Chs Inc 8-K, filed Dec 3, 2020
Chs Inc (CHSCP)
8-K
2020-12-03
For: 2020-12-03
View Original
Added on
April 09, 2026
About this 8-K
Chs Inc filed this 8-K on December 3, 2020.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 3, 2020
(Exact Name of Registrant as Specified in its Charter)
Commission File Number: 001 -36079
| (State or Other Jurisdiction of Incorporation) | (IRS Employer Identification No.) | |||||||||||||||||||
| (Address of principal executive offices, including zip code) | ||||||||||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||||||||
| Not Applicable | ||||||||||||||||||||
| (Former Name or Former Address, if Changed Since Last Report) | ||||||||||||||||||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
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.☐
Item 7.01 Regulation FD Disclosure.
On December 3, 2020, Jay Debertin, President and Chief Executive Officer of CHS Inc. (the “Company”), and Olivia Nelligan, Executive Vice President and Chief Financial Officer of the Company, each gave a speech along with a related slide presentation at the Company’s 2020 Annual Meeting. Copies of Mr. Debertin’s speech and related slide presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, and copies of Ms. Nelligan’s speech and related slide presentation are attached hereto as Exhibits 99.3 and 99.4, respectively. Each such copy is incorporated herein by reference.
Pursuant to General Instruction B.2. to Form 8-K, the information set forth and incorporated by reference in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.
Item 9.01 Financial Statements and Exhibits.
| Exhibit No. | Description | |||||||
| Speech of Jay Debertin | ||||||||
| Slide Presentation Related to Speech of Jay Debertin | ||||||||
Speech of Olivia Nelligan | ||||||||
| Slide Presentation Related to Speech of Olivia Nelligan | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CHS Inc. | ||||||||||||||
| Date: December 3, 2020 | By: | /s/ Olivia Nelligan | ||||||||||||
| Olivia Nelligan | ||||||||||||||
| Executive Vice President and Chief Financial Officer | ||||||||||||||
Exhibit 99.1
CHS Annual Meeting
CEO Report
Good afternoon. Thank you again for joining us – virtually this year – for our 2020 Annual Meeting.
We are here today to say thank you. Thank you for your business, for your commitment to CHS, for your belief in the cooperative system. We are also here to give insight into very important work going on at the company.
What we do collectively to empower agriculture has never been more important.
Last year at this meeting, we were all so eager to say good riddance to the bad trade situation and the weather impacts of 2019. And then came 2020.
The need for us to execute on our strategies and goals was never more important. We promised you we would work toward those strategies every day.
And we are.
Before I share my thoughts regarding our performance last year and our priorities for this year, I want to start with our core value of safety. In a year that became all about health and safety, that seems right.
We put the well-being of our employees and our shared communities first. We cannot build our business unless we put relentless focus on safety and health, everywhere, every day. And that is exactly what we are doing.
Our injury metrics are at record lows for CHS, and our fleet crash performance puts us at the top 10 percent of fleets in the United States. We met those goals by aggressively targeting the issues that cause the most injuries for our drivers. We demonstrated that when we put our focus on a challenge, we can make a difference.
That focus was evident as we faced challenges and seized opportunities throughout our company.
When the doors to China cracked open this year, the demand for grain around the world jumped. And that jump benefited you, our owners. It meant your products were again moving to feed the world, and moving at a higher price.
In fiscal year 2020, the United States shipped 16 percent more soybeans to China than in fiscal year 2019. And fiscal year 2021 is off to an even better start.
Market demand has increased. But that is only part of the story.
The trade changes I just referenced demonstrate the benefits that can come with working with a cooperative that was ready to act quickly when trade began to resume.
Even before we knew when trade would begin inching back to where it was, we met with and collaborated with certain grain customers to earn more of their business. You’ve
heard about that work by all of our businesses at our Owners Forums, and I spoke to that strategy often.
That growth in our business together with local cooperatives is benefiting farmers. In some cases, we have moved more grain for those cooperatives in the first two and a half months of our new fiscal year than we did in all of fiscal year 2020.
We built on our strategy to be your first choice also by focusing on how we work more efficiently and effectively across our entire agronomy platform.
The overall crop protection industry saw growth of just a couple percent year over year nationally. At CHS, we had a 12 percent growth of our crop protection products. However, the fall fertilizer season during fiscal year 2020 was very poor; it was late, and it was wet.
