chscp-20201130

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☑	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended	November 30, 2020
or
☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission file number: 001-36079

CHS Inc.

(Exact name of Registrant as specified in its charter)

Minnesota

41-0251095

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

5500 Cenex Drive

Inver Grove Heights,

Minnesota

55077

(Address of principal executive offices, including zip code)

(651)

355-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
8% Cumulative Redeemable Preferred Stock	CHSCP	The Nasdaq Stock Market LLC
Class B Cumulative Redeemable Preferred Stock, Series 1	CHSCO	The Nasdaq Stock Market LLC
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2	CHSCN	The Nasdaq Stock Market LLC
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3	CHSCM	The Nasdaq Stock Market LLC
Class B Cumulative Redeemable Preferred Stock, Series 4	CHSCL	The Nasdaq Stock Market LLC

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 ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer

☑

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

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

The issuer has no common stock outstanding.

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	PART I. FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of November 30, 2020, and August 31, 2020	2
	Condensed Consolidated Statements of Operations for the three months ended November 30 , 2020 and 2019	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended November 30 , 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the three months ended November 30 , 2020 and 2019	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
	PART II. OTHER INFORMATION	42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 6.	Exhibits	42
S ignatures		43

Unless the context otherwise requires, for purposes of this Quarterly Report on Form 10-Q, the words "CHS," "we," "us" and "our" refer to CHS Inc., a Minnesota cooperative corporation, and its subsidiaries as of November 30, 2020.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains and our other publicly available documents may contain, and our officers, directors and other representatives may from time to time make "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our businesses, financial condition and results of operations, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed or identified in our public filings made with the U.S. Securities and Exchange Commission, including in the "Risk Factors" discussion in Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2020. Any forward-looking statements made by us in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date on which the statement is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	November 30, 2020		August 31, 2020
	(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	143,497	$	140,874
Receivables	2,804,306		2,366,047
Inventories	3,717,833		2,742,138
Other current assets	1,678,327		1,017,488
Total current assets	8,343,963		6,266,547
Investments	3,666,474		3,630,033
Property, plant and equipment	4,903,212		4,957,938
Other assets	1,117,301		1,139,429
Total assets	$	18,030,950	$	15,993,947
LIABILITIES AND EQUITIES
Current liabilities:
Notes payable	$	2,039,083	$	1,575,491
Current portion of long-term debt	168,376		189,287
Accounts payable	2,594,543		1,724,516
Accrued expenses	391,739		501,904
Other current liabilities	1,411,872		928,843
Total current liabilities	6,605,613		4,920,041
Long-term debt	1,973,360		1,601,836
Other liabilities	666,121		652,897
Commitments and contingencies (Note 13)
Equities:
Preferred stock	2,264,038		2,264,038
Equity certificates	5,151,408		5,161,610
Accumulated other comprehensive loss	(225,007)		(233,924)
Capital reserves	1,586,382		1,618,147
Total CHS Inc. equities	8,776,821		8,809,871
Noncontrolling interests	9,035		9,302
Total equities	8,785,856		8,819,173
Total liabilities and equities	$	18,030,950	$	15,993,947

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

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CHS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended November 30,
	2020		2019
	(Dollars in thousands)
Revenues	$	8,715,643	$	7,621,485
Cost of goods sold	8,537,539		7,295,942
Gross profit	178,104		325,543
Marketing, general and administrative expenses	170,661		168,331
Operating earnings	7,443		157,212

Interest expense	25,050		34,971
Other income	(12,624)		(13,498)
Equity income from investments	(50,023)		(49,662)
Income before income taxes	45,040		185,401
Income tax (benefit) expense	(24,329)		6,664
Net income	69,369		178,737
Net (loss) income attributable to noncontrolling interests	(302)		855
Net income attributable to CHS Inc.	$	69,671	$	177,882

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

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CHS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended November 30,
	2020		2019
	(Dollars in thousands)
Net income	$	69,369	$	178,737
Other comprehensive income (loss), net of tax:
Pension and other postretirement benefits	3,645		5,073

