetime beginning at normal retirement age
(age 65), calculated according to the following formula:
[[(63% x Final Average Pay) Primary Social Security
Benefit] x (years of credited service (up to a maximum of
30 years)/30)]. The formula provides for a non-qualified
lump sum benefit upon retirement (age 65), calculated
according to the following formula: [[(63% x Final Average
Pay) Primary Social Security Benefit] x (years of
credited service (up to a maximum of
30 years)/30)] benefit payable under the
qualified plan.
Under the CENEX formula, terminated or retired employees who are
at least age 55 with 10 years of vesting service may
elect a reduced early retirement benefit. These reductions are
62/3%
per year for five years and
31/3%
per year thereafter. Mr. Westbrock is currently eligible
for early retirement under this plan benefit.
Under the Farmers Union Central Exchange, Inc. formula,
terminated or retired employees who are at least 55 with
15 years of vesting service or at least age 60 with
10 years of vesting service may elect a reduced early
retirement benefit. Unreduced benefits are payable at
age 62. Early retirement reductions are
62/3%
per year from age 62 for up to five years and
31/3%
per year thereafter. Mr. Westbrock is currently eligible
for early retirement under this plan benefit.
78
Final Average Pay under the CENEX plan formula and the
Farmers Union Central Exchange, Inc. formula is defined as
the average monthly compensation for the highest paid 60
consecutive months of employment out of the last 132 months
(over the entire service period for the Farmers Union Central
Exchange, Inc. Plan) worked. Covered Compensation is an amount
used to coordinate pension benefits with Social Security
benefits. Covered Compensation varies based on the
employees year of birth and the year in which employment
ends.
Mr. Palmquists retirement benefit at retirement will
be equal to his accumulated benefit under the Pension Plan and
SERP, as described in the Compensation Discussion and
Analysis converted to a life only monthly annuity.
Mr. Debertins retirement benefit at retirement will
be equal to his accumulated benefit under the Pension Plan and
SERP, as described in the Compensation Discussion and
Analysis converted to a life only monthly annuity.
2010
Nonqualified Deferred Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
|
|
|
Aggregate
|
|
|
Aggregate Balance
|
|
|
|
Contributions in
|
|
|
Contributions in
|
|
|
Aggregate Earnings (Loss)
|
|
|
Withdrawals/
|
|
|
at Last Fiscal Year
|
|
Name
|
|
Last Fiscal Year(3)
|
|
|
Last Fiscal Year(1)
|
|
|
in Last Fiscal Year(4)
|
|
|
Distributions
|
|
|
End (1),(2)
|
|
|
John D. Johnson
|
|
$
|
0
|
|
|
$
|
2,600,553
|
|
|
$
|
1,026,895
|
|
|
$
|
2,305,216
|
|
|
$
|
19,334,473
|
|
John Schmitz
|
|
|
0
|
|
|
|
797,824
|
|
|
|
251,294
|
|
|
|
0
|
|
|
|
4,523,625
|
|
Leon E. Westbrock
|
|
|
0
|
|
|
|
893,212
|
|
|
|
264,414
|
|
|
|
0
|
|
|
|
4,775,071
|
|
Mark Palmquist
|
|
|
0
|
|
|
|
863,113
|
|
|
|
179,115
|
|
|
|
839,824
|
|
|
|
2,978,757
|
|
Jay Debertin
|
|
|
483,286
|
|
|
|
665,870
|
|
|
|
389,668
|
|
|
|
0
|
|
|
|
6,614,273
|
|
|
|
|
(1) |
|
Deferrals under the Deferred Compensation Plan are made by the
Named Executive Officer. Amounts include LTIP, retirement
contributions on amounts exceeding IRS compensation limits,
Profit Sharing, 401(k) match plus Mr. Johnsons
Special SERP. |
|
(2) |
|
Amounts vary in accordance with individual pension plan
provisions and voluntary employee deferrals and withdrawals.
These amounts include roll-overs, voluntary salary and voluntary
incentive plan contributions from predecessor plans with
predecessor employers that have increased in value over the
course of the executives career. Named Executive Officers
may defer up to 30% of their base salary and up to 100% of their
annual variable pay to the Deferred Compensation Plan. Earnings
on amounts deferred under the 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 CHS, and a fixed rate fund. Named Executive
Officers may change their investment election daily with a
maximum of 12 changes per year. 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.
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
10 years. |
|
(3) |
|
Includes amounts deferred from salary and annual incentive pay
reflected in the Summary Compensation Table. |
|
(4) |
|
The amounts in this column include the change in value of the
balance, not including contributions made by the Named Executive
Officer. |
Post
Employment
The Named Executive Officers are covered by a broad-based
employee severance program which provides two weeks of pay per
year of service with a
12-month
cap. The CEO is the only Named Executive Officer with an
employment agreement which was for a one-year term, and provides
for a one-year notice in the case employment is terminated
without just cause. His severance package follows the same
broad-based severance
79
plan as other employees including the other Named Executive
Officers. In accordance with their years of service and current
base pay levels, the Named Executive Officers severance pay
would be as follows:
|
|
|
|
|
John D. Johnson
|
|
$
|
900,000
|
|
John Schmitz
|
|
$
|
535,700
|
|
Leon E. Westbrock
|
|
$
|
588,000
|
|
Mark Palmquist
|
|
$
|
588,000
|
|
Jay Debertin
|
|
$
|
450,000
|
|
These payments would be made if their positions are eliminated
and the executives are laid off. There are no other severance
benefits except for up to $5,000 of outplacement assistance,
which would be included as imputed income, and government
mandated benefits such as COBRA. The method of payment would be
a lump sum.
Named Executive Officers are not offered any special
postretirement medical benefits that arent offered to
other similarly situated (i.e. age and service) salaried
employees.
As previously disclosed, in addition to Mr. Johnson, two
other Named Executive Officers will be retiring in 2011. Leon
Westbrock will be retiring on October 29, 2010 and John
Schmitz will be retiring on December 31, 2010. As with
Mr. Johnson, in accordance with the provisions of the CHS
annual variable pay plan and the CHS three year long term
incentive plan, both Mr. Westbrock and Mr. Schmitz
will receive future pro-rated incentive awards for the time they
were employed during the terms of both plans.
Director
Compensation
Overview
The Board of Directors met monthly during the year ended
August 31, 2010. Through August 31, 2010, each
director was provided annual compensation of $54,000, paid in
12 monthly payments, plus actual expenses and travel
allowance, with the Chairman of the Board receiving additional
annual compensation of $18,000, and the First Vice Chairman, the
Secretary-Treasurer and all board committee chairs receiving an
additional annual compensation of $3,600. Each director receives
a per diem of $300 plus actual expenses and travel allowance for
each day spent on meetings other than regular board meetings and
the CHS Annual Meeting. Effective September 1, 2006, the
number of days per diem may not exceed 55 days annually,
except that the Chairman of the Board will be exempt from this
limit.
Director
Retirement and Healthcare Benefits
Members of the Board of Directors are eligible for certain
retirement and healthcare benefits. The retirement plan is a
defined benefit plan and provides for a monthly benefit for the
directors lifetime, beginning at age 60. Benefits are
immediately vested and the monthly benefit is determined
according to the following formula: $200 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
directors beneficiary in the event of the directors
death before 120 payments are made. Prior to 2005, directors
could elect to receive their benefit as an actuarial equivalent
lump sum. In order 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 board
term.
Retirement benefits are funded by a rabbi trust, with a balance
at August 31, 2010 of $6.2 million. The Board of
Directors intent is to fully fund benefits through the
rabbi trust.
Directors of CHS in place as of September 1, 2005, and
their eligible dependents, will be eligible to participate in
the medical, life, dental, vision and hearing plans. CHS will
pay 100% of the life and medical premium for the director and
eligible dependents until the director is eligible for Medicare.
Term life insurance cost is paid by the director. Retired
directors and their dependents are eligible to continue medical
and dental insurance at the cost of CHS after they leave the
board. In the event a directors coverage ends due to death
or
80
Medicare eligibility, CHS 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, will be eligible to participate in
the medical, dental, vision and hearing plans. CHS will pay 100%
of the premium for the director and eligible dependents until
the director is eligible for Medicare. In the event a director
leaves the board prior to Medicare eligibility, premiums will be
shared based on the following schedule:
|
|
|
|
|
|
|
|
|
Years of Service
|
|
Director
|
|
|
CHS
|
|
|
0 to 3
|
|
|
100
|
%
|
|
|
0
|
%
|
3 to 6
|
|
|
50
|
%
|
|
|
50
|
%
|
6+
|
|
|
0
|
%
|
|
|
100
|
%
|
Director
Life Insurance
Current and retired directors were required to take possession
of their whole life insurance policies by December 31,
2008. For directors whose policies are not yet paid up, they
have 12 months from the date the last premium was paid to
take possession of the policy. As of August 31, 2009, the
ownership of each policy was transferred to the Director. We
discontinued offering whole life insurance to new directors
beginning service after September 1, 2006. However, those
directors will have the ability to purchase additional term
insurance that is offered to our active CHS employees, but at
their own expense. Directors may purchase additional optional
supplemental coverage and dependent life insurance at their own
expense.
CHS Inc.
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.
Directors are eligible to participate in the Deferred
Compensation Plan which allows Directors to voluntarily defer
receipt of up to 100% of their board fees. The election must
occur prior to the beginning of the calendar year in which the
compensation will be earned. During the year, the following
Directors deferred board fees pursuant to the Deferred
Compensation Plan: Mr. Bass, Mr. Hasnedl,
Mr. Mulcahey and Mr. Toelle.
Some of the benefits from a previous deferred compensation plan
are funded in a rabbi trust, with a total balance at
August 31, 2010 of $46.2 million. This amount includes
both director and executive accounts. No further contributions
to the trust are planned. Except for the $46.2 million,
both non-elective and voluntary deferrals under the Deferred
Compensation Plan are not funded and do not qualify for special
tax treatment under the Internal Revenue Code.
81
Director
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
and Nonqualified
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Deferred Compensation
|
|
|
All Other
|
|
|
|
|
Name(1)
|
|
Paid in Cash(4)
|
|
|
Earnings(2)
|
|
|
Compensation(3)
|
|
|
Total
|
|
|
Bruce Anderson
|
|
$
|
64,500
|
|
|
$
|
106,051
|
|
|
$
|
11,206
|
|
|
$
|
181,757
|
|
Donald Anthony
|
|
|
61,200
|
|
|
|
47,275
|
|
|
|
11,206
|
|
|
|
119,681
|
|
Robert Bass
|
|
|
71,700
|
|
|
|
91,567
|
|
|
|
12,042
|
|
|
|
175,309
|
|
David Bielenberg
|
|
|
46,200
|
|
|
|
34,096
|
|
|
|
7,762
|
|
|
|
88,058
|
|
Dennis Carlson(5)
|
|
|
66,300
|
|
|
|
42,972
|
|
|
|
12,004
|
|
|
|
121,276
|
|
Curt Eischens
|
|
|
60,900
|
|
|
|
82,301
|
|
|
|
12,590
|
|
|
|
155,791
|
|
Steven Fritel
|
|
|
67,200
|
|
|
|
58,899
|
|
|
|
14,479
|
|
|
|
140,578
|
|
Jerry Hasnedl(5)
|
|
|
70,800
|
|
|
|
21,950
|
|
|
|
11,206
|
|
|
|
103,956
|
|
David Kayser
|
|
|
60,750
|
|
|
|
38,078
|
|
|
|
19,226
|
|
|
|
118,054
|
|
James Kile
|
|
|
23,300
|
|
|
|
41,220
|
|
|
|
17,300
|
|
|
|
81,820
|
|
Randy Knecht
|
|
|
68,550
|
|
|
|
73,101
|
|
|
|
11,206
|
|
|
|
152,857
|
|
Greg Kruger
|
|
|
66,300
|
|
|
|
22,577
|
|
|
|
250
|
|
|
|
89,127
|
|
Michael Mulcahey
|
|
|
62,400
|
|
|
|
47,824
|
|
|
|
11,206
|
|
|
|
121,430
|
|
Richard Owen
|
|
|
68,700
|
|
|
|
81,353
|
|
|
|
12,470
|
|
|
|
162,523
|
|
Steve Riegel
|
|
|
67,800
|
|
|
|
45,933
|
|
|
|
12,221
|
|
|
|
125,954
|
|
Daniel Schurr
|
|
|
60,900
|
|
|
|
31,746
|
|
|
|
19,789
|
|
|
|
112,435
|
|
Duane Stenzel(5)
|
|
|
19,200
|
|
|
|
|
|
|
|
9,966
|
|
|
|
29,166
|
|
Michael Toelle
|
|
|
81,000
|
|
|
|
80,613
|
|
|
|
19,226
|
|
|
|
180,839
|
|
|
|
|
(1) |
|
Change in board membership includes: Mr. Kile retired from
the Board effective December 3, 2009, and
Mr. Bielenberg was elected to the Board, effective
December 4, 2009. Mr. Stenzel passed away
December 12, 2009, and his vacant position has transferred
from Region 1 to Region 8. |
|
(2) |
|
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 directors benefit under their 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. |
|
|
|
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 the year: Mr. Bass, $443; Mr. Toelle,
$118; Mr. Fritel, $52; Mr. Hasnedl, $172;
Mr. Knecht, $116; and Mr. Mulcahey, $29. |
|
(3) |
|
All other compensation includes health and life insurance
premiums, conference and registration fees, meals and related
spouse expenses for trips made with a director on CHS business.
Total amounts vary primarily due to the variations in life and
health insurance premiums which are due to several factors
including the directors age, length of service and the
number of dependents covered by health care benefits. |
|
|
|
Health care premiums paid for directors include:
Mr. Anderson, $10,956; Mr. Anthony, $10,956;
Mr. Bass, $11,792; Mr. Bielenberg, $7,512;
Mr. Carlson, $10,956; Mr. Eischens, $12,340;
Mr. Fritel, $13,632; Mr. Hasnedl, $10,956;
Mr. Kayser, $18,976; Mr. Kile, $15,396;
Mr. Knecht, $10,956; Mr. Mulcahey, $10,956;
Mr. Owen, $10,956; Mr. Riegel, $10,956;
Mr. Schurr, $18,976; Mr. Stenzel, $9,716; and
Mr. Toelle, $18,976;
|
|
(4) |
|
Of this amount, the following directors defer the succeeding
amounts to the Deferred Compensation Plan: Mr. Bass,
$3,200; Mr. Hasnedl, $6,000; Mr. Mulcahey, $6,000; and
Mr. Toelle, $6,000. |
|
(5) |
|
Made a one-time irrevocable retirement election in 2005 to
receive a lump sum benefit under the directors retirement
plan. All other directors will receive a monthly annuity upon
retirement. |
82
Compensation
Committee Interlocks and Insider Participation
As noted above, the Board of Directors does not have a
compensation committee. The Corporate Responsibility Committee
recommends to the entire Board of Directors salary actions
relative to our Chief Executive Officer. The entire Board of
Directors determines the compensation and the terms of the
employment agreement with our President and Chief Executive
Officer. Our President and Chief Executive Officer determines
the compensation for all other Executive Officers.
None of the directors are officers of CHS. See Item 13 for
directors that were a party to related transactions.
Report
of the Corporate Responsibility Committee
The Corporate Responsibility Committee has reviewed and
discussed the Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management and, based on such review and discussion, the
Corporate Responsibility Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be
included in this Annual Report on
Form 10-K.
Respectfully submitted,
Curt Eischens Chairman
Greg Kruger
Steven Fritel
Disclosure
for Item 402(s) of Regulation
S-K.
Our compensation policies and practices were reviewed by the
appropriate corporate personnel in light of the requirements of
Item 402(s) of
Regulation S-K.
A comprehensive risk assessment of our base and variable
compensation programs was also conducted. All plans are
performance based and in total are designed in such a manner as
to limit unnecessary risk to CHS. Because we concluded that the
risks arising from our compensation policies and practices are
not reasonably likely to have a material adverse effect on us,
we did not include any disclosure in response to
Item 402(s) of
Regulation S-K.
83
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Beneficial ownership of equity securities as of August 31,
2010 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
|
|
|
|
Nature of
|
|
|
|
|
|
|
|
|
Beneficial
|
|
|
|
|
Title of Class
|
|
Name of Beneficial Owner
|
|
Ownership
|
|
|
% of Class(1)
|
|
|
8% Cumulative Redeemable
Preferred Stock
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
Michael Toelle
|
|
|
520 shares
|
(2)
|
|
|
*
|
|
|
|
Bruce Anderson
|
|
|
351 shares
|
|
|
|
*
|
|
|
|
Donald Anthony
|
|
|
100 shares
|
|
|
|
*
|
|
|
|
Robert Bass
|
|
|
120 shares
|
|
|
|
*
|
|
|
|
David Bielenberg
|
|
|
9,130 shares
|
|
|
|
*
|
|
|
|
Dennis Carlson
|
|
|
710 shares
|
(2)
|
|
|
*
|
|
|
|
Curt Eischens
|
|
|
120 shares
|
|
|
|
*
|
|
|
|
Steve Fritel
|
|
|
1,655 shares
|
|
|
|
*
|
|
|
|
Jerry Hasnedl
|
|
|
975 shares
|
|
|
|
*
|
|
|
|
David Kayser
|
|
|
0 shares
|
|
|
|
*
|
|
|
|
Randy Knecht
|
|
|
863 shares
|
(2)
|
|
|
*
|
|
|
|
Gregory Kruger
|
|
|
0 shares
|
|
|
|
*
|
|
|
|
Michael Mulcahey
|
|
|
100 shares
|
|
|
|
*
|
|
|
|
Richard Owen
|
|
|
240 shares
|
|
|
|
*
|
|
|
|
Steve Riegel
|
|
|
210 shares
|
|
|
|
*
|
|
|
|
Daniel Schurr
|
|
|
0 shares
|
|
|
|
*
|
|
|
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
John D. Johnson
|
|
|
7,220 shares
|
(2)
|
|
|
*
|
|
|
|
Jay Debertin
|
|
|
1,200 shares
|
(2)
|
|
|
*
|
|
|
|
Patrick Kluempke
|
|
|
2,800 shares
|
|
|
|
*
|
|
|
|
Thomas D. Larson
|
|
|
1,813 shares
|
(2)
|
|
|
*
|
|
|
|
Mark Palmquist
|
|
|
283 shares
|
|
|
|
*
|
|
|
|
John Schmitz
|
|
|
1,400 shares
|
(2)
|
|
|
*
|
|
|
|
Leon E. Westbrock
|
|
|
3,000 shares
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive officers as a group
|
|
|
32,810 shares
|
|
|
|
*
|
|
|
|
|
(1) |
|
As of August 31, 2010, there were 12,272,003 shares of
8% Cumulative Redeemable Preferred Stock outstanding. |
|
(2) |
|
Includes shares held by spouse, children and Individual
Retirement Accounts (IRA). |
|
* |
|
Less than 1%. |
We have no compensation plans under which our equity securities
are authorized for issuance.