The good news is that during the fall that we just completed, which was in our fiscal year 2021, we had our strongest fall fertilizer season since 2015.
We found efficiencies across the business that reduced costs. But it is more than just being cost-driven. These efficiencies make us a better company, and we can better operate in this difficult environment.
But we cannot stop at efficiencies. We have continued our commitment to innovation and growing with customers. We were awarded a patent on Levesol, a crop protection product that helps plants access more phosphorus and, in turn, have better yield.
We’ve paired our investment in agronomy with our investment in technology to bring you a full suite of crop protection products.
Last year, we pledged we would bring a tighter focus to our customer experience using technology. And we have. We focused on moving from a transaction-based sales model to a more collaborative, trusted partner model to increase producer value per acre with tools like Agellum®.
We recently added proof of yield and online payment functionality to allow for easy payments. Proof of yield allows MyCHS users to see a report that summarizes all deliveries.
An improved MyCHS allows you to sell from the digital platform. This is about making your lives easier, about adapting to how you want to do business.
We continue to improve our online presence through enhancements to the Energy Control Room, a digital platform that customers use to manage their energy business through MyCHS.
Identifying and aggressively leaning into our strategy to transform the business to unleash the enterprise is one of the primary drivers behind our adoption of Lean across CHS. Lean is a process of identifying better, more efficient ways of getting work done and eliminating waste – waste in time and in money.
We’ve seen some incredible successes at our ethanol plants and by our team at Myrtle Grove. It’s about being better tomorrow than we are today.
And about being relentless and not counting on markets and margins just magically getting better.
The focus on efficiency in Energy became even more important as we navigated the challenges that industry faces.
In my 37 years at CHS, we’ve seen demand for refined fuels go up three percent or down three percent in the past, and that made a significant difference in our performance. But the industry navigated through that.
This year, as Olivia mentioned, we saw the energy demand and market drop due to COVID-19. Airline travel, daily commutes, road trips all dropped in the last half of our fiscal year, and we, like all energy companies felt it and had to adjust.
We know some changes are here to stay. We will focus on what we can control: efficient operations and collaboration across our enterprise. That increased collaboration is what helped us drive to record amounts of premium diesel sold, even in this pandemic environment, and record earnings in propane.
Our need to compete in this environment, in the industries that we operate in has never been more paramount.
Conditions are tighter for everyone. We must make sure we are connecting our supply chain as tightly as we can and taking costs out of that supply chain to ultimately maximize our performance.
Our strategy to evolve our business is top of mind as we build our sustainability efforts. We’re focused on economic viability, environmental stewardship and community well-being.
We know that the world’s growing focus on climate change means increased emphasis on carbon emissions, on reduced consumption of fossil fuels and on increased use of electric vehicles and alternative fuels.
It also drives increased attention on how climate change could affect plant and animal production.
We believe the journey toward more energy efficiency and lower carbon emissions will not turn around. But policies and politics will impact the speed at which we go down the road.
We believe we’re not going to be out of the refined fuels business anytime soon. But it certainly will mean change. Good thing that we’re used to that around here.
We have been adapting to and creating energy-saving projects for almost 90 years and have been part of renewable fuels for the last 40 years, including back when it was called gasohol.
Rural America will need us to help power it for a long time. But, most likely, the world is going to use fewer fossil fuels, and we need to be able to compete.
We will continue to invest in our refineries – not to make them bigger but to make them more efficient and help us remain competitive in the marketplace. We know we must identify priorities that help us anticipate and build for the opportunities that come with this changing marketplace.
As we look forward to 2021, we have identified three priorities that will help us face those opportunities and challenges head on.
Our first of three priorities is caring for the people who depend on us, our owners, our customers around the world, my fellow employees and the communities in which we live and work.
In fiscal year 2020, we collaborated with other regional cooperatives to support recovery efforts from the destructive storms in Iowa.
We supported cooperatives such as Farmers Cooperative in Dorchester, Nebraska, by providing matching grants through our Seeds for Stewardship program for rescue and recovery in grain storage units through its local fire department.
Our second priority focuses on protecting our financial health. In March and April, we took steps that would help us maintain our solid financial foundation as the pandemic impacted the United States.
As you heard Olivia mention, we identified sustainable cost savings and reduced capital spending. We exceeded those goals.
And, this year, we identified additional cost savings and steps to improve cash flow, steps that will make CHS a better company, and the environment demands it.
I spoke of the need for innovation earlier. Our third priority focuses on that, on changing how we run our businesses and the many steps we take to get products to you by reimagining our operating model.
We will focus on the structure of our operations and identifying efficiencies. Customers will not pay for unnecessary steps, and I won’t ask them to. We will focus on connecting more closely with local cooperatives. It will be a challenge.
Hard or not, we are going to do it because the business today requires it. The decisions aren’t different decisions than we’d otherwise make over time. The times that we’re in, though, require us to make decisions sooner and to go faster. We will continue to respond to and grow in whatever circumstances we face at whatever pace we face them.
Cooperatives are built to last. CHS is built to deliver on our promise to create connections to empower agriculture. We are committed to our purpose. And we are committed to you and to our customers around the world. We are grateful for your commitment to us.
When we ended our Annual Meeting last year, we counted on seeing each other this year. And we remain optimistic we will see you in Minneapolis next year. We will get through this. As we have done throughout our more than our 90-year history, and my tenure as CEO, we will do what is necessary to succeed.
Happy Holidays. Be well and stay safe.
2020 CHS Annual Meeting Management Report Jay Debertin, President and CEO Dec. 3, 2020 Exhibit 99.2
Forward-Looking Statements This document and accompanying oral presentation contain and other CHS Inc. internally and publicly available documents contain, and CHS officers and 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 Report 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 CHS current beliefs, expectations and assumptions regarding the future of its businesses, 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 CHS control. CHS 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 CHS actual results and financial condition to differ materially from those indicated in the forward–looking statements are discussed or identified in CHS filings made with the U.S. Securities and Exchange Commission, including in the "Risk Factors" discussion in Item 1A of CHS Annual Report on Form 10–K for the fiscal year ended August 31, 2020. Any forward–looking statements made by CHS in this document are based only on information currently available to CHS and speak only as of the date on which the statement is made. CHS undertakes 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.
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
VIDEO
Exhibit 99.3
CHS Annual Meeting
CFO Report
•Good day, CHS owners.
•I am Olivia Nelligan, CFO at CHS. I am delighted to be with you for my first annual meeting, although it looks a little different this year. I look forward to meeting many of you in person over the coming years.
•This afternoon, I am here to deliver the Fiscal 2020 Financial Report.
•It was an unprecedented and difficult year on so many levels, as all of you know.
•In Fiscal 2020, our businesses faced significant headwinds and ongoing uncertainty about the extent, severity and duration of the COVID-19 pandemic and the resulting global economic impacts.
•Despite all this, CHS had a solid year financially and there were some bright spots in our financial performance for the year.
•Before we get started, please review this slide. Some of the business and financial topics we discuss today may contain forward looking statements. Some results may differ from those implied by today’s comments. These differences may exist because of risks and uncertainties in our business, including those we describe in our most recent annual report, which is on file with the SEC.
Revenues
•Revenues in Fiscal 2020 were $28.4 billion, an 11 percent decline over last year.
•The volume impact on Revenue was a 4 percent decrease, demonstrating the stability of our business despite market conditions that adversely affected demand.
•Lower commodity prices decreased our current year revenues by approximately 7 percent year over year.
Net Income
•Net income for Fiscal 2020 was $422.4 million, a decrease of $407.4 million versus last year.
•2020 was really a year of two halves. As a reminder, the CHS Fiscal year starts in September so our first half earnings occurred prior to the pandemic and were $303.3 million, which exceeded expectations. The net income for the second half of the year, from March through August, was $119.1 million. The sharp contrast in profitability clearly shows the impact the pandemic has had on business.
•In Fiscal 2020 we set a goal to take $50 million of cost out of the business and we exceeded that goal.
•There was continued work to improve our internal controls environment. I am happy to report that we received a clean audit opinion on our financials and we successfully remediated the remaining material weaknesses in Fiscal 2020.
•Now, we will review the various segments that make up our earnings – Energy, Ag and Nitrogen Production – as well as our Corporate and Other category.
Energy
•We’ll start with energy, which includes four businesses - Refined Fuels, Propane, Lubricants and Transportation.
•Energy had pre-tax earnings of $225.3 million, a decrease of $392.9 million from the previous year.
•When the pandemic first began in the United States, and travel nearly halted, gasoline market demand dropped by half.
•Thankfully, CHS did not experience the same level of decline as many. As a result of our rural focus and the markets we serve, CHS demand decreased initially by 25 percent and had nearly recovered by the end of the summer.
•The demand shock across the U.S. refined fuels industry resulted in record high inventories and decreased refinery utilization rates. Market conditions also resulted in decreased crude oil differentials on the heavy Canadian crude oil we process at our refineries. All of this drove margins down which adversely impacted our profitability.
•In fiscal 2019, we had an $80.8 million gain for tax credits and record high crude oil differentials that did not reoccur in fiscal year 2020, both of which widened the year over year variance.
•Increased propane volumes and margins in fiscal year 2020 driven by our extensive supply network and historic demand for propane to dry corn and heat homes, helped partially offset decreased overall earnings in our Energy segment.
Ag
•The Ag reporting segment includes Agronomy, Global Grain Marketing, Country Operations, Processing and Renewable Fuels Production.
•Ag had pretax earnings of $53.7 million, which is an increase of $10.7 million from the previous year.
•The key drivers of the financial performance in Ag included:
◦Lower volumes driven by poor weather, a smaller harvest, and global tensions between the United States and foreign trading partners, particularly in the first half of fiscal 2020.
◦Lower earnings in our oilseeds processing business as a result of foodservice demand reductions due to the pandemic impacts on restaurants and dining. While we saw both volume and price impacts during the start of the second half, both rebounded towards the end of the Fiscal year.
◦We saw improved margins across certain Ag segment businesses including feed and farm supplies, grains and renewable fuels. Improvements that stemmed from favorable spring planning weather and better trade relations, including the “Phase 1” agreement with China.
Nitrogen Production
•The Nitrogen Production segment represents our investment in CF Nitrogen.
•Pretax earnings of $51.8 million represent a $21 million decrease versus the prior year related to lower distribution income. This decrease reflects lower commodity prices for urea and urea ammonium nitrate, which are the focus of our commercial relationship with, and equity investment distributions from, CF Nitrogen.
Corporate and Other
•Our Corporate and Other category includes two wholly owned subsidiaries: CHS Hedging, our full-service brokerage business, and CHS Capital, which provides financing to members.
•This category also includes two joint ventures: Ardent Mills, a leading flour supplier; and Ventura Foods, a producer of edible oil-based branded and private-label food products.
•Pretax earnings of $56 million represent a $25.5 million decrease compared to the prior fiscal year.
•We saw a decrease in financing and brokerage business income due to lower interest rates in Fiscal 2020, but business volumes in both remain strong.
•Our Ventura Foods joint venture experienced lower earnings due to significantly reduced foodservice demand during the pandemic.
Summarize
•In summary, our total net income of $422.4 million is a year over year decrease of $407.4 million.
Equity Management
•Chair Schurr reported on the Board’s equity management decisions. As he noted in his report, the Board has again designated 10 percent of this year’s patronage-based earnings to the unallocated reserve.
•This year, CHS will issue patronage of $212 million in nonqualified equity certificates and the remainder in cash.
•In total, $63 million will be distributed to owners, $30 million in cash patronage and $33 million in equity redemptions.
•Of the $33 million in equity redemptions, $20 million will go to member cooperatives and $13 million will be distributed to individual owners. This split reflects the make-up of CHS ownership.
◦The $20 million of member cooperative redemptions will include $5 million of 2019 nonqualified equity certificates. The balance of $15 million will redeem qualified equity certificates, starting with the oldest equity first.
◦$13 million will be used to fulfill individual owner estates and redemption requests from those age 70 and over. We will reserve $2 million of the $13 million for estates.
•In addition, CHS will be distributing the unused portion of DPAD tax deductions to owners.
•In making equity and patronage decisions this year, the Board considered, among other things, the 2021 outlook and, in particular, the adverse impacts on our business from global energy price and demand declines. The Board is committed to keeping equity decisions on the table for review. Should the year evolve more positively than anticipated, the Board will consider returning additional dollars to our owners.
Patronage Rates
•Here are a few wholesale patronage rates. What you see on the screen is total patronage and cash patronage.
•I’ll highlight a few:
◦Premium diesel total patronage will be 4.93 cents per gallon with a cash portion of .61 cents.
◦For propane, total patronage is 7.65 cents per gallon with a cash portion of .94 cents.
◦In Agronomy, bulk fertilizer total patronage will be $4.36 per ton with cash of 54 cents.
•Equity management decisions will always be made with the best interest of CHS and its members in mind, along with the goal of maintaining a strong balance sheet that supports future growth.
Planning for Fiscal 21
•We anticipate the challenges associated with the pandemic will continue to adversely impact financial performance for some time to come.
•To counter these variables, we must control what we can control, and we are resolutely focused on financial excellence and continuous improvement.
•This year, we have plans in place to reduce budgeted costs by $100 million. This is incremental to the costs savings in Fiscal 2020.
•We will also work on cashflow improvements, generating an additional $100 million in operating cash flows through working capital initiatives.
◦This includes streamlining operations to move inventory through our system more efficiently and effectively. It includes paying bills and collecting payments electronically to reduce manual processes and costs.
•We remain focused on balance sheet strength by ensuring we have ample liquidity to fund business operations and adequate capital to fuel growth for the future.
Close
•Your cooperative delivered solid results for Fiscal 2020 and navigated the challenges presented with resilience, determination and strength.
•We will face continued trials in Fiscal 2021, especially in our energy business, but we are committed to working through these challenges - just as we have done throughout our 91-year history – it is what we were built to do.
•Thank you for your business and for your continued support of CHS.
CHS Annual Meeting CFO Report 1 Exhibit 99.4
Good day, CHS owners. I am Olivia Nelligan, CFO at CHS. I am delighted to be with you for my first annual meeting, although it looks a little different this year. I look forward to meeting many of you in person over the coming years. This afternoon, I am here to deliver the Fiscal 2020 Financial Report. It was an unprecedented and difficult year on so many levels, as all of you know. In Fiscal 2020, our businesses faced significant headwinds and ongoing uncertainty about the extent, severity and duration of the COVID-19 pandemic and the resulting global economic impacts. Despite all this, CHS had a solid year financially and there were some bright spots in our financial performance for the year. 2
Before we get started, please review this slide. Some of the business and financial topics we discuss today may contain forward looking statements. Some results may differ from those implied by today’s comments. These differences may exist because of risks and uncertainties in our business, including those we describe in our most recent annual report, which is on file with the SEC. 3
Revenues in Fiscal 2020 were $28.4 billion, an 11 percent decline over last year. The volume impact on Revenue was a 4 percent decrease, demonstrating the stability of our business despite market conditions that adversely affected demand. Lower commodity prices decreased our current year revenues by approximately 7 percent year over year. 4
Net income for Fiscal 2020 was $422.4 million, a decrease of $407.4 million versus last year. 2020 was really a year of two halves. As a reminder, the CHS Fiscal year starts in September so our first half earnings occurred prior to the pandemic and were $303.3 million, which exceeded expectations. The net income for the second half of the year, from March through August, was $119.1 million. The sharp contrast in profitability clearly shows the impact the pandemic has had on business. In Fiscal 2020 we set a goal to take $50 million of cost out of the business and we exceeded that goal. There was continued work to improve our internal controls environment. I am happy to report that we received a clean audit opinion on our financials and we successfully remediated the remaining material weaknesses in Fiscal 2020. 5
Now, we will review the various segments that make up our earnings – Energy, Ag and Nitrogen Production – as well as our Corporate and Other category. 6
We’ll start with energy, which includes four businesses - Refined Fuels, Propane, Lubricants and Transportation. Energy had pre-tax earnings of $225.3 million, a decrease of $392.9 million from the previous year. When the pandemic first began in the United States, and travel nearly halted, gasoline market demand dropped by half. Thankfully, CHS did not experience the same level of decline as many. As a result of our rural focus and the markets we serve, CHS demand decreased initially by 25 percent and had nearly recovered by the end of the summer. The demand shock across the U.S. refined fuels industry resulted in record high inventories and decreased refinery utilization rates. Market conditions also resulted in decreased crude oil differentials on the heavy Canadian crude oil we process at our refineries. All of this drove margins down which adversely impacted our profitability. In fiscal 2019, we had an $80.8 million gain for tax credits and record high crude oil differentials that did not reoccur in fiscal year 2020, both of which widened the year over year variance. Increased propane volumes and margins in fiscal year 2020 driven by our extensive supply network and historic demand for propane to dry corn and heat homes, helped partially offset decreased overall earnings in our Energy segment. 7
The Ag reporting segment includes Agronomy, Global Grain Marketing, Country Operations, Processing and Renewable Fuels Production. Ag had pretax earnings of $53.7 million, which is an increase of $10.7 million from the previous year. The key drivers of the financial performance in Ag included: • Lower volumes driven by poor weather, a smaller harvest, and global tensions between the United States and foreign trading partners, particularly in the first half of fiscal 2020. • Lower earnings in our oilseeds processing business as a result of foodservice demand reductions due to the pandemic impacts on restaurants and dining. While we saw both volume and price impacts during the start of the second half, both rebounded towards the end of the Fiscal year. • We saw improved margins across certain Ag segment businesses including feed and farm supplies, grains and renewable fuels. Improvements that stemmed from favorable spring planning weather and better trade relations, including the “Phase 1” agreement with China. 8
The Nitrogen Production segment represents our investment in CF Nitrogen. Pretax earnings of $51.8 million represent a $21 million decrease versus the prior year related to lower distribution income. This decrease reflects lower commodity prices for urea and urea ammonium nitrate, which are the focus of our commercial relationship with, and equity investment distributions from, CF Nitrogen. 9
Our Corporate and Other category includes two wholly owned subsidiaries: CHS Hedging, our full-service brokerage business, and CHS Capital, which provides financing to members. This category also includes two joint ventures: Ardent Mills, a leading flour supplier; and Ventura Foods, a producer of edible oil-based branded and private-label food products. Pretax earnings of $56 million represent a $25.5 million decrease compared to the prior fiscal year. We saw a decrease in financing and brokerage business income due to lower interest rates in Fiscal 2020, but business volumes in both remain strong. Our Ventura Foods joint venture experienced lower earnings due to significantly reduced foodservice demand during the pandemic. 10
In summary, our total net income of $422.4 million is a year over year decrease of $407.4 million. 11
Chair Schurr reported on the Board’s equity management decisions. As he noted in his report, the Board has again designated 10 percent of this year’s patronage-based earnings to the unallocated reserve. This year, CHS will issue patronage of $212 million in nonqualified equity certificates and the remainder in cash. In total, $63 million will be distributed to owners, $30 million in cash patronage and $33 million in equity redemptions. Of the $33 million in equity redemptions, $20 million will go to member cooperatives and $13 million will be distributed to individual owners. This split reflects the make-up of CHS ownership. • The $20 million of member cooperative redemptions will include $5 million of 2019 nonqualified equity certificates. The balance of $15 million will redeem qualified equity certificates, starting with the oldest equity first. • $13 million will be used to fulfill individual owner estates and redemption requests from those age 70 and over. We will reserve $2 million of the $13 million for estates. In addition, CHS will be distributing the unused portion of DPAD tax deductions to owners. In making equity and patronage decisions this year, the Board considered, among other things, the 2021 outlook and, in particular, the adverse impacts on our business from global energy price and demand declines. The Board is committed to keeping equity decisions on the table for review. Should the year evolve more positively than anticipated, the Board will consider returning additional dollars to our owners. 12
Here are a few wholesale patronage rates. What you see on the screen is total patronage and cash patronage. I’ll highlight a few: • Premium diesel total patronage will be 4.93 cents per gallon with a cash portion of .61 cents. • For propane, total patronage is 7.65 cents per gallon with a cash portion of .94 cents. • In Agronomy, bulk fertilizer total patronage will be $4.36 per ton with cash of 54 cents. Equity management decisions will always be made with the best interest of CHS and its members in mind, along with the goal of maintaining a strong balance sheet that supports future growth. 13
We anticipate the challenges associated with the pandemic will continue to adversely impact financial performance for some time to come. To counter these variables, we must control what we can control, and we are resolutely focused on financial excellence and continuous improvement. This year, we have plans in place to reduce budgeted costs by $100 million. This is incremental to the costs savings in Fiscal 2020. We will also work on cashflow improvements, generating an additional $100 million in operating cash flows through working capital initiatives. • This includes streamlining operations to move inventory through our system more efficiently and effectively. It includes paying bills and collecting payments electronically to reduce manual processes and costs. We remain focused on balance sheet strength by ensuring we have ample liquidity to fund business operations and adequate capital to fuel growth for the future. Your cooperative delivered solid results for Fiscal 2020 and navigated the challenges presented with resilience, determination and strength. We will face continued trials in Fiscal 2021, especially in our energy business, but we are committed to working through these challenges - just as we have done throughout our 91- year history – it is what we were built to do. Thank you for your business and for your continued support of CHS. 14
15