Chs Inc 10-Q for FY2023 Q2
Chs Inc (CHSCP)
10-Q
2023-04-05
For: 2023-02-28
View Original
Added on
April 09, 2026
About this 10-Q
Chs Inc filed this 10-Q on April 5, 2023, covering the quarter ended February 28, 2023 (FY2023 Q2).
Headline figures
Quarter ended February 28, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $11.31B
- up 9.4% from $10.33B a year earlier
- Net income
- $292.32M
- up 33.5% from net income of $219M a year earlier
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 | |||||||||||
| 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
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||
(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 | ||||||
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.
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).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the 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.
TABLE OF CONTENTS
| Page No. | ||||||||
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 February 28, 2023 .
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 fiscal year ended August 31, 2022, and in this Quarterly Report on Form 10-Q. These factors may include changes in commodity prices; the impact of government policies, mandates, regulations and trade agreements; global and regional political, economic, legal and other risks of doing business globally; the ongoing war between Russia and Ukraine; the impact of inflation; the impact of epidemics, pandemics, outbreaks of disease and other adverse public health developments, including COVID-19; the impact of market acceptance of alternatives to refined petroleum products; consolidation among our suppliers and customers; nonperformance by contractual counterparties; changes in federal income tax laws or our tax status; the impact of compliance or noncompliance with applicable laws and regulations; the impact of any governmental investigations; the impact of environmental liabilities and litigation; actual or perceived quality, safety or health risks associated with our products; the impact of seasonality; the effectiveness of our risk management strategies; business interruptions, casualty losses and supply chain issues; the impact of workforce factors; our funding needs and financing sources; financial institutions' and other capital sources' policies concerning energy-related businesses; uncertainty regarding the transition away from LIBOR and the replacement of LIBOR with an alternative reference rate; technological improvements that decrease the demand for our agronomy and energy products; our ability to complete, integrate and benefit from acquisitions, strategic alliances, joint ventures, divestitures and other nonordinary course-of-business events; security breaches or other disruptions to our information technology systems or assets; the impact of our environmental, social and governance practices, including failures or delays in achieving our strategies or expectations related to climate change or other environmental matters; the impairment of long-lived assets; the impact of bank failures; and other factors affecting our businesses generally. 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 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.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
Total current assets | |||||||||||
| Investments | |||||||||||
| Property, plant and equipment | |||||||||||
| Other assets | |||||||||||
Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITIES | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Other current liabilities | |||||||||||
Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Other liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Equities: | |||||||||||
| Preferred stock | |||||||||||
| Equity certificates | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Capital reserves | |||||||||||
Total CHS Inc. equities | |||||||||||
| Noncontrolling interests | |||||||||||
Total equities | |||||||||||
Total liabilities and equities | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
2
CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Marketing, general and administrative expenses | |||||||||||||||||||||||
| Operating earnings | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||
| Equity income from investments | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Net income attributable to CHS Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
3
CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Pension and other postretirement benefits | ( | ||||||||||||||||||||||
| Cash flow hedges | ( | ( | ( | ||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive (loss) income attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income attributable to CHS Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
4
CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended February 28, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization, including amortization of deferred major maintenance | |||||||||||
| Equity income from investments, net of distributions received | ( | ( | |||||||||
| Provision for current expected credit losses | ( | ||||||||||
| Deferred taxes | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Other, net | ( | ||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of property, plant and equipment | ( | ( | |||||||||
| Proceeds from disposition of property, plant and equipment | |||||||||||
| Expenditures for major maintenance | ( | ( | |||||||||
| Proceeds from sale of business | |||||||||||
| Changes in CHS Capital notes receivable, net | ( | ( | |||||||||
| Financing extended to customers | ( | ( | |||||||||
| Payments from customer financing | |||||||||||
| Other investing activities, net | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from notes payable and long-term debt | |||||||||||
| Payments on notes payable, long-term debt and finance lease obligations | ( | ( | |||||||||
| Preferred stock dividends paid | ( | ( | |||||||||
| Redemptions of equities | ( | ( | |||||||||
| Cash patronage dividends paid | ( | ( | |||||||||
| Other financing activities, net | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Decrease in cash and cash equivalents and restricted cash | ( | ( | |||||||||
| Cash and cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
5
CHS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of Presentation and Significant Accounting Policies
Significant Accounting Policies
No significant accounting policies were updated or changed since our Annual Report on Form 10-K for the year ended August 31, 2022.
Recent Accounting Pronouncements
No recent accounting pronouncements are expected to have a material impact on our condensed consolidated financial statements.
Note 2 Revenues
| ASC Topic 606 | ASC Topic 815 | Other Guidance | Total Revenues | |||||||||||||||||||||||
| Three Months Ended February 28, 2023 | (Dollars in thousands) | |||||||||||||||||||||||||
| Energy | $ | $ | $ | $ | ||||||||||||||||||||||
| Ag | ||||||||||||||||||||||||||
| Corporate and Other | ||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended February 28, 2022 | ||||||||||||||||||||||||||
| Energy | $ | $ | $ | $ | ||||||||||||||||||||||
| Ag | ||||||||||||||||||||||||||
| Corporate and Other | ||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
6
| ASC Topic 606 | ASC Topic 815 | Other Guidance | Total Revenues | |||||||||||||||||||||||
| Six Months Ended February 28, 2023 | (Dollars in thousands) | |||||||||||||||||||||||||
| Energy | $ | $ | $ | $ | ||||||||||||||||||||||
| Ag | ||||||||||||||||||||||||||
| Corporate and Other | ||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Six Months Ended February 28, 2022 | ||||||||||||||||||||||||||
| Energy | $ | $ | $ | $ | ||||||||||||||||||||||
| Ag | ||||||||||||||||||||||||||
| Corporate and Other | ||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
Less than 1% of revenues accounted for under ASC Topic 606 included within the tables above are recorded over time and relate primarily 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 customers. Contract assets are recorded in receivables within our Condensed Consolidated Balance Sheets and were $40.2 million and $17.2 million as of February 28, 2023 , and August 31, 2022, respectively.
Contract liabilities relate to advance payments received from customers for goods and services that we have yet to provide. Contract liabilities of $969.2 million and $541.5 million as of February 28, 2023 , and August 31, 2022, respectively, are recorded within other current liabilities on our Condensed Consolidated Balance Sheets. For the three months ended February 28, 2023 and 2022, we recognized revenues of $70.2 million and $58.7 million related to contract liabilities, respectively. For the six months ended February 28, 2023 and 2022, we recognized revenues of $192.2 million and $165.8 million related to contract liabilities, respectively. These amounts were included in the other current liabilities balance at the beginning of the respective period.
Note 3 Receivables
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| CHS Capital short-term notes receivable | |||||||||||
| Other | |||||||||||
Gross receivables | |||||||||||
| Less: allowances and reserves | |||||||||||
Total receivables | $ | $ | |||||||||
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 receivable balances and is determined using historical write-off experience, adjusted for various industry and regional data and current expectations of future credit losses.
Notes receivable from commercial borrowers are collateralized by various combinations of mortgages, personal property, accounts and notes receivable, inventories and assignments of certain regional cooperatives' capital stock. These loans are primarily originated in the states of Minnesota and North Dakota. CHS Capital also has loans receivable from producer borrowers that are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable,
7
personal property and supplemental mortgages and are primarily originated in the same states as the commercial notes, as well as in South Dakota.
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 $106.1 million and $54.3 million as of February 28, 2023 , and August 31, 2022, respectively. The long-term notes receivable are included in other assets on our Condensed Consolidated Balance Sheets. As of February 28, 2023 , and August 31, 2022, commercial notes represented 47 % and 25 %, respectively, and producer notes represented 53 % and 75 %, respectively, of total CHS Capital notes receivable.
CHS Capital has commitments to extend credit to customers if there are no violations of any contractually established conditions. As of February 28, 2023, CHS Capital customers had additional available credit of $951.2 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 February 28, 2023 , or August 31, 2022.
Note 4 Inventories
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Grain and oilseed | $ | $ | |||||||||
| Energy | |||||||||||
| Agronomy | |||||||||||
| Processed grain and oilseed | |||||||||||
| Other | |||||||||||
Total inventories | $ | $ | |||||||||
Note 5 Investments
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Equity method investments: | |||||||||||
CF Industries Nitrogen, LLC | $ | $ | |||||||||
Ventura Foods, LLC | |||||||||||
Ardent Mills, LLC | |||||||||||
| TEMCO, LLC | |||||||||||
Other equity method investments | |||||||||||
| Other investments | |||||||||||
Total investments | $ | $ | |||||||||
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 only significant equity method investment during the six months ended February 28, 2023 and 2022, was CF Industries Nitrogen, LLC ("CF Nitrogen"), which is 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 recorded at cost, unless an impairment or other observable market price change occurs requiring an adjustment. We have approximately $569.9 million of cumulative undistributed earnings from our equity method investees included in the investments balance as of February 28, 2023 .
8
CF Nitrogen
We have a $2.6 billion investment in CF Nitrogen, a strategic venture with CF Industries Holdings, Inc. ("CF Industries"). The investment consists of an approximate 8 % 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 CF Nitrogen's Limited Liability Company Agreement, adjusted for semiannual cash distributions.
| Six Months Ended February 28, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Net sales | $ | $ | |||||||||
| Gross profit | |||||||||||
| Net earnings | |||||||||||
| Earnings attributable to CHS Inc. | |||||||||||
Our investments in other equity method investees are not significant in relation to our condensed consolidated financial statements, either individually or in 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 all debt covenants as of February 28, 2023 . Notes payable as of February 28, 2023 , and August 31, 2022, consisted of the following:
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Notes payable | $ | $ | |||||||||
| CHS Capital notes payable | |||||||||||
Total notes payable | $ | $ | |||||||||
Our primary line of credit is a five-year unsecured revolving credit facility with a syndicate of domestic and international banks. The credit facility provides a committed amount of $2.75 billion that expires on July 16, 2024. There were no borrowings outstanding on this facility as of February 28, 2023 , and August 31, 2022. We also maintain certain uncommitted bilateral facilities to support our working capital needs.
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 secured financing. 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. The Securitization Facility consists of a committed portion with a maximum availability of $850.0 million and an uncommitted portion with a maximum availability of $250.0 million. As of February 28, 2023 , total availability under the Securitization Facility was $833.7 million, of which $433.0 million was utilized.
We also have a repurchase facility ("Repurchase Facility") related to the Securitization Facility. Under the Repurchase Facility, we can obtain repurchase agreement financing in an amount up to $150.0 million for subordinated notes 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. No balance was outstanding under the Repurchase Facility as of February 28, 2023 , and August 31, 2022.
9
On January 24, 2023, we entered into a Note Purchase Agreement to borrow $150.0 million of debt in the form of a note. The note matures on January 24, 2030, and interest accrues at a rate of 5.68 %, subject to certain adjustments depending on our ratio of consolidated funded debt to consolidated cash flow.
The following table presents summarized long-term debt (including the current portion) as of February 28, 2023 , and August 31, 2022:
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Private placement debt | $ | $ | |||||||||
| Term loan | |||||||||||
| Deferred financing costs | ( | ( | |||||||||
| Other | |||||||||||
| Total long-term debt | |||||||||||
| Less current portion | |||||||||||
| Long-term portion | $ | $ | |||||||||
Interest expense for the three months ended February 28, 2023 and 2022, was $36.0 million and $25.2 million, respectively, net of capitalized interest of $3.3 million and $1.5 million, respectively. Interest expense for the six months ended February 28, 2023 and 2022, was $69.2 million and $48.6 million, respectively, net of capitalized interest of $5.7 million and $3.8 million, respectively.
Note 7 Income Taxes
10
Note 8 Equities
Changes in Equities
Changes in equities for the three months ended February 28, 2023 and 2022, 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, November 30, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Reversal of prior year patronage and redemption estimates | ( | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distribution of 2022 patronage refunds | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
Redemptions of equities | ( | ( | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Other, net | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Estimated 2023 cash patronage refunds | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2023 equity redemptions | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 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, November 30, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Reversal of prior year patronage and redemption estimates | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Distribution of 2021 patronage refunds | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
Redemptions of equities | ( | ( | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Other, net | ( | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Estimated 2022 cash patronage refunds | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2022 equity redemptions | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 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, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Reversal of prior year patronage and redemption estimates | ( | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distribution of 2022 patronage refunds | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
Redemptions of equities | ( | ( | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Other, net | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2023 cash patronage refunds | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2023 equity redemptions | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
11
| 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, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Reversal of prior year patronage and redemption estimates | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Distribution of 2021 patronage refunds | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
Redemptions of equities | ( | ( | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Other, net | ( | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2022 cash patronage refunds | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Estimated 2022 equity redemptions | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Preferred Stock Dividends
The following is a summary of dividends declared per share by series of preferred stock for the three and six months ended February 28, 2023 and 2022.
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||||||||
| Nasdaq symbol | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Series of preferred stock: | (Dollars per share) | ||||||||||||||||||||||||||||
8% Cumulative Redeemable | CHSCP | $ | $ | $ | $ | ||||||||||||||||||||||||
Class B Cumulative Redeemable, Series 1 | CHSCO | $ | $ | $ | $ | ||||||||||||||||||||||||
Class B Reset Rate Cumulative Redeemable, Series 2 | CHSCN | $ | $ | $ | $ | ||||||||||||||||||||||||
Class B Reset Rate Cumulative Redeemable, Series 3 | CHSCM | $ | $ | $ | $ | ||||||||||||||||||||||||
Class B Cumulative Redeemable, Series 4 | CHSCL | $ | $ | $ | $ | ||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the three months ended February 28, 2023 and 2022, are as follows:
| Pension and Other Postretirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance as of November 30, 2022, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
Amounts before reclassifications | |||||||||||||||||||||||
Amounts reclassified | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss), before tax | ( | ||||||||||||||||||||||
Tax effect | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ||||||||||||||||||||||
| Balance as of February 28, 2023, net of tax | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
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| Pension and Other Postretirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance as of November 30, 2021, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
Amounts before reclassifications | |||||||||||||||||||||||
Amounts reclassified | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss), before tax | ( | ||||||||||||||||||||||
Tax effect | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ||||||||||||||||||||||
| Balance as of February 28, 2022, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Changes in accumulated other comprehensive income (loss) by component for the six months ended February 28, 2023 and 2022, are as follows:
| Pension and Other Postretirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance as of August 31, 2022, net of tax | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
Amounts before reclassifications | ( | ( | ( | ||||||||||||||||||||
Amounts reclassified | |||||||||||||||||||||||
| Total other comprehensive income (loss), before tax | ( | ( | ( | ||||||||||||||||||||
Tax effect | |||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Balance as of February 28, 2023, net of tax | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Pension and Other Postretirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance as of August 31, 2021, net of tax | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Other comprehensive income (loss), before tax: | |||||||||||||||||||||||
Amounts before reclassifications | ( | ( | |||||||||||||||||||||
Amounts reclassified | ( | ( | |||||||||||||||||||||
| Total other comprehensive income (loss), before tax | ( | ( | ( | ||||||||||||||||||||
Tax effect | ( | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Balance as of February 28, 2022, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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 and marketing, general and administrative expenses (see Note 9, Benefit Plans, for further information). As described in Note 11, Derivative Financial Instruments and Hedging Activities, amounts reclassified from accumulated other comprehensive loss for cash flow hedges are recorded as cost of goods sold. Gains or losses on foreign currency translation reclassifications are recorded as other income.
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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 of Directors retirement plans.
| Three Months Ended February 28, | |||||||||||||||||||||||||||||||||||
| Qualified Pension Benefits | Nonqualified Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Components of net periodic benefit costs: | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on assets | ( | ( | |||||||||||||||||||||||||||||||||
| Prior service cost (credit) amortization | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Actuarial loss (gain) amortization | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic benefit cost (benefit) | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Six Months Ended February 28, | |||||||||||||||||||||||||||||||||||
| Qualified Pension Benefits | Nonqualified Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Components of net periodic benefit costs: | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on assets | ( | ( | |||||||||||||||||||||||||||||||||
| Prior service cost (credit) amortization | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Actuarial loss (gain) amortization | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic benefit cost (benefit) | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||
Employer Contributions
Contributions 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 six months ended February 28, 2023, and we do not currently anticipate being required to make contributions for our pension plans in fiscal 2023, although we may voluntarily elect to do so.
Note 10 Segment Reporting
We are an integrated agricultural cooperative, 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 grain and oilseed, processed grain and oilseed, renewable fuels and food products. We define our operating segments in accordance with ASC Topic 280, Segment Reporting, to reflect the manner in which our chief operating decision maker, our Chief Executive Officer, evaluates performance and allocates resources in managing the business. We have aggregated those operating segments into three reportable segments: Energy, Ag and Nitrogen Production.
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 grain and oilseed 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 of our equity method investment in CF Nitrogen and allocated expenses. Our supply agreement with CF Nitrogen entitles us to purchase up to a specified quantity of granular urea and urea ammonium nitrate ("UAN") annually from CF Nitrogen. Corporate and Other represents our financing and hedging businesses, which primarily consist of financial services related to crop production and a U.S. Commodity Futures Trading Commission-regulated futures commission merchant ("FCM") for commodities hedging. Our nonconsolidated
14
investments in Ventura Foods, LLC ("Ventura Foods"), and Ardent Mills, LLC ("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 our operating results vary throughout the year. Our revenues generally trend lower during the second fiscal quarter; however, our income before income taxes does not necessarily follow the same trend due to weather and other events that can impact profitability. For example, in our Ag segment, our country operations business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively. Additionally, our agronomy business generally experiences higher volumes and revenues during the spring planting season. Our global grain and processing operations are subject to fluctuations in volume and revenues based on producer harvests, world grain prices, demand and international trade relationships. Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces. Other energy products, such as propane, generally experience higher volumes and revenues during the winter heating and fall 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, grain, oilseed, 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 reliable rail and river transportation networks, outbreaks of disease, government regulations and policies, global trade disputes, wars and civil unrest, bank failures 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 is conducted through companies in which we hold ownership interests of 50% or less or otherwise 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 Condensed Consolidated Statements of Operations. In our Ag segment, this includes our 50 % interest in TEMCO, LLC. In our Nitrogen Production segment, this consists of our approximate 8 % membership interest (based on product tons) in CF Nitrogen. In Corporate and Other, this principally includes our 50 % ownership in Ventura Foods and our 12 % ownership in Ardent Mills. See Note 5, Investments, for more information related to our equity method investments.
Reconciling amounts represent the elimination of revenues between segments. Such transactions are executed at market prices to more accurately evaluate the profitability of the individual business segments.
Segment information for the three and six months ended February 28, 2023 and 2022, is presented in the tables below:
| Energy | Ag | Nitrogen Production | Corporate and Other | Reconciling Amounts | Total | ||||||||||||||||||||||||||||||
| Three Months Ended February 28, 2023 | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Revenues, including intersegment revenues | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Intersegment revenues | ( | ( | ( | — | |||||||||||||||||||||||||||||||
Revenues, net of intersegment revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Operating earnings (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Equity income from investments | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
15
| Energy | Ag | Nitrogen Production | Corporate and Other | Reconciling Amounts | Total | ||||||||||||||||||||||||||||||
| Three Months Ended February 28, 2022 | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Revenues, including intersegment revenues | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Intersegment revenues | ( | ( | ( | — | |||||||||||||||||||||||||||||||
Revenues, net of intersegment revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Operating earnings (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Equity income from investments | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Energy | Ag | Nitrogen Production | Corporate and Other | Reconciling Amounts | Total | ||||||||||||||||||||||||||||||
| Six Months Ended February 28, 2023 | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Revenues, including intersegment revenues | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Intersegment revenues | ( | ( | ( | — | |||||||||||||||||||||||||||||||
Revenues, net of intersegment revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Operating earnings (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Equity (income) loss from investments | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total assets as of February 28, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Energy | Ag | Nitrogen Production | Corporate and Other | Reconciling Amounts | Total | ||||||||||||||||||||||||||||||
| Six Months Ended February 28, 2022 | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Revenues, including intersegment revenues | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Intersegment revenues | ( | ( | ( | — | |||||||||||||||||||||||||||||||
Revenues, net of intersegment revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Operating earnings (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Equity income from investments | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Note 11 Derivative Financial Instruments and Hedging Activities
16
Derivatives Not Designated as Hedging Instruments
The majority of our derivative instruments have not been designated as hedging instruments. The following tables present the gross fair values of derivative assets, derivative liabilities and margin deposits (cash collateral) recorded on our Condensed Consolidated Balance Sheets, along with related amounts permitted to be offset in accordance with U.S. GAAP. Although we have certain netting arrangements for our exchange-traded futures and options contracts and certain over-the-counter ("OTC") contracts, we have elected to report our derivative instruments on a gross basis on our Condensed Consolidated Balance Sheets under ASC Topic 210-20, Balance Sheet-Offsetting.
| February 28, 2023 | |||||||||||||||||||||||
| Amounts Not Offset on Condensed Consolidated Balance Sheet but Eligible for Offsetting | |||||||||||||||||||||||
| Gross Amount Recognized | Cash Collateral | Derivative Instruments | Net Amount | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | — | $ | $ | ||||||||||||||||||
| Foreign exchange derivatives | — | ||||||||||||||||||||||
| Total | $ | $ | — | $ | $ | ||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| August 31, 2022 | |||||||||||||||||||||||
| Amounts Not Offset on Condensed Consolidated Balance Sheet but Eligible for Offsetting | |||||||||||||||||||||||
| Gross Amount Recognized | Cash Collateral | Derivative Instruments | Net Amount | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | — | $ | $ | ||||||||||||||||||
| Foreign exchange derivatives | — | ||||||||||||||||||||||
| Total | $ | $ | — | $ | $ | ||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Derivative assets and liabilities with maturities of 12 months or less are recorded in other current assets and other current liabilities, respectively, on our Condensed Consolidated Balance Sheets. Derivative assets and liabilities with maturities greater than 12 months are recorded in other assets and other liabilities, respectively, on our Condensed Consolidated Balance Sheets. The amount of long-term derivative assets recorded on our Condensed Consolidated Balance Sheets as of February 28, 2023 , and August 31, 2022, was $2.3 million and $8.5 million, respectively. The amount of long-term derivative liabilities recorded on our Condensed Consolidated Balance Sheets as of February 28, 2023 , and August 31, 2022, was $2.8 million and $4.0 million, respectively.