To our knowledge, there is no person who owns beneficially more
than 5% of our 8% Cumulative Redeemable Preferred Stock.
84
|
|
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, 2010, 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 amount involved
exceeded $120,000 are shown below.
|
|
|
|
|
|
|
|
|
|
|
Product Sales
|
|
|
Patronage
|
|
Name
|
|
and Purchases
|
|
|
Dividends
|
|
|
Bruce Anderson
|
|
$
|
221,003
|
|
|
$
|
10,407
|
|
Donald Anthony
|
|
|
200,032
|
|
|
|
|
|
Curt Eischens
|
|
|
703,315
|
|
|
|
15,549
|
|
Steve Fritel
|
|
|
264,648
|
|
|
|
6,682
|
|
Jerry Hasnedl
|
|
|
883,145
|
|
|
|
24,044
|
|
David Kayser
|
|
|
1,085,868
|
|
|
|
8,149
|
|
Michael Mulcahey
|
|
|
227,403
|
|
|
|
3,388
|
|
Michael Toelle
|
|
|
1,101,382
|
|
|
|
72,159
|
|
Review,
Approval or Ratification of Related Party Transaction
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 Securities and Exchange Commission. In evaluating related
person transactions, the committee members apply the same
standards they apply to their general responsibilities as
members of the committee of the Board of Directors. 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. In addition,
we have a written policy in regard to related persons, included
in our Corporate Compliance Code of Ethics 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.
Director
Independence
We are a Minnesota cooperative corporation managed by a Board of
Directors made up of seventeen 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 six director positions are elected at
an annual meeting. Nominations for director elections are made
by the members at the region caucuses at our annual meeting.
Neither the Board of Directors, nor management, of CHS
participates in the nomination process. Accordingly, we have no
nominating committee.
85
The following directors satisfy the definition of director
independence set forth in the rules of the NASDAQ Global Select
Market:
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|
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Bruce Anderson
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Donald Anthony
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Robert Bass
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David Bielenberg
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Dennis Carlson
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|
Steve Fritel
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Jerry Hasnedl
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|
David Kayser
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Greg Kruger
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|
Randy Knecht
|
Richard Owen
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|
Michael Mulcahey
|
Daniel Schurr
|
|
Steve Riegel
|
Michael Toelle
|
|
|
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.
Independence
of CEO and Board Chairman Positions
Our Bylaws prohibit any employee of CHS from serving on the
Board of Directors. Accordingly, our Chief Executive Officer may
not serve as Chairman of the Board or in any Board capacity. We
believe that this leadership structure creates independence
between the Board and management and is an important check and
balance in the governance of CHS.
Board of
Directors Role in Risk Oversight
Our management and Board of Directors have jointly developed and
documented a Risk Identification and Assessment analysis for
CHS. The assessment identifies and analyzes eighteen broad
categories of risk exposure. The assessment also identifies
methods for managing or mitigating the risks reflected in the
assessment. Each risk area is reviewed periodically by
management with the Board of Directors
and/or a
committee of the Board, on an annual, semi-annual, quarterly or
monthly basis, as appropriate for the particular risk
identified. The review includes an analysis by the Board of
Directors and management of the continued applicability of the
risk, our performance in mitigating the risk and possible
additional risks which should be included in the assessment.
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ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The following table shows the aggregate fees billed to us by
PricewaterhouseCoopers LLP for services rendered during the
fiscal years ended August 31, 2010 and 2009:
|
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|
|
|
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|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
Description of Fees
|
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2010
|
|
|
2009
|
|
|
Audit Fees(1)
|
|
$
|
2,357
|
|
|
$
|
1,609
|
|
Audit Related Fees(2)
|
|
|
102
|
|
|
|
90
|
|
Tax Fees(3)
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|
24
|
|
|
|
24
|
|
All Other Fees
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,483
|
|
|
$
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees for audit of annual financial statements and
reviews of the related quarterly financial statements, certain
statutory audits, work related to filings of registration
statements, and services for 404 readiness efforts. |
86
|
|
|
(2) |
|
Includes fees for employee benefit plan audits. |
|
(3) |
|
Includes fees related to tax compliance, tax advice and tax
planning. |
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 preapproval 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 all of the services
listed above in advance.
87
PART IV.
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|
ITEM 15.
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EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) FINANCIAL STATEMENTS
The following financial statements and the Reports of
Independent Registered Public Accounting Firms are filed as part
of this
Form 10-K.
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Page No.
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|
Report of Independent Registered Public Accounting Firm
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F-1
|
|
Consolidated Balance Sheets as of August 31, 2010 and 2009
|
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F-2
|
|
Consolidated Statements of Operations for the years ended
August 31, 2010, 2009 and 2008
|
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F-3
|
|
Consolidated Statements of Equities and Comprehensive Income for
the years ended August 31, 2010, 2009 and 2008
|
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F-4
|
|
Consolidated Statements of Cash Flows for the years ended
August 31, 2010, 2009 and 2008
|
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F-5
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|
Notes to Consolidated Financial Statements
|
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F-6
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|
(a)(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
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Balance at
|
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Additions:
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Additions:
|
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Deductions:
|
|
|
Balance at
|
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|
Beginning
|
|
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Charged to Costs
|
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|
Charged to
|
|
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Write-offs, net
|
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End
|
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of Year
|
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and Expenses
|
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|
Other Accounts
|
|
|
of Recoveries
|
|
|
of Year
|
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|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Allowances for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
99,025
|
|
|
$
|
6,688
|
|
|
|
|
|
|
$
|
(6,178
|
)
|
|
$
|
99,535
|
|
2009
|
|
|
73,651
|
|
|
|
32,019
|
|
|
|
|
|
|
|
(6,645
|
)
|
|
|
99,025
|
|
2008
|
|
|
62,960
|
|
|
|
20,691
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
73,651
|
|
88
Report of
Independent Registered Public Accounting Firm on
Financial
Statement Schedule
To the Board of Directors and Members and Patrons of CHS Inc.:
Our audits of the consolidated financial statements referred to
in our report dated November 10, 2010 appearing on
page F-1
in this Annual Report on
Form 10-K
of CHS Inc. and subsidiaries also included an audit of the
financial statement schedule listed in Item 15(a)(2) of
this
Form 10-K.
In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 10, 2010
89
(a)(3) EXHIBITS
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3
|
.1
|
|
Articles of Incorporation of CHS Inc., as amended. (Incorporated
by reference to our
Form 10-Q
for the quarterly period ended November 30, 2006, filed
January 11, 2007).
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|
3
|
.1A
|
|
Amended Article III, Section 3(b) of Bylaws of CHS
Inc. (Incorporated by reference to our Current Report on
Form 8-K,
filed May 5, 2010).
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3
|
.2
|
|
Bylaws of CHS Inc. (Incorporated by reference to our
Registration Statement on
Form S-1
(File
No. 333-156255),
filed December 17, 2008).
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4
|
.1
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|
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),
dated January 13, 2003).
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4
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.2
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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),
dated January 23, 2003).
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4
|
.3
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|
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),
dated January 23, 2003).
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4
|
.4
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|
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).
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10
|
.1
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|
Amended and Restated Employment Agreement between John D.
Johnson and CHS Inc., effective as of August 1, 2007
(Incorporated by reference to our Current Report on
Form 8-K
filed August 10, 2007).
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10
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.2
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|
Cenex Harvest States Cooperatives Supplemental Savings Plan.
(Incorporated by reference to our
Form 10-K
for the year ended August 31, 2000, filed November 22,
2000).
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10
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.2A
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|
Amendment No. 3 to the CHS Inc. Supplemental Savings Plan.
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended May 31, 2006, filed
July 12, 2006).
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10
|
.3
|
|
CHS Inc. Supplemental Executive Retirement Plan (2010
Restatement). (Incorporated by reference to our
Form 10-Q
for the quarterly period ended May 31, 2010, filed
July 8, 2010).
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10
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.4
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|
Cenex Harvest States Cooperatives Senior Management Compensation
Plan. (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2000, filed November 22,
2000).
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10
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.5
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|
Cenex Harvest States Cooperatives Executive Long-Term Variable
Compensation Plan. (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2000, filed November 22,
2000).
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|
10
|
.6
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|
Cenex Harvest States Cooperatives Share Option Plan.
(Incorporated by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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|
10
|
.6A
|
|
Amendment to Cenex Harvest States Share Option Plan, dated
June 28, 2001. (Incorporated by reference to our
Registration Statement on
Form S-2
(File
No. 333-65364),
filed July 18, 2001).
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10
|
.6B
|
|
Amendment No. 2 to Cenex Harvest States Share Option Plan,
dated May 2, 2001. (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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|
10
|
.6C
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|
Amendment No. 3 to Cenex Harvest States Share Option Plan,
dated June 4, 2002. (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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|
10
|
.6D
|
|
Amendment No. 4 to Cenex Harvest States Share Option Plan,
dated April 6, 2004. (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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10
|
.7
|
|
CHS Inc. Share Option Plan Option Agreement. (Incorporated by
reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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10
|
.8
|
|
CHS Inc. Share Option Plan Trust Agreement. (Incorporated
by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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90
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|
|
10
|
.8A
|
|
Amendment No. 1 to the Trust Agreement. (Incorporated
by reference to our
Form 10-K
for the year ended August 31, 2004, filed November 18,
2004).
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|
|
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|
10
|
.9
|
|
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).
|
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|
|
|
|
|
10
|
.10
|
|
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).
|
|
|
|
|
|
|
10
|
.11
|
|
CHS Inc. Special Supplemental Executive Retirement Plan.
(Incorporated by reference to our
Form 10-K
for the year ended August 31, 2003, filed November 21,
2003).
|
|
|
|
|
|
|
10
|
.11A
|
|
Amendment No. 1 to the CHS Inc. Special Supplemental
Executive Retirement Plan. (Incorporated by reference to our
Form 10-Q
for the quarterly period ended February 29, 2008, filed
April 9, 2008).
|
|
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|
|
|
|
10
|
.12
|
|
2006 Second Amended and Restated Credit Agreement (Revolving
Loan) by and between CHS Inc. and the Syndication Parties dated
as of June 2, 1010. (Incorporated by reference to our
Current Report on
Form 8-K,
filed June 3, 2010).
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|
|
|
|
10
|
.13
|
|
2010 Credit Agreement (Revolving Loan) by and between CHS Inc.
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).
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|
10
|
.14
|
|
$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).
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10
|
.14A
|
|
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).
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10
|
.15
|
|
Note purchase and Private Shelf Agreement dated as of
January 10, 2001 between Cenex Harvest States Cooperatives
and The Prudential Insurance Company of America. (Incorporated
by reference to our
Form 10-Q
for the quarterly period ended February 28, 2001, filed
April 10, 2001).
|
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|
|
|
|
10
|
.15A
|
|
Amendment No. 1 to Note Purchase and Private Shelf
Agreement, dated as of March 2, 2001. (Incorporated by
reference to our
Form 10-Q
for the quarterly period ended February 28, 2001, filed
April 10, 2001).
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|
10
|
.16
|
|
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).
|
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|
|
|
|
10
|
.17
|
|
2003 Amended and Restated Credit Agreement ($15 million,
2 Year Facility) dated December 16, 2003 between
CoBank, ACB, U.S. AgBank, FCB and the National Cooperative
Refinery Association, Inc. (Incorporated by reference to our
Form 10-Q
for the quarterly period ended February 29, 2004, filed
April 7, 2004).
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|
10
|
.17A
|
|
First Amendment to the 2003 Amended and Restated Credit
Agreement between the National Cooperative Refinery Association
and the Syndication Parties. (Incorporated by reference to our
Current Report on
Form 8-K
filed December 20, 2005).
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10
|
.17B
|
|
Third Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties (Incorporated by reference to our Current
Report on
Form 8-K
filed December 18, 2006).
|
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|
10
|
.17C
|
|
Fifth Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties (Incorporated by reference to our
Registration Statement on
Form S-1
(File
No. 333-148091),
filed December 14, 2007).
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|
10
|
.17D
|
|
Sixth Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties (Incorporated by reference to our
Registration Statement on
Form S-1
(File
No. 333-156255),
filed December 17, 2008).
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|
10
|
.17E
|
|
Seventh Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2009, filed
January 11, 2010).
|
91
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|
|
10
|
.18
|
|
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).
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|
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|
10
|
.18A
|
|
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).
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|
10
|
.18B
|
|
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).
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10
|
.19
|
|
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).
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|
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|
10
|
.20
|
|
Deferred Compensation Plan. (Incorporated by reference to our
Registration Statement on
Form S-8
(File
No. 333-121161),
filed December 10, 2004).
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|
10
|
.20A
|
|
First Amendment to CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our Registration Statement on
Form S-8
(File
No. 333-129464),
filed November 4, 2005).
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|
10
|
.20B
|
|
Second Amendment to CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended February 29, 2008, filed
April 9, 2008).
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|
|
10
|
.20C
|
|
Third Amendment to CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended May 31, 2008, filed
July 10, 2008).
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|
|
|
|
10
|
.20D
|
|
Fourth Amendment to CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our
Form 10-K
for the year ended August 31, 2008, filed November 21,
2008).
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|
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|
10
|
.21
|
|
New Plan Participants 2008 Plan Agreement and Election 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).
|
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|
|
|
|
10
|
.22
|
|
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).
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|
|
|
|
10
|
.23
|
|
Share Option Plan Participants 2005 Plan Agreement and Election
Form. (Incorporated by reference to our Registration Statement
on
Form S-8
(File
No. 333-129464),
filed November 4, 2005).
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|
|
|
|
10
|
.24
|
|
CHS Inc. Deferred Compensation Plan Appendix B to
Prospectus dated October 28, 2008 (Incorporated by
reference to our
Form 10-K
for the year ended August 31, 2009, filed
November 10, 2009).
|
|
|
|
|
|
|
10
|
.25
|
|
New Plan Participants (Board of Directors) 2009 Plan Agreement
and Election 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).
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|
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|
|
10
|
.26
|
|
City of McPherson, Kansas Taxable Industrial Revenue Bond
Series 2006 registered to National Cooperative Refinery
Association in the amount of $325 million (Incorporated by
reference to our Current Report on
Form 8-K
filed December 18, 2006).
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|
|
|
|
|
10
|
.27
|
|
Bond Purchase Agreement between National Cooperative Refinery
Association, as purchaser, and City of McPherson, Kansas, as
issuer, dated as of December 18, 2006 (Incorporated by
reference to our Current Report on
Form 8-K
filed December 18, 2006).
|
|
|
|
|
|
|
10
|
.28
|
|
Trust Indenture between City of McPherson, Kansas, as
issuer, and Security Bank of Kansas City, Kansas City, Kansas,
as trustee, dated as of December 18, 2006 (Incorporated by
reference to our Current Report on
Form 8-K
filed December 18, 2006).
|
|
|
|
|
|
|
10
|
.29
|
|
Lease agreement between City of McPherson, Kansas, as issuer,
and National Cooperative Refinery Association, as tenant, dated
as of December 18, 2006 (Incorporated by reference to our
Current Report on
Form 8-K
filed December 18, 2006).
|
|
|
|
|
|
|
10
|
.30
|
|
Commercial Paper Placement Agreement by and between CHS Inc. and
Marshall & Ilsley Bank dated October 30, 2006
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2006, filed
January 11, 2007).
|
92
|
|
|
|
|
|
|
|
|
|
|
10
|
.31
|
|
Commercial Paper Dealer Agreement by and between CHS Inc. and
SunTrust Capital Markets, Inc. dated October 6, 2006
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2006, filed
January 11, 2007).
|
|
|
|
|
|
|
10
|
.32
|
|
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).
|
|
|
|
|
|
|
10
|
.33
|
|
Agreement Regarding Distribution of Assets, by and among CHS
Inc., United Country Brands, LLC, Land OLakes, 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, 2008, filed November 20,
2007).
|
|
|
|
|
|
|
10
|
.34
|
|
$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).
|
|
|
|
|
|
|
10
|
.34A
|
|
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).
|
|
|
|
|
|
|
10
|
.34B
|
|
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).
|
|
|
|
|
|
|
10
|
.35
|
|
$75 Million Uncommitted Demand Facility by and between CHS
Europe S.A. and Fortis Bank (Nederland) N.V. dated
April 18, 2008 (Incorporated by reference to our
Form 10-Q
for the quarterly period ended May 31, 2008, filed
July 10, 2008).
|
|
|
|
|
|
|
10
|
.36
|
|
$60 Million Uncommitted Trade Finance Facility by and between
CHS Europe S.A. and Societe Generale dated June 6, 2008
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended May 31, 2008, filed
July 10, 2008).
|
|
|
|
|
|
|
10
|
.37
|
|
$70 Million Uncommitted Transactional Facility by and between
CHS Europe S.A. and BNP Paribas dated July 17, 2008
(Incorporated by reference to our
Form 10-K
for the year ended August 31, 2008, filed November 21,
2008).
|
|
|
|
|
|
|
10
|
.38
|
|
$50 Million Private Shelf Agreement by and between CHS Inc. and
John Hancock Life Insurance Company dated as of August 11,
2008 (Incorporated by reference to our
Form 10-K
for the year ended August 31, 2008, filed November 21,
2008).
|
|
|
|
|
|
|
10
|
.39
|
|
Base Indenture dated August 10, 2005 between Cofina
Funding, LLC as Issuer and U.S. Bank National Association as
Trustee (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.40
|
|
Amendment No. 1 to Base Indenture dated as of
November 18, 2005 by and among Cofina Funding, LLC (the
Issuer), Cofina Financial, LLC (the
Servicer), Bank Hapoalim B.M. (the Funding
Agent) and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.41
|
|
Lockbox Agreement dated August 10, 2005 between Cofina
Financial, LLC and M&I Marshall & Isley Bank
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.42
|
|
Purchase and Sale Agreement dated as of August 10, 2005
between Cofina Funding, LLC, as Purchaser and Cofina Financial,
LLC, as Seller (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.43
|
|
Custodian Agreement dated August 10, 2005 between Cofina
Funding, LLC, as Issuer; U.S. Bank National Association, as
Trustee; and U.S. Bank National Association, as Custodian
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.44
|
|
Servicing Agreement dated as of August 10, 2005 among
Cofina Funding, LLC, as Issuer; Cofina Financial, LLC, as
Servicer; and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
93
|
|
|
|
|
|
|
|
|
|
|
10
|
.45
|
|
Omnibus Amendment and Agreement dated as of August 30, 2005
by and among Cofina Funding, LLC (the Issuer);
Cofina Financial, LLC (the Servicer), Cenex Finance
Association, Inc. (the Guarantor), Bank Hapoalim
B.M. (the Funding Agent) and U.S. Bank National
Association, as Trustee and as Custodian (Incorporated by
reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.46
|
|
Series 2005-A
Supplement dated as of August 10, 2005 (to Base Indenture
dated as of August 10, 2005) between Cofina Funding,
LLC, as Issuer, and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.47
|
|
Note Purchase Agreement dated as of August 10, 2005 among
Cofina Funding, LLC, as Issuer; Bank Hapoalim B.M. as Funding
Agent; and the Financial Institutions from time to time parties
thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.48
|
|
Series 2005-B
Supplement dated as of November 18, 2005 (to Base Indenture
dated as of August 10, 2005) between Cofina Funding,
LLC, as Issuer, and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.49
|
|
Note Purchase Agreement dated as of November 18, 2005 among
Cofina Funding, LLC, as Issuer; Venus Funding Corporation, as
the Conduit Purchaser; Bank Hapoalim, B.M., as Funding Agent for
the Purchasers; and the Financial Institutions from time to time
parties thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.50
|
|
First Amendment to Note Purchase Agreement dated as of
November 6, 2008 among Cofina Funding, LLC (the
Issuer); Venus Funding Corporation (the
Conduit Purchaser); Bank Hapoalim, B.M., as Funding
Agent and as a Committed Purchaser (Incorporated by reference to
our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.51
|
|
Omnibus Amendment and Agreement dated as of May 11, 2007
among Cofina Funding, LLC (the Issuer); Cofina
Financial, LLC (the Servicer), Bank Hapoalim B.M.