Cash flow hedges	1,669		(5,872)
Foreign currency translation adjustment	3,603		(839)
Other comprehensive income (loss), net of tax	8,917		(1,638)
Comprehensive income	78,286		177,099
Comprehensive (loss) income attributable to noncontrolling interests	(302)		855
Comprehensive income attributable to CHS Inc.	$	78,588	$	176,244

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

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CHS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended November 30,
	2020		2019
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	69,369	$	178,737
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization, including amortization of deferred major maintenance	134,692		136,643
Equity income from investments, net of distributions received	(40,842)		(30,468)
Provision for doubtful accounts	1,564		1,775
Deferred taxes	477		(3,579)
Other, net	(5,263)		8,341
Changes in operating assets and liabilities:
Receivables	(430,234)		108,495
Inventories	(967,637)		(514,580)
Accounts payable and accrued expenses	773,776		386,021
Other, net	(209,355)		(110,684)
Net cash (used in) provided by operating activities	(673,453)		160,701
Cash flows from investing activities:
Acquisition of property, plant and equipment	(85,680)		(131,808)
Proceeds from disposition of property, plant and equipment	3,350		3,015
Expenditures for major maintenance	(6,313)		(7,691)
Proceeds from sale of business	42,585		—
Changes in CHS Capital notes receivable, net	(79,045)		15,195
Financing extended to customers	(617)		(915)
Payments from customer financing	3,875		4,209

Other investing activities, net	7,534		3,046
Net cash used in investing activities	(114,311)		(114,949)
Cash flows from financing activities:
Proceeds from notes payable and long-term debt	6,620,876		5,414,395
Payments on notes payable, long-term debt and finance lease obligations	(5,752,925)		(5,445,420)
Preferred stock dividends paid	(42,167)		(42,167)
Redemptions of equities	(7,726)		(5,447)

Other financing activities, net	(9,167)		6,757
Net cash provided by (used in) financing activities	808,891		(71,882)
Effect of exchange rate changes on cash and cash equivalents	2,324		(1,153)
Increase (decrease) in cash and cash equivalents and restricted cash	23,451		(27,283)
Cash and cash equivalents and restricted cash at beginning of period	216,993		299,675
Cash and cash equivalents and restricted cash at end of period	$	240,444	$	272,392

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

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CHS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 Basis of Presentation and Significant Accounting Policies

Basis of Presentation

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full fiscal year because of the seasonal nature of our businesses, among other things. Our unaudited condensed consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2020, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC").

Significant Accounting Policies

The following significant accounting policy was updated or changed since our Annual Report on Form 10-K for the year ended August 31, 2020.

Receivables

As described in the "Recent Accounting Pronouncements" section, we adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses ("ASC Topic 326"): Measurement of Credit Losses on Financial Instruments, on September 1, 2020, using the modified retrospective approach. Our accounting policies with respect to ASC Topic 326 are included in Note 3, Receivables.

Recent Accounting Pronouncements

Except for the recent accounting pronouncement described below, other recent accounting pronouncements are not expected to have a material impact on our condensed consolidated financial statements.

Adopted

In June 2016, the Financial Accounting Standards Board issued ASC Topic 326. The amendments in this ASU introduce a new approach, based on expected losses, to estimate credit losses on certain types of financial instruments. This ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses associated with most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. Entities are required to apply the provisions of this ASU as a cumulative-effect adjustment to the opening balance of capital reserves as of the beginning of the first reporting period in which the guidance is adopted. As part of our adoption efforts, we performed various data-gathering activities, developed a credit losses model, performed data analyses and made accounting policy election determinations. The impact of adoption did not have a material impact on our condensed consolidated financial statements.

Not Yet Adopted

None.

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Note 2 Revenues

The following table presents revenues recognized under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), disaggregated by reportable segment, as well as the amount of revenues recognized under ASC Topic 815, Derivatives and Hedging ("ASC Topic 815"), and other applicable accounting guidance for the three months ended November 30, 2020 and 2019. Other applicable accounting guidance primarily includes revenues recognized under ASC Topic 842, Leases, and ASC Topic 470, Debt, that fall outside the scope of ASC Topic 606.