17
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||||||||
| Location of Gain (Loss) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Commodity derivatives | Cost of goods sold | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| Foreign exchange derivatives | Cost of goods sold | ( | |||||||||||||||||||||||||||
| Foreign exchange derivatives | Marketing, general and administrative expenses | ||||||||||||||||||||||||||||
| Other derivatives | Other income | ||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
Commodity Contracts
As of February 28, 2023, and August 31, 2022, we had outstanding commodity futures and options contracts that were used as economic hedges, as well as fixed-price forward contracts related to physical purchases and sales of commodities. The table below presents the notional volumes for all outstanding commodity contracts:
| February 28, 2023 | August 31, 2022 | ||||||||||||||||||||||
| Long | Short | Long | Short | ||||||||||||||||||||
| (Units in thousands) | |||||||||||||||||||||||
| Grain and oilseed (bushels) | |||||||||||||||||||||||
| Energy products (barrels) | |||||||||||||||||||||||
| Processed grain and oilseed (tons) | |||||||||||||||||||||||
| Crop nutrients (tons) | |||||||||||||||||||||||
| Ocean freight (metric tons) | |||||||||||||||||||||||
| Natural gas (metric million Btu) | |||||||||||||||||||||||
Foreign Exchange Contracts
We conduct a substantial portion of our business in U.S. dollars, but are exposed to risks relating to foreign currency fluctuations, primarily due to global grain marketing transactions in South America, the Asia Pacific region and Europe and purchases of products from Canada. We use foreign currency derivative instruments to mitigate the impact of exchange rate fluctuations. Although we have some risk exposure relating to foreign currency transactions, a larger impact with exchange rate fluctuations is the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply. The notional amount of our foreign exchange derivative contracts was $1.5 billion and $1.9 billion as of February 28, 2023 , and August 31, 2022, respectively.
Derivatives Designated as Cash Flow Hedging Strategies
Certain pay-fixed, receive-variable, cash-settled swaps are designated as cash flow hedges of future crude oil purchases in our Energy segment. We also designate certain pay-variable, receive-fixed, cash-settled swaps as cash flow hedges of future refined energy product sales. These hedging instruments and the related hedged items are exposed to significant market price risk and potential volatility. As part of our risk management strategy, we look to hedge a portion of our expected future crude oil needs and the resulting refined product output based on prevailing futures prices, management's expectations about future commodity price changes and our risk appetite. We may also elect to dedesignate certain derivative instruments previously designated as cash flow hedges as part of our risk management strategy. Amounts recorded in other comprehensive income for these dedesignated derivative instruments remain in other comprehensive income and are recognized in earnings in the period in which the underlying transactions affect earnings. As of February 28, 2023 , and August 31, 2022, the aggregate notional amounts of cash flow hedges were 1.8 million and 3.8 million barrels, respectively.
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| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||
| Balance Sheet Location | February 28, 2023 | August 31, 2022 | Balance Sheet Location | February 28, 2023 | August 31, 2022 | |||||||||||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
| Other current assets | $ | $ | Other current liabilities | $ | $ | |||||||||||||||||||||||||||
| Three Months Ended February 28, | Six Months Ended February 28, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| Commodity derivatives | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||||||||
| Location of Gain (Loss) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Commodity derivatives | Cost of goods sold | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
Note 12 Fair Value Measurements
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction among the market participants on the measurement date.
We determine fair values of derivative instruments and certain other assets based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize use of observable inputs and minimize use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. ASC Topic 820 describes three levels within its hierarchy that may be used to measure fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs include 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 and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 inputs are unobservable inputs that are supported by little or no market activity for the assets or liabilities. Categorization within the valuation hierarchy is based on the lowest level of input significant to the fair value measurement.
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Recurring fair value measurements as of February 28, 2023 , and August 31, 2022, are as follows:
| February 28, 2023 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Segregated investments and marketable securities | |||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| August 31, 2022 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Segregated investments and marketable securities | |||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange derivatives | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Commodity and foreign exchange derivatives. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Our forward commodity purchase and sales contracts with fixed-price components, select ocean freight contracts and other OTC derivatives are determined using inputs that are generally based on exchange traded prices and/or recent market bids and offers, including location-specific adjustments, and are classified within Level 2. Location-specific inputs are driven by local market supply and demand and are generally based on broker or dealer quotations or market transactions in either listed or OTC markets. Changes in the fair values of these contracts are recognized in our Condensed Consolidated Statements of Operations as a component of cost of goods sold.
Segregated investments and marketable securities and other assets. Our segregated investments and marketable securities and other assets are comprised primarily of investments in various government agencies, U.S. Treasury securities, money market funds and rabbi trust assets, which are valued using quoted market prices and classified within Level 1.
Note 13 Commitments and Contingencies
Environmental
We are required to comply with various environmental laws and regulations incidental to our normal business operations. To meet our compliance requirements, we establish reserves for future costs of remediation associated with identified issues that are both probable and can be reasonably estimated. Estimates of environmental costs are based on current
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available facts, existing technology, undiscounted site-specific costs and currently enacted laws and regulations and are included in cost of goods sold and marketing, general and administrative expenses in our Condensed Consolidated Statements of Operations. 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. The resolution of any such matters may affect consolidated net income for any fiscal period; however, we currently believe any resulting liabilities, individually or in aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year.
Other Litigation and Claims
We are involved as a defendant in various lawsuits, claims and disputes, which are in the normal course of our business. The resolution of any such matters may affect consolidated net income for any fiscal period; however, we currently believe any resulting liabilities, individually or in aggregate, will not have a material effect on our consolidated financial position, results of operations or cash flows during any fiscal year.
Guarantees
We are a guarantor for lines of credit and performance obligations of related, nonconsolidated companies. Our bank covenants allow maximum guarantees of $1.0 billion, of which $124.4 million were outstanding on February 28, 2023 . We have collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as we do not expect to pay out any cash related to them, and the fair values are considered immaterial. The underlying loans to the counterparties for which we provide these guarantees were current as of February 28, 2023 .
Note 14 Other Current Assets and Liabilities
| February 28, 2023 | August 31, 2022 | ||||||||||
| Other current assets | (Dollars in thousands) | ||||||||||
| Derivative assets (Note 11) | $ | $ | |||||||||
| Margin and related deposits | |||||||||||
| Supplier advance payments | |||||||||||
| Restricted cash | |||||||||||
| Other | |||||||||||
| Total other current assets | $ | $ | |||||||||
| Other current liabilities | |||||||||||
| Customer margin deposits and credit balances | $ | $ | |||||||||
| Customer advance payments | |||||||||||
| Derivative liabilities (Note 11) | |||||||||||
| Dividends and equity payable | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our condensed consolidated financial statements with a narrative from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
•Overview
•Business Strategy
•Fiscal 2023 Second Quarter Highlights
•Fiscal 2023 Trends Update
•Operating Metrics
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies
•Recent Accounting Pronouncements
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended August 31, 2022 (including the information presented therein under Risk Factors), as well as the condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Overview
CHS Inc. ("CHS") is a diversified company that provides grain, food, agronomy and energy resources to businesses and consumers on a global scale. As a cooperative, we are owned by farmers, ranchers and member cooperatives across the United States. We also have preferred shareholders who own our five series of preferred stock, all of which are listed and traded on the Global Select Market of The Nasdaq Stock Market LLC. We operate in the following three reportable segments:
•Energy. Produces and provides primarily for the wholesale distribution and transportation of petroleum products.
•Ag. Purchases and further processes or resells grain and oilseed originated by our country operations and global grain and processing businesses, by our member cooperatives and by third parties. It also includes our renewable fuels business and serves as a wholesaler and retailer of agronomy products.
•Nitrogen Production. Produces and distributes nitrogen fertilizer. It consists of our equity method investment in CF Industries Nitrogen, LLC ("CF Nitrogen"), and allocated expenses.
In addition, our financing and hedging businesses, along with our nonconsolidated food production and distribution and wheat milling joint ventures, have been aggregated within our Corporate and Other category.
The condensed consolidated financial statements include the accounts of CHS and all subsidiaries and limited liability companies in which we have a controlling interest. The effects of all significant intercompany transactions have been eliminated.
Corporate administrative expenses and interest are allocated to each reporting segment 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.
Management's Focus. When evaluating our operating performance, management focuses on gross profit and income before income taxes ("IBIT"). As a company that operates heavily in global commodities, there is significant unpredictability and volatility in pricing, costs and global trade volumes. Consequently, we focus on managing the margin we can earn and the resulting IBIT. We also focus on ensuring balance sheet strength through appropriate management of financial liquidity, leverage, capital allocation and cash flow optimization.
Seasonality. Many of our business activities are highly seasonal and our operating results vary throughout the year. Our revenues generally trend lower during the second fiscal quarter; however, our IBIT does not necessarily follow the same trend due to weather and other events that can impact profitability. For example, in our Ag segment, our country operations business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively. Additionally, our agronomy business generally experiences higher volumes and revenues during the spring planting season. Our global grain and processing operations are
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subject to fluctuations in volumes and revenues based on producer harvests, world grain prices, demand and international trade relationships. Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces. Other energy products, such as propane, generally experience higher volumes and revenues during the winter heating and fall crop-drying seasons. The graphs below depict the seasonality inherent in our businesses:
Pricing and Volumes. Our revenues, assets and cash flows can be significantly affected by global market prices and sales volumes of commodities such as petroleum products, natural gas, grain, oilseed products and agronomy products. Changes in market prices for commodities we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Similarly, increased or decreased sales volumes without a corresponding change in the purchase and selling prices of those products can affect revenues and operating earnings. Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail and river transportation networks, disease outbreaks, government regulations and policies, global trade disputes, wars and civil unrest, and general political and/or economic conditions.
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Business Strategy
Our business strategies focus on an enterprisewide effort to create an experience that empowers customers to make CHS their first choice, expand market access to add value for our owners and transform and evolve our core businesses by capitalizing on changing market dynamics. To execute these strategies, we are focused on implementing agile, efficient and sustainable technology platforms; building robust and efficient supply chains; hiring, developing and retaining high-performing, diverse and passionate teams; achieving operational excellence and continuous improvement; and maintaining a strong balance sheet.
Fiscal 2023 Second Quarter Highlights
•Continued robust global demand, coupled with market volatility, resulted in elevated commodity prices.
•Higher refining margins drove significantly improved earnings in our Energy segment that resulted from more advantageous market conditions in our refined fuels business, including continued high global demand for energy products as consumption outpaced supply.
•Equity method investments continued to perform well, with our CF Nitrogen investment being the largest contributor. Our CF Nitrogen investment delivered solid earnings as a result of market conditions driven by strong global demand for urea and urea ammonium nitrate ("UAN"), although selling prices for those products decreased.
•Decreased prices for agronomy and ethanol products contributed to lower earnings in our Ag segment.
Fiscal 2023 Trends Update
Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results. We anticipate that various macroeconomic factors, including the ongoing war between Russia and Ukraine, rising interest rates, bank failures and potential bank failures and inflationary pressures increasing costs of labor, freight and materials, will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as in global financial markets. This uncertainty and instability could have a significant impact on each of our segments throughout the remainder of fiscal 2023. In addition to these broad macroeconomic factors, other factors could impact demand for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs. These include the cost of renewable energy credits that remain higher than historical levels, which could continue to negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change. Although challenges remain, we currently expect the imbalance between global supply and strong global demand for agricultural commodities to result in continued market volatility throughout the remainder of fiscal 2023. We are unable to predict how long the current environment and market conditions will last or the extent of the financial and operational impacts to us in fiscal 2023. Refer to Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2022, for additional impacts that these and other risks may have on our business operations and financial performance.
In addition to navigating market conditions that impact our businesses, we will continue to execute our enterprise priorities throughout fiscal 2023, including empowering and supporting our people, advancing our operating model by transforming how we work and adopting new technologies, and strategically investing in our infrastructure to meet the evolving needs of our owners and customers, enhancing value for the cooperative system and propelling sustainable growth.
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Operating Metrics
Energy
Our Energy segment operations primarily include our refineries in Laurel, Montana, and McPherson, Kansas, which process crude oil to produce refined products, including gasoline, distillates and other products. To ensure the reliability of our refineries, we perform major maintenance activities every two to five years, which require a temporary shutdown of operations. These planned shutdowns allow us to extend the life, increase the capacity and improve the safety and efficiency of our refinery processing assets. They also minimize unplanned business interruptions and are essential to the long-term reliability and profitability of our Energy segment.
During periods of maintenance, utilization rates, throughput volumes and refined fuel yields are lower, and we may purchase refined petroleum products from third parties to meet the needs of our customers. These third-party purchases may result in lower margins than for products produced by our refineries, which reduces our profitability. The following table provides information about our consolidated refinery operations:
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Refinery throughput volumes | (Barrels per day) | ||||||||||||||||||||||
| Heavy, high-sulfur crude oil | 102,880 | 103,233 | 96,111 | 102,784 | |||||||||||||||||||
| All other crude oil | 69,371 | 73,845 | 70,326 | 72,076 | |||||||||||||||||||
| Other feedstocks and blendstocks | 9,477 | 12,255 | 10,096 | 15,314 | |||||||||||||||||||
| Total refinery throughput volumes | 181,728 | 189,333 | 176,533 | 190,174 | |||||||||||||||||||
| Refined fuel yields | |||||||||||||||||||||||
| Gasolines | 80,722 | 88,764 | 78,355 | 90,837 | |||||||||||||||||||
| Distillates | 82,208 | 83,166 | 78,782 | 81,033 | |||||||||||||||||||
We are subject to the Renewable Fuel Standard, which requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. In December 2022, the EPA issued a proposed renewable volume obligation ("RVO") for calendar years 2023 through 2025. We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity, and RINs must be purchased on the open market. The price of RINs can be volatile, which can impact our profitability. The prices for D6 ethanol RINs and D4 biodiesel RINs during the second quarter of fiscal 2023 compared to the same period in the prior year increased by 48% and 17%, respectively. Estimates of our RIN expenses are calculated using an average RIN price each month.
In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack spreads (i.e., the price differential between refined products and inputs such as crude oil) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by the supply and demand for refined products. Crack spreads and the WCS crude oil discounts both increased during the three and six months ended February 28, 2023, compared to the same periods during the prior year, contributing to improved IBIT for the Energy segment. The table below provides information about average market reference prices and discounts that impacted our Energy segment during the three and six months ended February 28, 2023 and 2022:
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Market indicators | |||||||||||||||||||||||
| WTI crude oil (dollars per barrel) | $ | 77.18 | $ | 82.10 | $ | 81.17 | $ | 79.62 | |||||||||||||||
| WTI - WCS crude oil discount (dollars per barrel) | $ | 27.77 | $ | 16.17 | $ | 25.09 | $ | 14.56 | |||||||||||||||
| Group 3 2:1:1 crack spread (dollars per barrel)* | $ | 30.46 | $ | 17.88 | $ | 37.61 | $ | 17.96 | |||||||||||||||
| Group 3 5:3:2 crack spread (dollars per barrel)* | $ | 28.12 | $ | 17.24 | $ | 34.26 | $ | 17.40 | |||||||||||||||
| D6 ethanol RIN (dollars per RIN) | $ | 1.6194 | $ | 1.0968 | $ | 1.6463 | $ | 1.1404 | |||||||||||||||
| D4 biodiesel RIN (dollars per RIN) | $ | 1.6857 | $ | 1.4405 | $ | 1.7558 | $ | 1.4541 | |||||||||||||||
*Group 3 refers to the oil refining and distribution system serving Midwest markets from the Gulf Coast through the Plains states.
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Ag
Our Ag segment operations work together to facilitate production, purchase, sale and eventual use of grain and other agricultural commodities within the United States and internationally. Profitability in our Ag segment is largely driven by throughput and production volumes, as well as commodity price spreads; however, revenues and cost of goods sold ("COGS") are largely affected by market-driven commodity prices that are outside our control. The table below provides information about average market prices for agricultural commodities and our sales/throughput volumes that impacted our Ag segment for the three and six months ended February 28, 2023 and 2022:
| Three Months Ended February 28, | Six Months Ended February 28, | ||||||||||||||||||||||||||||
| Market Source* | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Commodity prices | |||||||||||||||||||||||||||||
| Corn (dollars per bushel) | Chicago Board of Trade | $ | 6.63 | $ | 6.39 | $ | 6.70 | $ | 5.98 | ||||||||||||||||||||
| Soybeans (dollars per bushel) | Chicago Board of Trade | $ | 15.16 | $ | 14.88 | $ | 14.65 | $ | 13.62 | ||||||||||||||||||||
| Wheat (dollars per bushel) | Chicago Board of Trade | $ | 7.48 | $ | 8.20 | $ | 8.03 | $ | 7.89 | ||||||||||||||||||||
| Urea (dollars per ton) | Green Markets NOLA | $ | 396.83 | $ | 644.00 | $ | 499.12 | $ | 657.00 | ||||||||||||||||||||
| Urea ammonium nitrate (dollars per ton) | Green Markets NOLA | $ | 392.96 | $ | 547.52 | $ | 469.85 | $ | 500.16 | ||||||||||||||||||||
| Ethanol (dollars per gallon) | Chicago Platts | $ | 2.19 | $ | 2.43 | $ | 2.34 | $ | 2.62 | ||||||||||||||||||||
| Volumes | |||||||||||||||||||||||||||||
| Grain and oilseed (thousands of bushels) | 567,198 | 534,955 | 1,084,637 | 1,099,067 | |||||||||||||||||||||||||
| North American grain and oilseed port throughput (thousands of bushels) | 174,876 | 186,935 | 336,591 | 359,922 | |||||||||||||||||||||||||
| Wholesale crop nutrients (thousands of tons) | 1,373 | 1,375 | 2,985 | 3,199 | |||||||||||||||||||||||||
| Ethanol (thousands of gallons) | 237,642 | 228,355 | 481,403 | 452,601 | |||||||||||||||||||||||||
*Market source information represents the average month-end price during the period.
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Results of Operations
Three Months Ended February 28, 2023 and 2022
| Three Months Ended February 28, | |||||||||||||||||||||||
| 2023 | % of Revenues* | 2022 | % of Revenues* | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 11,306,848 | 100.0 | % | $ | 10,332,588 | 100.0 | % | |||||||||||||||
| Cost of goods sold | 10,922,581 | 96.6 | 10,063,590 | 97.4 | |||||||||||||||||||
| Gross profit | 384,267 | 3.4 | 268,998 | 2.6 | |||||||||||||||||||
| Marketing, general and administrative expenses | 241,925 | 2.1 | 244,325 | 2.4 | |||||||||||||||||||
| Operating earnings | 142,342 | 1.3 | 24,673 | 0.2 | |||||||||||||||||||
| Interest expense | 35,967 | 0.3 | 25,174 | 0.2 | |||||||||||||||||||
| Other income | (28,313) | (0.3) | (1,405) | — | |||||||||||||||||||
| Equity income from investments | (178,334) | (1.6) | (229,923) | (2.2) | |||||||||||||||||||
| Income before income taxes | 313,022 | 2.8 | 230,827 | 2.2 | |||||||||||||||||||
| Income tax expense | 20,974 | 0.2 | 11,931 | 0.1 | |||||||||||||||||||
| Net income | 292,048 | 2.6 | 218,896 | 2.1 | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | (273) | — | (104) | — | |||||||||||||||||||
| Net income attributable to CHS Inc. | $ | 292,321 | 2.6 | % | $ | 219,000 | 2.1 | % | |||||||||||||||
*Amounts less than 0.1% are shown as zero percent. Percentage totals may differ due to rounding.
The charts below detail revenues, net of intersegment revenues, and IBIT by reportable segment for the three months ended February 28, 2023. Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses but not revenues.
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Income Before Income Taxes by Segment
Energy
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income before income taxes | $ | 264,822 | $ | 10,832 | $ | 253,990 | 2,344.8 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment IBIT for the three months ended February 28, 2023, compared to the same period during the prior year:
*See commentary related to these changes in the marketing, general and administrative expenses, interest expense, other income and equity income from investments sections of this Results of Operations.
The change in Energy segment IBIT reflects the following:
•Higher crack spreads and increased WCS crude oil discounts resulted from higher global demand and improved market conditions in our refined fuels business, which contributed to a $274.8 million increase of IBIT.
•Higher margins for propane primarily resulted from hedging-related impacts due to global market conditions affecting the price of propane contributed $52.1 million to the increase of IBIT.
•The increased IBIT was partially offset by increased costs in our refined fuels business, including $34.0 million related to higher RIN prices due to market conditions, and decreased refined fuels production volumes due to unplanned maintenance at refineries that reduced the sales mix of higher-margin produced refined fuels.
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Ag
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income before income taxes | $ | (81,566) | $ | 55,181 | $ | (136,747) | (247.8 | %) | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment IBIT for the three months ended February 28, 2023, compared to the same period during the prior year:
*See commentary related to these changes in the marketing, general and administrative expenses, interest expense, other income and equity income from investments sections of this Results of Operations.
The change in Ag segment IBIT reflects the following:
•Decreased margins across most of our Ag segment product categories during the second quarter of fiscal 2023, including:
◦$104.1 million decrease primarily for wholesale and retail agronomy products, which experienced market-driven price decreases, including a $57.2 million noncash charge to reduce our agronomy inventories to their net realizable value at the end of the period;
◦$33.5 million decrease for renewable fuels due to lower ethanol prices resulting from decreased demand; and
◦$33.7 million decrease for oilseed processing as a result of the timing of the impact of mark-to-market adjustments associated with our commodity derivatives.
All Other Segments
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Nitrogen Production IBIT* | $ | 81,733 | $ | 154,257 | $ | (72,524) | (47.0 | %) | |||||||||||||||
| Corporate and Other IBIT | $ | 48,033 | $ | 10,557 | $ | 37,476 | 355.0 | % | |||||||||||||||
*For additional information, see Note 5, Investments, of the notes to the unaudited condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q.
Our Nitrogen Production segment IBIT decreased from the prior year due to lower equity income attributed to decreased selling prices of urea and UAN due to global supply and demand factors. Corporate and Other IBIT increased primarily due to increased interest income resulting from higher interest rates, as well as increased equity income from our Ventura Foods, LLC, investment as a result of more favorable market conditions for edible oils experienced during the second quarter of fiscal 2023 compared to the same period in the prior year.
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Revenues by Segment
Energy
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 2,168,901 | $ | 2,027,999 | $ | 140,902 | 6.9 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment revenues for the three months ended February 28, 2023, compared to the same period during the prior year:
The change in Energy segment revenues reflects the following:
•Global market conditions resulted in increased selling prices for refined fuels that contributed to a $157.6 million increase in revenues.
•Lower selling prices for propane due to global market conditions resulted in a $27.3 million decrease that partially offset the increased revenues.
30
Ag
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 9,120,470 | $ | 8,295,931 | $ | 824,539 | 9.9 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment revenues for the three months ended February 28, 2023, compared to the same period during the prior year:
The change in Ag segment revenues reflects the following:
•Higher prices for grain and oilseed and oilseed processing were driven by increased global demand and contributed to increased revenues of $986.8 million and $51.3 million during the second quarter of fiscal 2023, respectively.