(the Funding Agent); and U.S. Bank National
Association as Trustee and as Custodian (Incorporated by
reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.52
|
|
Omnibus Amendment and Agreement No. 2 dated as of
October 1, 2007 among Cofina Funding, LLC (the
Issuer); Cofina Financial, LLC (the
Servicer), Bank Hapoalim B.M. (the Funding
Agent); and U.S. Bank National Association as Trustee and
as Custodian (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.53
|
|
Omnibus Amendment and Agreement No. 3 dated as of
May 16, 2008 among Cofina Funding, LLC (the
Issuer); Cofina Financial, LLC (the
Servicer), Bank Hapoalim B.M. (the Funding
Agent); Venus Funding Corporation (the Conduit
Purchaser) and U.S. Bank National Association as Trustee
and as Custodian (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.54
|
|
Series 2006-A
Supplement dated as of February 21, 2006 (to Base Indenture
dated as of August 10, 2005) between Cofina Funding,
LLC, as Issuer, and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.55
|
|
Note Purchase Agreement dated as of February 21, 2006 among
Cofina Funding, LLC, as Issuer; Venus Funding Corporation, as
the Conduit Purchaser; Bank Hapoalim, B.M., as Funding Agent for
the Purchasers; and the Financial Institutions from time to time
parties thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.56
|
|
First Amendment to Note Purchase Agreement dated as of
February 20, 2007 among Cofina Funding, LLC (the
Issuer); Venus Funding Corporation (the
Conduit Purchaser); Bank Hapoalim, B.M. (the
Funding Agent); and the Committed Purchasers party
thereto. (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
94
|
|
|
|
|
|
|
|
|
|
|
10
|
.57
|
|
Second Amendment to Note Purchase Agreement dated as of
February 19, 2008 among Cofina Funding, LLC (the
Issuer); Venus Funding Corporation (the
Conduit Purchaser); Bank Hapoalim, B.M. (the
Funding Agent); and the Committed Purchasers party
thereto. (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.58
|
|
Series 2006-B
Supplement dated as of May 16, 2006 (to Base Indenture
dated as of August 10, 2005) between Cofina Funding,
LLC, as Issuer, and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.59
|
|
Note Purchase Agreement dated as of May 16, 2006 among
Cofina Funding, LLC, as Issuer; Voyager Funding Corporation, as
the Conduit Purchaser; Bank Hapoalim, B.M., as Funding Agent for
the Purchasers; and the Financial Institutions from time to time
parties thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.60
|
|
First Amendment to Note Purchase Agreement dated as of
May 15, 2007 among Cofina Funding, LLC (the
Issuer); Voyager Funding Corporation (the
Conduit Purchaser); Bank Hapoalim, B.M. (the
Funding Agent); and the Committed Purchasers party
thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.61
|
|
Second Amendment to Note Purchase Agreement dated as of
May 13, 2008 among Cofina Funding, LLC (the
Issuer); Voyager Funding Corporation (the
Conduit Purchaser); Bank Hapoalim, B.M. (the
Funding Agent); and the Committed Purchasers party
thereto (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.62
|
|
Series 2008-A
Supplement dated as of November 21, 2008 (to Base Indenture
dated as of August 10, 2005) between Cofina Funding,
LLC, as Issuer, and U.S. Bank National Association, as Trustee
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.63
|
|
Note Purchase Agreement dated as of November 21, 2008 among
Cofina Funding, LLC, as Issuer; Victory Receivables Corporation,
as the Conduit Purchaser; The Bank of Tokyo-Mitsubishi UFJ,
Ltd., New York Branch, as Funding Agent for the Purchasers; and
the Financial Institutions from time to time parties thereto
(Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.64
|
|
Amendment No. 1 to Note Purchase Agreement
(Series 2008-A)
dated February 25, 2009, by and among Cofina Funding, LLC
as the Issuer; Victory Receivables Corporation, as the Conduit
Purchaser; and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York
Branch, as the Funding Agent and as a Committed Purchaser
(Incorporated by reference to our Current Report on
Form 8-K,
filed March 2, 2009).
|
|
|
|
|
|
|
10
|
.65
|
|
Amendment No. 2 to Note Purchase Agreement
(Series 2008-A)
dated November 20, 2009, by and among Cofina Funding, LLC
as the Issuer; Victory Receivables Corporation, as the Conduit
Purchaser; and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York
Branch, as the Funding Agent and as a Committed Purchaser
(Incorporated by reference to our Registration Statement on
Form S-1
(File
No. 333-163608),
filed December 9, 2009).
|
|
|
|
|
|
|
10
|
.66
|
|
Amended and Restated Loan Origination and Participation
Agreement dated as of October 31, 2006 by and among AgStar
Financial Services, PCA d/b/a ProPartners Financial; CHS Inc.;
and Cofina Financial, LLC (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.67
|
|
Amendment dated December 11, 2006 to Amended and Restated
Loan Origination and Participation Agreement by and among AgStar
Financial Services, PCA d/b/a ProPartners Financial; CHS Inc.;
and Cofina Financial, LLC (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
10
|
.68
|
|
Amendment dated January 5, 2007 to Amended and Restated
Loan Origination and Participation Agreement by and among AgStar
Financial Services, PCA d/b/a ProPartners Financial; CHS Inc.;
and Cofina Financial, LLC (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
95
|
|
|
|
|
|
|
|
|
|
|
10
|
.69
|
|
Amendment dated December 12, 2007 to Amended and Restated
Loan Origination and Participation Agreement by and among AgStar
Financial Services, PCA d/b/a ProPartners Financial; CHS Inc.;
and Cofina Financial, LLC (Incorporated by reference to our
Form 10-Q
for the quarterly period ended November 30, 2008, filed
January 13, 2009).
|
|
|
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.(*)
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.(*)
|
|
|
|
|
|
|
24
|
.1
|
|
Power of Attorney.(*)
|
|
|
|
|
|
|
31
|
.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(*)
|
|
|
|
|
|
|
31
|
.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(*)
|
|
|
|
|
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(*)
|
|
|
|
|
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(*)
|
(b) EXHIBITS
The exhibits shown in Item 15(a)(3) above are being filed
herewith.
(c) SCHEDULES
None.
SUPPLEMENTAL
INFORMATION
As a cooperative, we do not utilize proxy statements.
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 12, 2010.
CHS INC.
John D. Johnson
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 12, 2010:
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ John
D. Johnson
John
D. Johnson
|
|
President and Chief Executive Officer
(principal executive officer)
|
|
|
|
/s/ John
Schmitz
John
Schmitz
|
|
Executive Vice President and Chief Financial Officer (principal
financial officer)
|
|
|
|
/s/ Jodell
Heller
Jodell
Heller
|
|
Vice President and Controller
(principal accounting officer)
|
|
|
|
Michael
Toelle*
|
|
Chairman of the Board of Directors
|
|
|
|
Bruce
Anderson*
|
|
Director
|
|
|
|
Don
Anthony*
|
|
Director
|
|
|
|
Robert
Bass*
|
|
Director
|
|
|
|
David
Bielenberg*
|
|
Director
|
|
|
|
Dennis
Carlson*
|
|
Director
|
|
|
|
Curt
Eischens*
|
|
Director
|
|
|
|
Steve
Fritel*
|
|
Director
|
97
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
Jerry
Hasnedl*
|
|
Director
|
|
|
|
David
Kayser*
|
|
Director
|
|
|
|
Randy
Knecht*
|
|
Director
|
|
|
|
Greg
Kruger*
|
|
Director
|
|
|
|
Michael
Mulcahey*
|
|
Director
|
|
|
|
Richard
Owen*
|
|
Director
|
|
|
|
Steve
Riegel*
|
|
Director
|
|
|
|
Dan
Schurr*
|
|
Director
|
|
|
|
|
|
*By
|
|
/s/ John
D. Johnson
John
D. Johnson
Attorney-in-fact
|
|
|
98
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Members and Patrons of CHS Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of equities
and comprehensive income and of cash flows present fairly, in
all material respects, the financial position of CHS Inc. and
its subsidiaries at August 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the
three years in the period ended August 31, 2010, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1 to the consolidated financial statements,
CHS Inc. changed the manner in which it accounts for
noncontrolling interests effective September 1, 2009.
November 10, 2010
Minneapolis, Minnesota
F-1
Consolidated
Financial Statements
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
August 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
394,663
|
|
|
$
|
772,599
|
|
Receivables
|
|
|
1,908,068
|
|
|
|
1,827,749
|
|
Inventories
|
|
|
1,961,376
|
|
|
|
1,526,280
|
|
Derivative assets
|
|
|
246,621
|
|
|
|
171,340
|
|
Other current assets
|
|
|
805,741
|
|
|
|
447,655
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,316,469
|
|
|
|
4,745,623
|
|
Investments
|
|
|
719,392
|
|
|
|
727,925
|
|
Property, plant and equipment
|
|
|
2,253,071
|
|
|
|
2,099,325
|
|
Other assets
|
|
|
377,196
|
|
|
|
296,972
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,666,128
|
|
|
$
|
7,869,845
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
262,090
|
|
|
$
|
246,872
|
|
Current portion of long-term debt
|
|
|
112,503
|
|
|
|
83,492
|
|
Customer credit balances
|
|
|
423,571
|
|
|
|
274,343
|
|
Customer advance payments
|
|
|
435,224
|
|
|
|
320,688
|
|
Checks and drafts outstanding
|
|
|
134,250
|
|
|
|
86,845
|
|
Accounts payable
|
|
|
1,472,145
|
|
|
|
1,289,139
|
|
Derivative liabilities
|
|
|
286,018
|
|
|
|
306,116
|
|
Accrued expenses
|
|
|
376,239
|
|
|
|
308,720
|
|
Dividends and equities payable
|
|
|
210,435
|
|
|
|
203,056
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,712,475
|
|
|
|
3,119,271
|
|
Long-term debt
|
|
|
873,738
|
|
|
|
988,461
|
|
Other liabilities
|
|
|
475,464
|
|
|
|
428,949
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equities:
|
|
|
|
|
|
|
|
|
Equity certificates
|
|
|
2,401,514
|
|
|
|
2,214,824
|
|
Preferred stock
|
|
|
319,368
|
|
|
|
282,694
|
|
Accumulated other comprehensive loss
|
|
|
(205,267
|
)
|
|
|
(156,270
|
)
|
Capital reserves
|
|
|
820,049
|
|
|
|
749,054
|
|
|
|
|
|
|
|
|
|
|
Total CHS Inc. equities
|
|
|
3,335,664
|
|
|
|
3,090,302
|
|
Noncontrolling interests
|
|
|
268,787
|
|
|
|
242,862
|
|
|
|
|
|
|
|
|
|
|
Total equities
|
|
|
3,604,451
|
|
|
|
3,333,164
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equities
|
|
$
|
8,666,128
|
|
|
$
|
7,869,845
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
CHS Inc. and Subsidiaries
F-2
Consolidated
Financial Statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
25,267,931
|
|
|
$
|
25,729,916
|
|
|
$
|
32,167,461
|
|
Cost of goods sold
|
|
|
24,397,410
|
|
|
|
24,849,901
|
|
|
|
30,993,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
870,521
|
|
|
|
880,015
|
|
|
|
1,173,562
|
|
Marketing, general and administrative
|
|
|
366,582
|
|
|
|
355,299
|
|
|
|
329,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
503,939
|
|
|
|
524,716
|
|
|
|
843,597
|
|
(Gain) loss on investments
|
|
|
(29,433
|
)
|
|
|
56,305
|
|
|
|
(29,193
|
)
|
Interest, net
|
|
|
58,324
|
|
|
|
70,487
|
|
|
|
76,460
|
|
Equity income from investments
|
|
|
(108,787
|
)
|
|
|
(105,754
|
)
|
|
|
(150,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
583,835
|
|
|
|
503,678
|
|
|
|
946,743
|
|
Income taxes
|
|
|
48,438
|
|
|
|
63,304
|
|
|
|
71,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
535,397
|
|
|
|
440,374
|
|
|
|
874,882
|
|
Net income attributable to noncontrolling interests
|
|
|
33,238
|
|
|
|
58,967
|
|
|
|
71,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to CHS Inc.