	ASC Topic 606		ASC Topic 815		Other Guidance		Total Revenues
Three Months Ended November 30, 2020	(Dollars in thousands)
Energy	$	1,064,963	$	192,884	$	—	$	1,257,847
Ag	1,344,508		6,087,241		13,653		7,445,402
Corporate and Other	6,460		—		5,934		12,394
Total revenues	$	2,415,931	$	6,280,125	$	19,587	$	8,715,643

Three Months Ended November 30, 2019
Energy	$	1,693,848	$	201,575	$	—	$	1,895,423
Ag	1,358,626		4,316,087		37,142		5,711,855
Corporate and Other	5,541		—		8,666		14,207
Total revenues	$	3,058,015	$	4,517,662	$	45,808	$	7,621,485

Less than 1% of revenues accounted for under ASC Topic 606 included within the table above are recorded over time; these revenues are primarily related to service contracts.

Contract Assets and Contract Liabilities

Contract assets relate to unbilled amounts arising from goods that have already been transferred to the customer where the right to payment is not conditional on the passage of time. This results in recognition of an asset, as the amount of revenue recognized at a certain point in time exceeds the amount billed to the customer. Contract assets are recorded in receivables within our Condensed Consolidated Balance Sheets and were not material as of November 30, 2020, or August 31, 2020.

Contract liabilities relate to advance payments from customers for goods and services that we have yet to provide. Contract liabilities of $183.9 million and $139.1 million as of November 30, 2020, and August 31, 2020, respectively, are recorded within other current liabilities on our Condensed Consolidated Balance Sheets. For the three months ended November 30, 2020 and 2019, we recognized revenues of $60.7 million and $92.0 million, respectively, which were included in the other current liabilities balance at the beginning of the respective periods.

Note 3 Receivables


	November 30, 2020		August 31, 2020
	(Dollars in thousands)
Trade accounts receivable	$	1,897,540	$	1,476,585
CHS Capital short-term notes receivable	586,037		563,934
Other	474,510		491,068
Gross receivables	2,958,087		2,531,587
Less: allowances and reserves	153,781		165,540
Total receivables	$	2,804,306	$	2,366,047

Receivables are composed of trade accounts receivable, short-term notes receivable in our wholly-owned subsidiary, CHS Capital, LLC ("CHS Capital"), and other receivables, less an allowance for expected credit losses. The allowance for expected credit losses is based on our best estimate of expected credit losses in existing accounts receivable balances and is determined using historical write-off experience, adjusted for various industry and regional data and current expectations of future credit losses.

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Notes receivable from commercial borrowers are collateralized by various combinations of mortgages, personal property, accounts and notes receivable, inventories and assignments of capital stock from certain regional cooperatives. These loans are originated in various states, primarily in the Upper Midwest region of the United States, the most significant of which include North Dakota and Minnesota. CHS Capital also has loans receivable from producer borrowers that are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable, personal property and supplemental mortgages and are originated primarily in the same states as the commercial notes.

In addition to the short-term balances included in the table above, CHS Capital had long-term notes receivable with durations of generally not more than 10 years, totaling $106.4 million and $101.5 million as of November 30, 2020, and August 31, 2020, respectively. Long-term notes receivable are included in other assets on our Condensed Consolidated Balance Sheets. As of November 30, 2020, and August 31, 2020, the commercial notes represented 47% and 33%, respectively, and the producer notes represented 53% and 67%, respectively, of total CHS Capital notes receivable.

CHS Capital has commitments to extend credit to customers if there are no violations of contractually established conditions. As of November 30, 2020, CHS Capital customers had additional available credit of $595.3 million. No significant troubled debt restructuring activity occurred and no third-party customer or borrower accounted for more than 10% of the total receivables balance as of November 30, 2020, or August 31, 2020.