•The overall price increase was partially offset by lower pricing attributed to market-driven price decreases in the following product categories:
◦$500.4 million decrease for wholesale agronomy products driven by lower prices; and
◦$80.8 million decrease for renewable fuels resulting from lower ethanol prices due to decreased demand.
•Volumes increased within our grain and oilseed and oilseed processing product categories due to a combination of factors, including increased demand for these products, and contributed to $328.3 million and $59.5 million increases in revenues, respectively.
All Other Segments
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Corporate and Other revenues* | $ | 17,477 | $ | 8,658 | $ | 8,819 | 101.9 | % | |||||||||||||||
*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses but not revenues.
Corporate and Other revenues increased during the three months ended February 28, 2023, compared to the same period during the prior year, primarily as a result of increased notes receivable balances and higher interest rates in our financing business.
31
Cost of Goods Sold by Segment
Energy
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cost of goods sold | $ | 1,831,252 | $ | 1,952,852 | $ | (121,600) | (6.2 | %) | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment COGS for the three months ended February 28, 2023, compared to the same period during the prior year:
The change in Energy segment COGS reflects the following:
•Global market conditions contributed to decreased costs for refined fuels that drove a $79.4 million decrease in COGS.
•Lower costs for propane due to global market conditions resulted in a $53.0 million decrease in COGS.
32
Ag
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cost of goods sold | $ | 9,091,307 | $ | 8,111,480 | $ | 979,827 | 12.1 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment COGS for the three months ended February 28, 2023, compared to the same period during the prior year:
The change in Ag segment COGS reflects the following:
•Higher costs for grain and oilseed and oilseed processing were driven by increased global demand, which contributed to $977.5 million and $84.9 million of increased COGS in our Ag segment during the second quarter of fiscal 2023, respectively.
•The overall cost increase was partially offset by lower costs for wholesale agronomy products attributed to market-driven price decreases, which contributed to a $434.2 million decrease in COGS.
•Volumes increased within our grain and oilseed and oilseed processing product categories as a result of increased demand and contributed to $328.1 million and $51.3 million increases in COGS, respectively.
All Other Segments
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Nitrogen Production COGS | $ | 424 | $ | 414 | $ | 10 | 2.4 | % | |||||||||||||||
| Corporate and Other COGS | $ | (402) | $ | (1,156) | $ | 754 | 65.2 | % | |||||||||||||||
There were no significant changes to COGS in our Nitrogen Production segment or Corporate and Other during the three months ended February 28, 2023, compared to the same period during the prior year.
33
Marketing, General and Administrative Expenses
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Marketing, general and administrative expenses | $ | 241,925 | $ | 244,325 | $ | (2,400) | (1.0 | %) | |||||||||||||||
Marketing, general and administrative expenses decreased during the three months ended February 28, 2023, primarily due to the recovery of certain receivables that had been previously reserved, which was partially offset by higher payroll and benefits, as well as higher repair and maintenance expenses for our facilities and information technology platforms.
Interest Expense
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Interest expense | $ | 35,967 | $ | 25,174 | $ | 10,793 | 42.9 | % | |||||||||||||||
Interest expense increased during the three months ended February 28, 2023, as a result of higher interest rates compared to the same period in the prior year, which was partially offset by decreased notes payable balances.
Other Income
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Other income | $ | 28,313 | $ | 1,405 | $ | 26,908 | 1,915.2 | % | |||||||||||||||
Other income increased during the three months ended February 28, 2023, as a result of higher interest income due to increased interest rates and a larger cash balance earning interest.
Equity Income from Investments
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Equity income from investments* | $ | 178,334 | $ | 229,923 | $ | (51,589) | (22.4 | %) | |||||||||||||||
*For additional information, see Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q.
Equity income from investments decreased during the three months ended February 28, 2023, primarily due to lower income associated with our equity method investment in CF Nitrogen. Equity income decreased for CF Nitrogen as a result of lower selling prices of urea and UAN due to global supply and demand factors.
Income Tax Expense
| Three Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | 20,974 | $ | 11,931 | $ | 9,043 | 75.8 | % | |||||||||||||||
Increased income tax expense during the three months ended February 28, 2023, resulted from increased nonpatronage earnings during the period. Effective tax rates for the three months ended February 28, 2023 and 2022, were 6.7% and 5.2%, respectively. Federal and state statutory rates of 24.4% were applied to nonpatronage business activity for the three months ended February 28, 2023 and 2022. Income taxes and effective tax rates vary each year based on profitability, nonpatronage business activity and current equity management assumptions.
34
Results of Operations
Six Months Ended February 28, 2023 and 2022
| Six Months Ended February 28, | |||||||||||||||||||||||
| 2023 | % of Revenues* | 2022 | % of Revenues* | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 24,072,687 | 100.0 | % | $ | 21,213,345 | 100.0 | % | |||||||||||||||
| Cost of goods sold | 22,809,285 | 94.8 | 20,424,439 | 96.3 | |||||||||||||||||||
| Gross profit | 1,263,402 | 5.2 | 788,906 | 3.7 | |||||||||||||||||||
| Marketing, general and administrative expenses | 476,591 | 2.0 | 449,259 | 2.1 | |||||||||||||||||||
| Operating earnings | 786,811 | 3.3 | 339,647 | 1.6 | |||||||||||||||||||
| Interest expense | 69,217 | 0.3 | 48,606 | 0.2 | |||||||||||||||||||
| Other income | (52,602) | (0.2) | (25,181) | (0.1) | |||||||||||||||||||
| Equity income from investments | (360,296) | (1.5) | (381,268) | (1.8) | |||||||||||||||||||
| Income before income taxes | 1,130,492 | 4.7 | 697,490 | 3.3 | |||||||||||||||||||
| Income tax expense | 55,528 | 0.2 | 26,651 | 0.1 | |||||||||||||||||||
| Net income | 1,074,964 | 4.5 | 670,839 | 3.2 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 45 | — | (122) | — | |||||||||||||||||||
| Net income attributable to CHS Inc. | $ | 1,074,919 | 4.5 | % | $ | 670,961 | 3.2 | % | |||||||||||||||
*Amounts less than 0.1% are shown as zero percent. Percentage totals may differ due to rounding.
The charts below detail revenues, net of intersegment revenues, and IBIT by reportable segment for the six months ended February 28, 2023. Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses but not revenues.
35
Income Before Income Taxes by Segment
Energy
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income before income taxes | $ | 661,416 | $ | 80,021 | $ | 581,395 | 726.6 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment IBIT for the six months ended February 28, 2023, compared to the same period during the prior year:
*See commentary related to these changes in the marketing, general and administrative expenses, interest expense, other income and equity income from investments sections of this Results of Operations.
The change in Energy segment IBIT reflects the following:
•Higher crack spreads and increased WCS crude oil discounts resulted from higher global demand and improved market conditions in our refined fuels business, which contributed to a $752.1 million increase of IBIT.
•The increased IBIT was partially offset by increased costs in our refined fuels business, the most significant of which included $80.0 million related to higher RIN prices due to market conditions and $21.0 million of higher repair and maintenance expenses resulting from planned and unplanned maintenance in the current year.
•Higher margins for propane primarily resulted from hedging-related impacts due to global market conditions affecting the price of propane contributed to a $29.7 million increase of IBIT.
•Decreased refined fuels production volumes due to planned and unplanned maintenance at our refineries reduced the sales mix of higher-margin produced refined fuels compared to the prior year and also contributed to a $42.0 million decrease of IBIT.
36
Ag
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income before income taxes | $ | 205,733 | $ | 341,606 | $ | (135,873) | (39.8 | %) | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment IBIT for the six months ended February 28, 2023, compared to the same period during the prior year:
*See commentary related to these changes in the marketing, general and administrative expenses, interest expense, other income and equity income from investments sections of this Results of Operations.
The change in Ag segment IBIT reflects the following:
•Decreased margins of $130.2 million were realized primarily for wholesale and retail agronomy, which experienced market-driven price decreases, including a $68.2 million noncash charge to reduce our agronomy inventories to their net realizable value at the end of the period resulting from decreased prices for these products.
•Decreased margins of $37.5 million were realized for renewable fuels as a result of decreased ethanol prices.
•Overall decreased Ag margins were partially offset by increased margins of $35.2 million in our oilseed processing product category resulting from increased global demand and the timing of the impact of mark-to-market adjustments associated with our commodity derivatives.
All Other Segments
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Nitrogen Production IBIT* | $ | 178,606 | $ | 250,840 | $ | (72,234) | (28.8 | %) | |||||||||||||||
| Corporate and Other IBIT | $ | 84,737 | $ | 25,023 | $ | 59,714 | 238.6 | % | |||||||||||||||
*For additional information, see Note 5, Investments, of the notes to the unaudited condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q.
Our Nitrogen Production segment IBIT decreased from the prior year as a result of lower equity income attributed to decreased selling prices of urea and UAN due to global supply and demand factors. Corporate and Other IBIT increased primarily due to increased equity income from our Ventura Foods, LLC, investment as a result of more favorable market conditions for edible oils experienced during the first half of fiscal 2023 compared to the same period in the prior year, as well as increased interest income due to higher notes receivable balances and interest rates in our financing business.
37
Revenues by Segment
Energy
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 5,288,207 | $ | 4,331,986 | $ | 956,221 | 22.1 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment revenues for the six months ended February 28, 2023, compared to the same period during the prior year:
The change in Energy segment revenues reflects the following:
•Global market conditions contributed to increased selling prices for refined fuels that contributed to a $927.1 million increase in revenues, which was partially offset by lower selling prices for propane that resulted in a $72.3 million decrease in revenues.
•Higher refined fuels and propane volumes contributed to $68.7 million and $11.9 million increases in revenues, respectively, driven by strong demand due to more favorable weather conditions during the fall harvest season compared to the same period in the prior year.
38
Ag
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenues | $ | 18,753,714 | $ | 16,865,190 | $ | 1,888,524 | 11.2 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment revenues for the six months ended February 28, 2023, compared to the same period during the prior year:
The change in Ag segment revenues reflects the following:
•Higher pricing attributed to market-driven price increases in the following product categories:
◦$2.5 billion increase in revenues for grain and oilseed driven by increased global demand;
◦$166.1 million increase for feed and farm supplies due to strong demand; and
◦$154.4 million increase for oilseed processing due to strong meal and oil demand.
•The overall price increase was partially offset by lower pricing attributed to market-driven price decreases in the following product categories:
◦$515.7 million decrease for wholesale agronomy products driven by lower prices and global supply disruptions; and
◦$159.6 million decrease for renewable fuels resulting from lower ethanol prices due to decreased demand.
•Volumes decreased within our wholesale agronomy and grain and oilseed product categories due to a combination of factors, including global supply disruptions and lower crop yields resulting from drought conditions experienced in portions of our trade territory in North America. Decreased volumes in our wholesale agronomy and grain and oilseed product categories contributed to $195.7 million and $143.5 million decreases in revenues, respectively, which were partially offset by volume increases contributing $95.6 million increased revenues in oilseed processing driven by strong meal and oil demand.
All Other Segments
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Corporate and Other revenues* | $ | 30,766 | $ | 16,169 | $ | 14,597 | 90.3 | % | |||||||||||||||
*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses but not revenues.
Corporate and Other revenues increased during the six months ended February 28, 2023, compared to the same period during the prior year, primarily as a result of increased notes receivable balances and higher interest rates in our financing business.
39
Cost of Goods Sold by Segment
Energy
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cost of goods sold | $ | 4,485,981 | $ | 4,132,477 | $ | 353,504 | 8.6 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Energy segment COGS for the six months ended February 28, 2023, compared to the same period during the prior year:
The change in Energy segment COGS reflects the following:
•Global market conditions contributed to increased costs for refined fuels that drove a $361.5 million increase in COGS, which was partially offset by lower costs and hedging-related impacts due to global market conditions affecting the price of propane that resulted in a $101.9 million decrease of COGS.
•Higher volumes of refined fuels and propane contributed to $65.1 million and $12.1 million increases in COGS, respectively, driven by strong demand due to more favorable weather conditions during the fall harvest season compared to the same period in the prior year.
40
Ag
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cost of goods sold | $ | 18,324,035 | $ | 16,295,473 | $ | 2,028,562 | 12.4 | % | |||||||||||||||
The following waterfall analysis and commentary presents the changes in our Ag segment COGS for the six months ended February 28, 2023, compared to the same period during the prior year:
The change in Ag segment COGS reflects the following:
•Higher costs attributed to market-driven price increases during the first half of fiscal 2023 across the following product categories:
◦$2.5 billion increase for grain and oilseed driven by increased global demand;
◦$192.8 million increase for feed and farm supplies due to continued strong demand and constrained supply; and
◦$119.2 million increase for oilseed processing due to strong meal and oil demand.
•The overall increase of costs was partially offset by lower costs attributed to market-driven price decreases in the following product categories:
◦$412.2 million decrease for wholesale agronomy products driven by lower prices and global supply disruptions; and
◦$122.1 million decrease for renewable fuels resulting from lower ethanol prices due to decreased demand.
•Volumes decreased within our wholesale agronomy and grain and oilseed product categories due to a combination of factors, including global supply disruptions and lower crop yields resulting from drought conditions experienced in portions of our trade territory in North America. Decreased volumes in our wholesale agronomy and grain and oilseed product categories contributed to $184.1 million and $141.4 million decreases in COGS, respectively, which were partially offset by volume increases contributing $84.4 million in increased COGS in oilseed processing driven by strong meal and oil demand.
All Other Segments
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Nitrogen Production COGS | $ | 852 | $ | 828 | $ | 24 | 2.9 | % | |||||||||||||||
| Corporate and Other COGS | $ | (1,583) | $ | (4,339) | $ | 2,756 | 63.5 | % | |||||||||||||||
There were no significant changes to COGS in our Nitrogen Production segment or Corporate and Other during the six months ended February 28, 2023, compared to the same period during the prior year.
41
Marketing, General and Administrative Expenses
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Marketing, general and administrative expenses | $ | 476,591 | $ | 449,259 | $ | 27,332 | 6.1 | % | |||||||||||||||
Marketing, general and administrative expenses increased during the six months ended February 28, 2023, primarily due to higher payroll and benefits, as well as higher repair and maintenance expenses for our facilities and information technology platforms.
Interest Expense
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Interest expense | $ | 69,217 | $ | 48,606 | $ | 20,611 | 42.4 | % | |||||||||||||||
Interest expense increased during the six months ended February 28, 2023, as a result of higher interest rates compared to the same period in the prior year, which was partially offset by decreased notes payable balances.
Other Income
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Other income | $ | 52,602 | $ | 25,181 | $ | 27,421 | 108.9 | % | |||||||||||||||
Other income increased during the six months ended February 28, 2023, primarily as a result of higher interest income due to increased interest rates and a larger cash balance earning interest.
Equity Income from Investments
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Equity income from investments* | $ | 360,296 | $ | 381,268 | $ | (20,972) | (5.5 | %) | |||||||||||||||
*For additional information, see Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q.
Equity income from investments decreased during the six months ended February 28, 2023, compared to the same period during the prior year, primarily due to lower income associated with our equity method investment in CF Nitrogen, partially offset by higher income associated with our equity method investments in Ventura Foods, LLC ("Ventura Foods"). Equity income decreased for CF Nitrogen as a result of lower prices of urea and UAN due to global supply and demand factors and increased for Ventura Foods as a result of more favorable market conditions for edible oils.
Income Tax Expense
| Six Months Ended February 28, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Dollars | Percent | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | 55,528 | $ | 26,651 | $ | 28,877 | 108.4 | % | |||||||||||||||
Increased income tax expense during the six months ended February 28, 2023, resulted from increased nonpatronage earnings during the first six months of fiscal 2023. Effective tax rates for the six months ended February 28, 2023 and 2022, were 4.9% and 3.8%, respectively. Federal and state statutory rates of 24.4% were applied to nonpatronage business activity for the six months ended February 28, 2023 and 2022. Income taxes and effective tax rates vary each year based on profitability, nonpatronage business activity and current equity management assumptions.
42
Liquidity and Capital Resources
In assessing our financial condition, we consider factors such as working capital, internal benchmarking related to our applicable covenants and other financial information. The following financial information is used when assessing our liquidity and capital resources to meet our capital allocation priorities, which include maintaining the safety and compliance of our operations, paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and equity redemptions, and taking advantage of strategic opportunities that benefit our member-owners:
| February 28, 2023 | August 31, 2022 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Cash and cash equivalents | $ | 462,220 | $ | 793,957 | |||||||
| Notes payable | 1,093,091 | 606,719 | |||||||||
| Long-term debt including current maturities | 1,954,119 | 1,958,814 | |||||||||
| Total equities | 9,829,319 | 9,461,266 | |||||||||
| Working capital | 3,159,638 | 2,425,878 | |||||||||
| Current ratio* | 1.4 | 1.3 | |||||||||
*Current ratio is defined as current assets divided by current liabilities.
Summary of Our Major Sources of Cash and Cash Equivalents
We fund our current operations primarily through our cash flows from operations and with short-term borrowings through our committed and uncommitted revolving credit facilities, including our securitization facility with certain unaffiliated financial institutions and our repurchase facility relating thereto. We fund certain of our long-term capital needs, primarily those related to acquisitions of property, plant and equipment, with cash flows from operations and by issuing long-term debt. On January 24, 2023, we entered into a Note Purchase Agreement to borrow $150.0 million of debt in the form of a note. The note matures on January 24, 2030, and interest accrues at a rate of 5.68%, subject to certain adjustments depending on our ratio of consolidated funded debt to consolidated cash flow, and the proceeds were used to retire maturing debt. See Note 6, Notes Payable and Long-Term Debt, of the notes to the unaudited condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q for additional information on our short-term borrowings and long-term debt. We will continue to consider opportunities to further diversify and enhance our sources and amounts of liquidity.
Summary of Our Major Uses of Cash and Cash Equivalents
The following is a summary of our primary cash requirements for fiscal 2023:
•Capital expenditures. We expect total capital expenditures for fiscal 2023 to be approximately $803.8 million compared to capital expenditures of $354.4 million in fiscal 2022. Increased capital expenditures for fiscal 2023 are for investments in our infrastructure to meet the evolving needs of our owners and customers, enhance value for the cooperative system and propel sustainable growth. During the six months ended February 28, 2023, we acquired $236.3 million of property, plant and equipment.
•Major maintenance. We expect total major maintenance for fiscal 2023 to be approximately $262.4 million compared to major maintenance of $24.8 million in fiscal 2022. Increased major maintenance for fiscal 2023 is for major maintenance at our Laurel and McPherson refineries. During the six months ended February 28, 2023, we paid $39.4 million in major maintenance.
•Debt and interest. We expect to repay approximately $291.7 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $94.2 million during fiscal 2023. During the six months ended February 28, 2023, we repaid $157.3 million of scheduled long-term debt maturities and finance lease obligations.
•Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of February 28, 2023. We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2023. Dividends paid on our preferred stock during the six months ended February 28, 2023, were $84.3 million.
•Patronage. Our Board of Directors has authorized approximately $500.0 million of our fiscal 2023 patronage-sourced earnings to be paid to our member-owners during fiscal 2023. During the six months ended February 28, 2023, we distributed $381.9 million of cash patronage related to the year ended August 31, 2022, with the remaining amount expected to be distributed in the third quarter of fiscal year 2023.
•Equity redemptions. Our Board of Directors has authorized equity redemptions of up to $500.0 million to be distributed in fiscal 2023 in the form of redemptions of qualified and nonqualified equity owned by individual
43
producer-members and association members. During the six months ended February 28, 2023, we redeemed $17.7 million of member equity.
We believe cash generated by operating and investing activities, along with available borrowing capacity under our credit facilities, will be sufficient to support our short- and long-term operations. 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 all debt covenants and restrictions as of February 28, 2023. Based on our current fiscal 2023 projections, we expect continued covenant compliance.
Working Capital
We measure working capital as current assets less current liabilities as each amount appears on our Condensed Consolidated Balance Sheets. We believe this information is meaningful to investors as a measure of operational efficiency and short-term financial health. Working capital is not defined under U.S. generally accepted accounting principles ("U.S. GAAP") and may not be computed the same as similarly titled measures used by other companies. Working capital as of February 28, 2023, and August 31, 2022, was as follows:
| February 28, 2023 | August 31, 2022 | Change | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Current assets | $ | 10,621,927 | $ | 9,377,847 | $ | 1,244,080 | |||||||||||
| Less current liabilities | 7,462,289 | 6,951,969 | 510,320 | ||||||||||||||
| Working capital | $ | 3,159,638 | $ | 2,425,878 | $ | 733,760 | |||||||||||
As of February 28, 2023, working capital increased by $733.8 million compared with August 31, 2022. Current asset balance changes increased working capital by $1.2 billion, primarily driven by increases in supplier advance payments and inventories, which were driven by seasonality in our business. Current liability balance changes decreased working capital by $510.3 million, primarily due to increases in customer advances and notes payable, which were driven by seasonality in our business.
We finance our working capital needs through committed and uncommitted lines of credit with domestic and international banks. We believe our current cash balances and available capacity on our committed and uncommitted lines of credit will provide adequate liquidity to meet our working capital needs.
Contractual Obligations
For information regarding our estimated contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended August 31, 2022.
Cash Flows
The following table presents summarized cash flow data for the six months ended February 28, 2023 and 2022:
| Six Months Ended February 28, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 16,570 | $ | (1,303,541) | $ | 1,320,111 | |||||||||||
| Net cash used in investing activities | (433,487) | (156,140) | (277,347) | ||||||||||||||
| Net cash provided by financing activities | 103,502 | 1,191,666 | (1,088,164) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (205) | (3,717) | 3,512 | ||||||||||||||
| Decrease in cash and cash equivalents and restricted cash | $ | (313,620) | $ | (271,732) | $ | (41,888) | |||||||||||
Cash flows from operating activities can fluctuate significantly from period to period as a result of various factors, including seasonality and timing differences associated with purchases, sales, taxes and other business decisions. The $1.3 billion decrease in cash used in operating activities primarily reflects decreases in inventories and receivables, which resulted from a combination of reduced prices and volumes, as well as increased net income during the first half of fiscal 2023 compared to the same period during fiscal 2022.
44
The $277.3 million increase of cash used in investing activities reflects larger expenditures for property, plant and equipment and timing differences in borrowings and payments for CHS Capital notes receivable balances during the first half of fiscal 2023, compared to the same period during fiscal 2022.
The $1.1 billion decrease in cash provided by financing activities primarily reflects decreased net cash inflows associated with our notes payable due to lower short-term funding needs resulting from strong cash earnings and increased cash outflows for patronage paid during the first half of fiscal 2023, compared to the same period during fiscal 2022.
