CHS INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on 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 2021 Third Quarter Highlights •Fiscal 2021 Trends Update •Operating Metrics •Results of Operations •Liquidity and Capital Resources •Off-Balance Sheet Financing Arrangements •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 endedAugust 31, 2020 (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. OverviewCHS Inc. 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 acrossthe 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 ofThe 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 grains and oilseeds originated by our country operations business, by our member cooperatives and by third parties; also serves as a wholesaler and retailer of agronomy products. •Nitrogen Production. Consists solely of our equity method investment inCF Industries Nitrogen, LLC ("CF Nitrogen"), and produces and distributes nitrogen fertilizer.
In addition, our financing and hedging businesses, along with our nonconsolidated wheat milling and food production and distribution joint ventures, have been aggregated within Corporate and Other.
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, along with 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. Management also focuses 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 and fourth fiscal quarters and higher during the first and
third fiscal quarters; 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 during the spring planting season. Our
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global grain marketing operations are subject to fluctuations in volume and
income based on producer harvests, world grain prices, demand and global trade
volumes. Our Energy segment generally experiences higher volumes 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 during the winter heating and fall
crop-drying seasons. The graphs below depict the seasonality inherent in our
businesses.
[[Image Removed: chscp-20210531_g1.jpg]]
[[Image Removed: chscp-20210531_g2.jpg]]
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, grains, 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 network,
outbreaks of disease, government regulations and policies, global trade disputes
and general political/economic conditions.
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 on these strategies, we
are focused on implementing agile, efficient and sustainable new technology
platforms; building robust and efficient supply chains; hiring, developing and
retaining high-
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performing, diverse and passionate teams; achieving operational excellence and continuous improvement; and maintaining a strong balance sheet.
Fiscal 2021 Third Quarter Highlights
•Strong global demand drove commodity prices higher, and improved trade relations betweenthe United States and foreign trade partners led to continued higher volumes for grain and oilseed, which significantly improved earnings in our Ag segment compared to the prior year. •Improved crack spreads in our refined fuels business resulted in increased margins as the demand shocks that occurred during the COVID-19 pandemic began to subside. •Improved margins in our refined fuels business were partially offset by exceptionally high costs for renewable energy credits. •Equity earnings from investments were a significant source of pretax earnings during the fiscal 2021 third quarter. •Although a significant portion of our global employees continued with remote working arrangements through the end of the third quarter, we began efforts to bring employees back to our offices in either full or hybrid capacities as COVID-19 restrictions were being lifted. The costs of these activities were not material during the third quarter of fiscal 2021 and are not expected to be material for the remainder of fiscal 2021.
Fiscal 2021 Trends Update
Our Energy and Ag segments operate in cyclical environments in which unforeseen market conditions can have significant positive or negative impacts. We continue to navigate the lingering effects of the COVID-19 pandemic. Most of our operations are considered to be essential; however, periods of depressed demand and margins could result in decreased profitability and the need to assess for potential impairments. Easing of measures taken to mitigate the spread of COVID-19, the rollout of vaccines and other efforts to respond to the pandemic inthe United States and globally could also impact the profitability of our businesses. Refer to Item 1A of our Annual Report on Form 10-K for the year endedAugust 31, 2020 , for additional considerations of risks the COVID-19 pandemic may continue to have on our business, liquidity, capital resources and financial results. Although improving from the lows experienced during the prior fiscal year, the energy industry continued to experience volume and margin reductions compared to historical levels. These reductions are primarily the result of the COVID-19 pandemic, which began in our second quarter of fiscal 2020 and significantly reduced our profitability. In addition, the cost of renewable energy credits has increased significantly, which negatively impacted our profitability during fiscal 2021. We are unable to predict how long the current environment will last or the severity of the financial and operational impacts; however, we expect uncertainty and volatility to drive unfavorable market conditions in the energy industry that will negatively impact our profitability