Note 4 Inventories


	November 30, 2020		August 31, 2020
	(Dollars in thousands)
Grain and oilseed	$	1,975,810	$	1,064,079
Energy	715,199		696,858
Agronomy	851,127		822,535
Processed grain and oilseed	130,511		126,022
Other	45,186		32,644
Total inventories	$	3,717,833	$	2,742,138

As of November 30, 2020, and August 31, 2020, we valued approximately 12% and 16%, respectively, of inventories, primarily crude oil and refined fuels within our Energy segment, using the lower of cost, determined on the LIFO method, or net realizable value. If the FIFO method of accounting had been used, inventories would have been higher than the reported amount by $87.3 million and $93.5 million as of November 30, 2020, and August 31, 2020, respectively. Actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Interim LIFO calculations are based on management's estimates of expected year-end inventory levels and values and are subject to final year-end LIFO inventory valuation.

Note 5 Investments


	November 30, 2020		August 31, 2020
	(Dollars in thousands)
Equity method investments:
CF Industries Nitrogen, LLC	$	2,684,306	$	2,662,618
Ventura Foods, LLC	388,869		381,351
Ardent Mills, LLC	211,120		208,927

Other equity method investments	258,049		253,182
Other investments	124,130		123,955
Total investments	$	3,666,474	$	3,630,033

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Joint ventures and other investments, in which we have significant ownership and influence but not control, are accounted for in our condensed consolidated financial statements using the equity method of accounting. Our significant equity method investments consist of CF Industries Nitrogen, LLC ("CF Nitrogen"), Ventura Foods, LLC ("Ventura Foods"), Ardent Mills, LLC ("Ardent Mills") and TEMCO, LLC ("TEMCO"), which are summarized below. In addition to recognition of our share of income from equity method investments, our equity method investments are evaluated for indicators of other-than-temporary impairment on an ongoing basis in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Other investments consist primarily of investments in cooperatives without readily determinable fair values and are generally measured at cost, unless an impairment or other observable market price change occurs, requiring an adjustment. Approximately $424.4 million of cumulative undistributed earnings from our equity method investees are included in the investments balance as of November 30, 2020.

CF Nitrogen

We have an approximate $2.7 billion investment in CF Nitrogen, a strategic venture with CF Industries Holdings, Inc. ("CF Industries"). The investment consists of an approximate 10% membership interest (based on product tons) in CF Nitrogen. We account for this investment using the hypothetical liquidation at book value method, recognizing our share of the earnings and losses of CF Nitrogen as equity income from investments in our Nitrogen Production segment based on our contractual claims on the entity's net assets pursuant to the liquidation provisions of the CF Nitrogen Limited Liability Company Agreement, adjusted for the semi-annual cash distributions we receive as a result of our membership interest in CF Nitrogen.

The following table provides summarized unaudited financial information for our equity method investment in CF Nitrogen for the three months ended November 30, 2020 and 2019:


	Three Months Ended November 30,
	2020		2019

Net sales	$	606,340	$	649,638
Gross profit	94,068		149,573
Net earnings	81,173		140,490
Earnings attributable to CHS Inc.	21,688		34,834

Ventura Foods

We have a 50% interest in Ventura Foods, a joint venture with Mitsui & Co., that produces and distributes primarily vegetable-oil-based products. We account for Ventura Foods as an equity method investment, and our share of the results of this equity method investment are included in Corporate and Other.

The following table provides aggregate summarized unaudited financial information for our equity method investment in Ventura Foods for the three months ended November 30, 2020 and 2019:


	Three Months Ended November 30,
	2020		2019

Net sales	$	579,074	$	629,360
Gross profit	72,522		106,140
Net earnings	25,102		26,126
Earnings attributable to CHS Inc.	12,551		13,063

Ardent Mills and TEMCO

We have a 12% interest in Ardent Mills, which is a joint venture with Cargill Incorporated ("Cargill") and Conagra Brands, Inc., and is the largest flour miller in the United States. Additionally, we have a 50% interest in TEMCO, which is a joint venture with Cargill focused on exports, primarily to Asia. We account for Ardent Mills and TEMCO as equity method investments, and our shares of the results of these equity method investments are included in Corporate and Other and Ag segment, respectively.

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The following table provides aggregate summarized unaudited financial information for our equity method investments in Ardent Mills and TEMCO for the three months ended November 30, 2020 and 2019:


	Three Months Ended November 30,
	2020		2019

Net sales	$	2,795,940	$	1,587,493
Gross profit	131,904		97,570
Net earnings	64,554		35,451
Earnings attributable to CHS Inc.	12,627		(402)

Our investments in other equity method investees are not significant in relation to our condensed consolidated financial statements, either individually or in the aggregate.