Preferred Stock
The following is a summary of our outstanding preferred stock as of February 28, 2023, all shares of which are listed on the Global Select Market of The Nasdaq Stock Market LLC:
| Nasdaq Symbol | Issuance Date | Shares Outstanding | Redemption Value | Net Proceeds (a) | Dividend Rate (b) (c) | Dividend Payment Frequency | Redeemable Beginning (d) | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 8% Cumulative Redeemable | CHSCP | (e) | 12,272,003 | $ | 306.8 | $ | 311.2 | 8.00 | % | Quarterly | 7/18/2023 | |||||||||||||||||||||||||||||||||||||||
| Class B Cumulative Redeemable, Series 1 | CHSCO | (f) | 21,459,066 | $ | 536.5 | $ | 569.3 | 7.875 | % | Quarterly | 9/26/2023 | |||||||||||||||||||||||||||||||||||||||
| Class B Reset Rate Cumulative Redeemable, Series 2 | CHSCN | 3/11/2014 | 16,800,000 | $ | 420.0 | $ | 406.2 | 7.10 | % | Quarterly | 3/31/2024 | |||||||||||||||||||||||||||||||||||||||
| Class B Reset Rate Cumulative Redeemable, Series 3 | CHSCM | 9/15/2014 | 19,700,000 | $ | 492.5 | $ | 476.7 | 6.75 | % | Quarterly | 9/30/2024 | |||||||||||||||||||||||||||||||||||||||
| Class B Cumulative Redeemable, Series 4 | CHSCL | 1/21/2015 | 20,700,000 | $ | 517.5 | $ | 501.0 | 7.50 | % | Quarterly | 1/21/2025 | |||||||||||||||||||||||||||||||||||||||
(a) Includes patron equities redeemed with preferred stock.
(b) Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2, accumulates dividends at a rate of 7.10% per year until March 31, 2024, and then at a rate equal to the three-month benchmark interest rate plus 4.298%, not to exceed 8.00% per annum, subsequent to March 31, 2024.
(c) Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3, accumulates dividends at a rate of 6.75% per year until September 30, 2024, and then at a rate equal to the three-month benchmark interest rate plus 4.155%, not to exceed 8.00% per annum, subsequent to September 30, 2024.
(d) Preferred stock is redeemable for cash at our option, in whole or in part, at a per share price equal to the per share liquidation preference of $25.00 per share, plus all dividends accumulated and unpaid on that share to and including the date of redemption, beginning on the dates set forth in this column.
(e) The 8% Cumulative Redeemable Preferred Stock was issued at various times from 2002 through 2010.
(f) Shares of Class B Cumulative Redeemable Preferred Stock, Series 1, were issued on September 26, 2013, August 25, 2014, March 31, 2016, and March 30, 2017.
Critical Accounting Policies
Our critical accounting policies as presented in the MD&A in our Annual Report on Form 10-K for the year ended August 31, 2022, have not materially changed during the six months ended February 28, 2023.
Recent Accounting Pronouncements
No recent accounting pronouncements are expected to have a material impact on our condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We did not experience material changes in market risk exposures for the period ended February 28, 2023 , that would affect the quantitative and qualitative disclosures presented in our Annual Report on Form 10-K for the year ended August 31, 2022.
45
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of February 28, 2023 . Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of that date, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended February 28, 2023 , that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Note 13, Commitments and Contingencies, of the notes to the unaudited condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2022, except for the risk factor set forth below.
The collapse of certain banks and potentially other financial institutions may adversely impact us.
On March 10, 2023, Silicon Valley Bank ("SVB") was shut down, followed on March 11, 2023, by Signature Bank and the Federal Deposit Insurance Corporation was appointed as receiver for those banks neither of which we have a banking relationship with. Since that time, there have been reports of instability at other banks across the globe. Despite the steps taken to date by U.S. agencies to protect depositors, the follow-on effects of the events surrounding the SVB and Signature Bank failures and pressure on other banks are unknown, could include failures of other financial institutions to which we face direct or more significant exposure, and may lead to significant disruptions to our operations, financial position, and reputation. The extent of such impacts is uncertain, and there may be additional risks that we have not yet identified. We are taking steps to identify any potential impact and minimize any disruptions to our operations. However, we cannot guarantee that we will be able to avoid negative consequences directly or indirectly from the foregoing events or other impacts on financial institutions.
ITEM 5. OTHER INFORMATION
Effective as of January 1, 2023, the CHS Inc. Deferred Compensation Plan was amended and restated (the "Deferred Compensation Plan") to update the "Participant" definition and the eligibility to participate in the Deferred Compensation Plan to include employees with a grade of vice president, senior vice president, executive vice president or chief executive officer.
The Deferred Compensation Plan was also updated to make certain other technical, administrative and non-substantive changes.
Effective as of January 1, 2023, the CHS Inc. Supplemental Executive Retirement Plan was amended and restated (the "Supplemental Executive Retirement Plan") to update Section 3.1 of the Supplemental Executive Retirement Plan to update the eligibility to participate in the Supplemental Executive Retirement Plan.
The Supplemental Executive Retirement Plan was also updated to made certain other technical, administrative and non-substantive changes.
The foregoing descriptions of the Deferred Compensation Plan as amended and restated and the Supplemental Executive Retirement Plan as amended and restated do not purport to be complete and are qualified in their entirety by reference to the full text of the Deferred Compensation Plan and the Supplemental Executive Retirement Plan, copies of which are attached hereto as Exhibits 10.2 and 10.3, respectively, and which are incorporated herein by reference.
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ITEM 6. EXHIBITS
| Exhibit | Description | ||||
| Note Purchase Agreement, dated as of January 24, 2023, among CHS Inc. and each of the Purchasers signatory thereto. (Incorporated by reference to our Current Report on Form 8-K, filed January 25, 2023). | |||||
| CHS Inc. Deferred Compensation Plan Master Plan Document (2023 Restatement). | |||||
| CHS Inc. Supplemental Executive Retirement Plan (2023 Restatement). | |||||
| Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
| Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
| Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||
| Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||
| 101.INS | XBRL Instance Document (The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document. | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||
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SIGNATURES
Pursuant to the requirements 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.
CHS Inc.
(Registrant)
| Date: | April 5, 2023 | By: | /s/ Olivia Nelligan | ||||||||||||||
| Olivia Nelligan | |||||||||||||||||
| Executive Vice President, Chief Financial Officer and Chief Strategy Officer | |||||||||||||||||
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
EX 10.2
CHS Inc.
Deferred Compensation Plan
Master Plan Document
(2023 Restatement)
Deferred Compensation Plan
Master Plan Document
(2023 Restatement)
First Adopted Effective December 30, 2004
As Amended and Restated Effective January 1, 2023
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
TABLE OF CONTENTS
Page | ||||||||
ARTICLE 1 | Definitions | 1 | ||||||
ARTICLE 2 | Eligibility and Enrollment | 6 | ||||||
| 2.1 | Eligibility | |||||||
| 2.2 | Enrollment and Additional Eligibility Requirements; Commencement of Participation | |||||||
| 2.3 | Director Retirement Plan | |||||||
| 2.4 | Termination of a Participant’s Eligibility | |||||||
ARTICLE 3 | Deferral Commitments/Company Contribution Amounts/Company Restoration Matching Amounts/Vesting/Crediting/Taxes | 8 | ||||||
| 3.1 | Minimum Deferrals | |||||||
| 3.2 | Maximum Deferral | |||||||
| 3.3 | Election to Defer; Effect of Election Form | |||||||
| 3.4 | Withholding and Crediting of Annual Deferral Amounts | |||||||
| 3.5 | Company Contribution Amount | |||||||
| 3.6 | Company Restoration Matching Amount | |||||||
| 3.7 | Director Retirement Plan Amount | |||||||
| 3.8 | Crediting of Amounts after Benefit Distribution | |||||||
| 3.9 | Vesting | |||||||
| 3.10 | Crediting/Debiting of Account Balances | |||||||
| 3.11 | FICA and Other Taxes | |||||||
ARTICLE 4 | Scheduled Distribution; Unforeseeable Financial Emergencies; | 14 | ||||||
| 4.1 | Scheduled Distribution | |||||||
| 4.2 | Changing Scheduled Distributions | |||||||
| 4.3 | Certain Benefits Take Precedence Over Scheduled Distributions | |||||||
| 4.4 | Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies | |||||||
ARTICLE 5 | Change In Control Benefit | 15 | ||||||
| 5.1 | Change in Control Benefit | |||||||
| 5.2 | Payment of Change in Control Benefit | |||||||
ARTICLE 6 | Retirement Benefit | 16 | ||||||
| 6.1 | Retirement Benefit | |||||||
| 6.2 | Payment of Retirement Benefit | |||||||
ARTICLE 7 | Termination Benefit | 16 | ||||||
| 7.1 | Termination Benefit | |||||||
| 7.2 | Payment of Termination Benefit | |||||||
ARTICLE 8 | Disability Benefit | 17 | ||||||
| 8.1 | Disability Benefit | |||||||
| 8.2 | Payment of Disability Benefit | |||||||
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
ARTICLE 9 | Death Benefit | 17 | ||||||
| 9.1 | Death Benefit | |||||||
| 9.2 | Payment of Death Benefit | |||||||
ARTICLE 10 | Director Retirement Plan Benefit | 18 | ||||||
| 10.1 | Director Retirement Plan Benefit | |||||||
| 10.2 | Payment of Director Retirement Plan Benefit | |||||||
| 10.3 | Benefit Distribution Date | |||||||
| 10.4 | Effect of Change in Control | |||||||
ARTICLE 11 | Beneficiary Designation | 18 | ||||||
| 11.1 | Beneficiary | |||||||
| 11.2 | Beneficiary Designation; Change; Spousal Consent | |||||||
| 11.3 | Acknowledgement | |||||||
| 11.4 | No Beneficiary Designation | |||||||
| 11.5 | Doubt as to Beneficiary | |||||||
| 11.6 | Discharge of Obligations | |||||||
ARTICLE 12 | Leave of Absence | 19 | ||||||
| 12.1 | Paid Leave of Absence | |||||||
| 12.2 | Unpaid Leave of Absence | |||||||
ARTICLE 13 | Termination of Plan, Amendment or Modification | 20 | ||||||
| 13.1 | Termination of Plan | |||||||
| 13.2 | Amendment | |||||||
| 13.3 | Plan Agreement | |||||||
| 13.4 | Effect of Payment | |||||||
ARTICLE 14 | Administration | 21 | ||||||
| 14.1 | Committee Duties | |||||||
| 14.2 | Administration Upon Change In Control | |||||||
| 14.3 | Agents | |||||||
| 14.4 | Binding Effect of Decisions | |||||||
| 14.5 | Indemnity of Committee | |||||||
| 14.6 | Employer Information | |||||||
ARTICLE 15 | Other Benefits and Agreements | 22 | ||||||
| 15.1 | Coordination with Other Benefits | |||||||
| 15.2 | Clawback or Recoupment | |||||||
ARTICLE 16 | Claims Procedures | 22 | ||||||
| 16.1 | Presentation of Claim | |||||||
| 16.2 | Notification of Decision | |||||||
| 16.3 | Review of a Denied Claim | |||||||
| 16.4 | Decision on Review | |||||||
| 16.5 | Legal Action | |||||||
| 16.6 | Determinations | |||||||
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
ARTICLE 17 | Trust | 24 | ||||||
| 17.1 | Establishment of the Trust | |||||||
| 17.2 | Interrelationship of the Plan and the Trust | |||||||
| 17.3 | Distributions From the Trust | |||||||
ARTICLE 18 | Miscellaneous | 24 | ||||||
| 18.1 | Status of Plan | |||||||
| 18.2 | Unsecured General Creditor | |||||||
| 18.3 | Employer’s Liability | |||||||
| 18.4 | Nonassignability | |||||||
| 18.5 | Not a Contract of Employment | |||||||
| 18.6 | Furnishing Information | |||||||
| 18.7 | Terms | |||||||
| 18.8 | Captions | |||||||
| 18.9 | Governing Law | |||||||
| 18.10 | Notice | |||||||
| 18.11 | Successors | |||||||
| 18.12 | Spouse’s Interest | |||||||
| 18.13 | Validity | |||||||
| 18.14 | Incompetent | |||||||
| 18.15 | Insurance | |||||||
| APPENDIX A — | Share Option Plan Accounts | A-1 | ||||||
| APPENDIX B — | Supplemental Savings Plan Accounts | B-1 | ||||||
| APPENDIX C — | Supplemental Executive Retirement Plan Savings Accounts | C-1 | ||||||
| APPENDIX D — | Agriliance LLC Deferred Compensation Plan Accounts | D-1 | ||||||
| APPENDIX E— | Cofina Deferred Compensation Plan Accounts | E-1 | ||||||
| APPENDIX F— | CMS McPherson Refinery Inc. (formerly National Cooperative Refinery Association) Deferred Compensation Plan Accounts | F-1 | ||||||
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
Adopted Effective December 30, 2004
Purpose
The purpose of this Plan is to provide specified benefits to Directors and a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of CHS Inc., a Minnesota corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
Definitions
Definitions
For the purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:
1.1“Account Balance” shall mean, with respect to a Participant, an entry on the records of the Employer equal to the sum of (i) the Deferral Account balance, (ii) the Company Contribution Account balance, (iii) the Company Restoration Matching Account balance, and (iv) the SOP Account balance, if any, transferred to this Plan in accordance with Appendix A. For purposes of this Section 3.10 and Article 13 only, the term “Account Balance” also includes the Director Retirement Plan Account balance of any Company Director. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
1.2“Annual Deferral Amount” shall mean that portion of a Participant’s Base Salary, Bonus and Director Fees that a Participant defers in accordance with Article 3 for any one Plan Year, without regard to whether such amounts are withheld and credited during such Plan Year. In the event of a Participant’s Retirement, Disability, death or Separation from Service prior to the end of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.
1.3“Annual Director Retirement Plan Amount” shall mean the amount credited to the Director Retirement Plan Account of a non-employee Company Director for any one fiscal year in accordance with Section 3.7.
1.4“Annual Installment Method” shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: (i) for the first annual installment, the Participant’s vested Account Balance shall be calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion, and (ii) for remaining annual installments, the Participant’s vested Account Balance shall be calculated on every anniversary of such calculation date, as applicable. Each annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a ten (10) year Annual Installment Method for the Retirement Benefit, the first payment shall be 1/10 of the vested Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the vested Account Balance, calculated as described in this definition.
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
1.5“Base Salary” shall mean the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, profit sharing contributions, stock options, relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee. In no event shall Base Salary include any amounts payable to the Participant prior to the commencement of his or her participation in this Plan.
1.6“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant.
1.7“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.
1.8“Benefit Distribution Date” shall mean the date that triggers distribution of a Participant’s vested Account Balance. A Participant’s Benefit Distribution Date shall be determined upon the occurrence of any one of the following:
(a)If the Participant Retires, his or her Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant Retires; provided, however, in the event the Participant changes his or her Retirement Benefit election in accordance with Section 6.2(a), his or her Benefit Distribution Date shall be postponed in accordance with such Section 6.2(a); or
(b)If the Participant experiences a Separation from Service, his or her Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant experiences a Separation from Service; or
(c)The date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death, if the Participant dies prior to the complete distribution of his or her vested Account Balance; or
(d)The date on which the Committee determines the Participant is Disabled; or
(e)The date on which the Affected Corporation (as defined in Section 1.11) experiences a Change in Control, as determined by the Committee in its sole discretion, if (i) the Participant has elected to receive a Change in Control Benefit, as set forth in Section 1.12 below, and (ii) if a Change in Control occurs prior to the Participant’s Separation from Service, Retirement, death or Disability.
1.9“Board” shall mean the board of directors of the Company.
1.10“Bonus” shall mean any compensation, in addition to Base Salary, earned by a Participant for services rendered during a Plan Year as further specified on an Election Form approved by the
-2-
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
Committee in its sole discretion, under any Employer’s annual bonus and cash incentive plans (and long term incentive plans).
1.11“Change in Control” shall mean the occurrence of a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of the assets,” as defined under Treasury Regulation § 1.409A-3(i)(5), of the Affected Corporation. For this purpose, the Affected Corporation is the Participant’s Employer, or any corporation (including the Company) in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending with the Participant’s Employer. A “majority shareholder” is a shareholder owning more than 50 percent of the total fair market value and total voting power of such corporation.
1.12“Change in Control Benefit” shall have the meaning set forth in Article 5.
1.13“Claimant” shall have the meaning set forth in Section 16.1.
1.14“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.
1.15 “Committee” shall mean the committee described in Article 14.
1.16“Company” shall mean CHS Inc., a Minnesota corporation, and any successor to all or substantially all of the Company’s assets or business.
1.17“Company Contribution Account” shall mean (i) the sum of the Participant’s Company Contribution Amounts, plus (ii) amounts credited or debited to the Participant’s Company Contribution Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Contribution Account.
1.18“Company Contribution Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.5.
1.19“Company Restoration Matching Account” shall mean (i) the sum of all of a Participant’s Company Restoration Matching Amounts, plus (ii) amounts credited or debited to the Participant’s Company Restoration Matching Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Restoration Matching Account.
1.20“Company Restoration Matching Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.6.
1.21“Death Benefit” shall mean the benefit set forth in Article 9.
1.22“Deferral Account” shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts, plus (ii) amounts credited or debited to the Participant’s Deferral Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.
1.23“Director” shall mean any member of the board of directors of any Employer.
1.24“Director Fees” shall mean the annual fees earned by a Director from any Employer, including retainer fees and meetings fees, as compensation for serving on the board of directors.
1.25“Director Retirement Plan” shall mean the deferred compensation plan covering non-employee Directors of the Company. Annual Director Retirement Plan Amounts shall be credited to the Director Retirement Plan Accounts of Directors of the Company in accordance with Section 3.7. Company Directors may direct investment of their Director Retirement Plan Accounts in one or
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Deferred Compensation Plan
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more Measurement Funds in accordance with the rules prescribed by the Committee under Section 3.10. The Director Retirement Plan Accounts shall be paid in the manner described in Article 10.
1.26“Director Retirement Plan Account” shall mean (i) the sum of a Participant’s Annual Director Retirement Plan Amounts, plus (ii) amounts credited or debited to the Participant’s Director Retirement Plan Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Director Retirement Plan Account.
1.27“Director Retirement Plan Benefit” shall mean the benefit set forth in Article 10.
1.28“Disability” or “Disabled” shall mean that a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident or health plan covering employees of the Participant’s Employer.
1.29“Disability Benefit” shall mean the benefit set forth in Article 8.
1.30“Election Form” shall mean the form, which may be in electronic format, established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.
1.31“Employee” shall mean a person who is an employee of any Employer.
1.32“Employer(s)” shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Committee to participate in the Plan and have adopted the Plan as a sponsor.
1.33“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
1.34“401(k) Plan” shall mean, with respect to an Employer, a plan qualified under Code Section 401(a) that contains a cash or deferral arrangement described in Code Section 401(k), adopted by the Employer, as it may be amended from time to time, or any successor thereto.
1.35“Participant” shall mean any Director or any Employee with a grade of Vice President (“VP”), Senior Vice President (“SVP”), Executive Vice President (“EVP”) or Chief Executive Officer (“CEO”), as well as any employee selected for participation by the Chief Executive Officer, (i) who submits an executed Plan Agreement, Election Form and Beneficiary Designation Form, which are accepted by the Committee and (ii) whose Plan Agreement has not terminated. Each non-employee Director of the Company shall become a Participant for purposes of the Director Retirement Plan component of this Plan upon becoming a member of the Company’s Board.
1.36“Plan” shall mean the CHS Inc. Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time.
1.37“Plan Agreement” shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant’s Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous
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Deferred Compensation Plan
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Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant.
1.38“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. The first Plan Year for which the Plan shall be in effect shall commence on January 1, 2005.
1.39“Retirement”, “Retire(s)” or “Retired” shall mean, with respect to an Employee, Separation from Service from all Employers for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service; and shall mean with respect to a Director who is not an Employee, Separation from Service as a Director with all Employers on or after the attainment of age sixty (60).
1.40“Retirement Benefit” shall mean the benefit set forth in Article 6.
1.41“Scheduled Distribution” shall mean the distribution set forth in Section 4.1.
1.42“Terminate the Plan”, “Termination of the Plan” shall mean a determination by an Employer’s board of directors that (i) all of its Participants shall no longer be eligible to participate in the Plan, (ii) all deferral elections for such Participants shall terminate, and (iii) such Participants shall no longer be eligible to receive company contributions under this Plan.
1.43“Termination Benefit” shall mean the benefit set forth in Article 7.
1.44“Separation from Service” shall mean the separation from service (within the meaning of Treas. Regs. § 1.409A-1(h)) with the Company Controlled Group, voluntarily or involuntarily, for any reason other than Retirement, Disability or death. Whether a separation from service has occurred is determined under Code Section 409A and Treasury Regulation 1.409A-1(h) (i.e., whether the facts and circumstances indicate that the Employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty-six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with any member of the Company Controlled Group under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for any member of the Company Controlled Group. Notwithstanding the foregoing, a twenty-nine (29)-month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, the “Company Controlled Group” is the Participant’s Employer and all persons with whom the Employer would be considered a single employer under Code sections 414(b) and 414(c); provided that, in applying Code sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of
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Deferred Compensation Plan
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corporations under Code section 414(b), the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c)-2 for purposes of determining trades or businesses that are under common control for purposes of Code section 414(c), “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein. For purposes of this Plan, a “Separation from Service” shall mean a complete severance of a Director’s relationship as a director of the Employer and all affiliates within the Company Controlled Group, if any, and as an independent contractor of the Employer and all affiliates within the Company Controlled Group, if any, for any reason (including death). A Director may have a Separation from Service upon resignation as a director even if the Director then becomes an officer or employee.
1.45“Trust” shall mean one or more trusts established by the Company in accordance with Article 16.
1.46“Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.
1.47“Years of Service” shall mean an Employee’s period of service with CHS Inc., a participating Employer or a related employer measured in full years. A Participant shall receive credit for one full year of “Service” for each Plan Year in which the Participant had at least 1,000 hours of service for CHS Inc., a participating Employer or related employer. For purposes of this section, a “related employer” means the member services department of Land O’ Lakes, Inc. and any trade or business that is part of a parent-subsidiary controlled group with CHS Inc. as determined under Code Sections 1563(a)(1) and 414(c), except that “at least 25 percent” voting control and ownership shall be used instead of “at least 80 percent” for purposes of establishing a controlled group.
ARTICLE 2
Eligibility and Enrollment
Eligibility and Enrollment
2.1Eligibility. Participation in the Plan shall be limited to Directors and a select group of management or highly compensated Employees. Employees with a grade of VP, SVP, EVP, or CEO are eligible to participate in this Plan, as is any employee selected for participation by the Chief Executive Officer, so long as such employee is still part of a select group of highly compensated or management employees (“Eligible Employee”).