through the remainder of fiscal 2021. Although challenges remain, theU.S. agricultural industry has experienced increased demand for grain and oilseed commodities following the Phase One trade agreement withChina , which has resulted in increased volumes and improved commodity prices. Unforeseen global market conditions can positively or negatively impact agricultural commodity prices and volumes sold. We are unable to predict these conditions or the severity of the impact such conditions could have on our pricing and volumes. In addition to global supply and demand impacts, regional factors such as unpredictable weather conditions could impact our operations. As ofMay 31, 2021 , much of our trade territory was experiencing drought conditions. If these conditions persist through the remainder of the summer, we would expect our fourth quarter Ag business to be impacted through lower volumes and margins on our Ag products. However, if timely rainfall were to occur, we would expect crops to mostly recover and the impact to our business to be minimal. Nonetheless, we expect revenues, margins and cash flows from core operations in our Ag segment to potentially fluctuate through the remainder of fiscal 2021. Additionally, unforeseen global market conditions with negative impacts remain a risk that could put pressure on asset valuations in our Ag segment. In addition to market conditions that impact our businesses, we will continue to take actions to protect our financial health while continuing to deliver on our enterprise resource planning system implementation and advance our target operating model, with actions that include implementing plans to substantially reduce budgeted costs and improving cash flow management with the objective of generating substantial additional operating cash flows. 28
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Table of Contents Operating Metrics Energy
Our Energy segment operations primarily include our
Three Months Ended May 31, Nine Months Ended May 31,
2021 2020 2021 2020
Refinery throughput volumes (Barrels per day)
Heavy, high-sulfur crude oil 94,854 90,118 94,758 90,976
All other crude oil 69,156 61,328 61,893 71,730
Other feedstocks and blendstocks 12,917 6,657 13,496 12,184
Total refinery throughput volumes 176,927 158,103 170,147 174,890
Refined fuel yields
Gasolines 89,297 73,196 83,723 84,837
Distillates 65,841 68,920 66,859 73,172
We are subject to the Renewable Fuels Standard, which requires refiners to
blend renewable fuels (e.g., ethanol, 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 generally establishes new annual renewable fuel percentage
standards for each compliance year in the preceding year, although standards
have not yet been established for calendar year 2021. 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, with prices for D6 ethanol RINs and D4 ethanol RINs
rising by 295% and 180%, respectively, during the third quarter of fiscal 2021
compared to the same period of the prior year, which negatively impacted our
profitability during the third quarter of fiscal 2021. Estimates of our RIN
expense are based on past practice and 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 differentials (i.e., the price differential between
West Texas Intermediate ("WTI") crude oil and WCS crude oil), which are driven
by the supply and demand of refined product markets. Crack spreads increased
during the three months ended May 31, 2021 , compared to the same period during
the prior year, contributing to improved IBIT for the Energy segment. However,
WCS crude oil differentials decreased during the three months ended May 31,
2021 , which partially offset the positive impact of improved crack spreads. The
table below provides information about average market reference prices and
differentials that impact our Energy segment.
Three Months Ended May 31, Nine Months Ended May 31,
2021 2020 2021 2020
Market indicators
WTI crude oil (dollars per barrel) $ 63.07 $ 25.22 $ 52.00 $ 45.76
WTI - WCS crude oil differential (dollars per
barrel) $ 11.00 $ 15.89 $ 10.90 $ 16.81
Group 3 2:1:1 crack spread (dollars per
barrel)* $ 20.27 $ 9.38 $ 13.49 $ 13.69
Group 3 5:3:2 crack spread (dollars per
barrel)* $ 20.38 $ 8.26 $ 13.28 $ 12.69
D6 ethanol RIN (dollars per RIN) $ 1.3496 $ 0.3414 $ 0.9242 $ 0.2342
D4 ethanol RIN (dollars per RIN) $ 1.4342 $
0.5131
*Group 3 refers to the oil refining and distribution system serving Midwest
markets from the
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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 withinthe 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 nine months endedMay 31, 2021 and 2020. Three Months Ended May 31, Nine Months Ended May 31, Market Source* 2021 2020 2021 2020 Commodity prices Corn (dollars per bushel) Chicago Board of Trade $ 6.54$ 3.26 $ 5.27 $ 3.63 Soybeans (dollars per bushel) Chicago Board of Trade$ 15.13 $ 8.59 $ 13.20 $ 8.86 Wheat (dollars per bushel) Chicago Board of Trade $ 6.75$ 5.22 $ 6.38 $ 5.26 Urea (dollars per ton) Green Markets NOLA$ 376.00 $ 239.00 $ 298.00 $ 228.00 Urea ammonium nitrate (dollars per ton) Green Markets NOLA $
295.68
$
2.16
Volumes
Grain and oilseed (thousands of bushels) 685,761 621,775 2,099,623 1,825,064
North American grain and oilseed port throughput (thousands of bushels)
199,246 145,789 736,612 409,739
Crop nutrients (thousands of tons) 2,857 2,319 6,265 5,645
Ethanol (thousands of gallons) 221,125 171,034 660,043 618,834
*Market source information represents the average month-end price during the period.