|
|
$
|
502,159
|
|
|
$
|
381,407
|
|
|
$
|
803,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
CHS Inc. and Subsidiaries
F-3
Consolidated
Financial Statements
CONSOLIDATED
STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31, 2010, 2009 and 2008
|
|
|
|
Equity Certificates
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Nonpatronage
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
Patronage
|
|
|
Preferred
|
|
|
Comprehensive
|
|
|
Capital
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Certificates
|
|
|
Certificates
|
|
|
Refunds
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Reserves
|
|
|
Interests
|
|
|
Equities
|
|
|
|
(Dollars in thousands)
|
|
|
Balances, September 1, 2007
|
|
$
|
1,265,051
|
|
|
$
|
26,646
|
|
|
$
|
357,500
|
|
|
$
|
186,411
|
|
|
$
|
13,036
|
|
|
$
|
626,811
|
|
|
$
|
197,386
|
|
|
$
|
2,672,841
|
|
Dividends and equity retirement determination
|
|
|
179,381
|
|
|
|
|
|
|
|
192,500
|
|
|
|
|
|
|
|
|
|
|
|
2,413
|
|
|
|
|
|
|
|
374,294
|
|
Patronage distribution
|
|
|
362,206
|
|
|
|
|
|
|
|
(550,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,210
|
)
|
|
|
|
|
|
|
(195,004
|
)
|
Equities retired
|
|
|
(81,295
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,795
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(46,364
|
)
|
|
|
|
|
|
|
|
|
|
|
46,364
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
(135
|
)
|
Equities issued
|
|
|
4,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,680
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,288
|
)
|
|
|
|
|
|
|
(16,288
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,123
|
)
|
|
|
(63,123
|
)
|
Changes in dividends and equities payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,080
|
|
|
|
6,080
|
|
Other, net
|
|
|
(2,057
|
)
|
|
|
(804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412
|
|
|
|
(4,395
|
)
|
|
|
(6,844
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
652,000
|
|
|
|
|
|
|
|
|
|
|
|
151,045
|
|
|
|
71,837
|
|
|
|
874,882
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,078
|
)
|
|
|
|
|
|
|
(2,053
|
)
|
|
|
(83,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
791,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and equities payable
|
|
|
(93,823
|
)
|
|
|
|
|
|
|
(228,200
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,016
|
)
|
|
|
|
|
|
|
(325,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2008
|
|
|
1,587,779
|
|
|
|
25,342
|
|
|
|
423,800
|
|
|
|
232,775
|
|
|
|
(68,042
|
)
|
|
|
754,032
|
|
|
|
205,732
|
|
|
|
3,161,418
|
|
Dividends and equity retirement determination
|
|
|
93,823
|
|
|
|
|
|
|
|
228,200
|
|
|
|
|
|
|
|
|
|
|
|
3,016
|
|
|
|
|
|
|
|
325,039
|
|
Patronage distribution
|
|
|
421,289
|
|
|
|
|
|
|
|
(652,000
|
)
|
|
|
|
|
|
|
|
|
|
|
3,101
|
|
|
|
|
|
|
|
(227,610
|
)
|
Equities retired
|
|
|
(49,291
|
)
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,652
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(49,944
|
)
|
|
|
|
|
|
|
|
|
|
|
49,944
|
|
|
|
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
(130
|
)
|
Equities issued
|
|
|
19,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,594
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,024
|
)
|
|
|
|
|
|
|
(20,024
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,139
|
)
|
|
|
(21,139
|
)
|
Changes in dividends and equities payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,747
|
|
|
|
2,747
|
|
Adoption of retirement plan measurement date change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,603
|
)
|
|
|
|
|
|
|
(2,603
|
)
|
Other, net
|
|
|
(324
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
414
|
|
|
|
2,960
|
|
|
|
2,839
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
426,500
|
|
|
|
|
|
|
|
|
|
|
|
14,907
|
|
|
|
58,967
|
|
|
|
440,374
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,228
|
)
|
|
|
|
|
|
|
(6,405
|
)
|
|
|
(94,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and equities payable
|
|
|
(50,122
|
)
|
|
|
|
|
|
|
(149,275
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,659
|
)
|
|
|
|
|
|
|
(203,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2009
|
|
|
1,912,804
|
|
|
|
24,795
|
|
|
|
277,225
|
|
|
|
282,694
|
|
|
|
(156,270
|
)
|
|
|
749,054
|
|
|
|
242,862
|
|
|
|
3,333,164
|
|
Dividends and equity retirement determination
|
|
|
50,122
|
|
|
|
|
|
|
|
149,275
|
|
|
|
|
|
|
|
|
|
|
|
3,659
|
|
|
|
|
|
|
|
203,056
|
|
Patronage distribution
|
|
|
284,128
|
|
|
|
|
|
|
|
(426,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,522
|
)
|
|
|
|
|
|
|
(153,894
|
)
|
Equities retired
|
|
|
(22,732
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,135
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(36,674
|
)
|
|
|
|
|
|
|
|
|
|
|
36,674
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
(142
|
)
|
Equities issued
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,248
|
)
|
|
|
|
|
|
|
(23,248
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,870
|
)
|
|
|
(4,870
|
)
|
Changes in dividends and equities payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,743
|
)
|
|
|
(1,743
|
)
|
Other, net
|
|
|
(1,479
|
)
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680
|
|
|
|
2,025
|
|
|
|
1,407
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
396,500
|
|
|
|
|
|
|
|
|
|
|
|
105,659
|
|
|
|
33,238
|
|
|
|
535,397
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,997
|
)
|
|
|
|
|
|
|
(2,725
|
)
|
|
|
(51,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and equities payable
|
|
|
(67,569
|
)
|
|
|
|
|
|
|
(138,775
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,091
|
)
|
|
|
|
|
|
|
(210,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2010
|
|
$
|
2,119,216
|
|
|
$
|
24,573
|
|
|
$
|
257,725
|
|
|
$
|
319,368
|
|
|
$
|
(205,267
|
)
|
|
$
|
820,049
|
|
|
$
|
268,787
|
|
|
$
|
3,604,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
CHS Inc. and Subsidiaries
F-4
Consolidated
Financial Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interests
|
|
$
|
535,397
|
|
|
$
|
440,374
|
|
|
$
|
874,882
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
202,922
|
|
|
|
196,350
|
|
|
|
181,263
|
|
Amortization of deferred major repair costs
|
|
|
18,532
|
|
|
|
24,999
|
|
|
|
29,146
|
|
Income from equity investments
|
|
|
(108,787
|
)
|
|
|
(105,754
|
)
|
|
|
(150,413
|
)
|
Distributions from equity investments
|
|
|
89,689
|
|
|
|
80,403
|
|
|
|
110,013
|
|
Noncash patronage dividends received
|
|
|
(9,918
|
)
|
|
|
(9,717
|
)
|
|
|
(4,083
|
)
|
Gain on sale of property, plant and equipment
|
|
|
(5,094
|
)
|
|
|
(3,176
|
)
|
|
|
(5,668
|
)
|
(Gain) loss on investments
|
|
|
(29,433
|
)
|
|
|
56,305
|
|
|
|
(29,193
|
)
|
Deferred taxes
|
|
|
39,507
|
|
|
|
43,976
|
|
|
|
26,011
|
|
Other, net
|
|
|
1,597
|
|
|
|
2,466
|
|
|
|
719
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(123,630
|
)
|
|
|
692,540
|
|
|
|
(832,146
|
)
|
Inventories
|
|
|
(426,328
|
)
|
|
|
895,882
|
|
|
|
(517,515
|
)
|
Derivative assets
|
|
|
(73,597
|
)
|
|
|
198,163
|
|
|
|
(122,421
|
)
|
Other current assets and other assets
|
|
|
(355,848
|
)
|
|
|
186,217
|
|
|
|
(98,625
|
)
|
Customer credit balances
|
|
|
149,228
|
|
|
|
47,946
|
|
|
|
113,501
|
|
Customer advance payments
|
|
|
114,032
|
|
|
|
(328,854
|
)
|
|
|
275,386
|
|
Accounts payable and accrued expenses
|
|
|
221,776
|
|
|
|
(664,160
|
)
|
|
|
827,997
|
|
Derivative liabilities
|
|
|
(25,740
|
)
|
|
|
32,525
|
|
|
|
96,382
|
|
Other liabilities
|
|
|
(64,344
|
)
|
|
|
(51,708
|
)
|
|
|
30,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
149,961
|
|
|
|
1,734,777
|
|
|
|
805,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(324,262
|
)
|
|
|
(315,505
|
)
|
|
|
(318,559
|
)
|
Proceeds from disposition of property, plant and equipment
|
|
|
10,139
|
|
|
|
10,769
|
|
|
|
9,336
|
|
Expenditures for major repairs
|
|
|
(7,554
|
)
|
|
|
(1,771
|
)
|
|
|
(21,662
|
)
|
Investments
|
|
|
(38,062
|
)
|
|
|
(120,181
|
)
|
|
|
(370,248
|
)
|
Investments redeemed
|
|
|
119,331
|
|
|
|
39,787
|
|
|
|
43,046
|
|
Proceeds from sale of investments
|
|
|
|
|
|
|
41,822
|
|
|
|
122,075
|
|
Joint venture distribution transaction, net
|
|
|
|
|
|
|
850
|
|
|
|
(4,737
|
)
|
Changes in notes receivable
|
|
|
(41,925
|
)
|
|
|
123,307
|
|
|
|
(67,119
|
)
|
Business acquisitions
|
|
|
(6,307
|
)
|
|
|
(76,364
|
)
|
|
|
(47,001
|
)
|
Acquisition of intangibles
|
|
|
(1,014
|
)
|
|
|
(2,431
|
)
|
|
|
(3,399
|
)
|
Other investing activities, net
|
|
|
65
|
|
|
|
9,273
|
|
|
|
(5,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(289,589
|
)
|
|
|
(290,444
|
)
|
|
|
(663,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in notes payable
|
|
|
15,217
|
|
|
|
(251,225
|
)
|
|
|
(565,022
|
)
|
Long-term debt borrowings
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
Principal payments on long-term debt
|
|
|
(84,792
|
)
|
|
|
(118,864
|
)
|
|
|
(99,479
|
)
|
Payments for bank fees on debt
|
|
|
(10,296
|
)
|
|
|
(1,584
|
)
|
|
|
(3,486
|
)
|
Changes in checks and drafts outstanding
|
|
|
47,280
|
|
|
|
(119,301
|
)
|
|
|
61,110
|
|
Distributions to noncontrolling interests
|
|
|
(4,870
|
)
|
|
|
(21,139
|
)
|
|
|
(63,123
|
)
|
Preferred stock dividends paid
|
|
|
(23,248
|
)
|
|
|
(20,024
|
)
|
|
|
(16,288
|
)
|
Retirements of equities
|
|
|
(23,135
|
)
|
|
|
(49,652
|
)
|
|
|
(81,795
|
)
|
Cash patronage dividends paid
|
|
|
(153,894
|
)
|
|
|
(227,610
|
)
|
|
|
(195,004
|
)
|
Other financing activities, net
|
|
|
952
|
|
|
|
370
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(236,786
|
)
|
|
|
(809,029
|
)
|
|
|
(363,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,522
|
)
|
|
|
755
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(377,936
|
)
|
|
|
636,059
|
|
|
|
(221,172
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
772,599
|
|
|
|
136,540
|
|
|
|
357,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
394,663
|
|
|
$
|
772,599
|
|
|
$
|
136,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
CHS Inc. and Subsidiaries
F-5
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTES
|
|
Note
1
|
Summary
of Significant Accounting Policies
|
Organization
CHS Inc. (CHS or the Company) is an agricultural supply, energy
and grain-based foods cooperative company organized for the
mutual benefit of its members. Members of the cooperative are
located across the United States. The Company provides a wide
variety of products and services, from initial agricultural
inputs such as fuels, farm supplies and agronomy products, to
agricultural outputs that include grains and oilseeds, grain and
oilseed processing and food products. Revenues are both domestic
and international.
Basis
of Presentation and Reclassifications
The consolidated financial statements include the accounts of
CHS and all of its wholly-owned and majority-owned subsidiaries
and limited liability companies, which is primarily National
Cooperative Refinery Association (NCRA), included in the Energy
segment. The effects of all significant intercompany
transactions have been eliminated.
The Company had various acquisitions during the three years
ended August 31, 2010, which have been accounted for using
the purchase method of accounting. Operating results of the
acquisitions are included in the consolidated financial
statements since the respective acquisition dates. The
respective purchase prices were allocated to the assets,
liabilities and identifiable intangible assets acquired based
upon the estimated fair values. The excess purchase prices over
the estimated fair values of the net assets acquired have been
reported as goodwill.
In December 2007, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Codification (ASC)
860-10-65-1,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin (ARB)
No. 51.
ASC 860-10-65-1
establishes accounting and reporting standards that require the
following: the ownership interest in subsidiaries held by
parties other than the parent to be clearly identified and
presented in the consolidated balance sheets within equity, but
separate from the parents equity; the amount of
consolidated net earnings attributable to the parent and the
noncontrolling interest to be clearly identified and presented
on the face of the consolidated statements of operations; and
changes in a parents ownership interest, while the parent
retains its controlling financial interest in its subsidiary, to
be accounted for consistently.
The Company adopted
ASC 860-10-65-1
at the beginning of fiscal 2010. In accordance with the
accounting guidance, in order to conform to the current period
presentation, the Company made reclassifications within its
Consolidated Statements of Operations to present the income
attributable to noncontrolling interests as a reconciling item
between net income and net income attributable to CHS Inc. Also,
noncontrolling interests previously reported as minority
interests have been reclassified to a separate section in equity
on the Consolidated Balance Sheets. In addition, certain other
reclassifications to our previously reported financial
information have been made to conform to the current period
presentation.
Cash
Equivalents
Cash equivalents include short-term, highly liquid investments
with original maturities of three months or less at the date of
acquisition.
Inventories
Grain, processed grain, oilseed and processed oilseed are stated
at net realizable values which approximate market values. All
other inventories are stated at the lower of cost or market.
Costs for inventories produced or modified by the Company
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
F-6
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
include the cost of products and freight incurred to place the
products at the Companys 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
The Companys derivative instruments primarily consist of
commodity and freight futures 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 are not designated or accounted for as hedging
instruments for accounting purposes, with the exception of some
derivative instruments included in the Energy segment.
Derivative instruments are recorded on the Companys
Consolidated Balance Sheets at fair values as discussed in
Note 12, Fair Value Measurements.
Beginning in the third quarter of fiscal 2010, certain financial
contracts within the Energy segment were entered into for the
spread between heavy and light crude oil purchase prices, and
have been designated and accounted for as hedging instruments
(cash flow hedges). The unrealized gains or losses of these
contracts are deferred to accumulated other comprehensive loss
in the equity section of the Consolidated Balance Sheet and will
be included in earnings upon settlement.
The Company has netting arrangements for its exchange traded
futures and options contracts and certain
over-the-counter
(OTC) contracts which are recorded on a net basis in the
Companys Consolidated Balance Sheets. Although accounting
standards permit a party to a master netting arrangement to
offset fair value amounts recognized for derivative instruments
against the right to reclaim cash collateral or the obligation
to return cash collateral under the same master netting
arrangement, the Company has not elected to net its margin
deposits.
As of August 31, 2010 and 2009, the Company had the
following outstanding contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Purchase
|
|
|
Sales
|
|
|
Purchase
|
|
|
Sales
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(Units in thousands)
|
|
|
Grain and oilseed bushels
|
|
|
747,334
|
|
|
|
1,039,363
|
|
|
|
591,639
|
|
|
|
715,914
|
|
Energy products barrels
|
|
|
8,633
|
|
|
|
10,156
|
|
|
|
8,879
|
|
|
|
12,456
|
|
Crop nutrients tons
|
|
|
1,257
|
|
|
|
1,215
|
|
|
|
933
|
|
|
|
1,016
|
|
Ocean and barge freight metric tons
|
|
|
1,385
|
|
|
|
279
|
|
|
|
3,493
|
|
|
|
3,316
|
|
As of August 31, 2010 and 2009, the gross fair values of
the Companys derivative assets and liabilities not
designated as hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
Commodity and freight derivatives
|
|
$
|
461,580
|
|
|
$
|
296,416
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
Commodity and freight derivatives
|
|
$
|
495,569
|
|
|
$
|
426,281
|
|
Foreign exchange derivatives
|
|
|
222
|
|
|
|
|
|
Interest rate derivatives
|
|
|
1,227
|
|
|
|
4,911
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
497,018
|
|
|
$
|
431,192
|
|
|
|
|
|
|
|
|
|
|
F-7
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of August 31, 2010, the gross fair values of the
Companys derivative liabilities designated as cash flow
hedging instruments were as follows:
|
|
|
|
|
|
|
2010
|
|
|
(Dollars in thousands)
|
|
Derivative Liabilities:
|
|
|
|
|
Commodity and freight derivatives
|
|
$
|
3,959
|
|
The following table sets forth the pretax gains (losses) on
derivatives as hedging instruments that have been included in
the Companys Consolidated Statements of Operation during
fiscal 2010. The amended disclosure requirements of ASC Topic
815 were first implemented for the period ended
February 28, 2009, and as a result, comparative
year-to-date
information is not available for fiscal year 2009 or 2008.
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
Gain (Loss)
|
|
2010
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commodity and freight derivatives
|
|
Cost of goods sold
|
|
$
|
95,876
|
|
Foreign exchange derivatives
|
|
Cost of goods sold
|
|
|
(675
|
)
|
Interest rate derivatives
|
|
Interest, net
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,771
|
|
|
|
|
|
|
|
|
No gains or losses were recorded in the Consolidated Statement
of Operations for derivatives designated as cash flow hedging
instruments during the year ended August 31, 2010, since
there were no settlements. The contracts were entered into
during fiscal 2010 and expire in fiscal 2011, with a
$2.4 million loss, net of taxes, expected to be included in
earnings during the next 12 months. As of August 31,
2010, the unrealized losses deferred to accumulated other
comprehensive loss were $2.4 million, net of tax benefit of
$1.5 million.
Commodity
and Freight Contracts:
When the Company enters into a commodity or freight purchase or
sales commitment, it incurs risks related to price change and
performance (including delivery, quality, quantity and shipment
period). The Company is exposed to risk of loss in the market
value of positions held, consisting of inventory and purchase
contracts at a fixed or partially fixed price in the event
market prices decrease. The Company is also exposed to risk of
loss on fixed or partially fixed price sales contracts in the
event market prices increase.
The Companys commodity contracts primarily relate to
grain, oilseed, energy and fertilizer commodities. The
Companys freight contracts primarily relate to rail, barge
and ocean freight transactions. The Companys use of
commodity and freight contracts reduces the effects of price
volatility, thereby protecting against adverse short-term price
movements, while limiting the benefits of short-term price
movements. To reduce the price change risks associated with
holding fixed price commitments, the Company generally takes
opposite and offsetting positions by entering into commodity
futures contracts or options, to the extent practical, in order
to arrive at a net commodity position within the formal position
limits it has established and deemed prudent for each commodity.
These contracts are purchased and sold through regulated
commodity futures exchanges for grain, and regulated mercantile
exchanges for refined products and crude oil. The Company also
uses OTC instruments to hedge its exposure on flat price
fluctuations. The price risk the Company encounters for crude
oil and most of the grain and oilseed volumes it handles can be
hedged. Price risk associated with fertilizer and certain grains
cannot be hedged because there are no futures for these
commodities and, as a result, risk is managed through the use of
forward sales contracts and other pricing arrangements and, to
some extent, cross-commodity futures hedging. Fertilizer and
propane contracts are accounted for as normal purchase and
normal sales transactions. The Company expects all normal
purchase and normal sales transactions to result in physical
settlement.
When a futures contract is entered into, an initial margin
deposit must be sent to the applicable exchange or broker. These
margin deposits are included in other current assets in the
Companys Consolidated Balance
F-8
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sheets. The amount of the deposit is set by the exchange and
varies by commodity. If the market price of a short futures
contract increases, then an additional maintenance margin
deposit would be required. Similarly, if the price of a long
futures contract decreases, a maintenance margin deposit would
be required and sent to the applicable exchange. Subsequent
price changes could require additional maintenance margins or
could result in the return of maintenance margins.
The Companys policy is to primarily maintain hedged
positions in grain and oilseed. The Companys 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
the Company may be substantial. The Company has risk management
policies and procedures that include net position limits. These
limits are defined for each commodity and include both trader
and management limits. This policy and computerized procedures
in the Companys grain marketing operations require a
review by operations management when any trader is outside of
position limits and also a review by the Companys senior
management if operating areas are outside of position limits. A
similar process is used in the Companys energy and
wholesale crop nutrients operations. The position limits are
reviewed, at least annually, with the Companys management
and the Board of Directors. The Company monitors current market
conditions and may expand or reduce its net position limits or
procedures in response to changes in conditions. In addition,
all purchase and sales contracts are subject to credit approvals
and appropriate terms and conditions.
Hedging arrangements do not protect against nonperformance by
counterparties to contracts. The Company primarily uses exchange
traded instruments which minimize its counterparty exposure. The
Company evaluates exposure by reviewing contracts and adjusting
the values to reflect potential nonperformance. Risk of
nonperformance by counterparties includes the inability to
perform because of the counterpartys financial condition
and also the risk that the counterparty will refuse to perform
on a contract during periods of price fluctuations where
contract prices are significantly different than current market
prices. The Company manages its 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.
Historically, the Company has not experienced significant events
of nonperformance on open contracts. Accordingly, the Company
only adjusts the estimated fair values of specifically
identified contracts for nonperformance. Although the Company
has established policies and procedures, it makes no assurances
that historical nonperformance experience will carry forward to
future periods.
Interest
Rate Contracts:
The Company uses fixed and floating rate debt to lessen the
effects of interest rate fluctuations on interest expense.
Short-term debt used to finance inventories and receivables is
represented by notes payable with maturities of 30 days or
less, so that the Companys blended interest rate for all
such notes approximates current market rates. During fiscal
2009, the Company entered into an interest rate swap with a
notional amount of $150.0 million, expiring in September
2010, to lock in the interest rate for $150.0 million of
its revolving line of credit. Cofina Financial, LLC (Cofina
Financial) has interest rate swaps that lock the variable
interest rates of the underlying loans with a combined notional
amount of $16.8 million expiring at various times through
fiscal 2018, with $0.2 million of the notional amount
expiring during fiscal 2011 and the balance expiring during or
after fiscal 2013. As of August 31, 2010, all of the
Companys interest rate swaps, including those of Cofina
Financial, do not qualify for hedge accounting due to
ineffectiveness caused by repayment of borrowings or differences
in underlying terms. As a result of the swaps not qualifying for
hedge accounting, changes in fair value are recorded in earnings
within interest, net on the Consolidated Statements of
Operations.
F-9
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Exchange Contracts:
The Company conducts essentially all of its business in
U.S. dollars, except for grain marketing operations
primarily in Brazil and Switzerland, and purchases of products
from Canada. The Company had minimal risk regarding foreign
currency fluctuations during fiscal 2010 and in prior years, as
substantially all international sales were denominated in
U.S. dollars. From time to time, the Company enters into
foreign currency futures contracts to mitigate currency
fluctuations. Foreign currency fluctuations do, however, 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. As of August 31, 2010, the Company
had $0.2 million in foreign currency contracts outstanding.
Investments
Joint ventures and other investments, in which the Company has
significant ownership and influence, but not control, are
accounted for in the consolidated financial statements using the
equity method of accounting. Investments in other cooperatives
are stated at cost, 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 other debt and equity securities are considered
available for sale financial instruments and are stated at fair
value, with unrealized amounts included as a component of
accumulated other comprehensive income (loss). Investments in
debt and equity instruments are carried at amounts that
approximate fair values. Investments in joint ventures and
cooperatives have no quoted market prices.
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 upon the expected useful lives of
individual or groups of assets (primarily 15 to 40 years
for land improvements and buildings and 3 to 20 years for
machinery, equipment, office and other). The cost and related
accumulated depreciation and amortization of assets sold or
otherwise disposed of are removed from the related accounts and
resulting gains or losses are reflected in operations.
Expenditures for maintenance and repairs and minor renewals are
expensed, while costs of major renewals and betterments are
capitalized.