2.2Enrollment and Additional Eligibility Requirements; Commencement of Participation.
(a)As a condition to participation, each Director or Eligible Employee who is eligible to participate in the Plan effective as of the first day of a Plan Year shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, prior to the first day of such Plan Year, or such other earlier deadline as may be established by the Committee in its sole discretion. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary.
(b)A Director or Eligible Employee who first becomes eligible to participate in this Plan (and all other deferred compensation plans required to be aggregated with the Plan under
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Code Section 409A) after the first day of a Plan Year must complete these requirements within thirty (30) days after he or she first becomes eligible to participate in the Plan, or within such other earlier deadline as may be established by the Committee, in its sole discretion, in order to participate for that Plan Year. In such event, such person’s participation in this Plan shall not commence earlier than the date determined by the Committee pursuant to Section 2.2(c) and such person shall not be permitted to defer under this Plan any portion of his or her Base Salary, Bonus and/or Director Fees that are paid with respect to services performed prior to his or her participation commencement date, except as permitted by Section 3.3(c). Notwithstanding the foregoing, the Committee may, in its sole discretion, prohibit a deferral or specify an automatic time and form of payment if it determines that, based on the timing of a Participant’s entry into the Plan during a given deferral period, a voluntary deferral election of that Bonus would be administratively burdensome or impractical.
(c)Each Director or Eligible Employee who is eligible to participate in the Plan shall commence participation in the Plan on the date that the Committee determines, in its sole discretion, that the Director or Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period. Notwithstanding the foregoing, the Committee shall process such Participant’s deferral election as soon as administratively practicable after such deferral election is submitted to and accepted by the Committee.
(d)If a Director or an Employee fails to meet all requirements contained in this Section 2.2 within the period required, that Director or Employee shall not be eligible to participate in the Plan during such Plan Year.
2.3Director Retirement Plan. Notwithstanding the foregoing, each non-employee Director of the Company shall, upon becoming a member of the Company’s Board, automatically become a Participant for purposes of the Director Retirement Plan component of this Plan. Each Director of the Company shall complete and return to the Committee a Beneficiary Designation Form, an Election Form with respect to the Measurement Funds available under Section 3.10 and an Election Form with respect the form of payment of Director Retirement Plan Accounts under Section 10.2.
2.4Termination of a Participant’s Eligibility. The Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Committee makes such determination, (ii) prevent the Participant from making future deferral elections, and/or (iii) take further action that the Committee deems appropriate to the extent permitted under Code Section 409A. Notwithstanding the foregoing, in the event of a Termination of the Plan in accordance with Section 1.42, the termination of the affected Participants’ eligibility for participation in the Plan shall not be governed by this Section 2.4, but rather shall be governed by Section 1.42 and Section 13.1. In the event that a Participant is no longer eligible to defer compensation under this Plan, the Participant’s Account Balance shall continue to be governed by the terms of this Plan until such time as the Participant’s Account Balance is paid in accordance with the terms of this Plan.
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Deferred Compensation Plan
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ARTICLE 3
Deferral Commitments/Company Contribution Amounts/
Deferral Commitments/Company Contribution Amounts/
Company Restoration Matching Amounts/Vesting/Crediting/Taxes
3.1Minimum Deferrals.
(a)Annual Deferral Amount. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary, Bonus and/or Director Fees in the following minimum amounts for each deferral elected:
Deferral | Minimum Amount | ||||
| Base Salary and/or Bonus | $2,000 aggregate | ||||
| Director Fees | $0 | ||||
If the Committee determines, in its sole discretion, prior to the beginning of a Plan Year that a Participant has made an election for less than the stated minimum amounts, or if no election is made, the amount deferred shall be zero. If the Committee determines, in its sole discretion, at any time after the beginning of a Plan Year that a Participant has deferred less than the stated minimum amounts for that Plan Year, any amount credited to the Participant’s Account Balance as the Annual Deferral Amount for that Plan Year shall be distributed to the Participant within sixty (60) days after the last day of the Plan Year in which the Committee determination was made.
(b) Short Plan Year. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year the minimum Annual Deferral Amount shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12.
3.2Maximum Deferral.
(a)Annual Deferral Amount. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary, Bonus and/or Director Fees up to the following maximum percentages for each deferral elected:
Deferral | Maximum Percentage | ||||
| Base Salary | 75% | ||||
| Bonus | 100% | ||||
| Director Fees | 100% | ||||
(b)Short Plan Year. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance.
3.3Election to Defer; Effect of Election Form.
(a)First Plan Year. In connection with a Participant’s commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other
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elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee.
(b)Subsequent Plan Years. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering a new Election Form to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year.
(c)Performance-Based Compensation. Notwithstanding the foregoing, the Committee may, in its sole discretion, determine that an irrevocable deferral election pertaining to Bonuses that qualify as performance-based compensation may be made by timely delivering a new Election Form to the Committee, in accordance with its rules and procedures, no later than six (6) months before the end of the performance service period, provided such compensation is not yet readily ascertainable. “Performance based compensation” shall be compensation based on services performed over a period of at least twelve (12) months, in accordance with Code Section 409A and related guidance.
(d)Mandatory Credits. Notwithstanding the foregoing rules regarding voluntary deferrals, Bonuses shall be automatically credited to this Plan to the extent required by the Committee or the governing bonus or long term incentive plan under which the Bonus was awarded. With respect to any amounts that are automatically credited to this Plan, the Committee may specify an automatic time and form of payment in lieu of permitting a voluntary election as to time and form of payment.
(e)Rehired Participants. An Employee who previously participated in the Plan, ceased to be eligible to defer amounts under the Plan and was paid all deferred amounts under the Plan before again becoming eligible to participate shall be treated as a newly eligible Employee under (a) above. An Employee who previously participated in the Plan, ceased to be eligible to defer amounts under the Plan for twenty four (24) months or longer before again becoming eligible to participate shall be treated as a newly eligible Employee under (a) above, regardless of whether all amounts deferred under the Plan have been paid to the Employee. A rehired Employee who is treated as a newly eligible Employee shall complete such forms as required under Section 2.2 with respect to future deferrals made after re enrollment. With respect to any unpaid amounts deferred prior to re enrollment, the Employee’s prior elections shall continue to apply, and any payments scheduled to be made following the Employee’s Separation from Service that occurred before re hire shall be made as scheduled.
3.4Withholding and Crediting of Annual Deferral Amounts. For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Salary. The Bonus and/or Director Fees portion of the Annual Deferral Amount shall be withheld at the time the Bonus or Director Fees are or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. Annual Deferral Amounts shall be credited to a Participant’s Deferral Account as soon as reasonably practicable following the time such amounts would otherwise have been paid to the Participant.
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Deferred Compensation Plan
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3.5Company Contribution Amount.
(a)For each Plan Year, an Employer may be required to credit amounts to a Participant’s Company Contribution Account in accordance with employment or other agreements entered into between the Participant and the Employer. Such amounts shall be credited on the date or dates prescribed by such agreements.
(b)For each Plan Year, an Employer, in its sole discretion, may, but is not required to, credit any amount it desires to any Participant’s Company Contribution Account under this Plan, which amount shall be for that Participant the Company Contribution Amount for that Plan Year and shall include any amounts credited in accordance with Section 3.5(a) above. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive a Company Contribution Amount for that Plan Year. The Company Contribution Amount described in this Section 3.5(b), if any, shall be credited on a date or dates to be determined by the Committee, in its sole discretion.
(c)Notwithstanding any provision in this Plan to the contrary, Company Contribution Amounts may, as applicable, be distributed at the time or times determined under the relevant terms of the Company’s plan, agreement or other arrangement under which such amounts were contributed to this Plan.
3.6Company Restoration Matching Amount. A Participant’s Company Restoration Matching Amount for any Plan Year shall be an amount determined by the Committee, in its sole discretion, to make up for certain limits applicable to the 401(k) Plan or other qualified plan for such Plan Year, as identified by the Committee, or for such other purposes as determined by the Committee in its sole discretion. The amount so credited to a Participant under this Plan for any Plan Year (i) may be smaller or larger than the amount credited to any other Participant, and (ii) may differ from the amount credited to such Participant in the preceding Plan Year. The Participant’s Company Restoration Matching Amount, if any, shall be credited on a date or dates to be determined by the Committee, in its sole discretion.
3.7Director Retirement Plan Amount. For the Company’s fiscal year beginning September 1, 2019 and each fiscal year thereafter, the Company shall credit an amount to each Company Director Participant’s Director Retirement Plan Account based on Company performance metrics as determined by the Company’s Board, in its sole discretion. Contribution amounts based on performance level are presented in the following table:
| Amount | Performance Definition | ||||
| $100,000 | Superior Performance | ||||
| $50,000 | Maximum | ||||
| $25,000 | Target | ||||
The guaranteed minimum contribution will be the amount set for target performance level, unless otherwise determined by the Company’s Board in its sole discretion. Awards will be prorated for performance between performance levels. For Directors who leave the Board during a fiscal year, a Director’s credit for that partial fiscal year will be the target amount prorated through the end of the month in which the Director departs. Directors who join the Company’s Board during a fiscal year will receive a credit for that partial fiscal year based on actual performance metrics achieved for the fiscal year in which the Director joins the Board, prorated from the first of the
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Deferred Compensation Plan
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month next following the month in which the Director joins the Board to the end of the fiscal year.
A Participant’s Annual Director Retirement Plan Amount, if any, shall be credited on a date or dates to be determined by the Company’s Board, in its sole discretion.
3.8Crediting of Amounts after Benefit Distribution. Notwithstanding any provision in this Plan to the contrary, should the complete distribution of a Participant’s vested Account Balance occur prior to the date on which any portion of (i) the Annual Deferral Amount that a Participant has elected to defer in accordance with Section 3.3, (ii) the Company Contribution Amount, or (iii) the Company Restoration Matching Amount, would otherwise be credited to the Participant’s Account Balance, such amounts shall be credited to the Participant’s Account Balance in accordance with the deferral election and shall be paid to the Participant in accordance with the terms of the Plan (and the Participant’s payment election, as applicable).
3.9Vesting.
(a)A Participant shall at all times be 100% vested in his or her Deferral Account. A Company Director Participant shall at all times be 100% vested in his or her Director Retirement Plan Account.
(b)A Participant shall be vested in his or her Company Contribution Account in accordance with the vesting schedule(s) set forth in his or her Plan Agreement, employment agreement, any other agreement entered into between the Participant and his or her Employer, or as declared by the Committee in its sole discretion. If not addressed in such agreements or declared by the Committee, a Participant shall vest in each Company Contribution Amount, plus amounts credited and debited on such amount, on the anniversary of the date on which such Company Contribution Amount was credited to the Company Contribution Account, in accordance with the following schedule; provided, however, that the Participant must be in the service of an Employer as an Employee on such anniversary to receive vesting credit:
| Time Elapsed Following Crediting of Company Contribution Amount | Vested Percentage | ||||
| Less than 1 year | 0% | ||||
| 1 year or more, but less than 2 years | 33% | ||||
| 2 years or more, but less than 3 years | 66% | ||||
| 3 years or more | 100% | ||||
A new vesting schedule shall apply to each Company Contribution Amount credited to the Participant’s Company Contribution Account.
(c)A Participant shall be vested in his or her Company Restoration Matching Account only to the extent that the Participant would be vested in such amounts under the provisions of the 401(k) Plan, as determined by the Committee in its sole discretion.
(d)Notwithstanding anything to the contrary contained in this Section 3.9, in the event that, while a Participant is employed by an Employer or in the service of the Company as a Director, a Change in Control occurs (whether or not Article 5 has been implemented) or the Participant Retires, dies or becomes Disabled, the Participant’s Company
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Deferred Compensation Plan
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Contribution Account and Company Restoration Matching Account shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedules).
(e)Notwithstanding subsection 3.9(d) above, the vesting schedule for a Participant’s Company Contribution Account and Company Restoration Matching Account shall not be accelerated upon a Change in Control to the extent that the Committee determines that such acceleration would cause the deduction limitations of Section 280G of the Code to become effective. In the event that all of a Participant’s Company Contribution Account and/or Company Restoration Matching Account is not vested pursuant to such a determination, the Participant may request independent verification of the Committee’s calculations with respect to the application of Section 280G. In such case, the Committee must provide to the Participant within ninety (90) days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the “Accounting Firm”). The opinion shall state the Accounting Firm’s opinion that any limitation in the vested percentage hereunder is necessary to avoid the limits of Section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company.
(f)Section 3.9(e) shall not prevent the acceleration of the vesting schedule applicable to a Participant’s Company Contribution Account and/or Company Restoration Matching Account if such Participant is entitled to a “gross-up” payment, to eliminate the effect of the Code section 4999 excise tax, pursuant to his or her employment agreement or other agreement entered into between such Participant and the Employer.
3.10Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant’s Account Balance in accordance with the following rules. For purposes of this Section 3.10, the term “Account Balance” includes the Director Retirement Plan Account balance of any Company Director.
(a)Measurement Funds. The Participant may elect one or more of the measurement funds selected by the Committee, in its sole discretion, which are based on investment options including, but not limited to, fixed interest credits, notional mutual fund(s) or an investment index (the “Measurement Funds”), for the purpose of crediting or debiting additional amounts to his or her Account Balance. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund and such changes will take effect as soon as practicable.
(b)Election of Measurement Funds. A Participant, in connection with his or her initial deferral election in accordance with Section 3.3(a) above (or as a result of a Company Director’s automatic participation in accordance with Section 3.7 above), shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.10(a) above) to be used to determine the amounts to be credited or debited to his or her Account Balance. If a Participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant’s Account Balance shall automatically be allocated into such default Measurement Fund as determined by the Committee from time to time, in its sole discretion. The Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply as of the first
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Deferred Compensation Plan
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business day deemed reasonably practicable by the Committee, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence.
(c)Proportionate Allocation. In making any election described in Section 3.10(a) above, the Participant shall specify on the Election Form, in increments of one percent (1%), the percentage of his or her Account Balance or Measurement Fund, as applicable, to be allocated/reallocated.
(d)Crediting or Debiting Method. The performance of each Measurement Fund (either positive or negative) will be determined on a daily basis based on the manner in which such Participant’s Account Balance has been hypothetically allocated among the Measurement Funds by the Participant.
(e)No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation of his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company.
3.11FICA and Other Taxes.
(a)Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Salary and/or Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.11.
(b)Company Restoration Matching Account and Company Contribution Account. When a Participant becomes vested in a portion of his or her Company Restoration Matching Account and/or Company Contribution Account, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Salary and/or Bonus that is not deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Company Restoration Matching Amount and/or Company Contribution Amount. If necessary, the Committee may reduce the vested portion of the Participant’s Company Restoration Matching Account or Company Contribution Account, as applicable, in order to comply with this Section 3.11.
(c)Distributions. The Participant’s Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust.
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Deferred Compensation Plan
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ARTICLE 4
Scheduled Distribution; Unforeseeable Financial Emergencies
Scheduled Distribution; Unforeseeable Financial Emergencies
4.1Scheduled Distribution. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a Scheduled Distribution with respect to all or a portion of the Annual Deferral Amount, in the form of a lump sum payment or pursuant to an Annual Installment Method of up to ten (10) years. The Annual Deferral Amount (or portion thereof) subject to the election shall be credited or debited for earnings, gains or losses in the manner provided in Section 3.10 above. Subject to the other terms and conditions of this Plan, each Scheduled Distribution elected shall be paid out (or commenced in the case of installments) during a sixty (60) day period commencing immediately after the first day of any Plan Year designated by the Participant (the “Scheduled Distribution Date”). The Plan Year designated by the Participant must be at least two (2) Plan Years after the end of the Plan Year to which the Participant’s deferral election described in Section 3.3 relates. By way of example, if a Scheduled Distribution is elected for Annual Deferral Amounts that are earned in the Plan Year commencing January 1, 2014, the Scheduled Distribution would become payable during a sixty (60) day period commencing January 1, 2017.
4.2Changing Scheduled Distributions. A Participant may elect to postpone or change the form of a Scheduled Distribution election described in Section 4.1 above. In order to make this election, the Participant must submit a new Scheduled Distribution Election Form to the Committee in accordance with the following criteria:
(a)Such Scheduled Distribution Election Form must be submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s previously designated Scheduled Distribution Date;
(b)The new Scheduled Distribution Date selected by the Participant must be the first day of a Plan Year, and must be at least five years after the previously designated Scheduled Distribution Date (even if the Participant is seeking merely to modify the form of payment);
(c)The election to modify the Scheduled Distribution shall have no effect until at least twelve (12) months after the date on which the election is made.
4.3Certain Benefits Take Precedence Over Scheduled Distributions. Should a Benefit Distribution Date occur that triggers a benefit under Articles 5, 7, 8, or 9, any Annual Deferral Amount that is subject to a Scheduled Distribution election under Section 4.1 shall not be paid in accordance with Section 4.1, but shall be paid in accordance with the other applicable Article. The occurrence of a Benefit Distribution Date that triggers a Retirement Benefit under Article 6 shall not take precedence over any Annual Deferral Amount that is subject to a Scheduled Distribution election; such amount(s) shall be paid in accordance with the applicable Scheduled Distribution election. Notwithstanding the foregoing, the Committee shall interpret this Section 4.1 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
4.4 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
(a)If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to suspend deferrals of Base Salary, Bonus and Director Fees to the extent deemed necessary by the Committee to satisfy the Unforeseeable Financial Emergency. If suspension of deferrals is not sufficient to satisfy the Participant’s Unforeseeable Financial Emergency, or if suspension of deferrals is not required under
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Code Section 409A and other applicable tax law, the Participant may further petition the Committee to receive a partial or full payout from the Plan. The Participant shall only receive a payout from the Plan to the extent such payout is deemed necessary by the Committee to satisfy the Participant’s Unforeseeable Financial Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution.
(b)The payout shall not exceed the lesser of (i) the Participant’s vested Account Balance, calculated as of the close of business on or around the date on which the amount becomes payable, as determined by the Committee in its sole discretion, or (ii) the amount necessary to satisfy the Unforeseeable Financial Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution. Notwithstanding the foregoing, a Participant may not receive a payout from the Plan to the extent that the Unforeseeable Financial Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, (B) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (C) by suspension of deferrals under this Plan, if the Committee, in its sole discretion, determines that suspension is required by Code Section 409A and other applicable tax law.
(c)If the Committee, in its sole discretion, approves a Participant’s petition for suspension, the Participant’s deferrals under this Plan shall be suspended as of the date of such approval. If the Committee, in its sole discretion, approves a Participant’s petition for suspension and payout, the Participant’s deferrals under this Plan shall be suspended as of the date of such approval and the Participant shall receive a payout from the Plan within sixty (60) days of the date of such approval.
(d)Notwithstanding the foregoing, the Committee shall interpret all provisions relating to suspension and/or payout under this Section 4.4 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
ARTICLE 5
Change in Control Benefit
Change in Control Benefit
5.1Change in Control Benefit. The provisions of this Change in Control Benefit Article shall be subject to such conditions and limitations as the Committee may prescribe from time to time for administrative convenience and to comply with the provisions of Code Section 409A. Each Participant, in connection the implementation of this provision (or for any future Participant, in connection with his or her commencement of participation in the Plan), shall irrevocably elect on an Election Form whether to (i) receive a Change in Control Benefit upon the occurrence of a Change in Control, which shall be equal to the Participant’s vested Account Balance, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion, or (ii) to have his or her Account Balance remain in the Plan upon the occurrence of a Change in Control and to have his or her Account Balance remain subject to the terms and conditions of the Plan. If a Participant does not make any election with respect to the payment of the Change in Control Benefit, then: (i) for Participants who first entered the Plan prior to June 1, 2012, such Participant’s Account Balance shall remain in the Plan upon a Change in Control and shall be subject to the terms and conditions of the Plan; and (ii) for Participants who first enter the Plan on or after June 1, 2012, such Participant’s Account Balance shall receive a Change in Control Benefit upon the occurrence of a Change in Control.
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5.2Payment of Change in Control Benefit. The Change in Control Benefit, if any, shall be paid to the Participant in a lump sum no later than sixty (60) days after the Participant’s Benefit Distribution Date. Notwithstanding the foregoing, the Committee shall interpret all provisions in this Plan relating to a Change in Control Benefit in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
ARTICLE 6
Retirement Benefit
Retirement Benefit
6.1Retirement Benefit. A Participant who Retires shall receive, as a Retirement Benefit, his or her vested Account Balance, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion.
6.2Payment of Retirement Benefit.
(a) A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of up to ten (10) years. The Participant may postpone or change the form of the Retirement Benefit by submitting an Election Form to the Committee in accordance with the following criteria:
(i) Such Election Form must be submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s previously scheduled Benefit Distribution Date described in Section 1.8(a); and
(ii) The first Retirement Benefit payment is delayed at least five (5) years from the Participant’s previously scheduled Benefit Distribution Date described in Section 1.8(a); and
(iii) The election to modify the Retirement Benefit shall have no effect until at least twelve (12) months after the date on which the election is made.
The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit in connection with his or her commencement of participation in the Plan, then such Participant shall be deemed to have elected to receive the Retirement Benefit in a lump sum.
(b)The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than sixty (60) days after each anniversary of the Participant’s Benefit Distribution Date.
ARTICLE 7
Termination Benefit
Termination Benefit
7.1Termination Benefit. A Participant who experiences a Separation from Service shall receive, as a Termination Benefit, his or her vested Account Balance, calculated as of the close of business
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on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion.
7.2Payment of Termination Benefit. The Termination Benefit shall be paid to the Participant in a lump sum payment no later than sixty (60) days after the Participant’s Benefit Distribution Date.
ARTICLE 8
Disability Benefit
Disability Benefit
8.1Disability Benefit. Upon a Participant’s Disability, the Participant shall receive a Disability Benefit, which shall be equal to the Participant’s vested Account Balance, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as selected by the Committee in its sole discretion.
8.2Payment of Disability Benefit.
(a) A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Disability Benefit in a lump sum or pursuant to an Annual Installment Method of up to ten (10) years. The Participant may change this election by submitting an Election Form to the Committee, provided that any such Election Form is submitted to and accepted by the Committee in its sole discretion at least twelve (12) months prior to the Participant’s Disability.
Notwithstanding the foregoing, the Committee shall interpret all provisions relating to changing the Disability Benefit election under this Section 8.2 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
The Election Form most recently accepted by the Committee shall govern the payout of the Disability Benefit. If a Participant does not make any election with respect to the payment of the Disability Benefit, then such benefit shall be payable in a lump sum.
(b) The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than sixty (60) days after each anniversary of the Participant’s Benefit Distribution Date.
ARTICLE 9
Death Benefit
Death Benefit
9.1Death Benefit. The Participant’s Beneficiary(ies) shall receive a Death Benefit upon the Participant’s death which will be equal to the Participant’s vested Account Balance, calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as selected by the Committee in its sole discretion.
9.2Payment of Death Benefit. The Death Benefit shall be paid to the Participant’s Beneficiary(ies) in a lump sum payment no later than sixty (60) days after the Participant’s Benefit Distribution Date.
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ARTICLE 10
Director Retirement Plan Benefit
Director Retirement Plan Benefit
10.1Director Retirement Plan Benefit. A Director of the Company who experiences a Separation from Service, death or Disability shall receive, as a Director Retirement Plan Benefit, his or her Director Retirement Plan Account balance, calculated as of the close of business on or around the Director’s Benefit Distribution Date, as determined by the Committee in its sole discretion.
10.2Payment of Director Retirement Plan Benefit. Within thirty (30) days after a Director first becomes a Participant in the Plan, the Director shall complete and return to the Committee an Election form with respect to the form of payment of Director Retirement Plan Accounts. Directors may choose a lump sum or annual installment payments over two (2) to ten (10) years in accordance with the Annual Installment Method. In the absence of a timely submitted Election Form, a Director Retirement Plan Benefit shall be paid in annual installment payments over four (4) years, determined in accordance with the Annual Installment Method. Payment shall be made (or commence, in the case of installments) to the Director no later than sixty (60) days after the Participant’s Benefit Distribution Date. Remaining installments shall be paid no later than sixty (60) days after each anniversary of the Participant’s Benefit Distribution Date.
Directors who first became Participants on or prior to January 1, 2019 may, prior to September 1, 2019, make a special one-time election to choose the form of payment with respect to contributions credited to their Director Retirement Plan Accounts for fiscal years ending on and after August 31, 2022, together with earnings thereon. Directors may choose a lump sum or annual installment payments over two (2) to ten (10) years in accordance with the Annual Installment Method. In the absence of a timely submitted Election Form, a Director Retirement Plan Benefit shall be paid in annual installment payments over four (4) years, determined in accordance with the Annual Installment Method.
10.3Benefit Distribution Date. For purposes of this Article 10, “Benefit Distribution Date” shall mean the date that triggers distribution of a Director Retirement Plan Account balance. A Director’s Benefit Distribution Date shall be determined upon the occurrence of any one of the following: (a) if the Participant experiences a Separation from Service, his or her Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant experiences a Separation from Service; or (b) the date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death; or (c) the date on which the Committee determines the Participant is Disabled; or
10.4Effect of Change in Control. Notwithstanding the foregoing provisions of this Article 10, if the Company experiences a Change in Control either before, on or after the Participant’s Separation from Service, death or Disability, the Director shall be entitled to a lump sum payment (no later than sixty (60) days following the date the Company experiences the Change in Control) which shall be equal to the Participant’s remaining vested Director Retirement Plan Account balance, calculated as of the date on which the Company experiences a Change in Control.
ARTICLE 11
Beneficiary Designation
Beneficiary Designation
11.1Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan
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may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.
11.2Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, the Committee may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Committee, executed by such Participant’s spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.
11.3Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent.
11.4No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 12.1, 11.2 and 11.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant’s estate.
11.5Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant’s Employer to withhold such payments until this matter is resolved to the Committee’s satisfaction.
11.6Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant’s Plan Agreement shall terminate upon such full payment of benefits.
ARTICLE 12
Leave of Absence
Leave of Absence
12.1Paid Leave of Absence. If a Participant is authorized by the Participant’s Employer to take a paid leave of absence from the employment of the Employer, (i) the Participant shall continue to be considered eligible for the benefits provided in Articles 4, 5, 6, 7, 8, or 9 in accordance with the provisions of those Articles, and (ii) the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3.
12.2Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer to take an unpaid leave of absence from the employment of the Employer for any reason, such Participant shall continue to be eligible for the benefits provided in Articles 4, 5, 6, 7, 8, or 9 in accordance with the provisions of those Articles. However, the Participant shall be excused from fulfilling his or her Annual Deferral Amount commitment that would otherwise have been withheld during the remainder of the Plan Year in which the unpaid leave of absence is taken. During the unpaid leave of absence, the Participant shall not be allowed to make any additional
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deferral elections. However, if the Participant returns to employment, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment and for every Plan Year thereafter while a Participant in the Plan, provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above.
ARTICLE 13
Termination of Plan, Amendment or Modification
Termination of Plan, Amendment or Modification
13.1Termination of Plan. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the board of directors of any Employer reserves the right to Terminate the Plan (as defined in Section 1.42) as to that Employer, and the Board of Directors of the Company reserves the right to Terminate the Plan in its entirety as to the Company and all Employers. In the event of a Termination of the Plan, the Measurement Funds available to Participants following the Termination of the Plan shall be comparable in number and type to those Measurement Funds available to Participants in the Plan Year preceding the Plan Year in which the Termination of the Plan is effective. Following a Termination of the Plan, Participant Account Balances shall remain in the Plan until the Participant becomes eligible for the benefits provided in Articles 4, 5, 6, 7, 8 or 9 in accordance with the provisions of those Articles. The Termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination. Provided, however, to the extent permissible under Code Section 409A and related Treasury Regulations and guidance, including but not limited to such guidance and Regulations as may be issued after the effective date of this Plan, if there is a Termination of the Plan with respect to all Participants, the Company may, in its discretion, amend the Plan to accelerate the time and form of payments.
13.2Amendment.
(a)The Board may, at any time, amend or modify the Plan in whole or in part. In addition, the Committee may, at any time, amend or modify the Plan in whole or in part, so long as such amendment does not materially increase the cost of the Plan. Notwithstanding the foregoing, (i) no amendment shall be effective to decrease the value of a Participant’s vested Account Balance in existence at the time the amendment is made, and (ii) no amendment or modification of this Section 13.2 or Section 14.2 of the Plan shall be effective. In no event shall the Company or any Employer be responsible for any decline in a Participant’s Account Balance as a result of the selection, discontinuation, addition, substitution, crediting or debiting of the Measurement Funds pursuant to Section 3.10.
(b)Notwithstanding any provision of the Plan to the contrary, in the event that the Committee determines that any provision of the Plan may cause amounts deferred under the Plan to become immediately taxable to any Participant under Code Section 409A, and related guidance, the Committee may (i) adopt such amendments to the Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the Plan benefits provided by the Plan and/or (ii) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Code Section 409A, and related guidance.
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13.3Plan Agreement. Despite the provisions of Sections 14.1 and 13.2 above, if a Participant’s Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the written consent of the Participant.
13.4Effect of Payment. The full payment of the Participant’s vested Account Balance under Articles 4, 5, 6, 7, 8, or 9 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan, and the Participant’s Plan Agreement shall terminate.
ARTICLE 14
Administration
Administration
14.1Committee Duties. Except as otherwise provided in this Article 14, this Plan shall be administered by the CHS Retirement Plan Committee (hereinafter, the “Committee”), which shall consist of the Chief Executive Officer of the Company, or such committee as the Chief Executive Officer of the Company shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.
14.2Administration Upon Change In Control. The provisions of this Section 14.2 shall not apply unless and until Article 5 has been implemented and a Trustee has been appointed. For purposes of this Plan, the Committee shall be the “Administrator” at all times prior to the occurrence of a Change in Control. Within one hundred and twenty (120) days following a Change in Control, an independent third party “Administrator” may be selected by the individual who, immediately prior to the Change in Control, was the Company’s Chief Executive Officer or, if not so identified, the Company’s highest ranking officer (the “Ex-CEO”), and approved by the Trustee. The Committee, as constituted prior to the Change in Control, shall continue to be the Administrator until the earlier of (i) the date on which such independent third party is selected and approved, or (ii) the expiration of the one hundred and twenty (120) day period following the Change in Control. If an independent third party is not selected within one hundred and twenty (120) days of such Change in Control, the Committee, as described in Section 14.1 above, shall be the Administrator. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator on all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date and circumstances of the Retirement, Disability, death or Separation from Service of the Participants,
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and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company.
14.3Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.
14.4Binding Effect of Decisions. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.
14.5Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator.
14.6Employer Information. To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Separation from Service of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require.
ARTICLE 15
Other Benefits and Agreements
Other Benefits and Agreements
15.1Coordination with Other Benefits. The benefits provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.
15.2Clawback or Recoupment. All benefits under this Plan shall be subject to recovery or other penalties pursuant to (i) any Company clawback policy, as may be adopted or amended from time to time, or (ii) any applicable law, rule or regulation or applicable stock exchange rule, including, without limitation, Section 304 of the Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any applicable stock exchange listing rule adopted pursuant thereto.
ARTICLE 16
Claims Procedures
Claims Procedures
16.1Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the
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Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
16.2Notification of Decision. The Committee shall consider a Claimant’s claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing:
(a)that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or
(b)that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:
(i)the specific reason(s) for the denial of the claim, or any part of it;
(ii)specific reference(s) to pertinent provisions of the Plan upon which such denial was based;
(iii)a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;
(iv)an explanation of the claim review procedure set forth in Section 16.3 below; and
(v)a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
16.3Review of a Denied Claim. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized representative):
(a)may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;
(b)may submit written comments or other documents; and/or
(c)may request a hearing, which the Committee, in its sole discretion, may grant.
16.4Decision on Review. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimant’s written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was
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submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:
(a)specific reasons for the decision;
(b)specific reference(s) to the pertinent Plan provisions upon which the decision was based;
(c)a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and
(d)a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).
16.5Legal Action. A Claimant’s compliance with the foregoing provisions of this Article 16 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.
16.6Determinations. Benefits under the Plan will be paid only if the Committee decides in its discretion that the applicant is entitled to them. The Committee has discretionary authority to grant or deny benefits under the Plan. The Committee shall have the sole discretion, authority and responsibility to interpret and construe this Plan Statement and all relevant documents and information, and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of all persons to benefits and the amounts of their benefits. The Committee shall make such determinations as may be required from time to time in the administration of the Plan. The discretionary authority shall include all matters arising under the Plan.
ARTICLE 17
Trust
Trust
17.1Establishment of the Trust. In order to provide assets from which to fulfill the obligations of the Participants and their beneficiaries under the Plan, the Company may establish a trust by a trust agreement with a third party, the trustee, to which each Employer may, in its discretion, contribute cash or other property, including securities issued by the Company, to provide for the benefit payments under the Plan, (the “Trust”).
17.2Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.
17.3Distributions From the Trust. Each Employer’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer’s obligations under this Plan.
ARTICLE 18
Miscellaneous
Miscellaneous
18.1Status of Plan. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
401(a)(1). The Plan shall be administered and interpreted (i) to the extent possible in a manner consistent with that intent, and (ii) in accordance with Code Section 409A and other applicable tax law, including but not limited to Treasury Regulations promulgated pursuant to Code Section 409A.
18.2Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer’s assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
18.3Employer’s Liability. An Employer’s liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.
18.4Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise (including without limitation any domestic relations order, whether or not a “qualified domestic relations order” under section 414(p) of the Code and section 206(d) of ERISA) before the Account Balance is distributed to the Participant or Beneficiary.
18.5Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.
18.6Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.
18.7Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
18.8Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
18.9Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Minnesota without regard to its conflicts of laws principles.
18.10Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:
| CHS Inc. | ||
| Attn: Senior Director, Benefits - MS 480 | ||
| 5500 Cenex Drive | ||
| Inver Grove Heights, Minnesota 55077 | ||
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.
18.11Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns and the Participant and the Participant’s designated Beneficiaries.
18.12Spouse’s Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.
18.13Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.
18.14Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.
18.15Insurance. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance.
-26-
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
IN WITNESS WHEREOF, the Company has signed this Plan document as of April 4th, 2023.
CHS Inc., a Minnesota corporation
By: /s/ Jay D. Debertin
Title: President and Chief Executive Officer
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX A
Share Option Plan Accounts
Share Option Plan Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1History. Since January 1, 1998, the Company has sponsored the CHS Inc. Share Option Plan (the “SOP”) for the purpose of providing stock options to certain key individuals. The options granted under the SOP are in shares of a private investment company established by the Company as well as shares of certain regulated investment companies. The Company has determined to discontinue the grant of additional options under the SOP effective December 9, 2005 and to amend the terms of all outstanding options as of December 31, 2005 to comply with Section 409A of the Code.
1.2Right to Exercise in 2005. On or before December 9, 2005, each Participant in the SOP shall have the right to exercise all or any portion of such Participant’s vested options.
1.3Conversion of Options. Effective December 10, 2005, options which are not exercised on or prior to December 9, 2005 shall be converted into an account balance (the “SOP Account”) which shall become part of the Participant’s Account Balance under the CHS Inc. Deferred Compensation Plan (the “Plan”). The initial SOP Account shall consist of two parts: (i) the difference of the value of the securities underlying the option less the exercise price (the “Option Spread”); and (ii) the exercise price of the option (the “Exercise Price Credit”). The Participant shall not be entitled to payment of the Exercise Price Credit; provided, however, that the Participant shall have a right to deemed earnings, if any, which accrue on the portion of the SOP Account representing the Exercise Price Credit.
1.4Vesting. A Participant shall continue to vest in all options converted into an SOP Account (excluding the portion of the SOP Account representing the Exercise Price Credit) in accordance with the vesting schedule applicable to such options under the SOP.
1.5Crediting/Debiting of SOP Account. Following the conversion, the Participant’s Option Spread shall no longer be tied to the value of the securities underlying the option immediately prior to conversion, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan. The Participant’s Exercise Price Credit shall no longer be tied to the value of the securities underlying the option immediately prior to the conversion, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds selected by the Committee. With respect to a Participant who receives an installment or other partial distribution of the SOP Account in accordance with a Scheduled Distribution elected pursuant to Section 1.6 below, the portion of the SOP Account representing the Exercise Price Credit shall be reduced by a pro rata amount. Upon a complete distribution of the SOP Account, the Exercise Price Credit shall be reduced to zero (0).
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
1.6Scheduled Distributions. A Participant who does not exercise all of such Participant’s options pursuant to Section 1.2 of this Appendix A shall, on or before December 31, 2005, irrevocably elect on an Election Form to receive one or more (not to exceed five (5)) Scheduled Distributions with respect to the Participant’s SOP Account (minus the Exercise Price Credit). For purposes of this Section 1.6, the following special rules shall apply:
(a) Subject to the limitations described this paragraph (a), the Participant may elect to receive or commence a Scheduled Distribution as of any fixed date selected by the Participant (e.g., January 1, 2007). No more than one (1) Scheduled Distribution as of a fixed date may be made or commenced in any Plan Year, and the Plan Year designated by the Participant for the first Scheduled Distribution must be at least one (1) Plan Year after the end of the Plan Year ending December 31, 2005.
(b) The Participant may elect on an Election Form to receive each Scheduled Distribution in a lump sum or pursuant to an Annual Installment Method of up to ten (10) years. If a Participant does not make any election with respect to the form of payment, then such Participant’s Scheduled Distribution shall be distributed in a single lump sum.
(c) A Scheduled Distribution of the SOP Account may be changed in accordance with Section 4.2 of the Plan. If the Participant has elected to receive multiple Scheduled Distributions, each Scheduled Distribution shall be treated as a separate payment, each of which may be changed through a separate election. If the Participant has elected to receive a Scheduled Distribution in installments, the installments shall be treated as a single payment which must be changed through a single election that applies to the entire payment.
(d) Notwithstanding the foregoing, if the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee for a payout in accordance with Section 4.4 of the Plan.
(e) With respect to a Participant who is not actively employed with the Company as of December 9, 2005, if the Participant fails to make a Scheduled Distribution election with respect to any portion of the SOP Account, that portion of the SOP Account shall be paid (minus the Exercise Price Credit) as a Scheduled Distribution during the sixty (60) day period commencing immediately after the Plan Year ending December 31, 2006. With respect to a Participant who is actively employed with the Company as of December 9, 2005, if the Participant fails to make a Scheduled Distribution election with respect to any portion of the SOP Account, that portion of the SOP Account shall be paid (minus the Exercise Price Credit) upon the occurrence of a Benefit Distribution Date on account of the Participant’s Separation from Service, Retirement or Disability, in accordance with the terms of the Plan.
1.7Elections for Retirement or Disability Benefit. With respect to each Participant who is actively employed by the Company as of December 9, 2005 and who does not exercise all of such Participant’s options pursuant to Section 1.2 of this Appendix A, such Participant must complete a Retirement Benefit election in accordance with Article 6 and a Disability Benefit election in accordance with Article 8.
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
1.8Certain Benefits Take Precedence Over Scheduled Distributions.
(a) Change in Control. On or before December 31, 2005, a Participant may irrevocably elect to receive a single lump sum Change in Control Benefit upon the occurrence of a Change in Control in accordance with Article 5 of the Plan. If the Participant elects to receive a Change in Control Benefit, the Change in Control shall trigger payment of the entire SOP Account (minus the Exercise Price Credit) notwithstanding any other election to receive one or more Scheduled Distributions. If a Participant does not make any election with respect to the payment of the Change in Control Benefit, then such Participant’s SOP Account shall remain in the Plan upon a Change in Control and shall be subject to the terms one or more Scheduled Distributions.
(b) Termination, Retirement or Disability Benefit. In accordance with Section 4.3 of the Plan, the occurrence of a Benefit Distribution Date on account of the Participant’s Separation from Service or Disability that triggers a Termination or Disability Benefit shall take precedence over one or more Scheduled Distribution elections with respect to the SOP Account; provided, however, that the provisions of this Section 1.8 shall not be applicable to any Participant who was not actively employed with the Company at the time such Participant elects a Scheduled Distribution in accordance with Section 1.6 above. The occurrence of a Benefit Distribution Date that triggers a Retirement Benefit under Article 6 shall not take precedence over any SOP Account that is subject to a Scheduled Distribution election; the SOP Account shall be paid in accordance with the applicable Scheduled Distribution election.
(c) Death Benefit. The occurrence of the Participant’s death that triggers an automatic Death Benefit under Section 9 of the Plan shall take precedence over one or more Scheduled Distribution elections with respect to the SOP Account; the SOP Account (minus the Exercise Price Credit) shall be paid in a single lump sum in accordance with Article 9 of the Plan.
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CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX B
Supplemental Savings Plan Accounts
Supplemental Savings Plan Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1 History. Since January 1, 1999, the Company has sponsored the CHS Inc. Supplemental Savings Plan (the “SSP”) for the purpose of allowing a select group of management and highly compensated employees to voluntarily defer compensation. The Company has determined to discontinue voluntary deferrals under the SSP effective July 1, 2006.
1.2 Conversion of Account Balances. Effective July 1, 2006, voluntary deferrals previously deferred pursuant to the terms of the SSP shall become part of the Participant’s Deferral Account balance under this Plan. Following the conversion, the Participant’s SSP Account shall no longer be credited with interest income under the terms of the SSP, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan. Notwithstanding the foregoing, the following special rules shall apply:
(a) Amounts deferred under the SSP pursuant to an election providing one or more scheduled payments, all of which are to be paid in full no later than December 31, 2008, shall not become part of the Plan, but shall instead continue to be governed by the terms of the SSP until such amounts, and any earnings thereon, are paid in full.
(b) Amounts deferred under the SSP which are in pay status as of July 1, 2006 but which are not scheduled to be paid in full on or before December 31, 2008, shall become part of the Plan but shall be paid in accordance with the schedule elected under the SSP. Unpaid amounts shall be credited or debited with earnings, gains or losses in accordance with Section 3.9 of the Plan.
(c) Amounts deferred under the SSP by any SSP Participant who is an employee of Cofina Financial, LLC as of July 1, 2006 shall not become part of this Plan, but rather, shall become part of the Participant’s Deferral Account balance under the Cofina Financial, LLC Deferred Compensation Plan.
1.3 Payment Elections. With respect to each Participant in the SSP who first becomes a Participant in this Plan when his or her SSP Account becomes part of the Deferral Account balance under this Plan, on or prior to July 1, 2006, such Participant must complete a Retirement Benefit election in accordance with Article 6 and a Disability Benefit election in accordance with Article 8 (other than with respect to benefits in pay status under Section 1.2(b) above). Such Participant may also (but need not) irrevocably elect to receive a single lump sum Change in Control Benefit upon the occurrence of a Change in Control in accordance with Article 5 of the Plan. With respect to each Participant in the SSP who is a Participant in this Plan when his or her SSP benefits become part of the Deferral Account balance under this Plan, such Participant’s
B-1
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
prior payment elections with respect to the Participant’s Deferral Account shall apply to the SSP benefits.
B-2
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX C
Supplemental Executive Retirement Plan Savings Accounts
Supplemental Executive Retirement Plan Savings Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1 History. Since January 1, 1999, the Company has sponsored the CHS Inc. Supplemental Executive Retirement Plan (the “SERP”) for the purpose of providing deferred compensation to a select group of management and highly compensated employees. The Company has determined, effective July 1, 2006, to discontinue making restorative matching and non-elective credits to the Savings Plan Accounts of Participants under Section 4.3 of the SERP.
1.2 Conversion of Account Balances. Effective July 1, 2006, a Participant’s Savings Plan Account under the SERP, if any, shall become part of the Participant’s Company Contribution Account balance under this Plan. Following the conversion, the Participant’s SERP Savings Plan Account shall no longer be credited with interest income under the terms of the SERP, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan.
1.3 Payment Elections. With respect to each Participant in the SERP who first becomes a Participant in this Plan when his or her SERP Savings Plan Account becomes part of the Company Contribution Account balance under this Plan, on or prior to July 1, 2006, such Participant must complete a Retirement Benefit election in accordance with Article 6, a Disability Benefit election in accordance with Article 8. Such Participant may also (but need not) irrevocably elect to receive a single lump sum Change in Control Benefit upon the occurrence of a Change in Control in accordance with Article 5 of the Plan. With respect to each Participant in the SERP who is a Participant in this Plan when his or her SERP Savings Plan Account becomes part of the Company Contribution Account balance under this Plan, such Participant’s prior payment elections with respect to the Participant’s Company Contribution Account shall apply to the SERP Savings Plan Accounts.