Note 6 Notes Payable and Long-Term Debt

Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with our debt covenants as of November 30, 2020. The table below summarizes our notes payable as of November 30, 2020, and August 31, 2020.


	November 30, 2020		August 31, 2020
	(Dollars in thousands)
Notes payable	$	1,268,772	$	763,215
CHS Capital notes payable	770,311		812,276
Total notes payable	$	2,039,083	$	1,575,491

As of November 30, 2020, our primary line of credit was a five-year unsecured revolving credit facility with a syndicate of domestic and international banks. The credit facility provides a committed amount of $2.75 billion that expires on July 16, 2024. As of November 30, 2020, and August 31, 2020, the outstanding balance on this facility was $527.0 million and $345.0 million, respectively.

We have a receivables and loans securitization facility ("Securitization Facility") with certain unaffiliated financial institutions ("Purchasers"). Under the Securitization Facility, we and certain of our subsidiaries ("Originators") sell trade accounts and notes receivable ("Receivables") to Cofina Funding, LLC ("Cofina"), a wholly-owned bankruptcy-remote indirect subsidiary of CHS. Cofina in turn transfers the Receivables to the Purchasers, and this arrangement is accounted for as a secured borrowing. We use the proceeds from the sale of Receivables under the Securitization Facility for general corporate purposes and settlements are made on a monthly basis. The amount available under the Securitization Facility fluctuates over time based on the total amount of eligible Receivables generated during the normal course of business. As of November 30, 2020, total availability under the Securitization Facility was $456.0 million, all of which had been utilized.

We also have a repurchase facility ("Repurchase Facility") related to the Securitization Facility. Under the Repurchase Facility, we can borrow up to $150.0 million, collateralized by a subordinated note issued by Cofina in favor of the Originators and representing a portion of the outstanding balance of the Receivables sold by the Originators to Cofina under the Securitization Facility. As of November 30, 2020, and August 31, 2020, the outstanding balance under the Repurchase Facility was $150.0 million.

On September 24, 2020, the Securitization Facility and Repurchase Facility were amended, increasing the maximum availability under the Securitization Facility to $600.0 million from $500.0 million and extending their respective termination dates to July 30, 2021.

On August 14, 2020, we entered into a Note Purchase Agreement to borrow $375.0 million of debt in the form of notes. The notes under this Note Purchase Agreement are structured in four series with maturities ranging from 7 to 15 years and interest accruing at rates ranging from 3.24% to 3.73%, subject to certain adjustments depending on our ratio of consolidated funded debt to consolidated cash flow. The funding of these notes took place on November 2, 2020. This funding has and will be used to pay fiscal 2021 debt maturities, as well as manage liquidity.

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Interest expense for the three months ended November 30, 2020 and 2019, was $25.1 million and $35.0 million, respectively, net of capitalized interest of $2.1 million and $2.8 million, respectively.

Note 7 Income Taxes

Our effective tax rate for the three months ended November 30, 2020, was (54.0)%, compared to 3.6% for the three months ended November 30, 2019. The decreased effective tax rate reflects tax benefits resulting from changes in the mix of full-year projected earnings, including losses in business units and equity management assumptions allowing for a patronage deduction on profitable business units, as well as an anticipated intercompany transfer of assets resulting in a tax benefit.

Our uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. Reserves are recorded against unrecognized tax benefits when we believe certain fully supportable tax return positions are likely to be challenged and we may not prevail. If we were to prevail on all positions taken in relation to uncertain tax positions, $114.4 million and $111.3 million of the unrecognized tax benefits would ultimately benefit our effective tax rate as of November 30, 2020, and August 31, 2020, respectively. It is reasonably possible that the total amount of unrecognized tax benefits could significantly change in the next 12 months.

Note 8 Equities

Changes in Equities

Changes in equities for the three months ended November 30, 2020 and 2019, are as follows:


	Equity Certificates								Accumulated Other Comprehensive Loss
	Capital Equity Certificates		Nonpatronage Equity Certificates		Nonqualified Equity Certificates		Preferred Stock				Capital Reserves		Noncontrolling Interests		Total Equities
	(Dollars in thousands)
Balances, August 31, 2020	$	3,724,187	$	28,727	$	1,408,696	$	2,264,038	$	(233,924)	$	1,618,147	$	9,302	$	8,819,173
Reversal of prior year redemption estimates	7,726		—		—		—		—		—		—		7,726

Redemptions of equities	(6,539)		(31)		(1,156)		—		—		—		—		(7,726)
Preferred stock dividends	—		—		—		—		—		(84,334)		—		(84,334)
Other, net	(654)		(47)		(197)		—		—		(7,798)		35		(8,661)
Net income (loss)	—		—		—		—		—		69,671		(302)		69,369
Other comprehensive income, net of tax	—		—		—		—		8,917		—		—		8,917
Estimated 2021 cash patronage refunds	—		—		—		—		—		(9,304)		—		(9,304)
Estimated 2021 equity redemptions	(9,304)		—		—		—		—		—		—		(9,304)
Balances, November 30, 2020	$	3,715,416	$	28,649	$	1,407,343	$	2,264,038	$	(225,007)	$	1,586,382	$	9,035	$	8,785,856


	Equity Certificates								Accumulated Other Comprehensive Loss
	Capital Equity Certificates		Nonpatronage Equity Certificates		Nonqualified Equity Certificates		Preferred Stock				Capital Reserves		Noncontrolling Interests		Total Equities
	(Dollars in thousands)
Balances, August 31, 2019	$	3,753,493	$	29,074	$	1,206,310	$	2,264,038	$	(226,933)	$	1,584,158	$	7,390	$	8,617,530
Reversal of prior year redemption estimates	5,447		—		—		—		—		—		—		5,447
Redemptions of equities	(4,721)		(54)		(672)		—		—		—		—		(5,447)
Preferred stock dividends	—		—		—		—		—		(84,334)		—		(84,334)
ASC Topic 842 cumulative-effect adjustment	—		—		—		—		—		33,707		—		33,707
Other, net	(8)		—		(39)		—		—		(1,312)		410		(949)
Net income	—		—		—		—		—		177,882		855		178,737
Other comprehensive loss, net of tax	—		—		—		—		(1,638)		—		—		(1,638)
Estimated 2020 cash patronage refunds	—		—		—		—		—		(28,504)		—		(28,504)
Estimated 2020 equity redemptions	(91,633)		—		—		—		—		—		—		(91,633)
Balances, November 30, 2019	$	3,662,578	$	29,020	$	1,205,599	$	2,264,038	$	(228,571)	$	1,681,597	$	8,655	$	8,622,916

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Preferred Stock Dividends

The following is a summary of dividends per share by series of preferred stock for the three months ended November 30, 2020 and 2019. Due to the timing of dividend declarations during the first quarter of each fiscal year, the per share amount of dividends is comprised of two quarterly dividend declarations for each period.


		Three Months Ended November 30,
	Nasdaq symbol			2020		2019
Series of preferred stock:			(Dollars per share)
8% Cumulative Redeemable	CHSCP			$	1.00	$	1.00
Class B Cumulative Redeemable, Series 1	CHSCO			0.98		0.98
Class B Reset Rate Cumulative Redeemable, Series 2	CHSCN			0.88		0.88
Class B Reset Rate Cumulative Redeemable, Series 3	CHSCM			0.84		0.84
Class B Cumulative Redeemable, Series 4	CHSCL			0.94		0.94

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows for the three months ended November 30, 2020 and 2019:


	Pension and Other Postretirement Benefits		Cash Flow Hedges		Foreign Currency Translation Adjustment		Total
	(Dollars in thousands)
Balance as of August 31, 2020, net of tax	$	(159,680)	$	10,886	$	(85,130)	$	(233,924)
Other comprehensive income (loss), before tax:
Amounts before reclassifications	(125)		14,506		3,629		18,010
Amounts reclassified	4,977		(12,284)		—		(7,307)
Total other comprehensive income, before tax	4,852		2,222		3,629		10,703
Tax effect	(1,207)		(553)		(26)		(1,786)
Other comprehensive income, net of tax	3,645		1,669		3,603		8,917