The Company reviews property, plant and equipment and other
long-lived assets in order to assess recoverability based on
projected income and related cash flows on an undiscounted basis
when triggering events occur. 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 by the amount by which the carrying value of the asset
exceeds the fair value of the asset.
The Company has asset retirement obligations with respect to
certain of its refineries and related assets due to various
legal obligations to clean
and/or
dispose of various component parts at the time they are retired.
However, these assets can be used for extended and indeterminate
periods of time, as long as they are properly maintained
and/or
upgraded. It is the Companys practice and current intent
to maintain its refineries and related assets and to continue
making improvements to those assets based on technological
advances. As a result, the Company believes that its refineries
and related assets have indeterminate lives for purposes of
estimating asset retirement obligations because dates or ranges
of dates upon which the Company 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 related asset,
the Company will estimate the cost of performing the retirement
activities and record a liability for the fair value of that
cost using established present value techniques.
F-10
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price of an
acquired entity over the amounts assigned to assets acquired and
liabilities assumed. Goodwill and other intangible assets are
reviewed for impairment annually or more frequently if
impairment conditions arise, and those that are impaired are
written down to fair value. Other intangible assets consist
primarily of customer lists, trademarks and agreements not to
compete. Intangible assets subject to amortization are expensed
over their respective useful lives (ranging from 2 to
30 years). The Company has no material intangible assets
with indefinite useful lives.
In the Companys Energy segment, major maintenance
activities (turnarounds) at the two refineries are accounted for
under the deferral method. Turnarounds are the scheduled and
required shutdowns of refinery processing units. The costs
related to the significant overhaul and refurbishment activities
include materials and direct labor costs. The costs of
turnarounds are deferred when incurred and amortized on a
straight-line basis over the period of time estimated to lapse
until the next turnaround occurs, which is generally
2-3 years. The amortization expense related to turnaround
costs are included in cost of goods sold in the Consolidated
Statements of Operations. The selection of the deferral method,
as opposed to expensing the turnaround costs when incurred,
results in deferring recognition of the turnaround expenditures.
The deferral method also results in the classification of the
related cash outflows as investing activities in the
Consolidated Statements of Cash Flows, whereas expensing these
costs as incurred, would result in classifying the cash outflows
as operating activities.
Revenue
Recognition
The Company provides a wide variety of products and services,
from production agricultural inputs such as fuels, farm supplies
and crop nutrients, to agricultural outputs that include grain
and oilseed, processed grains and oilseeds and food products.
Grain and oilseed sales are recorded after the commodity has
been delivered to its destination and final weights, grades and
settlement prices have been agreed upon. All other sales are
recognized upon transfer of title, which could occur upon either
shipment or receipt by the customer, depending upon the terms of
the transaction. Amounts billed to a customer as part of a sales
transaction related to shipping and handling are included in
revenues. Service revenues are recorded only after such services
have been rendered.
Environmental
Expenditures
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. Environmental expenditures are
capitalized when such costs provide future economic benefits.
Income
Taxes
The Company is a nonexempt agricultural cooperative and files a
consolidated federal income tax return with its 80% or more
owned subsidiaries. The Company is subject to tax on income from
nonpatronage sources 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. Valuation allowances have been established
primarily for capital loss carryforwards.
F-11
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income
Comprehensive income primarily includes net income attributable
to CHS Inc. and actuarial changes in pension and other
postretirement plans. Total comprehensive income is reflected in
the Consolidated Statements of Equities and Comprehensive Income.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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. Actual results could
differ from those estimates.
Recent
Accounting Pronouncements
In June 2009, the FASB issued
ASC 860-10-65-3,
Accounting for Transfers of Financial Assets, which
requires additional disclosures concerning a transferors
continuing involvement with transferred financial assets.
ASC 860-10-65-3
eliminates the concept of a qualifying special-purpose
entity and changes the requirements for derecognizing
financial assets. The guidance is effective for fiscal years
beginning after November 15, 2009. We are currently
evaluating the impact that the adoption will have on our
consolidated financial statements in fiscal 2011.
In June 2009, the FASB issued
ASC 860-10-65-2,
Amendments to FASB Interpretation No. 46(R),
which requires an enterprise to conduct a qualitative analysis
for the purpose of determining whether, based on its variable
interests, it also has a controlling interest in a variable
interest entity.
ASC 860-10-65-2
clarifies that the determination of whether a company is
required to consolidate an entity is based on, among other
things, an entitys purpose and design and a companys
ability to direct the activities of the entity that most
significantly impact the entitys economic performance.
ASC 860-10-65-2
requires an ongoing reassessment of whether a company is the
primary beneficiary of a variable interest entity. It also
requires additional disclosures about a companys
involvement in variable interest entities and any significant
changes in risk exposure due to that involvement.
ASC 860-10-65-2
is effective for fiscal years beginning after November 15,
2009. We are currently evaluating the impact that the adoption
will have on our consolidated financial statements in fiscal
2011.
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements,
which amends existing disclosure requirements under
ASC 820. ASU
No. 2010-06
requires new disclosures for significant transfers between
Levels 1 and 2 in the fair value hierarchy and separate
disclosures for purchases, sales, issuances, and settlements in
the reconciliation of activity for Level 3 fair value
measurements. This ASU also clarifies the existing fair value
disclosures regarding the level of disaggregation and the
valuation techniques and inputs used to measure fair value.
ASU No. 2010-06
will only impact disclosures and is effective for interim and
annual reporting periods beginning after December 15, 2009,
except for the disclosures on purchases, sales, issuances and
settlements in the roll-forward of activity for Level 3
fair value measurements. Those disclosures are effective for
interim and annual periods beginning after December 15,
2010.
In July 2010, the FASB issued ASU
No. 2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU
2010-20
requires enhanced disclosures regarding the nature of credit
risk inherent in an entitys portfolio of financing
receivables, how that risk is analyzed, and the changes and
reasons for those changes in the allowance for credit losses. It
requires an entity to provide a greater level of disaggregated
information about the credit quality of its financing
receivables and its allowance for credit losses. ASU
2010-20 will
only impact disclosures. Disclosures related to information as
of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15,
2010. Disclosures regarding activities that occur during a
reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010.
F-12
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note
2 Receivables
Receivables as of August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Trade accounts receivable
|
|
$
|
1,543,530
|
|
|
$
|
1,482,921
|
|
Cofina Financial notes receivable
|
|
|
340,303
|
|
|
|
254,419
|
|
Other
|
|
|
123,770
|
|
|
|
189,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,007,603
|
|
|
|
1,926,774
|
|
Less allowances and reserves
|
|
|
99,535
|
|
|
|
99,025
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,908,068
|
|
|
$
|
1,827,749
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable are initially recorded at a selling
price, which approximates fair value, upon the sale of goods or
services to customers. Cofina Financial notes receivable are
reported at their outstanding principle balances as the Company
has the ability and intent to hold these notes to maturity.
Note
3 Inventories
Inventories as of August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Grain and oilseed
|
|
$
|
983,846
|
|
|
$
|
638,622
|
|
Energy
|
|
|
515,930
|
|
|
|
496,114
|
|
Crop nutrients
|
|
|
135,526
|
|
|
|
114,832
|
|
Feed and farm supplies
|
|
|
242,482
|
|
|
|
198,440
|
|
Processed grain and oilseed
|
|
|
74,064
|
|
|
|
69,344
|
|
Other
|
|
|
9,528
|
|
|
|
8,928
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,961,376
|
|
|
$
|
1,526,280
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2010, the Company valued approximately 12%
of inventories, primarily crude oil and refined fuels within the
Energy segment, using the lower of cost, determined on the LIFO
method, or market (17% as of August 31, 2009). If the FIFO
method of accounting had been used, inventories would have been
higher than the reported amount by $345.4 million and
$311.4 million at August 31, 2010 and 2009,
respectively. During 2010 and 2009, energy inventory quantities
were reduced. In 2010, the reduction resulted in liquidation of
LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 2010 purchases, the
effect of which decreased cost of goods sold by approximately
$5.7 million. In 2009, the reduction resulted in
liquidation of LIFO inventory quantities carried at higher costs
prevailing in prior years as compared with the cost of 2009
purchases, the effect of which increased cost of goods sold by
approximately $5.3 million.
F-13
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note
4 Investments
Investments as of August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Joint ventures:
|
|
|
|
|
|
|
|
|
Ventura Foods, LLC
|
|
$
|
262,550
|
|
|
$
|
245,525
|
|
Multigrain AG
|
|
|
148,528
|
|
|
|
141,179
|
|
Horizon Milling, LLC
|
|
|
69,873
|
|
|
|
56,999
|
|
TEMCO, LLC
|
|
|
29,128
|
|
|
|
27,181
|
|
Horizon Milling G.P.
|
|
|
20,166
|
|
|
|
19,137
|
|
United Country Brands, LLC (Agriliance LLC)
|
|
|
18,357
|
|
|
|
80,436
|
|
Cooperatives:
|
|
|
|
|
|
|
|
|
Land OLakes, Inc.
|
|
|
48,854
|
|
|
|
45,747
|
|
Ag Processing Inc.
|
|
|
18,245
|
|
|
|
18,594
|
|
CoBank, ACB
|
|
|
15,704
|
|
|
|
19,891
|
|
Other
|
|
|
87,987
|
|
|
|
73,236
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,392
|
|
|
$
|
727,925
|
|
|
|
|
|
|
|
|
|
|
The Company has a 50% interest in Ventura Foods, LLC, (Ventura
Foods), a joint venture which produces and distributes primarily
vegetable oil-based products, and is included in the
Companys Processing segment. During the years ended
August 31, 2009 and 2008, the Company made capital
contributions to Ventura Foods of $35.0 million and
$20.0 million, respectively. The Company accounts for
Ventura Foods as an equity method investment, and as of
August 31, 2010, its carrying value of Ventura Foods
exceeded its share of their equity by $14.2 million, of
which $1.3 million is being amortized with a remaining life
of approximately two years. The remaining basis difference
represents equity method goodwill. The following provides
summarized unaudited financial information for Ventura Foods
balance sheets as of August 31, 2010 and 2009, and
statements of operations for the twelve months ended
August 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Current assets
|
|
$
|
512,554
|
|
|
$
|
441,406
|
|
Non-current assets
|
|
|
459,346
|
|
|
|
464,356
|
|
Current liabilities
|
|
|
166,408
|
|
|
|
141,844
|
|
Non-current liabilities
|
|
|
308,795
|
|
|
|
303,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Net sales
|
|
$
|
1,954,289
|
|
|
$
|
2,055,768
|
|
|
$
|
2,120,332
|
|
Gross profit
|
|
|
259,388
|
|
|
|
269,269
|
|
|
|
162,756
|
|
Net earnings
|
|
|
95,480
|
|
|
|
125,174
|
|
|
|
31,090
|
|
Earnings attributable to CHS Inc.
|
|
|
47,740
|
|
|
|
62,587
|
|
|
|
15,545
|
|
During fiscal 2007, the Company invested in Multigrain AG
(Multigrain), for a 37.5% equity position in a Brazil-based
grain handling and merchandising company, Multigrain S.A., an
agricultural commodities business headquartered in Sao Paulo,
Brazil. This venture, included in the Companys Ag Business
segment, includes grain storage, export facilities and grain
production and builds on the Companys South American
soybean origination. During the year ended August 31, 2008,
the Company increased its equity position through a purchase
from an existing equity holder for $10.0 million, and also
invested an additional $30.3 million which was used by
Multigrain to invest in a joint venture that acquired production
farmland and
F-14
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related operations. During the year ended August 31, 2009,
the Company invested $76.3 million for Multigrains
increased capital needs resulting from expansion of its
operations, and during the year ended August 31, 2010, the
Company invested an additional $24.0 million. The
Companys current ownership interest is approximately 45%.
Agriliance LLC (Agriliance) is owned and governed by United
Country Brands, LLC (50%) and Land OLakes, Inc. (Land
OLakes) (50%). United Country Brands, LLC is 100% owned by
CHS. The Company accounts for its Agriliance investment using
the equity method of accounting within the Ag Business segment.
Prior to September 1, 2007, Agriliance was a wholesale and
retail crop nutrients and crop protection products company. In
September 2007, Agriliance distributed the assets of the crop
nutrients business to the Company, and the assets of the crop
protection business to Land OLakes. Due to the
Companys 50% ownership interest in Agriliance and the 50%
ownership interest of Land OLakes, each company was
entitled to receive 50% of the distributions from Agriliance.
Given the different preliminary values assigned to the assets of
the crop nutrients and the crop protection businesses of
Agriliance, at the closing of the distribution transactions Land
OLakes owed the Company $133.5 million. Land
OLakes paid the Company $32.6 million in cash, and in
order to maintain equal capital accounts in Agriliance, they
also paid down certain portions of Agriliances debt on the
Companys behalf in the amount of $100.9 million.
Values of the distributed assets were finalized after the
closing, and in October 2007, the Company made a
true-up
payment to Land OLakes in the amount of
$45.7 million, plus interest. During fiscal 2009, the final
true-up
amount was determined, and the Company received
$0.9 million from Land OLakes.
The distribution of assets the Company received from Agriliance
for the crop nutrients business had a book value of
$248.2 million. The Company recorded 50% of the value of
the net assets received at book value due to the Companys
ownership interest in those assets when they were held by
Agriliance, and 50% of the value of the net assets at fair value
using the purchase method of accounting.
During the year ended August 31, 2008, the Companys
net contribution to Agriliance was $235.0 million which
supported its working capital requirements for ongoing
operations, with Land OLakes making equal contributions to
Agriliance. During the years ended August 31, 2010 and
2009, the Company received $105.0 million and
$25.0 million of distributions from Agriliance as a return
of capital, respectively. The distributions received during the
year ended August 31, 2010, were primarily for proceeds
Agriliance received from the sale of many of its retail
facilities. The Company recorded a $28.4 million gain
during fiscal 2010 related to the continuing sales of Agriliance
retail facilities. Agriliance continues to exist as a
50-50 joint
venture as the company winds down its business activity and
primarily holds long-term liabilities.
A summary of combined financial information for the
Companys major equity investments, excluding Ventura Foods
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
Current assets
|
|
$
|
1,254,966
|
|
|
$
|
1,167,072
|
|
Non-current assets
|
|
|
881,998
|
|
|
|
801,867
|
|
Current liabilities
|
|
|
765,393
|
|
|
|
928,070
|
|
Non-current liabilities
|
|
|
491,643
|
|
|
|
190,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in thousands)
|
Net sales
|
|
$
|
7,212,848
|
|
|
$
|
6,748,412
|
|
|
$
|
9,732,635
|
|
Gross profit
|
|
|
356,708
|
|
|
|
306,158
|
|
|
|
521,228
|
|
Net earnings
|
|
|
150,798
|
|
|
|
128,807
|
|
|
|
313,176
|
|
Earnings attributable to CHS Inc.
|
|
|
50,731
|
|
|
|
45,728
|
|
|
|
117,758
|
|
On August 31, 2007, the Company held a minority ownership
interest in US BioEnergy Corporation (US BioEnergy), an
ethanol production company, which was reflected in the
Processing segment. During the first quarter of fiscal 2008, the
Company purchased additional shares of US BioEnergy common stock
for
F-15
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$6.5 million. Through March 31, 2008, the Company was
recognizing its share of the earnings of US BioEnergy using
the equity method of accounting. Effective April 1, 2008,
US BioEnergy and VeraSun Energy Corporation (VeraSun)
completed a merger, and the Companys ownership interest in
the combined entity was reduced to approximately 8%, compared to
approximately 20% interest in US BioEnergy prior to the merger.
As a result of the Companys change in ownership interest,
it no longer had significant influence, and therefore, no longer
accounted for VeraSun using the equity method. Due to the
continued decline of the ethanol industry and other
considerations, the Company determined that an impairment of its
VeraSun investment was necessary during fiscal 2008, and as a
result, based on VeraSuns market value of $5.76 per share
on August 29, 2008, an impairment charge of
$71.7 million was recorded in (gain) loss on investments.
Subsequent to August 31, 2008, the market value of
VeraSuns stock price continued to decline, and on
October 31, 2008, VeraSun filed for relief under
Chapter 11 of the U.S. Bankruptcy Code. Consequently,
the Companys management determined an additional
impairment was necessary based on VeraSuns market value of
$0.28 per share on November 3, 2008, and recorded an
impairment charge of $70.7 million, during its first
quarter of fiscal 2009. Due to the outcome of the VeraSun
bankruptcy, during the third quarter of fiscal 2009, the Company
wrote off the remaining investment of $3.6 million. The
impairments did not affect the Companys cash flows and did
not have a bearing upon its compliance with any covenants under
its credit facilities.
Cofina Financial, a finance company formed in fiscal 2005, makes
seasonal and term loans to member cooperatives and businesses
and to individual producers of agricultural products. Through
August 31, 2008, the Company accounted for its 49%
ownership interest in Cofina Financial, within Corporate and
Other, using the equity method of accounting. On
September 1, 2008, Cofina became a wholly-owned subsidiary
when the Company purchased the remaining 51% ownership interest
for $53.3 million. The purchase price included cash of
$48.5 million and the assumption of certain liabilities of
$4.8 million.
During the year ended August 31, 2009, the Company sold its
available-for-sale
investment of common stock in the New York Mercantile Exchange
(NYMEX Holdings) for proceeds of $16.1 million and recorded
a pretax gain of $15.7 million. The Company also received
proceeds of $25.5 million from the sale of a Canadian
agronomy investment during the year ended August 31, 2009,
and recorded a gain of $2.8 million.
After a fiscal 2005 initial public offering (IPO) transaction
for CF Industries Inc., CHS held an ownership interest in CF
Industries Holdings, Inc. (the post-IPO name) of approximately
3.9% or 2,150,396 shares. During the year ended
August 31, 2007, CHS sold 540,000 shares of the stock
for proceeds of $10.9 million, and recorded a pretax gain
of $5.3 million. During the year ended August 31,
2008, CHS sold all of its remaining 1,610,396 shares of
stock for proceeds of $108.3 million and recorded a pretax
gain of $91.7 million.
Various agreements with other owners of investee companies and a
majority-owned subsidiary set out parameters whereby CHS may buy
and sell additional interests in those companies, upon the
occurrence of certain events, at fair values determinable as set
forth in the specific agreements.
F-16
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note
5 Property, Plant and Equipment
A summary of property, plant and equipment as of August 31,
2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Land and land improvements
|
|
$
|
118,337
|
|
|
$
|
110,635
|
|
Buildings
|
|
|
499,346
|
|
|
|
497,956
|
|
Machinery and equipment
|
|
|
3,072,866
|
|
|
|
2,879,984
|
|
Office and other
|
|
|
93,099
|
|
|
|
94,429
|
|
Construction in progress
|
|
|
359,933
|
|
|
|
243,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,143,581
|
|
|
|
3,826,933
|
|
Less accumulated depreciation and amortization
|
|
|
1,890,510
|
|
|
|
1,727,608
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,253,071
|
|
|
$
|
2,099,325
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended August 31, 2010,
2009 and 2008, was $187.5 million, $180.9 million and
$162.9 million, respectively.
The Company is leasing certain of its wheat milling facilities
and related equipment to Horizon Milling, LLC under an operating
lease agreement. The net book value of the leased milling assets
at August 31, 2010 and 2009 was $59.3 million and
$65.3 million, respectively, net of accumulated
depreciation of $69.7 million and $65.1 million,
respectively.
Note
6 Other Assets
Other assets as of August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Goodwill
|
|
$
|
23,038
|
|
|
$
|
17,346
|
|
Customer lists, less accumulated amortization of $18,666 and
$12,336, respectively
|
|
|
19,392
|
|
|
|
22,689
|
|
Non-compete covenants, less accumulated amortization of $4,701
and $3,173, respectively
|
|
|
4,950
|
|
|
|
6,785
|
|
Trademarks and other intangible assets, less accumulated
amortization of $16,489 and $17,291, respectively
|
|
|
17,794
|
|
|
|
20,862
|
|
Notes receivable
|
|
|
152,140
|
|
|
|
133,243
|
|
Long-term receivable
|
|
|
63,072
|
|
|
|
|
|
Prepaid pension and other benefits
|
|
|
57,729
|
|
|
|
52,934
|
|
Capitalized major maintenance
|
|
|
19,097
|
|
|
|
30,075
|
|
Other
|
|
|
19,984
|
|
|
|
13,038
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
377,196
|
|
|
$
|
296,972
|
|
|
|
|
|
|
|
|
|
|
During the years ended August 31, 2010 and 2009, the
Company had acquisitions in its Ag Business segment which
resulted in $6.5 million and $8.4 million of goodwill,
respectively, reflecting the purchase price allocations. On
September 1, 2008, the Company purchased the remaining 51%
ownership interest of Cofina Financial, resulting in
$6.9 million of goodwill. Also, during the years ended
August 31, 2010 and 2009, dispositions in the
Companys Energy and Ag Business segments resulted in
decreases in goodwill of $0.8 million and
$1.7 million, respectively.
Intangible assets acquired as part of business acquisitions
during the years ended August 31, 2010, 2009 and 2008,
totaled $1.4 million, $10.6 million and
$18.6 million, respectively, and during fiscal 2010 and
2009, were from acquisitions in our Ag Business segment. During
fiscal 2008, the Company purchased a soy-based
F-17
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
food ingredients business included in the Processing segment and
a distillers dried grain business included in the Ag Business
segment, acquired and paid for in fiscal 2008 and 2007. Various
other cash acquisitions of intangibles totaled
$1.0 million, $2.4 million and $3.4 million
during the years ended August 31, 2010, 2009 and 2008,
respectively.
Intangible assets amortization expense for the years ended
August 31, 2010, 2009 and 2008, was $11.4 million,
$12.2 million and $15.9 million, respectively. The
estimated amortization expense related to intangible assets
subject to amortization for the next five years will approximate
$10.4 million for each of the first two years,
$5.7 million for the next year, and $2.8 million for
each of the following two years.
The capitalized major maintenance activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Cost
|
|
|
|
|
|
Balance at
|
|
|
of Year
|
|
Deferred
|
|
Amortization
|
|
Write-Offs
|
|
End of Year
|
|
|
(Dollars in thousands)
|
2010
|
|
$
|
30,075
|
|
|
$
|
7,554
|
|
|
$
|
(18,532
|
)
|
|
|
|
|
|
$
|
19,097
|
|
2009
|
|
|
53,303
|
|
|
|
1,771
|
|
|
|
(24,999
|
)
|
|
|
|
|
|
|
30,075
|
|
2008
|
|
|
60,787
|
|
|
|
21,662
|
|
|
|
(29,146
|
)
|
|
|
|
|
|
|
53,303
|
|
F-18
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note
7 Notes Payable and Long-Term Debt
Notes payable and long-term debt as of August 31, 2010 and
2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates at
|
|
|
|
|
|
|
|
|
August 31, 2010
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Notes payable(a)(j)
|
|
1.00% to 8.50%
|
|
$
|
29,776
|
|
|
$
|
19,183
|
|
Cofina Financial notes payable(k)
|
|
0.85% to 2.29%
|
|
|
232,314
|
|
|
|
227,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
262,090
|
|
|
$
|
246,872
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
Revolving term loans from cooperative and other banks, payable
in equal installments beginning in 2013 through 2018(b)(j)
|
|
5.59%
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Private placement, payable in equal installments beginning in
2014 through 2018(c)(j)
|
|
6.18%
|
|
|
400,000
|
|
|
|
400,000
|
|
Private placement, payable in equal installments through
2013(d)(j)
|
|
6.81%
|
|
|
112,500
|
|
|
|
150,000
|
|
Private placement, payable in installments through 2018(e)(j)
|
|
4.96% to 5.60%
|
|
|
104,231
|
|
|
|
121,923
|
|
Private placement, payable in equal installments beginning in
2011 through 2015(f)(j)
|
|
5.25%
|
|
|
125,000
|
|
|
|
125,000
|
|
Private placement, payable in equal installments through
2011(g)(j)
|
|
7.43% to 7.90%
|
|
|
11,428
|
|
|
|
22,857
|
|
Private placement, payable in its entirety in 2010(h)(j)
|
|
4.08%
|
|
|
|
|
|
|
15,000
|
|
Private placement, payable in its entirety in 2011(h)(j)
|
|
4.39%
|
|
|
15,000
|
|
|
|
15,000
|
|
Private placement, payable in equal installments beginning in
2014 through 2018(h)(j)
|
|
5.78%
|
|
|
50,000
|
|
|
|
50,000
|
|
Industrial revenue bonds, payable in its entirety in 2011
|
|
5.23%
|
|
|
3,925
|
|
|
|
3,925
|
|
Other notes and contracts(i)
|
|
1.89% to 12.17%
|
|
|
14,157
|
|
|
|
18,248
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
986,241
|
|
|
|
1,071,953
|
|
Less current portion
|
|
|
|
|
112,503
|
|
|
|
83,492
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
|
$
|
873,738
|
|
|
$
|
988,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Weighted-average interest rates at August 31:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
2.24%
|
|
|
|
2.84%
|
|
Cofina Financial notes payable
|
|
|
1.75%
|
|
|
|
1.71%
|
|
Long-term debt
|
|
|
5.92%
|
|
|
|
5.93%
|
|
|
|
|
(a) |
|
The Company finances its working capital needs through
short-term lines of credit with a syndication of domestic and
international banks. One of these revolving lines of credit was
a five-year $1.3 billion committed facility, with no amount
outstanding on August 31, 2009. In June 2010, the Company
amended this facility and reduced the committed amount from
$1.3 billion to $700 million, with the May 2011
maturity date remaining the same, and no amount outstanding on
August 31, 2010. Also in June 2010, the Company entered
into a new five-year $900 million committed facility that
expires in June 2015, which had |
F-19
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
no amount outstanding on August 31, 2010. The Company
previously had a $300 million
364-day
revolving line of credit that expired in February 2010, which
had no amount outstanding on August 31, 2009. In addition
to these short-term lines of credit, the Company has a one-year
committed credit facility dedicated to NCRA expiring in December
2010, with a syndication of banks in the amount of
$15.0 million, with no amounts outstanding on
August 31, 2010 and 2009. Our wholly-owned subsidiaries,
CHS Europe S.A. and CHS do Brasil Ltda., have uncommitted lines
of credit to finance their normal trade grain transactions, of
which $27.1 million and $15.7 million were outstanding
on August 31, 2010 and 2009, respectively, and were
collateralized by certain inventories and receivables. The
Company has two commercial paper programs totaling up to
$125.0 million with two banks participating in the
five-year revolving credit facility. The commercial paper
programs do not increase the committed borrowing capacity in
that the Company is required to have at least an equal amount of
undrawn capacity available on the five-year revolving facility
as to the amount of commercial paper issued. On August 31,
2010 and 2009, there was no commercial paper outstanding.
Miscellaneous short-term notes payable totaled $2.7 million
and $3.5 million on August 31, 2010 and 2009,
respectively. |
|
(b) |
|
In December 2007, the Company established a
10-year
long-term credit agreement through a syndication of cooperative
banks in the amount of $150.0 million. |
|
(c) |
|
In October 2007, the Company entered into a private placement
with several insurance companies for long-term debt in the
amount of $400.0 million. |
|
(d) |
|
In June 1998, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of
$225.0 million. |
|
(e) |
|
In October 2002, the Company entered into a private placement
with several insurance companies for long-term debt in the
amount of $175.0 million. |
|
(f) |
|
In September 2004, the Company entered into a private placement
with several insurance companies for long-term debt in the
amount of $125.0 million. |
|
(g) |
|
In January 2001, the Company entered into a note purchase and
private shelf agreement with Prudential Insurance Company. A
long-term note was issued for $25.0 million and a
subsequent note for $55.0 million was issued in March 2001. |
|
(h) |
|
In March 2004, the Company entered into a note purchase and
private shelf agreement with Prudential Capital Group. In April
2004, two long-term notes were issued for $15.0 million
each. In April 2007, the agreement was amended with Prudential
Investment Management, Inc. and several other participating
insurance companies to expand the uncommitted facility from
$70.0 million to $150.0 million. In February 2008, the
Company borrowed $50.0 million under the shelf arrangement. |
|
(i) |
|
Other notes and contracts payable of $9.1 million are
collateralized by property, plant and equipment, with a cost of
$24.4 million, less accumulated depreciation of
$10.0 million on August 31, 2010. |
|
(j) |
|
The debt is unsecured; however, restrictive covenants under
various agreements have requirements for maintenance of minimum
working capital levels and other financial ratios. |
|
(k) |
|
Cofina Funding, LLC (Cofina Funding), a wholly-owned subsidiary
of Cofina Financial, has available credit totaling
$200.0 million as of August 31, 2010, under note
purchase agreements with various purchasers, through the
issuance of short-term notes payable. Cofina Financial sells
eligible commercial loans receivable it has originated to Cofina
Funding, which are then pledged as collateral under the note
purchase agreements. The notes payable issued by Cofina Funding
bear interest at variable rates based on commercial paper, with
a weighted-average commercial paper interest rate of 1.82% as of
August 31, 2010. Borrowings by Cofina Funding utilizing the
issuance of commercial paper under the note purchase agreements
totaled $130.0 million as of August 31, 2010. As of
August 31, 2010, $55.0 million of related loans
receivable were accounted for as sales when they were
surrendered in accordance with authoritative guidance on
accounting for transfers of financial assets and extinguishments
of liabilities. As a result, the net borrowings under the note
purchase agreements were $75.0 million. Cofina Financial
also sells loan commitments it has originated to ProPartners
Financial (ProPartners) on a recourse basis. The total |
F-20
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
capacity for commitments under the ProPartners program is
$120.0 million. The total outstanding commitments under the
program totaled $90.2 million as of August 31, 2010,
of which $71.4 million was borrowed under these commitments
with an interest rate of 2.29%. In addition, Cofina Financial
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 0.85% to 1.35% as
of August 31, 2010, and are due upon demand. Borrowings
under these notes totaled $85.9 million as of
August 31, 2010. |
Based on quoted market prices of similar debt, the carrying
value of the Companys long-term debt approximated its fair
value.
The aggregate amount of long-term debt payable as of
August 31, 2010 is as follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
2011
|
|
$
|
112,503
|
|
2012
|
|
|
92,481
|
|
2013
|
|
|
101,189
|
|
2014
|
|
|
155,020
|
|
2015
|
|
|
154,977
|
|
Thereafter
|
|
|
370,071
|
|
|
|
|
|
|
|
|
$
|
986,241
|
|
|
|
|
|
|
Interest, net for the years ended August 31, 2010, 2009 and
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Interest expense
|
|
$
|
69,901
|
|
|
$
|
85,669
|
|
|
$
|
100,123
|
|
Capitalized interest
|
|
|
(6,212
|
)
|
|
|
(5,201
|
)
|
|
|
(9,759
|
)
|
Interest income
|
|
|
(5,365
|
)
|
|
|
(9,981
|
)
|
|
|
(13,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
58,324
|
|
|
$
|
70,487
|
|
|
$
|
76,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
8 Income Taxes
The provision for income taxes for the years ended
August 31, 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in thousands)
|
Current
|
|
$
|
8,931
|
|
|
$
|
19,328
|
|
|
$
|
45,850
|
|
Deferred
|
|
|
34,691
|
|
|
|
31,665
|
|
|
|
15,578
|
|
Valuation allowance
|
|
|
4,816
|
|
|
|
12,311
|
|
|
|
10,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
48,438
|
|
|
$
|
63,304
|
|
|
$
|
71,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys current tax provision is significantly
impacted by the utilization of loss carryforwards and tax
benefits passed to the Company from NCRA. The passthrough tax
benefits are associated with refinery upgrades that enable NCRA
to produce ultra-low sulfur fuels as mandated by the
Environmental Protection Agency.
Deferred taxes are comprised of basis differences related to
investments, accrued liabilities and certain federal and state
tax credits. NCRA files separate tax returns and, as such, these
items must be assessed independent of the Companys
deferred tax assets when determining recoverability.
F-21
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax assets and liabilities as of August 31, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
88,246
|
|
|
$
|
83,896
|
|
Postretirement health care and deferred compensation
|
|
|
111,437
|
|
|
|
98,922
|
|
Tax credit carryforwards
|
|
|
57,449
|
|
|
|
56,987
|
|
Loss carryforwards
|
|
|
50,171
|
|
|
|
65,180
|
|
Other
|
|
|
35,060
|
|
|
|
35,435
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
342,363
|
|
|
|
340,420
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Pension
|
|
|
36,341
|
|
|
|
34,103
|
|
Investments
|
|
|
56,744
|
|
|
|
63,780
|
|
Major maintenance
|
|
|
6,017
|
|
|
|
9,041
|
|
Property, plant and equipment
|
|
|
337,654
|
|
|
|
308,179
|
|
Other
|
|
|
6,647
|
|
|
|
32,681
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
443,403
|
|
|
|
447,784
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation reserve
|
|
|
(36,935
|
)
|
|
|
(32,119
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
137,975
|
|
|
$
|
139,483
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2010, a valuation allowance was
established in the amount of $2.6 million to reduce the
Companys deferred tax asset related to certain foreign
subsidiary losses. During the fiscal year ended August 31,
2009, the Company provided a valuation allowance of
$16.3 million related to the carryforward of certain
capital losses that will expire on August 31, 2014. This
valuation allowance was reduced by $0.9 million during
fiscal 2010 due to the existence of offsetting capital gains.
The Company generated a $5.4 million foreign tax credit
carryforward during the fiscal year ended August 31, 2009,
that will expire on August 31, 2014. The Companys
general business credit carryforward of $51.5 million will
begin to expire on August 31, 2027. During the year ended
August 31, 2007, NCRA provided a $9.4 million
valuation allowance related to its carryforward of certain state
tax credits. This allowance was reduced by $5.1 million as
of August 31, 2009 and increased to $7.5 million as of
August 31, 2010, due to a change in the amount of credits
that are estimated to be used. The remaining allowance is
necessary due to the limited amount of taxable income generated
by NCRA on an annual basis.
As of August 31, 2010, net deferred taxes of
$45.5 million and $183.5 million are included in
current assets and other liabilities, respectively
($39.2 million and $178.7 million in current assets
and other liabilities, respectively, as of August 31, 2009).
F-22
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the statutory federal income tax rates to
the effective tax rates for the years ended August 31,
2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal income tax benefit
|
|
|
0.8
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Patronage earnings
|
|
|
(23.8
|
)
|
|
|
(25.5
|
)
|
|
|
(24.1
|
)
|
Export activities at rates other than the U.S. statutory rate
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
Valuation allowance
|
|
|
0.8
|
|
|
|
2.4
|
|
|
|
1.1
|
|
Tax credits
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(2.1
|
)
|
Other
|
|
|
(5.3
|
)
|
|
|
1.1
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
8.3
|
%
|
|
|
12.6
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company files income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. With
few exceptions, the Company is no longer subject to
U.S. federal, state and local examinations by tax
authorities for years ending on or before August 31, 2005.
The Company accounts for its income tax provisions of ASC Topic
740, Income Taxes, which prescribes a minimum threshold that a
tax provision is required to meet before being recognized in the
consolidated financial statements. This interpretation requires
the Company to recognize in the 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
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Beginning balances
|
|
$
|
72,519
|
|
|
$
|
5,840
|
|
|
$
|
7,259
|
|
Increases for current year tax positions
|
|
|
|
|
|
|
1,381
|
|
|
|
|
|
Increases for tax positions of prior years
|
|
|
|
|
|
|
65,697
|
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
(1,419
|
)
|
Reductions attributable to statute expiration
|
|
|
(3,162
|
)
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at August 31
|
|
$
|
69,357
|
|
|
$
|
72,519
|
|
|
$
|
5,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the unrecognized tax benefit of
$65.7 million during fiscal 2009 relates to clarifications
received from the Internal Revenue Service on the method used
for calculating the Companys production tax credits under
Section 199 for which the ultimate deductibility is highly
certain but for which there is uncertainty about the amount
deductible in prior periods. The unrecognized tax benefit, if
recognized, would affect the annual effective tax rate. The
Company does not believe it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly
increase or decrease during the next 12 months.
The Company recognizes interest and penalties related to
unrecognized tax benefits in its provision for income taxes.
During the years ended August 31, 2010 and 2009, the
Company recognized approximately $0.3 million and
$0.3 million in interest, respectively. The Company had
approximately $0.9 million and $0.6 million for the
payment of interest accrued on August 31, 2010 and 2009,
respectively.
Note
9 Equities
In accordance with the by-laws and by action of the Board of
Directors, annual net earnings from patronage sources are
distributed to consenting patrons following the close of each
fiscal year, and are based on amounts using financial statement
earnings. The cash portion of the patronage distribution is
determined annually by the Board of Directors, with the balance
issued in the form of capital equity certificates. Total
F-23
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
patronage refunds for fiscal 2010 are estimated to be
$396.5 million, while the cash portion, determined by the
Board of Directors to be 35%, is estimated to be
$138.8 million. The actual patronage refunds and cash
portion for fiscal years 2009 and 2008 were $438.0 million
($153.9 million in cash) and $648.9 million
($227.6 million in cash), respectively. By action of the
Board of Directors, patronage losses incurred in fiscal 2009
from the wholesale crop nutrients business, totaling
$60.2 million, were offset against the fiscal 2008
wholesale crop nutrients and CF patronage through the
cancellation of capital equity certificates in fiscal 2010.