1.4 Company Contribution Amount. In addition to such Company Contribution Amounts as may be made under Section 3.5 of the Plan, for each Plan Year, the Company Contribution Account of each Participant who qualifies as an Active Participant under the SERP shall be credited with a Company Contribution Amount determined under this Section 1.4. Such Company Contribution Amount for any Plan Year shall be the difference, if any, between:
(a) the amount of the Active Participant’s “discretionary contribution” which would have been credited under the CHS Inc. Savings Plan for the Plan Year if: (i) the limitations on benefits imposed by Sections 401(a)(17) and 415 of the Code were disregarded; and (ii) compensation deferred upon the election of the Participant under this Plan were taken into account as includible compensation under the Savings Plan (except that amounts deferred or paid under any mandatory deferral portion of any long-term incentive compensation program maintained by the Company or any Employer shall be disregarded for this purpose); and
C-1
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
(b) the actual amount of discretionary contribution that is allocated on behalf of such Participant under the provisions of the Savings Plan for such Plan Year
1.5 Company Restoration Matching Amounts. In addition to such Company Restoration Matching Amounts as may be made under Section 3.6 of the Plan, for each Plan Year, the Company Restoration Matching Account of each Participant who qualifies as an Active Participant under the SERP shall be credited with a Company Restoration Matching Amount in determined under this Section 1.5. Such Company Restoration Matching Amount for any Plan Year shall be the difference, if any, between:
(a) the amount of the Active Participant’s “matching contribution” which would have been credited under the CHS Inc. Savings Plan for the Plan Year if: (i) the limitations on benefits imposed by Sections 401(a)(17), 402(g) and 415 of the Code were disregarded; (ii) compensation deferred upon the election of the Participant under this Plan were taken into account as includible compensation under the Savings Plan (except that amounts deferred or paid under any mandatory deferral portion of any long-term incentive compensation program maintained by the Company or any Employer shall be disregarded for this purpose); and (iii) for such Plan Year, the Participant made a “before tax contribution” (as defined in the Savings Plan) of the lesser of: (A) six percent (6%) of the Participant’s includible compensation as revised under (i) and (ii) above, or (B) the maximum before-tax contribution, stated as a percentage of such compensation, which is permitted under the Savings Plan to be made by such Participant for that Plan Year, and
(b) the actual amount of matching contribution that is allocated on behalf of such Participant under the provisions of the Savings Plan for such Plan Year (not in excess of the maximum dollar limit in effect for such Plan Year under Section 402(g) of the Code).
C-2
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX D
Agriliance LLC Deferred Compensation Plan Accounts
Agriliance LLC Deferred Compensation Plan Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1 History. In connection with the Company’s purchase of certain assets of Agriliance LLC (“Agriliance”), the Company assumed deferred compensation obligations under the Agriliance LLC Deferred Compensation Plan (“Agriliance Plan”) for those Participants who transferred employment to the Company as part of the asset purchase.
1.2 Transfer of Account Balances. For those Participants who transferred employment to the Company as part of the asset purchase, all voluntary deferrals previously deferred pursuant to the terms of the Agriliance Plan shall become part of the Participant’s Deferral Account balance under this Plan. Following the conversion, the Participant’s Agriliance Plan account shall no longer be credited with earnings, gains or losses under the terms of the Agriliance Plan, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan.
1.3 Payment Elections. With respect to each Participant in the Agriliance Plan who becomes a Participant in this Plan, such Participant must upon commencement of participation complete a Beneficiary Designation Form, a Retirement Benefit election in accordance with Article 6 and a Disability Benefit election in accordance with Article 8. Such elections and Beneficiary designations shall apply both to deferrals previously made under the Agriliance Plan and to new deferrals, if any, made under this Plan. Such Participant may also (but need not) irrevocably elect to receive a single lump sum Change in Control Benefit upon the occurrence of a Change in Control in accordance with Article 5 of the Plan. All of the foregoing elections must be made on or before December 31, 2008 and must comply in all other respects with special transition rules issued by the IRS and the U.S. Department of Treasury in connection with the implementation of Section 409A of the Code.
D-1
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX E
Cofina Deferred Compensation Plan Accounts
Cofina Deferred Compensation Plan Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1 History. In connection with the Company’s acquisition of one hundred percent (100%) of Cofina Financial, LLC, a Minnesota limited liability company (“Cofina”), the Company assumed all deferred compensation obligations under the Cofina Financial, LLC Deferred Compensation Plan (“Cofina Plan”).
1.2 Transfer of Account Balances. All deferrals previously deferred pursuant to the terms of the Cofina Plan shall become part of the Participant’s Deferral Account balance under this Plan. Following the conversion, the Participant’s Cofina Plan account shall no longer be credited with earnings, gains or losses under the terms of the Cofina Plan, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan.
1.3 Payment Elections. The Cofina Plan is maintained under a document entitled “Cofina Financial, LLC Deferred Compensation Plan, Master Plan Document”, as amended by two amendments. The terms of the Cofina Plan are, in all material respects, identical to this Plan. Accordingly, with respect to each Participant in the Cofina Plan, such Participant’s Beneficiary Designation Form, Retirement Benefit election, Disability Benefit election and Change in Control benefit election (if any) made in accordance with Articles 5, 6 and 8 of the Cofina Plan shall continue in effect, both with respect to deferrals previously made under the Cofina Plan and new deferrals, if any, made under this Plan. In addition, if the Participant has a Scheduled Distribution election in effect with respect to any Annual Deferral Amount under the Cofina Plan, such election shall remain in effect following transfer to this Plan.
E-1
CHS Inc.
Deferred Compensation Plan
| Master Plan Document | ||
CHS INC.
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
APPENDIX F
CHS McPherson Refinery Inc. (formerly National Cooperative Refinery Association)
CHS McPherson Refinery Inc. (formerly National Cooperative Refinery Association)
Deferred Compensation Plan Accounts
Except where expressly defined in this Appendix, the capitalized terms used herein shall have the same meanings as the same terms in the Plan document.
1.1 History. In connection with the Company’s acquisition of one hundred percent (100%) of CHS McPherson Refinery Inc., formerly National Cooperative Refinery Association, a Kansas corporation, the Company assumed all deferred compensation obligations under the I.R.C. § 409A National Cooperative Refinery Association Deferred Compensation and Supplemental Retirement Plan (“NCRA Plan”). The NCRA Plan is maintained under a document entitled “I.R.C. § 409A National Cooperative Refinery Association Deferred Compensation and Supplemental Retirement Plan, As Restated Effective January 1, 2008”, as amended by one amendment.
1.2 Transfer of Account Balances. Each Deferred Compensation Account under the NCRA Plan, shall be transferred to a Deferral Account balance under this Plan shall become part of this Plan effective December 31, 2015. Following the transfer, each Deferred Compensation Account under the NCRA Plan shall no longer be credited with earnings, gains or losses under the terms of the NCRA Plan, but shall instead be credited or debited with earnings, gains or losses under one or more Measurement Funds elected by the Participant, in accordance with Section 3.9 of the Plan
1.3 Payment Elections. With respect to each Participant in the NCRA Plan who becomes an active Participant in this Plan, such Participant must upon commencement of participation complete a Beneficiary Designation Form, a Change in Control Benefit election in accordance with Article 5, a Retirement Benefit election in accordance with Article 6 and a Disability Benefit election in accordance with Article 8. The Participant may also make a Schedule Distribution election in accordance with Article 4. Such elections and Beneficiary designations shall apply only to deferrals made under this Plan, and not to deferrals previously made under the NCRA Plan. Such Participant’s prior elections with respect to the Participant’s Deferred Compensation Account shall continue to apply to the Deferred Compensation Account.
F-1
EX 10.3
CHS Inc.
Supplemental Executive Retirement Plan
(2023 Restatement)
Supplemental Executive Retirement Plan
(2023 Restatement)
CHS INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(2023 RESTATEMENT)
ARTICLE I.
INTRODUCTION
INTRODUCTION
Section 1.1. Amendment and Restatement. Effective January 1, 1999, CHS Inc. merged and restated the CENEX Supplemental Executive Retirement Plan and the Harvest States Deferred Compensation Supplemental Retirement Plan for the purpose of providing benefits for certain of its employees who participate in the CHS Inc. Pension Plan and are part of a select group of management or highly compensated employees. The Plan is currently embodied in a 2013 Restatement, as amended by three (3) amendments. The Plan is hereby again amended and restated to consolidate all amendments into one restatement, effective January 1, 2023.
Section 1.2. Purpose. CHS Inc. maintains the CHS Inc. Pension Plan which is intended to meet the requirements of a “qualified plan” under the Internal Revenue Code. Section 401(a)(17) of the Internal Revenue Code limits the amount of annual compensation of each employee that may be taken into account under a qualified plan and Section 415 of the Internal Revenue Code limits the benefits payable under a qualified plan. The purpose of the CHS Inc. Supplemental Executive Retirement Plan is to provide benefits to eligible employees that would be provided under the CHS Inc. Pension Plan but which are not provided thereunder because of the compensation limitations and any other benefit limitations imposed on those plans by the Internal Revenue Code.
ARTICLE II.
DEFINITIONS AND INTERPRETATION
DEFINITIONS AND INTERPRETATION
Section 2.1. Definitions. When used in this Plan document, the following terms have the meanings indicated unless a different meaning is plainly required by the context.
“Active Participant” means a Participant in the Plan who is identified as an Active Participant under Article III of the Plan.
“Actuarial Value” means the single sum value of a benefit under the Plan determined by the same actuarial adjustments as those specified in the Pension Plan with respect to the determination of the single sum value of a benefit payable under the Pension Plan on the date for commencement of payment of the benefit under this Plan.
“Beneficiary” means the person or persons who are the beneficiary of a Participant under the terms of the Pension Plan.
“Board of Directors” means the Board of Directors of CHS.
“CHS” means CHS Inc. (formerly known as Cenex Harvest States Cooperatives) and any successor thereto, and any of its subsidiaries or affiliated business entities which are treated as one employer with that corporation under the provisions contained in Section 414 of the Code.
“CENEX SERP” means the CENEX Supplemental Executive Retirement Plan.
“Committee” means the committee described in Section 6.4 of the Plan.
“Code” means the Internal Revenue Code of 1986, as amended.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Harvest States SERP” means the Harvest States Deferred Compensation Supplemental Retirement Plan.
“Participant” means a person who is an Active Participant or is or may become entitled to an immediate or deferred benefit under the Plan by reason of having been an Active Participant.
“Pension Plan” means the CHS Inc. Pension Plan (formerly known as the Cenex Harvest States Pension Plan).
“Pension Plan Account” means an account established under Section 4.2 of the Plan.
“Plan” means the CHS Inc. Supplemental Executive Retirement Plan (formerly known as the Cenex Harvest States Supplemental Executive Retirement Plan), including any amendments thereto, which is operated and maintained by CHS primarily for the purpose of providing supplemental retirement benefits for a select group of management or highly compensated employees. Prior to January 1, 1999, “Plan” refers to the two plans which have been merged in this document, referred to as the CENEX Supplemental Executive Retirement Plan and the Harvest States Deferred Compensation Supplemental Retirement Plan.
“Plan Year” means the plan year used by the Pension Plan, which is the calendar year as of the date of execution of this document.
“Surviving Spouse” means the person who is married to a Participant throughout the one year period ending on the date of such Participant’s death.
Section 2.2. Performance of Obligations. CHS agrees to perform its obligations in accordance with the Plan.
Section 2.3. Gender and Number. The singular form of any word will include the plural and the masculine gender will include the feminine wherever necessary for the proper interpretation of this Plan.
ARTICLE III.
PARTICIPATION
PARTICIPATION
Section 3.1 Eligibility and Participation. Any individual who was a Participant in the Plan on December 31, 1998, shall continue to be a Participant until the Plan causes the individual to cease to be a Participant. Further, any individual who was an Active Participant on that date shall continue to be an Active Participant. Executives with a grade of Vice President, Senior Vice President, Executive Vice President, or Chief Executive Officer shall be Active Participants in this Plan, as well as any employee selected for participation by the President and Chief Executive Officer, so long as such employees are still part of a select group of highly compensated or management employees. The President and Chief Executive Officer may withhold participation for any reason with respect to any executive of CHS.
Section 3.2 Status as Active Participant. The President and Chief Executive Officer of CHS may by written statement and notice to an executive who is an Active Participant cause such Participant to cease to accrue benefits under the Plan prior to the Participant’s termination of employment with CHS. If the President and Chief Executive Officer takes that action with respect to such a Participant, there shall be no further accrual of benefits under this Plan on
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behalf of such Participant and the Participant’s benefits under this Plan shall thereafter be computed as if the Plan terminated on the date of such written notice to the Participant.
Section 3.3 Status as Participant. A person who becomes an Active Participant will remain a Participant in the Plan until all benefits payable to such person under the Plan have been distributed.
ARTICLE IV.
BENEFITS
BENEFITS
Section 4.1. Amount of Benefits. A supplemental retirement benefit will be payable to a Participant under this Article IV. The amount of the Participant’s benefit under the Plan shall be the sum of all amounts credited to accounts established in the Participant’s name under this Article IV, unless the Participant’s benefit is to be determined in a different manner as specified below with respect to certain “grandfathered” Participants.
Section 4.2. Pension Plan Account. Each Participant will have a Pension Plan Account to which amounts will be credited under this Section 4.2.
(a) Initial Account Balance. Each individual who is a Participant in the Plan as of January 1, 1999, shall have an initial account balance as of that date in the Participant’s Pension Plan Account which will be determined as follows:
(1) The initial account balance of Participants who had an account balance in the “cash balance make-up account” under the Harvest States SERP as of December 31, 1998, shall be the greater of:
A) that account balance, or
B) the Actuarial Value as of December 31, 1998, of a benefit for the Participant determined as of the same date using Section 4.3(c) of the Plan and the following assumptions: (i) that the Participant had been a participant in the CENEX Pension Plan through 1998, and (ii) the Participant’s service with and compensation from Harvest States Cooperatives had actually been with and from CENEX, Inc.
Notwithstanding the provisions of Section 4.2(a)(1)(B), if a Participant was an officer of Harvest States Cooperatives on January 1, 1990, then the formula used for the determination under that subsection shall be the formula used in Section 4.4(b) of the Plan.
(2) The initial account balance of a Participant who was a participant in the CENEX SERP as of December 31,1998, shall be equal to the greater of:
A) the Actuarial Value of the Participant’s accrued benefit under the CENEX SERP as of December 31, 1998; or
B) the difference between (i) four percent (4%) multiplied by the Participant’s “CPP Final Average Compensation” as of that date, except that such amount will be determined without applying any limits under Section 401(a)(17) of the Code, multiplied by the Participant’s “CPP Credited Service” as of that date and (ii) four percent (4%) multiplied by the Participant’s “CPP Final Average Compensation” as of that date multiplied by the Participant’s “CPP Credited Service” as of that date.
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However, Paragraphs (2)(A) and (2) (B) shall each be reduced by the Actuarial Value of any offset applicable to the Participant under the CENEX Pension Plan definition of accrued benefit as of December 31, 1998. Further, the phrases within quotation marks in Subsections (a)(2)(A) and (a)(2)(B) shall have the meaning given to them under the Pension Plan.
(b) Contribution Credits. Each December 31, an Active Participant’s Pension Plan Account shall be credited with a contribution credit equal to the difference, if any, between:
(1) the amount of the Active Participant’s contribution credit which would have been credited under the Pension Plan as of that date if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the election of the Participant under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer or any amounts paid under any other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation, and
(2) the actual amount of such Active Participant’s contribution credit that is credited under the provisions of the Pension Plan as of such date.
(c) Special Career Credits. Each December 31, an Active Participant’s Pension Plan Account shall be credited with a special career credit equal to the difference, if any, between:
(1) the amount of the Active Participant’s special career credit which would have been credited under the Pension Plan as of that date if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the election of the Participant under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer or any amounts paid under any other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation, and
(2) the actual amount of such Active Participant’s special career credit that is credited under the provisions of the Pension Plan as of such date.
(d) Investment Credits. As of the end of each Plan Year, each Participant’s Pension Plan Account shall be credited with an amount referred to as an investment credit which shall be equal to (1) an “investment percentage” multiplied by (2) the Participant’s Pension Plan Account balance determined as of the first day of that year. Such Investment Credits shall be credited until distributions commence under the Plan. If the period for crediting the investment credits is less than 12 months, such as on account of a distribution to the Participant, pro rata investment credits shall be credited. The “investment percentage” shall be the investment percentage in effect during such Plan Year under the Pension Plan.
(e) Adjustment for Certain Participants. Notwithstanding the prior provisions of this Section 4.2 related to credits for the Pension Plan Account, a Participant that receives a benefit under Section 6.13 of the Pension Plan and whose benefit under the Plan is determined in part under this Section, shall, at the time a Participant’s benefit commences, have his or her Pension Plan Account reduced by an amount, not less than zero, equal to the difference between:
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(1) the Actuarial Value of the benefit actually payable from the Pension Plan; and
(2) the Actuarial Value of the benefit which would have been payable from the Pension Plan without applying Section 6.13 of the Pension Plan.
Section 4.3. Exceptions for Certain Former CENEX Employees.
(a) Eligibility for Exception. Notwithstanding the provisions of Section 4.2 of the Plan, a Participant who is a former employee of CENEX, Inc., is a CHS employee on January 1, 1999, is a Participant in the Pension Plan as of that date, has reached age 50 as of that date, and has been credited with 10 years of “CENEX Credited Service” (that phrase shall have the meaning given to it under that plan) as of December 31, 1998, shall be eligible to receive the benefits described in this section.
(b) Additional Benefits. If a Participant described in Subsection (a) becomes entitled to an additional benefit under the Pension Plan during the period from January 1, 1999, through December 31, 2001, because of satisfying that description, such Participant will be entitled to an additional benefit under this Plan. The Actuarial Value of that benefit will be an amount (not less than zero) which will be determined as of the day the Participant’s benefit is to begin under the Pension Plan and will be equal to the difference between:
(1) the Actuarial Value of such additional benefit which the Participant would have been entitled to receive under the Pension Plan if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the election of the Participant under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer or any amounts paid under any other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation, and
(2) the Actuarial Value of such additional benefit actually payable to the Participant under the Pension Plan.
(c) Election and Alternative Benefit. If, during the ninety day period ending on November 30, 2001, a Participant described in Subsection (a) makes an election under the Pension Plan to have the Participant’s benefit determined under the CENEX Pension Plan accrued benefit formula, then the provisions of Section 4.2 of this Plan shall not be applicable to the Participant. Instead, the Participant will be entitled to a different benefit. The amount of that benefit will be a monthly amount (not less than zero) which will be determined as of the day the Participant’s benefit is to begin under the Pension Plan and will be equal to the difference between:
(1) the monthly amount which the Participant would have been entitled to receive under the Pension Plan if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the election of the Participant under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer or any amounts paid under any
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other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation, and
(2) the monthly amount of the benefit actually payable to the Participant under the Pension Plan.
Section 4.4. Adjustments.
(a) Adjustment for Service with Another Participating Employer in Pension Plan. Any portion of the benefit computed under Section 4.2 or Section 4.3 of the Plan that is attributable to service with a participating employer in the Pension Plan other than CHS will not be payable under this Plan. That portion will be considered to be proportional to the portion of the Participant’s accrued benefit under the Pension Plan which was accrued during such Participant’s service with such a participating employer.
(b) Adjustment for Certain Former Officers of CENEX, Inc. If a Participant was employed as an officer of Farmers Union Central Exchange, Incorporated as of January 1, 1989, the Actuarial Value of the Participant’s benefit determined under whichever of Section 4.2 or Section 4.3(c) of the Plan is applicable to the Participant will be increased to the Actuarial Value of the amount determined under Section 4.3(c) of the Plan using CENEX Pension Plan (then referred to as the Farmers Union Central Exchange, Incorporated Pension Plan) provisions as in effect on December 31, 1988 (except that the compensation definition ordinarily used under Section 4.3(c) of the Plan will be used in calculating that amount), if the latter amount is larger than determined under the applicable provision without application of this sentence.
(c) Special Benefits for Robert Oebser. The additional benefit computed for Robert Oebser under Section 4.3 shall be computed as if his first day of employment was May 31, 1983, and his birth date was December 28, 1937.
(d) Surviving Spouse Benefit of Former CEO. In return for valuable services provided by John McKay, a long-time employee and former Chief Executive Officer of CHS, the surviving spouse of John McKay, Juanita McKay, shall be paid a benefit of $500.00 per month for as long as she shall live. The monthly payments will commence as of July 1, 2006, and subsequent monthly payments will be made as of the first day of every month thereafter.
(e) Cofina Financial, LLC. In connection with CHS’ acquisition of one hundred percent (100%) of Cofina Financial, LLC, a Minnesota limited liability company (“Cofina”), CHS assumed all deferred compensation obligations under the Cofina Financial, LLC Supplemental Executive Retirement Plan (“Cofina SERP”). Prior to such acquisition, Cofina was (and continues to be) a participating employer in the CHS Inc. Pension Plan. The Cofina SERP is (like the CHS SERP) a nonqualified defined benefit pension plan that provides benefits that would be provided under the CHS Inc. Pension Plan but which are not provided thereunder because of the compensation limitations under Section 401(a)(17) (compensation limit) and Section 414 (exclusion of deferred compensation from pensionable earnings) of the Internal Revenue Code, as well as the annual addition limitations under and Section 415 of the Internal Revenue Code. The Cofina SERP is, in all material respects, identical to the CHS SERP. Accordingly, each Cofina SERP Participant’s Pension Plan Account under the Cofina Plan shall be merged with and into the CHS Plan, and such account shall become the Participant’s opening Pension Plan Account under the CHS Plan as of September 1, 2008 (the “Merger Date”). (No Cofina SERP Participants have accrued benefits determined under an alternative, traditional pension formula; rather, all benefits are determined under a “cash balance” formula.) Effective as of the Merger Date, Cofina shall become a participating employer in the CHS SERP. With respect to each eligible employee of Cofina who is selected to become an active participant in the CHS SERP, such Participant’s service and compensation earned with Cofina both before and
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after the Merger Date shall be taken into account for purposes of determining such Participant’s contribution credits and special career credits under the CHS SERP.
(f) Special Contribution Credits for Newly Hired Participants. Notwithstanding Section 4.2(b), with respect to any Participant named on Schedule A, the Participant’s Pension Plan Account shall be credited with one or more contribution credits equal to the credit(s) which would have been made to that Participant under the Pension Plan if he or she had been an active participant in the Pension Plan from his or her CHS date of hire through his or her actual date of entry into the Pension Plan (subject to the requirement that the Participant be an Active Participant in this Plan on the applicable December 31 for which such credit would have been made under the Pension Plan). However, such credits shall be determined as if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the Participant’s election under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer, any amounts received as replacement of forfeited compensation in accordance with the Participant’s employment term sheet, or any amounts paid under any other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation.
Section 4.5. Payment of Benefit.
(a) Time of Payment. The Actuarial Value of the benefit payable under this Article IV will be paid in a single lump sum upon a Participant’s benefit distribution date. For this purpose, the term “benefit distribution date” shall mean the date that is six (6) months after the Participant’s separation from service (as defined below). Payment shall be deemed paid as of the benefit distribution date, or if later, the 15th day of the third calendar month following the benefit distribution date.