Balance as of November 30, 2020, net of tax	$	(156,035)	$	12,555	$	(81,527)	$	(225,007)


	Pension and Other Postretirement Benefits		Cash Flow Hedges		Foreign Currency Translation Adjustment		Total
	(Dollars in thousands)
Balance as of August 31, 2019, net of tax	$	(172,478)	$	15,297	$	(69,752)	$	(226,933)
Other comprehensive income (loss), before tax:
Amounts before reclassifications	(85)		(3,331)		(2,411)		(5,827)
Amounts reclassified	4,977		(4,473)		—		504
Total other comprehensive income (loss), before tax	4,892		(7,804)		(2,411)		(5,323)
Tax effect	181		1,932		1,572		3,685
Other comprehensive income (loss), net of tax	5,073		(5,872)		(839)		(1,638)
Balance as of November 30, 2019, net of tax	$	(167,405)	$	9,425	$	(70,591)	$	(228,571)

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Amounts reclassified from accumulated other comprehensive income (loss) were related to pension and other postretirement benefits, cash flow hedges and foreign currency translation adjustments. Pension and other postretirement reclassifications include amortization of net actuarial loss, prior service credit and transition amounts and are recorded as cost of goods sold, marketing, general and administrative expenses, and other income (see Note 9, Benefit Plans, for further information). Gains or losses associated with cash flow hedges are recorded as cost of goods sold (see Note 11, Derivative Financial Instruments and Hedging Activities, for further information). Gains or losses on foreign currency translation reclassifications related to sales of businesses are recorded as other income.

Note 9 Benefit Plans

We have various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. We also have nonqualified supplemental executive and Board retirement plans.

Components of net periodic benefit costs for the three months ended November 30, 2020 and 2019, are as follows:


	Three Months Ended November 30,
	Qualified Pension Benefits				Nonqualified Pension Benefits				Other Benefits
	2020		2019		2020		2019		2020		2019
Components of net periodic benefit costs:	(Dollars in thousands)
Service cost	$	11,307	$	10,538	$	108	$	101	$	297	$	262
Interest cost	4,141		5,431		68		107		123		187
Expected return on assets	(10,910)		(11,671)		—		—		—		—
Prior service cost (credit) amortization	45		45		(28)		(28)		(111)		(111)
Actuarial loss (gain) amortization	5,447		5,396		53		25		(341)		(348)

Net periodic benefit cost (benefit)	$	10,030	$	9,739	$	201	$	205	$	(32)	$	(10)

The service cost component of defined benefit net periodic benefit cost is recorded in cost of goods sold and marketing, general and administrative expenses. The other components of net periodic benefit cost are recorded in other income.

Employer Contributions

Any contributions made during fiscal 2021 will depend primarily on market returns on the pension plan assets and minimum funding level requirements. No contributions were made to the pension plans during the three months ended November 30, 2020, and we do not currently anticipate being required to make contributions for our pension plans in fiscal 2021.

Note 10 Segment Reporting

We are an integrated agricultural enterprise, providing grain, foods and energy resources to businesses and consumers on a global basis. We provide a wide variety of products and services, from initial agricultural inputs such as fuels, farm supplies, crop nutrients and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products, and the production and marketing of ethanol. We define our operating segments in accordance with ASC Topic 280, Segment Reporting, to reflect the manner in which our chief operating decision-maker, our Chief Executive Officer, evaluates performance and allocates resources in managing our businesses. We have aggregated those operating segments into three reportable segments: Energy, Ag and Nitrogen Production.

Our Energy segment produces and provides primarily for the wholesale distribution of petroleum products and transportation of those products. Our Ag segment purchases and further processes or resells grains and oilseeds originated by our country operations business, by our member cooperatives and by third parties; serves as a wholesaler and retailer of crop inputs; and produces and markets ethanol. Our Nitrogen Production segment consists solely of our equity method investment in CF Nitrogen, which entitles us, pursuant to a supply agreement that we entered into with CF Nitrogen, to purchase up to a specified quantity of granular urea and urea ammonium nitrate annually from CF Nitrogen. Corporate and Other represents our financing and hedging businesses, which consists primarily of financial services related to crop production and a U.S.