Annual net savings from sources other than patronage 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. Redemptions 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
pro-rata program for equities held by them and another for
individual members who are eligible for equity redemptions at
age 70 or upon death. The amount that each non-individual
member receives under the pro-rata program in any year will be
determined by multiplying the dollars available for pro-rata
redemptions, if any that year, as determined by the Board of
Directors, by a fraction, the numerator of which is the amount
of patronage certificates eligible for redemption held by them,
and the denominator of which is the sum of the patronage
certificates eligible for redemption held by all eligible
holders of patronage certificates that are not individuals. In
accordance with authorization from the Board of Directors, the
Company expects total redemptions related to the year ended
August 31, 2010, that will be distributed in fiscal 2011,
to be approximately $67.6 million. These expected
distributions are classified as a current liability on the
August 31, 2010 Consolidated Balance Sheet.
For the years ended August 31, 2010, 2009 and 2008, the
Company redeemed in cash, equities in accordance with
authorization from the Board of Directors, in the amounts of
$23.1 million, $49.7 million and $81.8 million,
respectively. An additional $36.7 million,
$49.9 million and $46.4 million of capital equity
certificates were redeemed in fiscal years 2010, 2009 and 2008,
respectively, by issuance of shares of the Companys 8%
Cumulative Redeemable Preferred Stock (Preferred Stock). The
amount of equities redeemed with each share of Preferred Stock
issued was $28.30, $25.90 and $25.65, which was the closing
price per share of the stock on the NASDAQ Global Select
Market on February 22, 2010, January 23, 2009 and
February 11, 2008, respectively.
The Preferred Stock is listed on the NASDAQ Global Select Market
under the symbol CHSCP. On August 31, 2010, the Company had
12,272,003 shares of Preferred Stock outstanding with a
total redemption value of approximately $306.8 million,
excluding accumulated dividends. The Preferred Stock accumulates
dividends at a rate of 8% per year, which are payable quarterly,
and is redeemable at the Companys option. At this time,
the Company has no current plan or intent to redeem any
Preferred Stock.
Note
10 Benefit Plans
The Company has various pension and other defined benefit and
defined contribution plans, in which substantially all employees
may participate. The Company also has non-qualified supplemental
executive and board retirement plans.
F-24
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial information on changes in benefit obligation and plan
assets funded and balance sheets status as of August 31,
2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
415,469
|
|
|
$
|
354,134
|
|
|
$
|
40,524
|
|
|
$
|
38,190
|
|
|
$
|
38,202
|
|
|
$
|
34,378
|
|
Service cost
|
|
|
20,774
|
|
|
|
18,252
|
|
|
|
1,220
|
|
|
|
1,385
|
|
|
|
1,386
|
|
|
|
1,153
|
|
Interest cost
|
|
|
23,034
|
|
|
|
25,296
|
|
|
|
2,235
|
|
|
|
2,781
|
|
|
|
2,153
|
|
|
|
2,971
|
|
Actuarial loss (gain)
|
|
|
5,634
|
|
|
|
6,872
|
|
|
|
239
|
|
|
|
(2,940
|
)
|
|
|
1,016
|
|
|
|
(2,024
|
)
|
Assumption change
|
|
|
53,587
|
|
|
|
38,815
|
|
|
|
4,995
|
|
|
|
3,274
|
|
|
|
4,368
|
|
|
|
3,317
|
|
Plan amendments
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,722
|
|
|
|
283
|
|
Medicare D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
356
|
|
Benefits paid
|
|
|
(25,289
|
)
|
|
|
(27,900
|
)
|
|
|
(1,980
|
)
|
|
|
(2,166
|
)
|
|
|
(2,690
|
)
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
493,601
|
|
|
$
|
415,469
|
|
|
$
|
47,233
|
|
|
$
|
40,524
|
|
|
$
|
46,262
|
|
|
$
|
38,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
410,181
|
|
|
$
|
366,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual gain (loss) on plan assets
|
|
|
23,469
|
|
|
|
(38,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
70,000
|
|
|
|
109,700
|
|
|
$
|
1,980
|
|
|
$
|
2,166
|
|
|
$
|
2,690
|
|
|
$
|
2,232
|
|
Benefits paid
|
|
|
(25,289
|
)
|
|
|
(27,900
|
)
|
|
|
(1,980
|
)
|
|
|
(2,166
|
)
|
|
|
(2,690
|
)
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
478,361
|
|
|
$
|
410,181
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of period
|
|
$
|
(15,240
|
)
|
|
$
|
(5,288
|
)
|
|
$
|
(47,233
|
)
|
|
$
|
(40,524
|
)
|
|
$
|
(46,262
|
)
|
|
$
|
(38,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
$
|
5,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(8,231
|
)
|
|
$
|
(2,936
|
)
|
|
$
|
(2,834
|
)
|
|
$
|
(2,168
|
)
|
Non-current liabilities
|
|
$
|
(15,240
|
)
|
|
|
(10,692
|
)
|
|
|
(39,002
|
)
|
|
|
(37,588
|
)
|
|
|
(43,428
|
)
|
|
|
(36,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(15,240
|
)
|
|
$
|
(5,288
|
)
|
|
$
|
(47,233
|
)
|
|
$
|
(40,524
|
)
|
|
$
|
(46,262
|
)
|
|
$
|
(38,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive
loss (pretax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,586
|
|
|
$
|
3,522
|
|
Prior service cost (credit)
|
|
$
|
13,185
|
|
|
$
|
14,985
|
|
|
$
|
638
|
|
|
$
|
1,055
|
|
|
|
(312
|
)
|
|
|
(498
|
)
|
Net loss
|
|
|
289,853
|
|
|
|
227,803
|
|
|
|
13,527
|
|
|
|
8,912
|
|
|
|
6,199
|
|
|
|
827
|
|
Noncontrolling interests
|
|
|
(25,112
|
)
|
|
|
(21,115
|
)
|
|
|
(184
|
)
|
|
|
(195
|
)
|
|
|
(1,997
|
)
|
|
|
(1,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
277,926
|
|
|
$
|
221,673
|
|
|
$
|
13,981
|
|
|
$
|
9,772
|
|
|
$
|
6,476
|
|
|
$
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation of the qualified pension
plans was $459.5 million and $386.5 million at
August 31, 2010 and 2009, respectively. The accumulated
benefit obligation of the non-qualified pension plans was
$31.3 million and $26.5 million at August 31,
2010 and 2009, respectively.
F-25
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assumption changes for the fiscal years ended
August 31, 2010 and 2009, relates to reductions in the
discount rate for both CHS and NCRA qualified pension plans. The
reduction in the discount rate was due to the reduction in the
yield curves for investment grade corporate bonds that CHS and
NCRA have historically used.
For measurement purposes, a 7.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
the year ended August 31, 2010. The rate was assumed to
decrease gradually to 5.0% by 2043 and remain at that level
thereafter. Components of net periodic benefit costs for the
years ended August 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
20,774
|
|
|
$
|
16,318
|
|
|
$
|
15,387
|
|
|
$
|
1,220
|
|
|
$
|
1,200
|
|
|
$
|
1,246
|
|
|
$
|
1,385
|
|
|
$
|
1,101
|
|
|
$
|
1,175
|
|
Interest cost
|
|
|
23,034
|
|
|
|
22,837
|
|
|
|
21,266
|
|
|
|
2,235
|
|
|
|
2,399
|
|
|
|
2,190
|
|
|
|
2,154
|
|
|
|
2,771
|
|
|
|
1,814
|
|
Expected return on assets
|
|
|
(36,875
|
)
|
|
|
(31,258
|
)
|
|
|
(31,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467
|
|
|
|
1,722
|
|
|
|
283
|
|
|
|
4,000
|
|
Prior service cost (credit) amortization
|
|
|
2,193
|
|
|
|
2,115
|
|
|
|
2,164
|
|
|
|
419
|
|
|
|
546
|
|
|
|
579
|
|
|
|
(186
|
)
|
|
|
347
|
|
|
|
(320
|
)
|
Actuarial loss (gain) amortization
|
|
|
10,578
|
|
|
|
5,046
|
|
|
|
4,887
|
|
|
|
617
|
|
|
|
667
|
|
|
|
841
|
|
|
|
11
|
|
|
|
(215
|
)
|
|
|
(165
|
)
|
Transition amount amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
|
936
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
19,704
|
|
|
$
|
15,058
|
|
|
$
|
12,430
|
|
|
$
|
4,491
|
|
|
$
|
4,812
|
|
|
$
|
5,323
|
|
|
$
|
6,022
|
|
|
$
|
5,223
|
|
|
$
|
7,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to retained earnings for measurement date change
|
|
|
|
|
|
$
|
1,593
|
|
|
|
|
|
|
|
|
|
|
$
|
763
|
|
|
|
|
|
|
|
|
|
|
$
|
294
|
|
|
|
|
|
Weighted average assumptions to determine the net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75%
|
|
|
|
6.05%
|
|
|
|
6.25%
|
|
|
|
5.75%
|
|
|
|
6.05%
|
|
|
|
6.25%
|
|
|
|
5.75%
|
|
|
|
6.05%
|
|
|
|
6.25%
|
|
Expected return on plan assets
|
|
|
8.25%
|
|
|
|
8.25%
|
|
|
|
8.75%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
Weighted average assumptions to determine the benefit
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.75%
|
|
|
|
5.75%
|
|
|
|
6.75%
|
|
|
|
4.75%
|
|
|
|
5.75%
|
|
|
|
6.75%
|
|
|
|
4.75%
|
|
|
|
5.75%
|
|
|
|
6.75%
|
|
Rate of compensation increase
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
The estimated amortization in fiscal 2011 from accumulated other
comprehensive income into net periodic benefit cost is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
(Dollars in thousands)
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
$
|
936
|
|
Amortization of prior service cost (benefit)
|
|
$
|
2,327
|
|
|
$
|
140
|
|
|
|
(123
|
)
|
Amortization of net actuarial loss
|
|
|
15,856
|
|
|
|
998
|
|
|
|
366
|
|
Noncontrolling interests
|
|
|
(1,634
|
)
|
|
|
(7
|
)
|
|
|
(141
|
)
|
F-26
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
|
(Dollars in thousands)
|
Effect on total of service and interest cost components
|
|
$
|
468
|
|
|
$
|
(391
|
)
|
Effect on postretirement benefit obligation
|
|
|
4,249
|
|
|
|
(3,710
|
)
|
The Company provides 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.
The Company has other contributory defined contribution plans
covering substantially all employees. Total contributions by the
Company to these plans were $17.3 million,
$14.9 million and $12.2 million, for the years ended
August 31, 2010, 2009 and 2008, respectively.
The Company contributed $70.0 million to qualified pension
plans in fiscal 2010. Based on the funded status of the
qualified pension plans as of August 31, 2010, the Company
does not expect to contribute to these plans in fiscal 2011. The
Company expects to pay $11.1 million to participants of the
non-qualified pension and postretirement benefit plans during
fiscal 2011.
The Companys retiree benefit payments which reflect
expected future service are anticipated to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
Other Benefits
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Gross
|
|
|
Medicare D
|
|
|
|
(Dollars in thousands)
|
|
2011
|
|
$
|
28,494
|
|
|
$
|
8,231
|
|
|
$
|
2,833
|
|
|
$
|
100
|
|
2012
|
|
|
30,302
|
|
|
|
4,743
|
|
|
|
3,189
|
|
|
|
100
|
|
2013
|
|
|
32,933
|
|
|
|
4,301
|
|
|
|
3,165
|
|
|
|
100
|
|
2014
|
|
|
34,998
|
|
|
|
3,078
|
|
|
|
3,332
|
|
|
|
100
|
|
2015
|
|
|
38,719
|
|
|
|
3,075
|
|
|
|
3,430
|
|
|
|
100
|
|
2016-2020
|
|
|
227,291
|
|
|
|
18,636
|
|
|
|
18,438
|
|
|
|
600
|
|
The Company has trusts that hold the assets for the defined
benefit plans. The Company and NCRA have qualified plan
committees that set investment guidelines with the assistance of
external consultants. Investment objectives for the
Companys plan assets are:
|
|
|
|
|
optimization of the long-term returns on plan assets at an
acceptable level of risk, and
|
|
|
|
maintenance of a 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 plans
target allocation percentages are 35% in fixed income securities
and 65% in 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. The
Company generally uses 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, the Company looks at rates of
return on fixed-income investments
F-27
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of similar duration to the liabilities in the plans that receive
high,
investment-grade
ratings by recognized ratings agencies.
The investment portfolio contains a diversified portfolio of
investment categories, including domestic and international
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.
The committees believe that with prudent risk tolerance and
asset diversification, the plans should be able to meet pension
obligations in the future.
The Companys pension plans fair value measurements
at August 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Mutual funds
|
|
$
|
459,089
|
|
|
$
|
7,158
|
|
|
|
|
|
|
$
|
466,247
|
|
Real estate fund
|
|
|
|
|
|
|
2
|
|
|
$
|
9,407
|
|
|
|
9,409
|
|
Other assets hedge funds
|
|
|
|
|
|
|
|
|
|
|
2,705
|
|
|
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
459,089
|
|
|
$
|
7,160
|
|
|
$
|
12,112
|
|
|
$
|
478,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definitions for valuation levels are found in Note 12. The
Company uses 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.
Certain of the mutual fund investments held by the plan are
money market mutual funds, which have observable inputs other
than Level 1. The money market mutual funds are classified
within Level 2 of the fair value hierarchy.
Real Estate funds: Valued quarterly at
estimated fair value based on the underlying investee funds in
which the real estate fund invests. This information is
compiled, in addition to any other assets and liabilities
(accrued expenses and unit-holder transactions), to determine
the funds unit value. The real estate fund is not traded
on an active market and is classified within Level 3 of the
fair value hierarchy.
Hedge funds: Valued at estimated fair value
based on prices quoted by various national markets and
publications
and/or
independent financial analysts. These investments are classified
within Level 3 of the fair value hierarchy.
The preceding methods described may produce a fair value
calculation that may not be indicative of the net realizable
value or reflective of future fair values. Furthermore, although
the plan believes its valuation methods are appropriate and
consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different fair
value measurement at the reporting date. The following table
sets forth a summary of changes in the fair value of the
plans Level 3 assets for the year ended
August 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Estate
|
|
|
Hedge
|
|
|
|
|
|
|
Funds
|
|
|
Funds
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Balances at beginning of period
|
|
$
|
10,335
|
|
|
$
|
1,091
|
|
|
$
|
11,426
|
|
Unrealized (losses) gains
|
|
|
(939
|
)
|
|
|
126
|
|
|
|
(813
|
)
|
Purchases, sales, issuances and settlements, net
|
|
|
11
|
|
|
|
1,488
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,407
|
|
|
$
|
2,705
|
|
|
$
|
12,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11
|
Segment
Reporting
|
The Company aligned its segments based on an assessment of how
its businesses operate and the products and services it sells.
As a result of this assessment, the Company has three segments:
Energy, Ag Business and Processing.
The Energy segment derives its revenues through refining,
wholesaling, marketing and retailing of petroleum products. The
Ag Business segment derives its revenues through the sales of
wholesale crop nutrients, the origination and marketing of
grain, including service activities conducted at export
terminals, through the retail sales of petroleum and agronomy
products, processed sunflowers, feed and farm supplies, and
records equity income from investments in the Companys
agronomy joint ventures, grain export joint ventures and other
investments. The Processing segment derives its revenues from
the sales of soybean meal, soybean refined oil and soy-based
food products, and records equity income from two wheat milling
joint ventures, a vegetable oil-based food manufacturing and
distribution joint venture, and during fiscal 2009 and 2008, an
ethanol manufacturing company. The Company includes other
business operations in Corporate and Other because of the nature
of their products and services, as well as the relative revenue
size of those businesses. These businesses primarily include the
Companys financing, insurance, hedging and other service
activities related to crop production.
Reconciling Amounts represent the elimination of revenues
between segments. Such transactions are conducted at market
prices to more accurately evaluate the profitability of the
individual segments.
The Company assigns certain corporate general and administrative
expenses to its segments based on use of such services and
allocates other services based on factors or considerations
relevant to the costs incurred.
Expenses that are incurred at the corporate level for the
purpose of the general operation of the Company are allocated to
the segments based upon factors which management considers
non-symmetrical. Due to efficiencies in scale, cost allocations
and intersegment activity, management does not represent that
these segments, if operated independently, would report the
income before income taxes and other financial information as
presented.
F-29
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment information for the years ended August 31, 2010,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Reconciling
|
|
|
|
|
|
|
|
|
Energy
|
|
|
AG Business
|
|
|
Processing
|
|
|
and Other
|
|
|
Amounts
|
|
|
Total
|
|
|
|
|
|
(Dollars in thousands)
|
For the year ended August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,799,890
|
|
|
$
|
15,678,160
|
|
|
$
|
1,061,654
|
|
|
$
|
44,922
|
|
|
$
|
(316,695
|
)
|
|
$
|
25,267,931
|
|
|
|
Cost of goods sold
|
|
|
8,437,504
|
|
|
|
15,261,056
|
|
|
|
1,018,731
|
|
|
|
(3,186
|
)
|
|
|
(316,695
|
)
|
|
|
24,397,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
362,386
|
|
|
|
417,104
|
|
|
|
42,923
|
|
|
|
48,108
|
|
|
|
|
|
|
|
870,521
|
|
|
|
Marketing, general and administrative
|
|
|
123,834
|
|
|
|
173,766
|
|
|
|
25,764
|
|
|
|
43,218
|
|
|
|
|
|
|
|
366,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
238,552
|
|
|
|
243,338
|
|
|
|
17,159
|
|
|
|
4,890
|
|
|
|
|
|
|
|
503,939
|
|
|
|
Gain on investments
|
|
|
(269
|
)
|
|
|
(28,807
|
)
|
|
|
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
(29,433
|
)
|
|
|
Interest, net
|
|
|
9,939
|
|
|
|
28,033
|
|
|
|
19,605
|
|
|
|
747
|
|
|
|
|
|
|
|
58,324
|
|
|
|
Equity income from investments
|
|
|
(5,554
|
)
|
|
|
(25,173
|
)
|
|
|
(77,159
|
)
|
|
|
(901
|
)
|
|
|
|
|
|
|
(108,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
234,436
|
|
|
$
|
269,285
|
|
|
$
|
74,713
|
|
|
$
|
5,401
|
|
|
$
|
|
|
|
$
|
583,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(295,536
|
)
|
|
$
|
(19,259
|
)
|
|
$
|
(1,900
|
)
|
|
|
|
|
|
$
|
316,695
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,165
|
|
|
$
|
14,975
|
|
|
|
|
|
|
$
|
6,898
|
|
|
|
|
|
|
$
|
23,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
197,637
|
|
|
$
|
116,175
|
|
|
$
|
6,293
|
|
|
$
|
4,157
|
|
|
|
|
|
|
$
|
324,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
118,071
|
|
|
$
|
58,972
|
|
|
$
|
17,027
|
|
|
$
|
8,852
|
|
|
|
|
|
|
$
|
202,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets at August 31, 2010
|
|
$
|
3,004,471
|
|
|
$
|
3,583,341
|
|
|
$
|
696,738
|
|
|
$
|
1,381,578
|
|
|
|
|
|
|
$
|
8,666,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,639,838
|
|
|
$
|
17,196,448
|
|
|
$
|
1,142,636
|
|
|
$
|
45,298
|
|
|
$
|
(294,304
|
)
|
|
$
|
25,729,916
|
|
|
|
Cost of goods sold
|
|
|
7,110,324
|
|
|
|
16,937,877
|
|
|
|
1,099,177
|
|
|
|
(3,173
|
)
|
|
|
(294,304
|
)
|
|
|
24,849,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
529,514
|
|
|
|
258,571
|
|
|
|
43,459
|
|
|
|
48,471
|
|
|
|
|
|
|
|
880,015
|
|
|
|
Marketing, general and administrative
|
|
|
125,104
|
|
|
|
158,395
|
|
|
|
25,724
|
|
|
|
46,076
|
|
|
|
|
|
|
|
355,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
404,410
|
|
|
|
100,176
|
|
|
|
17,735
|
|
|
|
2,395
|
|
|
|
|
|
|
|
524,716
|
|
|
|
(Gain) loss on investments
|
|
|
(15,748
|
)
|
|
|
(2,285
|
)
|
|
|
74,338
|
|
|
|
|
|
|
|
|
|
|
|
56,305
|
|
|
|
Interest, net
|
|
|
5,483
|
|
|
|
46,995
|
|
|
|
21,841
|
|
|
|
(3,832
|
)
|
|
|
|
|
|
|
70,487
|
|
|
|
Equity income from investments
|
|
|
(4,044
|
)
|
|
|
(18,222
|
)
|
|
|
(82,525
|
)
|
|
|
(963
|
)
|
|
|
|
|
|
|
(105,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
418,719
|
|
|
$
|
73,688
|
|
|
$
|
4,081
|
|
|
$
|
7,190
|
|
|
$
|
|
|
|
$
|
503,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(251,626
|
)
|
|
$
|
(39,919
|
)
|
|
$
|
(2,759
|
)
|
|
|
|
|
|
$
|
294,304
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,983
|
|
|
$
|
8,465
|
|
|
|
|
|
|
$
|
6,898
|
|
|
|
|
|
|
$
|
17,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
233,112
|
|
|
$
|
72,155
|
|
|
$
|
7,444
|
|
|
$
|
2,794
|
|
|
|
|
|
|
$
|
315,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
118,260
|
|
|
$
|
53,421
|
|
|
$
|
16,805
|
|
|
$
|
7,864
|
|
|
|
|
|
|
$
|
196,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets at August 31, 2009
|
|
$
|
3,025,522
|
|
|
$
|
2,987,394
|
|
|
$
|
685,865
|
|
|
$
|
1,171,064
|
|
|
|
|
|
|
$
|
7,869,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,499,814
|
|
|
$
|
19,696,907
|
|
|
$
|
1,299,209
|
|
|
$
|
31,363
|
|
|
$
|
(359,832
|
)
|
|
$
|
32,167,461
|
|
|
|
Cost of goods sold
|
|
|
11,027,459
|
|
|
|
19,088,079
|
|
|
|
1,240,944
|
|
|
|
(2,751
|
)
|
|
|
(359,832
|
)
|
|
|
30,993,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
472,355
|
|
|
|
608,828
|
|
|
|
58,265
|
|
|
|
34,114
|
|
|
|
|
|
|
|
1,173,562
|
|
|
|
Marketing, general and administrative
|
|
|
111,121
|
|
|
|
160,364
|
|
|
|
26,089
|
|
|
|
32,391
|
|
|
|
|
|
|
|
329,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
361,234
|
|
|
|
448,464
|
|
|
|
32,176
|
|
|
|
1,723
|
|
|
|
|
|
|
|
843,597
|
|
|
|
(Gain) loss on investments
|
|
|
(35
|
)
|
|
|
(100,830
|
)
|
|
|
72,602
|
|
|
|
(930
|
)
|
|
|
|
|
|
|
(29,193
|
)
|
|
|
Interest, net
|
|
|
(5,227
|
)
|
|
|
63,665
|
|
|
|
21,995
|
|
|
|
(3,973
|
)
|
|
|
|
|
|
|
76,460
|
|
|
|
Equity income from investments
|
|
|
(5,054
|
)
|
|
|
(83,053
|
)
|
|
|
(56,615
|
)
|
|
|
(5,691
|
)
|
|
|
|
|
|
|
(150,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
371,550
|
|
|
$
|
568,682
|
|
|
$
|
(5,806
|
)
|
|
$
|
12,317
|
|
|
$
|
|
|
|
$
|
946,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(322,522
|
)
|
|
$
|
(36,972
|
)
|
|
$
|
(338
|
)
|
|
|
|
|
|
$
|
359,832
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
251,401
|
|
|
$
|
56,704
|
|
|
$
|
5,994
|
|
|
$
|
4,460
|
|
|
|
|
|
|
$
|
318,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
107,949
|
|
|
$
|
50,933
|
|
|
$
|
15,902
|
|
|
$
|
6,479
|
|
|
|
|
|
|
$
|
181,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
International sales for the years ended August 31, 2010,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
Africa
|
|
$
|
395
|
|
|
$
|
305
|
|
|
$
|
505
|
|
Asia
|
|
|
2,891
|
|
|
|
3,664
|
|
|
|
3,000
|
|
Europe
|
|
|
209
|
|
|
|
371
|
|
|
|
488
|
|
North America, excluding U.S.
|
|
|
1,210
|
|
|
|
1,253
|
|
|
|
1,399
|
|
South America
|
|
|
736
|
|
|
|
491
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,441
|
|
|
$
|
6,084
|
|
|
$
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12
|
Fair
Value Measurements
|
ASC 820 defines fair value as the price that would be received
for an asset or paid to transfer a liability (an exit price) in
a principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date.
The Company determines the fair market values of its readily
marketable inventories, derivative contracts and certain other
assets, based on the fair value hierarchy established in
ASC 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 820 describes three levels within
its hierarchy that may be used to measure fair value, which are:
Level 1: Values are based on unadjusted
quoted prices in active markets for identical assets or
liabilities. These assets and liabilities include the
Companys exchange traded derivative contracts, Rabbi Trust
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 the Companys readily
marketable inventories, interest rate swaps, forward commodity
and freight purchase and sales contracts, flat price or basis
fixed derivative contracts 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 the Companys 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. These assets previously included certain short-term
investments made by NCRA.
The following table presents assets and liabilities, included in
the Companys Consolidated Balance Sheets, that are
recognized at fair value on a recurring basis, and indicates the
fair value hierarchy utilized to determine such fair value.
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. The Companys assessment of the
significance of a particular input to the fair value measurement
F-31
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
requires judgment, and may affect the classification of fair
value assets and liabilities within the fair value hierarchy
levels. Fair value measurements at August 31, 2010 and 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at August 31, 2010
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readily marketable inventories
|
|
|
|
|
|
$
|
1,057,910
|
|
|
|
|
|
|
$
|
1,057,910
|
|
Commodity and freight derivatives
|
|
$
|
38,342
|
|
|
|
208,279
|
|
|
|
|
|
|
|
246,621
|
|
Other assets
|
|
|
62,612
|
|
|
|
|
|
|
|
|
|
|
|
62,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
100,954
|
|
|
$
|
1,266,189
|
|
|
|
|
|
|
$
|
1,367,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity and freight derivatives
|
|
$
|
79,940
|
|
|
$
|
204,629
|
|
|
|
|
|
|
$
|
284,569
|
|
Foreign currency derivatives
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
222
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
1,227
|
|
|
|
|
|
|
|
1,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
80,162
|
|
|
$
|
205,856
|
|
|
|
|
|
|
$
|
286,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at August 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readily marketable inventories
|
|
|
|
|
|
$
|
706,104
|
|
|
|
|
|
|
$
|
706,104
|
|
Commodity and freight derivatives
|
|
$
|
68,116
|
|
|
|
103,224
|
|
|
|
|
|
|
|
171,340
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
$
|
1,932
|
|
|
|
1,932
|
|
Other assets
|
|
|
53,326
|
|
|
|
|
|
|
|
|
|
|
|
53,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
121,442
|
|
|
$
|
809,328
|
|
|
$
|
1,932
|
|
|
$
|
932,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity and freight derivatives
|
|
$
|
27,145
|
|
|
$
|
274,060
|
|
|
|
|
|
|
$
|
301,205
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
4,911
|
|
|
|
|
|
|
|
4,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
27,145
|
|
|
$
|
278,971
|
|
|
|
|
|
|
$
|
306,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readily marketable inventories The
Companys readily marketable inventories primarily include
its grain and oilseed inventories that are stated at fair
values. These commodities are readily marketable, have quoted
market prices and may be sold without significant additional
processing. The Company estimates the fair market values of
these inventories included in Level 2 primarily based on
exchange quoted prices, adjusted for differences in local
markets. Changes in the fair market values of these inventories
are recognized in the Companys Consolidated Statements of
Operations as a component of cost of goods sold.
Commodity, freight 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. The
Companys forward commodity purchase and sales contracts,
flat price or basis fixed derivative contracts, ocean freight
contracts and other OTC derivatives are determined using inputs
that are generally based on exchange traded
F-32
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
prices
and/or
recent market bids and offers, adjusted for location specific
inputs, and are classified within Level 2. The location
specific inputs are generally broker or dealer quotations, or
market transactions in either the listed or OTC markets. Changes
in the fair values of these contracts are recognized in the
Companys Consolidated Statements of Operations as a
component of cost of goods sold.
Shortterm investments The
Companys short-term investments represented an enhanced
cash fund at NCRA that was closed due to credit-market turmoil,
and were classified within Level 3. These investments were
valued using discounted cash flows to determine the fair market
values.
Other assets The Companys
available-for-sale
investments in common stock of other companies and its Rabbi
Trust assets are valued based on unadjusted quoted prices on
active exchanges and are classified within Level 1.
Interest rate swap derivatives Fair values of
the Companys interest rate swap liabilities are determined
utilizing valuation models that are widely accepted in the
market to value such 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.
The table below represents reconciliations at August 31,
2010 and 2009 for assets measured at fair value using
significant unobservable inputs (Level 3). This consists of
certain short-term investments of NCRA that were carried at fair
value and reflect assumptions a marketplace participant would
use.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balances, September 1
|
|
$
|
1,932
|
|
|
$
|
6,900
|
|
Realized/unrealized losses included in marketing, general and
administrative
|
|
|
38
|
|
|
|
(643
|
)
|
Settlements
|
|
|
(1,970
|
)
|
|
|
(4,325
|
)
|
|
|
|
|
|
|
|
|
|
Balances, August 31
|
|
$
|
|
|
|
$
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13
|
Commitments and
Contingencies
|
Environmental
The Company is required to comply with various environmental
laws and regulations incidental to its normal business
operations. In order to meet its compliance requirements, the
Company establishes 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 the
Consolidated Statements of Operations. The resolution of any
such matters may affect consolidated net income for any fiscal
period; however, management believes any resulting liabilities,
individually or in the aggregate, will not have a material
effect on the consolidated financial position, results of
operations or cash flows of the Company during any fiscal year.
The Environmental Protection Agency has passed a regulation that
requires the reduction of the benzene level in gasoline by
January 1, 2011. As a result of this regulation, the
Companys refineries will incur capital expenditures to
reduce the current gasoline benzene levels to the regulated
levels. The Company anticipates the combined capital
expenditures for the Laurel, Montana and NCRA refineries to be
approximately $114 million, of which $76 million has
been spent through August 31, 2010.
Other
Litigation and Claims
The Company is involved as a defendant in various lawsuits,
claims and disputes, which are in the normal course of the
Companys business. The resolution of any such matters may
affect consolidated net income for any fiscal period; however,
management believes any resulting liabilities, individually or
in the aggregate, will
F-33
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not have a material effect on the consolidated financial
position, results of operations or cash flows of the Company
during any fiscal year.
Grain
Storage
As of August 31, 2010 and 2009, the Company stored grain
for third parties totaling $246.2 million and
$283.0 million, respectively. Such stored commodities and
products are not the property of the Company and therefore are
not included in the Companys inventories.
Guarantees
The Company is a guarantor for lines of credit and performance
obligations of related companies. The Companys bank
covenants allow maximum guarantees of $500.0 million, of
which $29.4 million was outstanding on August 31,
2010. The Company has collateral for a portion of these
contingent obligations. The Company has not recorded a liability
related to the contingent obligations as it does 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 guarantees are current as of
August 31, 2010.
Lease
Commitments
The Company is committed under operating lease agreements for
approximately 2,000 rail cars with remaining terms of one to ten
years. In addition, the Company has commitments under other
operating leases for various refinery, manufacturing and
transportation equipment, vehicles and office space. Some leases
include purchase options at not less than fair market value at
the end of the lease terms.
Total rental expense for all operating leases, net of rail car
mileage credits received from railroad and sublease income, was
$64.3 million, $61.1 million and $58.3 million
for the years ended August 31, 2010, 2009 and 2008,
respectively. Mileage credits and sublease income totaled
$1.4 million, $1.3 million and $3.8 million for
the years ended August 31, 2010, 2009 and 2008,
respectively.
Minimum future lease payments, required under noncancellable
operating leases as of August 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
|
|
|
|
Rail Cars
|
|
|
Vehicles
|
|
|
and Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
$
|
11,531
|
|
|
$
|
22,067
|
|
|
$
|
9,248
|
|
|
$
|
42,846
|
|
2012
|
|
|
8,560
|
|
|
|
17,132
|
|
|
|
7,749
|
|
|
|
33,441
|
|
2013
|
|
|
6,161
|
|
|
|
12,439
|
|
|
|
5,607
|
|
|
|
24,207
|
|
2014
|
|
|
4,069
|
|
|
|
8,111
|
|
|
|
3,507
|
|
|
|
15,687
|
|
2015
|
|
|
3,147
|
|
|
|
4,657
|
|
|
|
3,061
|
|
|
|
10,865
|
|
Thereafter
|
|
|
7,509
|
|
|
|
722
|
|
|
|
9,280
|
|
|
|
17,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum future lease payments
|
|
$
|
40,977
|
|
|
$
|
65,128
|
|
|
$
|
38,452
|
|
|
$
|
144,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14
|
Supplemental
Cash Flow and Other Information
|
Additional information concerning supplemental disclosures of
cash flow activities for the years ended August 31, 2010,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
65,400
|
|
|
$
|
81,146
|
|
|
$
|
79,590
|
|
Income taxes
|
|
|
15,899
|
|
|
|
76,670
|
|
|
|
20,772
|
|
Other significant noncash investing and
financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital equity certificates exchanged for Preferred Stock
|
|
|
36,674
|
|
|
|
49,944
|
|
|
|
46,364
|
|
Capital equity certificates cancelled for fiscal 2009 patronage
losses in wholesale crop nutrients
|
|
|
60,154
|
|
|
|
|
|
|
|
|
|
Capital equity certificates issued in exchange for Ag Business
acquisitions
|
|
|
616
|
|
|
|
19,594
|
|
|
|
4,680
|
|
Accrual of dividends and equities payable
|
|
|
(210,435
|
)
|
|
|
(203,056
|
)
|
|
|
(325,039
|
)
|
|
|
Note 15
|
Related
Party Transactions
|
Related party transactions with equity investees for the years
ended August 31, 2010, 2009 and 2008, respectively, and
balances as of August 31, 2010 and 2009, respectively, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in thousands)
|
|
Sales
|
|
$
|
2,276,682
|
|
|
$
|
2,528,330
|
|
|
$
|
3,451,365
|
|
Purchases
|
|
|
961,062
|
|
|
|
1,215,786
|
|
|
|
1,248,436
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Receivables
|
|
$
|
31,792
|
|
|
$
|
14,987
|
|
Payables
|
|
|
34,438
|
|
|
|
30,741
|
|
The related party transactions were primarily with TEMCO, LLC,
Horizon Milling, LLC, United Harvest, LLC, Ventura Foods, LLC
and Agriliance LLC.
F-35
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 16
|
Comprehensive
Income
|
The components of comprehensive income, net of taxes, for the
years ended August 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Net income including noncontrolling interests
|
|
$
|
535,397
|
|
|
$
|
440,374
|
|
|
$
|
874,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement, net of tax benefit of $30,847,
$53,408 and $12,675 in 2010, 2009 and 2008, respectively
|
|
|
(47,667
|
)
|
|
|
(82,069
|
)
|
|
|
(19,317
|
)
|
Unrealized net loss on available for sale investments, net of
tax benefit of $477, $6,687 and $40,979 in 2010, 2009 and 2008,
respectively
|
|
|
(750
|
)
|
|
|
(10,503
|
)
|
|
|
(64,366
|
)
|
Amortization of treasury locks, net of tax expense of $227, $258
and $297 in 2010, 2009 and 2008, respectively
|
|
|
356
|
|
|
|
405
|
|
|
|
465
|
|
Energy derivative instruments qualified for hedge accounting,
net of tax benefit of $1,540 in 2010
|
|
|
(2,419
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax (benefit)
expense of $(791), $(1,570) and $56 in 2010, 2009 and 2008,
respectively
|
|
|
(1,242
|
)
|
|
|
(2,466
|
)
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(51,722
|
)
|
|
|
(94,633
|
)
|
|
|
(83,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income, including noncontrolling interests
|
|
|
483,675
|
|
|
|
345,741
|
|
|
|
791,751
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
30,513
|
|
|
|
52,562
|
|
|
|
69,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to CHS Inc.
|
|
$
|
453,162
|
|
|
$
|
293,179
|
|
|
$
|
721,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of
taxes, as of August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Pension and other postretirement, net of tax benefit of $141,097
and $110,250 in 2010 and 2009, respectively
|
|
$
|
(218,512
|
)
|
|
$
|
(170,845
|
)
|
Unrealized net gain on available for sale investments, net of
tax expense of $204 and $681 in 2010
and 2009, respectively
|
|
|
320
|
|
|
|
1,070
|
|
Treasury locks, net of tax benefit of $616 and $843 in 2010 and
2009, respectively
|
|
|
(968
|
)
|
|
|
(1,324
|
)
|
Energy derivative instruments qualified for hedge accounting,
net of tax benefit of $1,540 in 2010
|
|
|
(2,419
|
)
|
|
|
|
|
Foreign currency translation adjustment, net of tax (benefit)
expense of $(34) and $757 in 2010
and 2009, respectively
|
|
|
(54
|
)
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, including noncontrolling
interests
|
|
|
(221,633
|
)
|
|
|
(169,911
|
)
|
Accumulated other comprehensive loss attributable to
noncontrolling interests
|
|
|
(16,366
|
)
|
|
|
(13,641
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss attributable to CHS
Inc.
|
|
$
|
(205,267
|
)
|
|
$
|
(156,270
|
)
|
|
|
|
|
|
|
|
|
|
F-36