“Separation from service” shall mean the separation from service (within the meaning of Treas. Regs. § 1.409A 1(h)) with CHS, voluntarily or involuntarily, for any reason other than retirement, disability or death. Whether a separation from service has occurred is determined under Section 409A of the Code and Treasury Regulation 1.409A 1(h) (i.e., whether the facts and circumstances indicate that the employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with CHS under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for CHS. Notwithstanding the foregoing, a twenty nine (29) month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, “CHS” is the Participant’s employer and all persons with whom the employer would be considered a single employer under Sections 414(b) and 414(c) of the Code; provided that, in applying Sections 1563(a)(1), (2) and (3) of the Code for purposes of determining a controlled group of corporations under
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Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c) 2 for purposes of determining trades or businesses that are under common control for purposes of Section 414(c) of the Code, “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein. If a Participant is both an employee and a director, a separation from service shall occur only upon the termination of the last position held.
(b) Grandfathered Participants. With respect to any “grandfathered” Participant whose benefit is computed under a traditional defined benefit formula pursuant to Section 4.3(c) (and not as an account balance benefit under Section 4.2), the Actuarial Value shall be determined as of the separation date, and then such single sum shall be credited with interest for the period beginning on the separation date and ending on the payment date (based on the applicable interest rate under Section 417(e) of the Code, using the first segment rate applicable for the look-back month and stability period used under the Pension Plan).
(c) 409A Compliance; 409A Grandfathered Participants. Between January 1, 2005 and July 1, 2006 (the effective date of the amendment bringing the Plan into compliance with Section 409A of the Code), the Plan was operated and administered in compliance with transition rules promulgated by the Treasury under Notice 2005-1 and proposed regulations. Effective July 1, 2006, the Plan was amended to comply with Section 409A of the Code with respect to both the portion of the Participant’s benefit that is “grandfathered” from application of Section 409A of the Code (i.e. the portion that was earned and vested as of December 31, 2004) and the portion that is subject to Section 409A of the Code. Notwithstanding the foregoing, with respect to any Participant whose entire benefit payable under this Plan is grandfathered from application of Section 409A of the Code (i.e. the entire benefit was both earned and vested as of December 31, 2004), such Participant’s entire benefit shall continue to be payable in accordance with the terms of the Plan as existed prior to January 1, 2005.
Section 4.6. Impact of Ceasing to be an Active Participant. In the event that a Participant ceases to be an Active Participant as of a date but does not incur a termination of employment with CHS, then the amount described in this Article IV will be determined as if the Participant did not accumulate any additional service after that date and did not have any increase in compensation after that date.
Section 4.7. Termination of Pension Plan. If the Pension Plan is terminated by CHS, the benefit payable to a Participant under this Article IV with respect to the terminated plan, if any, will be determined as of the termination date of the terminated plan as if the Participant incurred a termination of employment with CHS as of such date and no other benefit will be provided under this Article IV with respect to the terminated plan.
Section 4.8. Clawback or Recoupment. All benefits under this Plan shall be subject to recovery or other penalties pursuant to (i) any CHS clawback policy, as may be adopted or amended from time to time, or (ii) any applicable law, rule or regulation or applicable stock exchange rule, including, without limitation, Section 304 of the Sarbanes Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any applicable stock exchange listing rule adopted pursuant thereto.
ARTICLE V.
DEATH BENEFITS
DEATH BENEFITS
Section 5.1. Normal Death Benefit.
(a) Death Benefit for Beneficiary. In the event of a Participant’s death prior to payment of benefits under the Plan, the Participant’s Beneficiary will be entitled to a death
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benefit. The death benefit is 100% of the Participant’s account balances described in Article IV of the Plan. If the Participant was eligible for the grandfathered benefit described in Section 4.5 of the Plan, the death benefit attributable to the Participant’s Pension Plan Account Balance is the greater of the Participant’s Pension Plan Account balance or the Actuarial Value of the Participant’s grandfathered benefit as provided by Section 4.5 of the Plan.
(b) Payment of Benefit. The Actuarial Value of the benefit described in Subsection (a) will be paid to the Participant’s Beneficiary in a single lump sum upon the Participant’s death. Payment shall be deemed paid as of the Participant’s death if it is made no later than the last day of the calendar year in which occurs the Participant’s death, or if later, the 15th day of the third calendar month following the Participant’s death.
(c) Death of Beneficiary. If a Beneficiary becomes entitled to a benefit under the preceding provision of this section and thereafter dies prior to the time payments begin to such Beneficiary, the death benefit shall be paid to the Beneficiary’s estate, unless the Participant specifically provided otherwise in the Participant’s designation of beneficiary under the Pension Plan, in which case, the death benefit will be paid to that designated beneficiary.
Section 5.2. Exceptions for Certain Former CENEX Employees.
(a) Application of this Section. If a Participant is covered by Section 4.3 of the Plan, then Section 5.1 of the Plan won’t apply and this section will apply with respect to the Participant.
(b) Surviving Spouse Benefit. If a Participant who is described in Subsection (a) dies prior to payment of benefits under the Plan under circumstances in which a benefit is payable to the Surviving Spouse of the Participant pursuant to the Pension Plan, then a supplemental benefit is payable to the Surviving Spouse under this Plan. The monthly amount of such benefit payable to the Surviving Spouse will be an amount, not less than zero, equal to the difference between:
(1) the monthly amount which the Surviving Spouse would have been entitled to receive under the Pension Plan if the limitations on benefits imposed by Section 401(a)(17) and Section 415 of the Code on the Pension Plan were disregarded and if compensation deferred upon the election of the Participant under any nonqualified plan maintained by CHS or any other participating employer in the Pension Plan were to be taken into account as compensation under the Pension Plan, except that amounts deferred or paid under the mandatory deferral portion of any long term incentive compensation program maintained by such an employer, or any amounts paid under any other nonqualified plan or program maintained by CHS or such a participating employer will not be considered part of that compensation, and
(2) the monthly amount actually payable to the Surviving Spouse under the Pension Plan.
(c) Payment of Benefit. The Actuarial Value of the benefit payable under this Section 5.2 of the Plan will be paid to the Surviving Spouse under the Pension Plan in a single lump sum upon the Participant’s death. Payment shall be deemed paid as of the Participant’s death if it is made no later than the last day of the calendar year in which occurs the Participant’s death, or if later, the 15th day of the third calendar month following the Participant’s death.
(d) Participant Ceases to be Active Participant. In the event that a Participant ceases to be an Active Participant as of a date but does not incur a termination of employment with CHS, and a supplemental benefit is payable to the Surviving Spouse under this Section 5.2, then the amount described in Section 5.2(b) of the Plan will be determined as if the Participant did not
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accumulate any additional service after that date and did not have any increase in compensation after that date.
(e) Exception for Certain Officers. If the Participant was employed as an officer of Farmers Union Central Exchange, Incorporated as of January 1, 1989, the monthly amount determined under Section 5.2(b) of the Plan will be increased to the amount determined under that subsection using CENEX Pension Plan (then referred to as the Farmers Union Central Exchange, Incorporated Pension Plan) provisions as in effect on December 31, 1988 (except that the compensation definition ordinarily used under Section 5.2(b) of the Plan will be used in calculating that amount), if such amount is larger than determined under that subsection without application of this sentence.
Section 5.3. Exclusion for Service with other Participating Employers in Pension Plan. Any portion of the benefit computed under this Article V that is attributable to service of a Participant with a participating employer in the Pension Plan other than CHS will not be payable under this Plan. That portion will be considered to be proportional to the portion of the Participant’s accrued benefit under the Pension Plan which was accrued during such Participant’s service with such a participating employer.
Section 5.4. Termination of Pension Plan. If the Pension Plan is terminated by CHS, the benefit payable to a Beneficiary or Surviving Spouse under this Article V, if any, will be determined as of the termination date of the Pension Plan and no other benefit will be provided under this Article V.
ARTICLE VI.
ADMINISTRATION OF THE PLAN
ADMINISTRATION OF THE PLAN
Section 6.1. Interpretation. The Plan will be administered by CHS, which will have the authority, duty and power to interpret and construe the provisions of the Plan as it deems appropriate. CHS will have the duty and responsibility of maintaining records, making the requisite calculations and dispersing the payments hereunder. CHS’s interpretations, determinations, regulations and calculations will be final and binding on all persons and parties concerned.
Section 6.2. General Administration and Claims Procedure. CHS will be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. CHS will have the authority to establish and revise rules, procedures, and regulations relating to the Plan and to make any other determinations which it believes necessary or advisable for the administration of the Plan. CHS will be responsible for the expenses incurred in the administration of the Plan. CHS will also be responsible for determining eligibility for benefits and the benefits payable pursuant to the Plan. CHS will be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by CHS with respect to the Plan. The procedures for filing claims for Plan benefits are described below. For claims procedures purposes, the “Claims Manager” will be CHS.
(a) Initial Claim. An initial claim for benefits under the Plan must be made by the Participant or his or her Beneficiary or Surviving Spouse in accordance with the terms of the Plan. If for any reason a claim for benefits under this Plan is denied by the Claims Manager, the Claims Manager will deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the section under the Plan on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his or her claim, all written in a manner calculated to be understood by the claimant. For this purpose:
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(1) The claimant’s claim will be deemed to be filed when presented orally or in writing to the Claims Manager.
(2) The Claims Manager’s explanation will be in writing delivered to the claimant within 90 days of the date the claim is filed.
(b) Request for Review. The claimant will have 60 days following his or her receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant’s representative may review pertinent documents and submit written issues and comments.
(c) Decision after Review. The Claims Manager will decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant’s request for review of the claimant’s claim. The decision on review will be in writing and will include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent provisions in the Plan on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim will be deemed denied on review. In no event may a claimant commence legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Article VI.
Section 6.3. Written Statement. CHS may provide individual written statements of accrued benefits to each Participant, or current Beneficiary or Surviving Spouse, in a form determined by CHS at such times as may be established by CHS.
Section 6.4. Committee. A Committee consisting of one (1) or more members appointed by the Board of Directors will act for CHS under the Plan, unless the Plan specifically indicates that the Board of Directors or other persons are to act for CHS with respect to a specified matter under the Plan. If such Board does not appoint anyone to the Committee or if all members resign or otherwise cease to be members of the Committee, such Board or any officer designated by the Board will act for CHS until it makes any appointments under this section.
Section 6.5. Records. The records of the Plan will be maintained on the Plan Year.
ARTICLE VII.
AMENDMENT OR TERMINATION
AMENDMENT OR TERMINATION
Section 7.1. Amendment or Termination. CHS intends the Plan to be permanent but reserves the right to amend or terminate the Plan at any time. Any such amendment or termination will be made pursuant to a resolution of CHS’s Board of Directors and will be effective as of the date provided in the resolution. An amendment will be stated in an instrument in writing signed in the name of CHS by a person authorized by the Board of Directors and all parties interested herein will be bound thereby.
Section 7.2. Impact on Benefits. No amendment or termination of the Plan will directly or indirectly reduce any benefit described in Article IV or Article V of the Plan as of the effective date of such amendment or termination. A Participant’s benefit which has accrued under the Plan will not increase after the termination of the Plan and will be determined under the appropriate provisions of the Plan as if the Participant did not accumulate any additional service after the effective date of such termination and did not have any increase in compensation after that date. Upon the termination of the Plan, distribution of benefits payable under the Plan will be made to the Participants or their Beneficiaries or Surviving Spouses in accordance with Article IV of the Plan.
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ARTICLE VIII.
GENERAL PROVISIONS
GENERAL PROVISIONS
Section 8.1. Responsibility for Benefits and Expenses. CHS will pay benefits arising under the Plan and all costs, charges and expenses related thereto. CHS may anticipate its obligations under this Plan by establishing a trust or purchasing any insurance or other contract; provided, however, that such “funding” vehicle will not:
(a) change the status of this Plan as an unfunded plan, or
(b) change the rights of a Participant or the Participant’s Beneficiary or Surviving Spouse under Section 8.3 of the Plan.
Section 8.2. Inalienability. The benefits payable hereunder or the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process; and no interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 8.3. Unsecured Claim. The right of a Participant or the Participant’s Beneficiary or Surviving Spouse to receive a distribution hereunder will be an unsecured claim against the general assets of CHS, and neither a Participant nor his or her Beneficiary or Surviving Spouse will have any rights in or against any amount credited to any accounts under the Plan or any other assets of CHS. The Plan will at all times be considered entirely unfunded both for tax purposes and for purposes of Title I of ERISA. Funds invested hereunder will continue for all purposes to be part of the general assets of CHS and available to the general creditors of CHS in the event of CHS’s bankruptcy (when CHS is involved in a pending proceeding under the Federal Bankruptcy Code) or insolvency (when CHS is unable to pay its debts as they mature). No Participant or any other person will have any interests in any particular assets of CHS by reason of the right to receive a benefit under the Plan. The Plan constitutes a mere promise by CHS to make payments to the Participants in the future.
Section 8.4. Terms of Pension Plan. Except as otherwise provided herein, the terms and conditions of the Pension Plan will apply to the benefits described in Articles IV and V of the Plan. Nothing in this Plan will operate or be construed in any way to modify, amend or affect the terms and provisions of the Pension Plan.
Section 8.5. Sufficiency of CHS Assets. Nothing contained in the Plan will be interpreted as a guaranty by CHS or any other person or entity that any funds or assets of CHS will be sufficient to pay any benefit hereunder.
Section 8.6. Plan Administered According to its Terms. No Participant, Beneficiary, or Surviving Spouse will have any right to a benefit under this Plan except in accordance with the terms of the Plan. Establishment of the Plan will not be construed to give any Participant the right to be retained in the service of CHS. The sole rights of a Participant or his or her Beneficiary or Surviving Spouse under the Plan will be to have the Plan administered according to its terms, and to receive whatever benefits he or she may be entitled to hereunder.
Section 8.7. Incompetency. If any person entitled to a benefit payment under the Plan is declared incompetent and a conservator or other person legally charged with the care of such person or of his or her estate is appointed, any benefits under the Plan to which the person is entitled will be paid to such conservator or other person legally charged with the care of the person or his or her estate. Except as provided above, when CHS determines that such person is
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unable to manage his or her affairs, CHS may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment will be a payment for the account of such person and a complete discharge of any liability of CHS and the Plan therefore.
Section 8.8. Impact of Corporate Change. The Plan will not be automatically terminated by a transfer or sale of assets of CHS or by the merger or consolidation of CHS into or with any other corporation or other entity, but the Plan will be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event the Plan is not continued by the transferee, purchaser or successor entity, then the Plan will terminate subject to the provisions of Article VII of the Plan.
Section 8.9. Addresses. Each Participant will keep CHS informed of his or her current address and the current address of his or her spouse and any designated Beneficiary. CHS will not be obligated to search for any person. If the location of a Participant is not made known to CHS within two (2) years after the date on which payment of the Participant’s benefits payable under this Plan may first be made, payment may be made as though the Participant had died at the end of the two-year period. If, within one additional year after such two-year period has elapsed, or, within two (2) years after the actual death of a Participant, whichever is later, CHS is unable to locate the Surviving Spouse or a designated Beneficiary of the Participant, then CHS will have no further obligation to pay any benefit hereunder to such Participant, Surviving Spouse, or designated Beneficiary and such benefits will be irrevocably forfeited to CHS.
Section 8.10. Liability. Notwithstanding any of the preceding provisions of the Plan, neither CHS nor any individual acting as an employee or agent of CHS will be liable to any Participant, former Participant, Surviving Spouse, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of CHS or any such employee or agent of CHS.
Section 8.11. Availability of Copy of Plan. CHS will make a copy of the Plan available for inspection by any Participant or designated Beneficiary or Surviving Spouse.
Section 8.12. Applicable Laws. All questions pertaining to the construction, validity and effect of the Plan will be determined in accordance with the laws of the United States and to the extent not preempted by such laws, by the laws of the State of Minnesota.
Section 8.13. Invalidated Provision. Any provision of this Plan prohibited by law will be ineffective to the extent of any such prohibition, without invalidating the remaining provisions of the Plan.
Executed this 4th day of April 2023.
CHS INC.
By: /s/ Jay D. Debertin
Title: President and Chief Executive Officer
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(2023 Restatement)
(2023 Restatement)
Schedule A
As of January 1, 2023
1.Carl Casale
2.Shirley Cunningham
3.Timothy Skidmore
4.Adam Holton
5.David Black
6.Jean Briand
7.James Zappa
8.Jason Price
9.Mary Kaul-Hottinger
10.Javier Alarcon
11.Olivia Nelligan
12.Brandon Smith
Executed this 4th day of April 2023.
CHS INC.
By /s/ Jay D. Debertin
Title: President and Chief Executive Officer
By /s/ Jay D. Debertin
Title: President and Chief Executive Officer
S-A | ||||||||
CHS INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(2023 RESTATEMENT)
Appendix A
CHS McPherson Refinery Inc. (fka National Cooperative Refinery Association)
Supplemental Retirement Benefits
1. History. In connection with the Company’s acquisition of one hundred percent (100%) of CHS McPherson Refinery Inc., formerly National Cooperative Refinery Association, a Kansas corporation (“CMRI”), the Company assumed all deferred compensation obligations under the I.R.C. § 409A National Cooperative Refinery Association Deferred Compensation and Supplemental Retirement Plan (“NCRA Plan”). The NCRA Plan is maintained under a document entitled “I.R.C. § 409A National Cooperative Refinery Association Deferred Compensation and Supplemental Retirement Plan, As Restated Effective January 1, 2008”, as amended by one amendment.
Pursuant to Article IV of the NCRA Plan, if a participant in the NCRA Plan (an “NCRA Participant”) becomes entitled to a retirement benefit under either the National Cooperative Refinery Association Employee Retirement Plan or the National Cooperative Refinery Association Savings and Retirement Plan or both (collectively, the “NCRA Qualified Defined Benefit Plans”), and such retirement benefit is limited by Section 401(a)(17) or Section 415 of the Internal Revenue Code (the “Limitations”), then the NCRA Participant becomes entitled to a Supplemental Retirement Benefit payable under the NCRA Plan equal to (a) less the sum of (b) and (c), where:
(a) is the amount the NCRA Participant and/or his beneficiary would be entitled to receive under the terms and provisions of the NCRA Qualified Defined Benefit Plans, based on the participant’s actual annuity starting date and the then normal form of retirement income payment under the NCRA Qualified Defined Benefit Plans, based on the NCRA Participant’s actual annuity starting date and the NCRA Qualified Defined Benefit Plans’ normal form of retirement income payment, assuming the limitations;
(b) is the amount the NCRA Participant and/or his beneficiary is actually entitled to receive under the NCRA Qualified Defined Benefit Plans, based on the NCRA Participant’s actual annuity starting date and the NCRA Qualified Defined Benefit Plans’ normal form of retirement income payment; and
(c) is the amount, if any, the NCRA Participant and/or his beneficiary is actually entitled to receive under the NCRA Frozen (as of December 31, 2004) Deferred Compensation and Supplemental Retirement Plan, based on the NCRA Participant’s actual annuity starting date and the NCRA Qualified Defined Benefit Plans’ normal form of retirement income payment.
2. Merger of Plans. Effective December 31, 2015, the NCRA Qualified Defined Benefit Plans shall be merged into the CHS Inc. Pension Plan under Sections XIII and XIV. Each Supplemental Retirement Benefit payable under the NCRA Plan shall be transferred to and become part of this Plan. Each CMRI (formerly known as NCRA) Participant selected to actively participate in this Plan is eligible for the benefit described below.
A-1
3. Amount of Supplemental Retirement Benefit. The amount of a CMRI Participant’s Supplemental Retirement Benefit under this Plan shall be equal to (a) less the sum of (b) and (c), where:
(a) is the amount the CMRI Participant and/or his beneficiary would be entitled to receive under the terms and provisions of the CHS Inc. Pension Plan, based on the participant’s actual annuity starting date and the then normal form of retirement income payment under the CHS Inc. Pension Plan, based on the CMRI Participant’s actual annuity starting date and the CHS Inc. Pension Plan’s normal form of retirement income payment, assuming the limitations;
(b) is the amount the CMRI Participant and/or his beneficiary is actually entitled to receive under the CHS Inc. Pension Plan, based on the CMRI Participant’s actual annuity starting date and the CHS Inc. Pension Plan’s normal form of retirement income payment; and
(c) is the amount, if any, the CMRI Participant and/or his beneficiary is actually entitled to receive under the NCRA Frozen (as of December 31, 2004) Deferred Compensation and Supplemental Retirement Plan, based on the CMRI Participant’s actual annuity starting date and the CHS Inc. Pension Plan’s normal form of retirement income payment.
4. Time and Form of Payment. Notwithstanding any provision in this Plan to the contrary, a CMRI Participant’s Supplemental Retirement Benefit shall be paid at the time specified in Article V of the NCRA Plan, and in the form elected by the CMRI Participant in accordance with Article V, using the actuarial equivalence factors specified in Article V.
5. Promoted Employees. CMRI employees with CHS Inc. Pension Plan benefits under Section XIII who are promoted to a position eligible for participation in this Plan shall be covered under CHS Inc. Pension Plan Section XIV for purposes of determining such Participants’ Supplemental Retirement Benefits.
6. Former participants in the NCRA Plan with the last names Balzer, Mendard and Sims are Participants in the Plan but are not Active Participants in the Plan. However, they are entitled to a benefit under the Plan. The benefit of each such Participant under the Plan shall be the benefit determined for that Participant under the Plan on December 31, 2015, which is the benefit that was transferred to the Plan for that Participant from the NCRA Plan on that date. Notwithstanding any other provision of the Plan, including this Appendix, that benefit shall not increase or decrease prior to the commencement of the benefit.
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jay D. Debertin, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2023, of CHS Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 5, 2023
| /s/ Jay D. Debertin | |||||
| Jay D. Debertin | |||||
| President and Chief Executive Officer | |||||
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Olivia Nelligan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2023, of CHS Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 5, 2023
| /s/ Olivia Nelligan | |||||
| Olivia Nelligan | |||||
| Executive Vice President, Chief Financial Officer and Chief Strategy Officer | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report on Form 10-Q of CHS Inc. (the “Company”) for the quarterly period ended February 28, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay D. Debertin, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Jay D. Debertin | |||||
| Jay D. Debertin | |||||
| President and Chief Executive Officer | |||||
| April 5, 2023 | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report on Form 10-Q of CHS Inc. (the “Company”) for the quarterly period ended February 28, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Olivia Nelligan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Olivia Nelligan | |||||
| Olivia Nelligan | |||||
| Executive Vice President, Chief Financial Officer and Chief Strategy Officer | |||||
| April 5, 2023 | |||||