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Commodity Futures Trading Commission-regulated futures commission merchant for commodities hedging. Our nonconsolidated investments in Ventura Foods and Ardent Mills are also included in our Corporate and Other category.

Corporate administrative expenses and interest are allocated to each reportable segment and Corporate and Other, based on direct use of services, such as information technology and legal, and other factors or considerations relevant to the costs incurred.

Many of our business activities are highly seasonal and operating results vary throughout the year. For example, in our Ag segment, our country operations business generally experiences higher volumes and income during the spring planting season and the fall harvest season, and our agronomy business generally experiences higher volumes and income during the spring planting season. Our global grain marketing operations are subject to fluctuations in volume and earnings based on producer harvests, world grain prices and demand. Our Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined products, in the summer and early fall when gasoline and diesel fuel usage is highest and is subject to global supply and demand forces. Other energy products, such as propane, may experience higher volumes and profitability during the winter heating and crop-drying seasons.

Our revenues, assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds, crop nutrients and flour. Changes in market prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Commodity prices are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability and adequacy of supply, availability of a reliable rail and river transportation network, outbreaks of disease, government regulations and policies, global trade disputes, and general political and economic conditions.

While our revenues and operating results are derived primarily from businesses and operations that are wholly-owned or subsidiaries and limited liability companies in which we have a controlling interest, a portion of our business operations are conducted through companies in which we hold ownership interests of 50% or less or do not control the operations. We account for these investments primarily using the equity method of accounting, wherein we record our proportionate share of income or loss reported by the entity as equity income from investments, without consolidation of the revenues and expenses of the entity in our Condensed Consolidated Statements of Operations. In our Nitrogen Production segment, this consists of our approximate 10% membership interest (based on product tons) in CF Nitrogen. In Corporate and Other, this principally includes our 50% ownership in Ventura Foods and our 12% ownership in Ardent Mills. See Note 5, Investments, for more information on these entities.

Reconciling amounts primarily represent the elimination of revenues between segments. Such transactions are executed at market prices to more accurately evaluate the profitability of individual business segments.

Segment information for the three months ended November 30, 2020 and 2019, is presented in the tables below.


	Energy		Ag		Nitrogen Production		Corporate and Other		Reconciling Amounts		Total
Three Months Ended November 30, 2020	(Dollars in thousands)
Revenues, including intersegment revenues	$	1,357,845	$	7,450,305	$	—	$	15,481	$	(107,988)	$	8,715,643
Intersegment revenues	(99,998)		(4,903)		—		(3,087)		107,988		—
Revenues, net of intersegment revenues	$	1,257,847	$	7,445,402	$	—	$	12,394	$	—	$	8,715,643
Operating earnings (loss)	(68,385)		75,524		(7,623)		7,927		—		7,443
Interest expense	(238)		14,505		11,163		1,138		(1,518)		25,050
Other income	(482)		(11,817)		(1,566)		(277)		1,518		(12,624)
Equity income from investments	(489)		(10,174)		(21,688)		(17,672)		—		(50,023)
Income (loss) before income taxes	$	(67,176)	$	83,010	$	4,468	$	24,738	$	—	$	45,040
Total assets as of November 30, 2020	$	4,318,529	$	8,299,580	$	2,699,869	$	2,712,972	$	—	$	18,030,950

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	Energy		Ag		Nitrogen Production		Corporate and Other		Reconciling Amounts		Total
Three Months Ended November 30, 2019	(Dollars in thousands)
Revenues, including intersegment revenues	$	2,027,895	$	5,715,994	$	—	$	15,950	$	(138,354)	$	7,621,485
Intersegment revenues	(132,472)		(4,139)		—		(1,743)		138,354		—
Revenues, net of intersegment revenues	$	1,895,423	$	5,711,855	$	—	$	14,207	$	—	$	7,621,485
Operating earnings (loss)	161,199		(417)		(7,823)		4,253		—		157,212
Interest expense	374		20,741		12,130		3,838		(2,112)		34,971
Other income	(964)