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Results of Operations
Three months ended
Three Months Ended
2021 % of Revenues 2020 % of Revenues
(Dollars in thousands)
Revenues $ 10,929,976 100.0 % $ 7,241,031 100.0 %
Cost of goods sold 10,615,348 97.1 7,022,672 97.0
Gross profit 314,628 2.9 218,359 3.0
Marketing, general and administrative expenses 186,703 1.7 180,439 2.5
Operating earnings 127,925 1.2 37,920 0.5
Interest expense 28,992 0.3 26,661 0.4
Other income (10,748) (0.1) (8,076) (0.1)
Equity income from investments (146,522) (1.3) (51,114) (0.7)
Income before income taxes 256,203 2.3 70,449 1.0
Income tax benefit (17,469) (0.2) (27,052) (0.4)
Net income 273,672 2.5 97,501 1.3
Net income (loss) attributable to
noncontrolling interests 81 - (147) -
Net income attributable to CHS Inc. $ 273,591 2.5 % $ 97,648 1.3 %
The charts below detail revenues, net of intersegment revenues, and IBIT by
reportable segment for the three months ended
[[Image Removed: chscp-20210531_g3.jpg]]
[[Image Removed: chscp-20210531_g4.jpg]]
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Income (Loss) Before Income Taxes by Segment
Energy
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income (loss) before income taxes $ 4,959 $ (54,764) $ 59,723 109.1 %
The following waterfall analysis and commentary presents the changes in our
Energy segment IBIT for the three months ended May 31, 2021 , compared to the
same period during the prior year.
[[Image Removed: chscp-20210531_g5.jpg]]*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: •Improved crack spreads in our refined fuels business resulted in increased margins as the demand shocks that occurred during the COVID-19 pandemic began to subside and a$42.0 million noncash charge to reduce our refined fuels inventories to their market value during the third quarter of fiscal 2020 that did not reoccur during the third quarter of fiscal 2021. •Improved margins in our refined fuels business were partially offset by significantly higher RIN prices that negatively impacted margins by approximately$82.0 million and decreased WCS crude oil differentials and lower propane margins due to the reversal of hedging gains recognized during the prior year. 32
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Ag
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income (loss) before income taxes $ 140,131 $ 95,360 $ 44,771 46.9 %
The following waterfall analysis and commentary presents the changes in our Ag
segment IBIT for the three months ended
[[Image Removed: chscp-20210531_g6.jpg]]*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: •Increased margins on feed and farm supplies, grain and oilseed, renewable fuels and agronomy resulted from improved global commodity market conditions during the third quarter of fiscal 2021. The increased margins were partially offset by mark-to-market losses for certain processing and food ingredients products, which we expect to reverse over time. •Decreased volumes of feed and farm supplies were partially offset by increased volumes of agronomy products that resulted from strong demand due to favorable weather conditions for the spring planting and application season. Increased volumes of grain and oilseed resulted from improved trade relations betweenthe United States and foreign trade partners. All Other Segments Three Months Ended May 31, Change 2021 2020 Dollars Percent (Dollars in thousands) Nitrogen Production IBIT*$ 46,635 $ 23,507 $ 23,128 98.4 % Corporate and Other IBIT$ 64,478 $ 6,346 $ 58,132 916.0 %
*See Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q for additional information.
Our Nitrogen Production segment IBIT increased as a result of higher equity
method income attributed to increased sale prices of urea and urea ammonium
nitrate ("UAN"), which are produced and sold by CF Nitrogen. