UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): December 7, 2018

 

CHS Inc.

(Exact Name of Registrant as Specified in Charter)

 

Commission File Number: 001-36079

 

Minnesota

 

41-0251095

(State or Other Jurisdiction of Incorporation)

 

(IRS Employer Identification No.)

 

5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(Address of Principal Executive Offices) (Zip Code)

 

(651) 355-6000
(Registrant’s telephone number, including area code)

 

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company                    o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                                o

 

 

 


 

Item 7.01.                                        Regulation FD Disclosure.

 

On December 7, 2018, Jay Debertin, President and Chief Executive Officer of CHS Inc. (the “Company”), and Timothy Skidmore, Executive Vice President and Chief Financial Officer of the Company, each gave a speech along with a related slide presentation at the Company’s 2018 Annual Meeting. Copies of Mr. Debertin’s speech and related slide presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, and copies of Mr. Skidmore’s speech and related slide presentation are attached hereto as Exhibits 99.3 and 99.4, respectively. Each such copy is incorporated herein by reference.

 

Pursuant to General Instruction B.2. to Form 8-K, the information set forth in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

 

Item 9.01.                                        Financial Statements and Exhibits.

 

Exhibit No.

 

Description

 

 

 

99.1

 

Speech of Jay Debertin

 

 

 

99.2

 

Slide Presentation Related to Speech of Jay Debertin

 

 

 

99.3

 

Speech of Timothy Skidmore

 

 

 

99.4

 

Slide Presentation Related to Speech of Timothy Skidmore

 

2


 

SIGNATURES

 

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

 

 

 

CHS INC.

 

 

 

Date: December 7, 2018

By:

/s/ Timothy Skidmore

 

 

Timothy Skidmore

 

 

Executive Vice President and Chief Financial Officer

 

3


Exhibit 99.1

 

Good morning.

 

We’re in the home stretch of the 2018 Annual Meeting. This is your meeting, so I hope you’ve gotten plenty of what you always rank high in our follow-up surveys: Knowledge and connection with others.

 

We work hard to give you opportunities at the annual meeting to connect with CHS board members, leadership and your fellow attendees and to have some fun. In yesterday’s educational sessions and in the CHS Connection Center, you had the chance to gather market insights from CHS experts. Insights you can use at your farm, at your ranch or at your local cooperative.

 

I hope you’re also going home one with one more thing: Confidence in our focus, our vision for the future and our commitment to strengthening our connections with you.

 

1


 

Because we ARE confident about the future. That’s not because what we must do is easy; it’s not. It’s because our priorities and strategies are well-defined, and we are focused on executing them.

 

In my time today, I’ll talk about the past year, but I mostly want to look ahead. It’s important that as owners and customers of this company you understand where we’re headed and have confidence in that direction.

 

As I look back on 2018, I have a couple of reflections.

 

First, I’m grateful and inspired by the support and dedication of all of you. Teamwork was essential to our fiscal 2018 improvements and accomplishments.

 

Second, I want you, our member-owners, to know how much we value your business and appreciate the opportunity to earn it every day. You always have a choice. We want to be your first choice.

 

2


 

Without question, 2018 was a challenging year for CHS, and I know it was a difficult one for our owners. There’s no sugarcoating any of that.

 

And while I feel very positive about the future, I’m also realistic. This economic environment is not likely to change soon.

 

It’s another reminder of the value of your cooperative as a strong and dependable partner. We are in this together.

 

I’ve also been reflecting on how many times during our nearly nine-decade history this system has faced adversities like economic downturns, severe weather and today’s significant trade issues. My own cooperative system career began during the ag depression of the mid-1980s and, as you know, it was no walk in the park.

 

When things are good, it’s hard to believe the bright days will end. And when things are difficult, it’s easy to think they might stay that way. That’s human nature. The truth is, no cycle lasts forever. Tough

 

3


 

times do end, but they require hard choices, sacrifices and a long-term view. They call on us to be focused and relentless.

 

Throughout our history, we’ve risen to the challenge and emerged ready to meet the future. We’re demonstrating the same mettle today. We share common goals and we focus on what’s important long term. And, most of all, we never lose sight of the noble task at the heart of what we do each day — serving those that help feed the world.

 

Last year, I outlined our challenges and our plans to address them. I shared our priorities and our strategies to strengthen and grow CHS. And I assured you that your company’s leadership and employees were fully committed to tackling those challenges.

 

But talk is just that - talk. Action and progress are the tangible proof of our focus. I believe we have delivered both in 2018 and will continue to do so.

 

We improved our financial flexibility. Our strong earnings, improved balance sheet and the cash patronage we will return to you are proof.

 

4


 

We made solid progress in sharpening our operational excellence to ensure we’re performing optimally. And our core energy, global grain, agronomy and processing businesses are positioned for long-term performance and growth. Our businesses are working better together. This means we’re more efficient and we’re acting on our commitment to work safely and manage risk. But our work on all of this is not done.

 

Strengthening our relationship with you — our owners — will always be a priority.

 

The opportunity to connect with you at the Owner Forums, or when you welcomed us to your cooperatives, was rewarding.

 

So many of these connections really hit home for me. Like the note I received from a dairy farmer who attended our Madison, Wisconsin, Owner Forum back in June. His note said:

 

5


 

“I very much appreciated your comments about why you go to work every day. As a dairy farmer who enjoys the pleasure and responsibility of farming with several of our children, the fact that we use our small portion of the earth to responsibly and honorably feed the world, inspires and motivates us during difficult times. It is a worthwhile endeavor.”

 

I don’t have to tell anyone in this room about the tough road dairy has faced. Yet this farmer stays focused and sees the important role he and his family play in feeding the world.

 

His words remind us of what’s truly important. This farmer’s deep convictions — just like yours — keep us moving forward in good times and hard times.

 

Rest assured: Good communication, strong engagement and humility are not one-and-done items. We look forward to building even stronger connections in the years ahead.

 

2018 wasn’t a perfect year. Tim shared the details of our restatement.

 

6


 

The act of an individual to misstate information used in our financial reporting and making intentional misstatements to our auditors does not demonstrate integrity. We don’t know why he did it. It was wrong. And as Tim said in his report, the situation shows we must make improvements in our internal controls.

 

I am sorry about this failure.  As the president and CEO of CHS, this is my responsibility. I promise that we can — and we will — do better. We own this.

 

Let me share one example of what I mean by saying we own this. As you know, over these years, we made bonus payments to leaders of grain marketing and executives of the company using net income figures that we now know were not accurate.

 

Each of those current leaders has voluntarily returned the excess  dollars. Each person used the same reason — it’s simply the right thing to do.

 

7


 

We will take the corrective steps that have come out of this. We will channel our energy to be better and to do better.

 

2018 reminded us how much external factors can impact our business.

 

While we always assess policy and legislation and how it could impact CHS and our owners, it was clear this year, that our voices needed to be heard in two important areas.

 

First, we spoke up to ensure CHS and eligible owners could still take advantage of the DPAD tax deduction, known as Section 199A. Our ability to pass through this deduction to you is an important cooperative system benefit.

 

Second, we spoke out on trade and tariffs. No matter where you’re located — we know this impacts your bottom line and your bid at the elevator.  You count on CHS to represent you in a global marketplace and to give you a seat at the table.

 

8


 

Even as we face numerous challenges, there’s a renewed sense of teamwork and momentum.

 

What we achieved — we have achieved together. But teamwork doesn’t mean we’ve always agreed. We’ve had healthy dialogue along the way that led to better decisions as we move forward.

 

Your CHS team includes a board of directors who made numerous difficult decisions this year — not all of them popular — and made them with the best interests of the company and its owners in mind. I want to echo what Dan and Tim said. This board has demonstrated great leadership. I commend them and stand with them and the decisions they made.

 

So, here we are, one week into the second quarter of fiscal 2019. You may be asking: “What changes lie ahead in this new year?” Well, don’t expect a hard turn. The simple answer is we’ll stay the course and build on what we’ve already accomplished.

 

9


 

We made significant strides during 2018 with an unwavering focus on our priorities supported by the work of many. But there’s no finish line. We’re still in a difficult environment and have more work to do. With that in mind, I want to lay out the 2019 priorities that we will report to you at next year’s annual meeting.

 

First, we’ll work to enhance your experience as owners. Our overriding goal is to make CHS your first choice, your partner for the inputs you buy, the products you sell, the services you need. We know that’s true for some businesses now. We aspire to be your first choice for all your business needs.

 

We deepened our relationships with you in 2018 — and we will continue to connect, to listen and to respond. We need to go to the next level. That means we must develop an agile and sustainable technology platform that connects all of us on your terms. We know this isn’t a simple challenge. We need to put the right technology at your fingertips. The right solutions will help deliver even more value through the knowledgeable, trusted people that set foot on your farm

 

10


 

and your local cooperative. They are the backbone of the cooperative system.

 

We’re off to a good start with the Agellum platform. Technology that helps you and your CHS agronomist make the best and most profitable business decisions for your farm. We’ll continue to leverage information to put the best decisions in your hands through technology.

 

Will we master this in 2019? No. Technology is an ever-evolving journey, but we will make solid progress on our commitment to be your first choice.

 

Our second priority is enterprise and business growth. This is about extending our 2018 direction for our core businesses to leverage our robust and efficient supply chain and earn market share on both ends.

 

Our core businesses, many of which we’ve been in for decades, must evolve to capitalize on changing market dynamics. We’ve had solid

 

11


 

formulas for success. But we recognize — especially given the global nature of our businesses and speed of technology — that what works today may not tomorrow. There’s no better evidence of this than the trade issues.

 

Even in a stressed marketplace, our future lies not with just hunkering down or maintaining a static business portfolio. We must stay attuned to the right opportunities and pursue them. Opportunities that deliver value for you and maintain our strong financial foundation. Together, we’ll find ways to work with our cooperative members to grow this system’s energy, grain and agronomy businesses.

 

As we go forward, we’ll maximize the deep and successful supply chains in our core businesses to transform your company. That means we must have the right places to store energy, fertilizer and grain and then be able to move it where it’s needed, when it’s needed. Doing this doesn’t mean CHS always needs to own the assets. When we sold our Council Bluffs, Iowa, refined fuels terminal and pipeline this year, we put a long-term supply agreement in place to be able to use it when we need to and as we have.

 

12


 

Our future includes a commitment to our global grain platform. There have been challenges. But we know these operations are essential to your business and ours.

 

And we’re committed to maximizing the value of our agronomy investments, including fertilizer manufacturing and our crop protection products partnership.

 

A big part of our future, however, is how we operate. We must continue to strengthen relationships between CHS businesses and with our internal functions. We need to streamline to create processes that are easier to use, more efficient and more cost-effective — and it’s one important way we can deliver a complete experience that makes CHS your first choice.

 

There are many companies that do pieces of what CHS does and do them well. But I truly believe no company can create the tremendous power that comes through integrating every link of the chain the way CHS and local cooperatives can. This, I believe, is our greatest

 

13


 

opportunity to add value, to be your first choice and to focus on future possibilities.

 

It’s not just something we can do. It’s what we must do. We know our competitors want our market share and our business. If we don’t act, we can expect them to pursue this cooperative system’s customers at all levels.

 

Finally, our third priority for 2019 is to get our most important resource ready to lead us into the future — your future. We are preparing today’s CHS employees to be high-performing and passionate team members, ready and able to lead in a dynamic business environment. We must invest to give these women and men the tools to move to the next levels of their professions and enhance their leadership skills.

 

Our future depends on innovative people with a variety of perspectives. Chairman Schurr talked about the need for diverse thinking among cooperative leaders. The same holds true for our employee team. We must be deliberate in recruiting, retaining and

 

14


 

developing individuals who represent the full diversity of our world and bring ideas and perspectives that will help us do better.

 

Eighteen months ago, I became president and CEO of CHS.  A year ago, I addressed you here in this new role for the first time.

 

As I look back on the last year and a half, I’m proud to be associated with a tremendous team that includes all of you and our 10,545 CHS employees, some of whom are in this room and many others who are working for you across the country and around the world. Working with common goals in mind. Working to build lives and livelihoods for their families. Working to help our farmer-owners and local cooperatives grow and feed people around the world.

 

Being part of the cooperative system reminds us each day that we’re stronger and better when we work together. So it’s fitting that we’re now calling our corporate giving activities “CHS Better Together.” We are focusing on health and safety in rural America and providing matching grants to co-ops for local projects. This builds on our

 

15


 

strong, long-standing culture of service. In the video right after my remarks, you’ll see a few of the great projects we’ve supported.

 

At member meetings, and in other communication last year, I told you CHS is a big ship to turn. But it can and is being done. As William Ward, an American writer, said: “A pessimist complains about the wind. The optimist expects it to change. The realist adjusts the sails.”

 

We are realists. We have adjusted our sails. The year ahead will challenge us as we navigate the global ag environment, trade issues and events we can’t anticipate. We will continue to adjust our sails to stay on course and we are confident we will succeed.

 

Why are we confident? Because we are focused on what it will take to make CHS stronger for you today and for all the days to come. And, most of all, because we are relentlessly focused on a challenge that must never end. The challenge of earning the privilege of being your first choice every day.

 

Thank you.

 

16


Exhibit 99.2

[LOGO]

GRAPHIC

 

Jay Debertin President & CEO 2

GRAPHIC

 

CONFIDENCE 3

GRAPHIC

 

4

GRAPHIC

 

5

GRAPHIC

 

6

GRAPHIC

 

7

GRAPHIC

 

8

GRAPHIC

 

9

GRAPHIC

 

10

GRAPHIC

 

11

GRAPHIC

 

12

GRAPHIC

 

13

GRAPHIC

 

14

GRAPHIC

 

15 LONG-TERM FOCUS

GRAPHIC

 

16

GRAPHIC

 

17

GRAPHIC

 

18

GRAPHIC

 

2018 Priorities: Strengthen and Grow Strengthen Relationships Sharpen Operational Excellence RESTORE Financial Flexibility

GRAPHIC

 

20 ENERGY AGRONOMY GLOBAL GRAIN PROCESSING

GRAPHIC

 

21

GRAPHIC

 

22

GRAPHIC

 

23

GRAPHIC

 

24

GRAPHIC

 

25

GRAPHIC

 

26 PLEASURE AND RESPONSIBILITY OF FARMING FEEDING THE WORLD INSPIRES US WORTHWHILE ENDEAVOR.

GRAPHIC

 

[LOGO]

GRAPHIC

 

[LOGO]

GRAPHIC

 

29

GRAPHIC

 

30

GRAPHIC

 

31

GRAPHIC

 

DPAD TAX DEDUCTION 32

GRAPHIC

 

33

GRAPHIC

 

TRADE AND TARIFFS 34

GRAPHIC

 

35

GRAPHIC

 

36

GRAPHIC

 

37

GRAPHIC

 

38

GRAPHIC

 

39

GRAPHIC

 

40

GRAPHIC

 

41

GRAPHIC

 

42 WHAT’S AHEAD?

GRAPHIC

 

43

GRAPHIC

 

44

GRAPHIC

 

© 2018 CHS Inc. 45 2019 Priorities: Transforming for Success ENHANCE OWNER EXPERIENCE EQUIP OUR EMPLOYEES GROW ENTERPRISE BUSINESS

GRAPHIC

 

[LOGO]

GRAPHIC

 

[LOGO]

GRAPHIC

 

[LOGO]

GRAPHIC

 

49

GRAPHIC

 

50

GRAPHIC

 

51

GRAPHIC

 

52

GRAPHIC

 

53

GRAPHIC

 

54

GRAPHIC

 

55

GRAPHIC

 

[LOGO]

GRAPHIC

 

57

GRAPHIC

 

58

GRAPHIC

 

59 2019 Priorities: Transforming for Success ENHANCE OWNER EXPERIENCE EQUIP OUR EMPLOYEES GROW ENTERPRISE BUSINESS

GRAPHIC

 

60

GRAPHIC

 

© 2018 CHS Inc. Internal 61

GRAPHIC

 

62

GRAPHIC

 

63

GRAPHIC

 

64

GRAPHIC

 

Refining and Processing Global Market Access Infrastructure Production 65 CHS Supply Chain

GRAPHIC

 

66

GRAPHIC

 

67

GRAPHIC

 

68

GRAPHIC

 

69

GRAPHIC

 

70

GRAPHIC

 

71

GRAPHIC

 

72

GRAPHIC

 

73

GRAPHIC

 

74

GRAPHIC

 

75

GRAPHIC

 

76

GRAPHIC

 

77

GRAPHIC

 

ADD VALUE 78

GRAPHIC

 

YOUR FIRST CHOICE 79

GRAPHIC

 

FOCUSED ON THE FUTURE 80

GRAPHIC

 

© 2018 CHS Inc. 81 2019 Priorities: Transforming for Success ENHANCE OWNER EXPERIENCE EQUIP OUR EMPLOYEES GROW ENTERPRISE BUSINESS

GRAPHIC

 

82

GRAPHIC

 

83

GRAPHIC

 

84

GRAPHIC

 

85

GRAPHIC

 

86

GRAPHIC

 

87

GRAPHIC

 

88

GRAPHIC

 

89

GRAPHIC

 

90

GRAPHIC

 

91

GRAPHIC

 

92 PHOTOS - Being part of the cooperative system reminds us each day that we’re stronger and better when we work together

GRAPHIC

 

CHS BETTER TOGETHER 93

GRAPHIC

 

94

GRAPHIC

 

95

GRAPHIC

 

[LOGO]

GRAPHIC

 

Exhibit 99.3

 

Good morning.

 

Thank you for the honor of sharing your company’s financial story for the sixth time as your CFO. While fiscal 2018 involved grappling with significant challenges, ultimately the CHS narrative is quite positive. It’s a story of focus, of working together to restore your company’s balance sheet strength and financial flexibility, and of creating an even stronger foundation for growth.

 

Throughout fiscal 2018, I found two time-tested sources of inspiration that motivated me as we worked to move CHS forward.

 

The first inspiration came from all of you, our member-owners, and your strong commitment to this company and its future. As I visited with you this year during owner events and in informal settings, your personal vision, focus and drive for success were humbling and motivating.

 

My second source of inspiration was a well-worn favorite book.

 

1


 

Like many of you, I’m a reader of business books. The choices are endless. More than 1,000 are published each month. A few become best sellers. A rare few become classics. I believe those classics offer crystal-clear focus and advice that stands the test of time.

 

Jim Collins’ iconic Good to Great is such a book. Published in 2001, Forbes magazine still ranks it among the top five best leadership books ever. Good to Great is a go-to reference that provides time-tested principles from which to build and sustain a great company. Its tenets are simple and rooted in common sense. I’ve referred to them so many times over my career that my copy is faded and bookmarked. I’ve even made this personal CliffsNotes version for easy reference.

 

This book is a useful guide and a solid reference. Over the last year, I’ve reflected on how a refocused CHS is on its own journey from good to great.

 

Why?

 

In his book, Collins reminds us that to change, you must first “confront the brutal facts.” Collins words are strong. And, it’s not

 

2


 

easy to look challenge straight in the eye.  But to successfully emerge from adversity, we must look each other straight in the eye, articulate the challenge and then get on with actions that will set us on the road to good and, ultimately, great.

 

Without question, CHS did look challenge straight in the eye in fiscal 2018. We did it with disciplined people, with disciplined thought, and with disciplined actions. We established and delivered on our priorities. As you will see in our financials, we ARE stronger today. We were good in the past and, with discipline and focus, we WILL become great.

 

That does not mean our challenges are completely behind us.  As you know we are addressing one right now. But in keeping with our commitment to you, and using Collins’ words, we will confront the brutal facts, and we will take appropriate action.

 

Fiscal 2018 has ended and we are now one quarter and seven days into fiscal 2019. While the calendar page has turned, we remain focused on strength and growth in an operating environment that will continue to provide challenges for the foreseeable future.

 

3


 

At the same time, let’s acknowledge what we achieved together in fiscal 2018. You’ve already heard the Board’s perspective from Chairman Schurr. Following my report, Jay will share the big picture.

 

Let’s focus on our financial resilience.

 

A year ago, we confronted the challenges of our situation. We were candid with you. And, we laid out our priorities and a roadmap to restore financial flexibility.

 

First, we committed to strengthen our relationships with you, as well as with CHS employees and others who are important to our success, including our bankers, many who are here today. Second, we committed to sharpen the company’s operational excellence. And third, we committed to restore balance sheet strength, so we could move forward and grow.

 

I hope you agree that our relationships with you, our owners, and with other important stakeholders are stronger.

 

4


 

Our operational excellence has improved, not only within Finance, but through improved collaboration across CHS. We are continuously improving.

 

I want to reflect on the third 2018 priority — restoring financial flexibility.

 

Working together, we’ve made noteworthy progress, especially around balance sheet strength and liquidity. I extend my heartfelt thanks to our employee teams who did the hard work, and to our financial partners who stood with us. Our teams focused, prioritized and took on the challenge, even when it wasn’t easy.

 

Together, we kept CHS financially sound, made it stronger and we are moving forward.

 

The proof is in the scorecard you see here:

 

·                  Our goal was to generate $500 million to optimize our debt levels; we achieved $512 million.

 

5


 

·                  We significantly improved our debt-to-cash flow ratio, staying well below our lending covenant and getting under our internal guardrail by fiscal year end.

 

·                  We held controllable operating expenses flat for the third year in a row.

 

·                  We improved our working capital by more than $600 million.

 

·                  We prioritized and constrained capital expenditures, while ensuring safe working conditions and well-maintained assets.

 

·                  And we optimized our portfolio — selling or closing certain assets, helping us to restore financial flexibility.

 

That’s a list of accomplishments, but what’s most important is what it means for you as owners. Restored financial flexibility and a strong balance sheet matter. A strong financial foundation enables CHS to invest, grow and reward you for doing business with the company you own.

 

We still have work to do.  As you know, we are dealing with the reality of recently discovered intentional misstatements in our financial results. In late October, we filed an 8-K with the Securities and Exchange Commission regarding our need to restate financials to

 

6


 

correct for material misstatements related to the valuation and technical accounting for rail and other freight contracts.

 

This restatement was necessary due to a former employee’s misconduct. Specifically, this individual intentionally misstated both the quantities and the values that were used when marking rail freight positions to market. Unfortunately, this misconduct went on for several years and our internal controls didn’t prevent or detect the misstatements.  Clearly this is unacceptable. So, once again we are staring challenge straight in the eye and we are taking the appropriate actions.  The investigation has been completed, the  disciplinary actions have been taken and our internal controls remediation work has begun.

 

I want to assure you that the investigation did not uncover any cash loss to CHS. It is true however that historic earnings in Grain Marketing were overstated.  As required by the accounting rules, all overstated values have been written off and are reflected in our restated financial results, which we filed on Form 10-K with the SEC on December 3rd.  Additionally, we are addressing the material weaknesses in our internal control environment by actively planning

 

7


 

for and implementing both near-term and longer-term remediation action plans.

 

Despite the material nature of these accounting misstatements, the  CHS balance sheet and financial foundation remain strong.

 

Now, let’s look at our significantly improved fiscal 2018 financial performance.

 

I can summarize the fiscal 2018 financials with two comments. First, it was a much better year than last year. Second, while it wasn’t an easy year, given the ongoing economic challenges, we are fortunate to have a diverse business portfolio, which helps mitigate the volatility of the cycles in agriculture and energy.

 

For fiscal 2018, net sales were $33 billion that’s slightly more than the $32 billion recorded last year.

 

Net income for fiscal 2018 was $776 million, an increase of $704 million over the $72 million we reported last fiscal year. Some may say that the earnings improvements were driven by specific events

 

8


 

including asset sales. Here are the facts, on an apples-to-apples basis. Stripping out all the specific events in fiscal 2018 and 2017, base business pre-tax earnings were up $158 million, or nearly 45% — that’s a tremendous accomplishment and a testament to the contributions of everyone on the CHS team.

 

There were numerous bright spots in fiscal 2018.

 

Energy had a great year with pre-tax earnings of $452 million, up significantly from $61 million in fiscal 2017. Higher refining margins played a significant role. We also had one-time gains as a result of the sale of our Pacific Northwest Zip Trip stores and the Council Bluffs, Iowa, refined fuels pipeline and terminal.

 

The global grain and fertilizer markets continued to challenge our Ag segment in fiscal 2018. Despite these challenges, we saw improvement over fiscal 2017, largely due to lapping the negative specific events of last year.

 

For fiscal 2018, Ag pretax income was $74 million, compared with a loss of $270 million for 2017. Lower margins across many of our Ag

 

9


 

segment businesses were due to lower demand and tariff-related uncertainties. We did, however, experience increased margins in oilseed processing.

 

While we are not yet achieving the returns we’d projected at the time of our investment in CF Nitrogen, we saw some good improvement in fiscal 2018. This improvement was driven by higher prices for urea and UAN. Before-tax income in our Nitrogen Production segment was $39 million for fiscal 2018, compared with $30 million for fiscal 2017.

 

Finally, our Corporate and Other earnings increased to $106 million for fiscal 2018, compared with $69 million in 2017, primarily due to the sale of CHS Insurance. Earnings from our two food-related joint ventures — Ventura Foods and Ardent Mills — were lower in 2018.

 

In summary, here’s the full picture of fiscal 2018 earnings. Thank you to everyone whose focus made these greatly improved results possible and to our owners and customers for their business.

 

Here’s another Good to Great message that really resonates with me: It’s the message that successful teams work together, but don’t

 

10


 

always agree on everything. Great teams debate vigorously and seek the best decisions, regardless of self-interest. We call this collaboration. Without question, we collaborated in fiscal 2018 as we made tough financial decisions around monetizing assets and equity management.

 

Let’s review equity management now. As you’ll recall, the CHS Board made tough equity management decisions last year. Essentially, CHS did not return any cash to the country in fiscal 2018. The Board allocated $10 million to be used only for redemption of individual estates. The Board’s equity management decisions for fiscal 2018 helped to restore balance sheet strength and financial flexibility.

 

Due to our strengthened financial position, the Board determined in September that in fiscal 2019, CHS will distribute $150 million in cash to owners: $75 million in cash patronage and $75 million in equity redemptions. Additionally, we are holding back 10% of patronage sourced earnings to build balance sheet strength.

 

Here are a few key wholesale patronage rates.  In fuels, refined fuels total patronage will be 9.2 cents per gallon and premium diesel will be

 

11


 

11.6 cents per gallon.  In agronomy, bulk fertilizer total patronage will be $8.58 per ton and specialty fertilizer will be $16.01 per ton.

 

Let’s review how the $75 million in equity redemptions will be distributed between individuals and associations. We’ll cover individuals first.  We will redeem $35 million of individual member equity in fiscal 2019, in two ways.  In the first quarter of fiscal 2019, we redeemed all age 70 producer retirements that were received but not paid in fiscal 2018. We’ll redeem producer estates and age 70 retirements as they are incurred this fiscal year, up to that $35 million amount.

 

Now let’s cover associations. We will redeem $30 million of qualified equity earned in fiscal 2006 on an age-of-equity basis, and we will redeem $10 million in non-qualified equity certificates held by associations that we issued for fiscal 2017.

 

As we announced earlier this fall, we will pass through $150 million from Section 199A DPAD to eligible member-owners later this month.

 

12


 

Determining how to best distribute the $150 million in cash for equity management was not easy. I want to offer my sincere thanks to the CHS Board Capital Committee. Their equity management decisions exemplify our annual meeting theme, “Focused.” Your Capital Committee demonstrated strong leadership as they conducted many thoughtful, deliberate discussions while making this year’s equity management decisions, keeping both short- and long-term goals in mind.

 

Looking forward, future equity management decisions will continue to be made in the context of the overall best interests of this cooperative and our long-term balance sheet strength.  We know that we must balance returning cash to the country today with building a strong balance sheet that enables our CHS strategies for the long haul.

 

So, what will fiscal 2019 look like?

 

The ag economy remains challenging and we expect it to stay that way for the foreseeable future. Given that, the fiscal 2019 budget remains appropriately conservative. We’re heading in the right direction and we are returning to growth.

 

13


 

We remain confident, cautiously optimistic and ready for the challenges.

 

We are starting to align our work along business processes creating Centers of Excellence, as we call them. We intend for these to become well-controlled best practices, in areas like credit and our financial back office. Ultimately, these will make it easier for you to do business with CHS.

 

Our financial objectives this year are straightforward: increase earnings, increase cash flow and generate returns above the cost of capital. When we consider growth opportunities, we must continue to exercise discipline, prudence and scrutiny. Our aim is to deliver growth and create economic value for the CHS cooperative system.

 

I am realistic and pragmatic. I am also optimistic. I want to leave you with three reasons why we can and we will succeed.

 

First, we are FOCUSED. We know who we are: a cooperative system that empowers American agriculture. As an owner, I know you care

 

14


 

deeply. CHS is not a spectator sport for you. You own us, you govern us, and you directly benefit from what we achieve together.

 

Second, we are REALISTS. We have challenges ahead, but CHS is a company that has always been here for the long haul.

 

Finally, and most important, we have FINANCIAL FLEXIBILITY. We’re making good progress. We met or exceeded each of the financial priorities we set a year ago.  And, we’ve got momentum.

 

As Jim Collins said in Good to Great, being great means you care so much about something you want to make it the best it can possibly be. Not for personal reward, but because of what it stands for.

 

Together we’re on the path to create a great CHS, becoming better each day, one action at a time. Thank you for your engagement, your commitment and, most of all, for your business. I’m looking forward to the challenges ahead. CHS is on the road from good to great!

 

15


Exhibit 99.4

[LOGO]

GRAPHIC

 

Tim Skidmore Chief Financial Officer 2

GRAPHIC

 

3

GRAPHIC

 

4

GRAPHIC

 

5

GRAPHIC

 

6

GRAPHIC

 

7

GRAPHIC

 

8

GRAPHIC

 

“CONFRONT THE BRUTAL FACTS” 9 “Good To Great”, Jim Collins

GRAPHIC

 

10

GRAPHIC

 

11

GRAPHIC

 

12

GRAPHIC

 

13

GRAPHIC

 

[LOGO]

GRAPHIC

 

15

GRAPHIC

 

16

GRAPHIC

 

17

GRAPHIC

 

2018 Priorities: Strengthen and Grow Strengthen Relationships Sharpen Operational Excellence RESTORE Financial Flexibility

GRAPHIC

 

19

GRAPHIC

 

20

GRAPHIC

 

21

GRAPHIC

 

22

GRAPHIC

 

IMPROVED WORKING CAPITAL OPTIMIZED PORTFOLIO PRIORITIZED CAPITAL EXPENDITURES OPTIMIZED DEBT $512 MILLION HELD EXPENSES FLAT IMPROVED DEBT TO CASH FLOW 23

GRAPHIC

 

24

GRAPHIC

 

[LOGO]

GRAPHIC

 

Net Sales ($ in billions)

GRAPHIC

 

Net Income ($ in millions)

GRAPHIC

 

Base Business Pre-tax Earnings ($ in millions)

GRAPHIC

 

ENERGY 29 Fiscal Year-to-Date Sept 1 – Aug. 31 (in $ millions) Energy Ag Nitrogen Production Corporate and Other Income before income taxes Income tax expense (benefit) Net Income (loss) Net Income attributable to non-controlling interest Net Income (loss) attributable to CHS Inc. (As restated) 2018 2017 $ 452.1 74.3 38.8 106.0 671.2 (104.1) $ 775.3 (0.6) $ 775.9 $ 61.1 (270.1) 29.8 69.1 (110.1) (181.1) $ 71.0 (0.6) $ 71.6 CHS Earnings for Fiscal 2018

GRAPHIC

 

AG 30 CHS Earnings for Fiscal 2018 Fiscal Year-to-Date Sept 1 – Aug. 31 (in $ millions) Energy Ag Nitrogen Production Corporate and Other Income before income taxes Income tax expense (benefit) Net Income (loss) Net Income attributable to non-controlling interest Net Income (loss) attributable to CHS Inc. (As restated) 2018 2017 $ 452.1 74.3 38.8 106.0 671.2 (104.1) $ 775.3 (0.6) $ 775.9 $ 61.1 (270.1) 29.8 69.1 (110.1) (181.1) $ 71.0 (0.6) $ 71.6

GRAPHIC

 

NITROGEN PRODUCTION 31 CHS Earnings for Fiscal 2018 Fiscal Year-to-Date Sept 1 – Aug. 31 (in $ millions) Energy Ag Nitrogen Production Corporate and Other Income before income taxes Income tax expense (benefit) Net Income (loss) Net Income attributable to non-controlling interest Net Income (loss) attributable to CHS Inc. (As restated) 2018 2017 $ 452.1 74.3 38.8 106.0 671.2 (104.1) $ 775.3 (0.6) $ 775.9 $ 61.1 (270.1) 29.8 69.1 (110.1) (181.1) $ 71.0 (0.6) $ 71.6

GRAPHIC

 

CORPORATE AND OTHER 32 CHS Earnings for Fiscal 2018 Fiscal Year-to-Date Sept 1 – Aug. 31 (in $ millions) Energy Ag Nitrogen Production Corporate and Other Income before income taxes Income tax expense (benefit) Net Income (loss) Net Income attributable to non-controlling interest Net Income (loss) attributable to CHS Inc. (As restated) 2018 2017 $ 452.1 74.3 38.8 106.0 671.2 (104.1) $ 775.3 (0.6) $ 775.9 $ 61.1 (270.1) 29.8 69.1 (110.1) (181.1) $ 71.0 (0.6) $ 71.6

GRAPHIC

 

CHS Earnings for Fiscal 2018 Fiscal Year-to-Date Sept 1 – Aug. 31 (in $ millions) Energy Ag Nitrogen Production Corporate and Other Income before income taxes Income tax expense (benefit) Net Income (loss) Net Income attributable to non-controlling interest Net Income (loss) attributable to CHS Inc. (As restated) 2018 2017 $ 452.1 74.3 38.8 106.0 671.2 (104.1) $ 775.3 (0.6) $ 775.9 $ 61.1 (270.1) 29.8 69.1 (110.1) (181.1) $ 71.0 (0.6) $ 71.6

GRAPHIC

 

34

GRAPHIC

 

$150 Million CASH $75 Million Patronage 10% to Unallocated Reserve $75 Million Equity

GRAPHIC

 

PATRONAGE RATES 36 Bushels spring wheat soybeans corn none none none Gallons refined fuels premium diesel 1.7¢ 2.1¢ Cash 9.2¢ 11.6¢ Total bulk fertilizer specialty $1.53 Tons $2.86 Cash $8.58 Total $16.01 This Bushels copy is out

GRAPHIC

 

$75 Million EQUITY REDEMPTIONS 37

GRAPHIC

 

$75 Million Equity Redemptions 38 $35 Million Individuals $40 Million Associations Fiscal 2018 Age 70 Retirements Fiscal 2019 Estates & Age 70 Retirements Fiscal 2006 Earned Qualified Equity Fiscal 2017 Non-qualified Equity

GRAPHIC

 

39 $150 Million DPAD

GRAPHIC

 

[LOGO]

GRAPHIC

 

[LOGO]

GRAPHIC

 

WHAT’S AHEAD? 42

GRAPHIC

 

[LOGO]

GRAPHIC

 

44

GRAPHIC

 

45

GRAPHIC

 

46

GRAPHIC

 

47

GRAPHIC

 

FOCUSED 48 We are a cooperative, we are here to serve our owners

GRAPHIC

 

REALISTS 49 We have work to do, but CHS is here for the long haul

GRAPHIC

 

FINANCIAL FLEXIBLITY 50 We met our goals We have momentum We intend to sustain it

GRAPHIC

 

51

GRAPHIC

 

[LOGO]

GRAPHIC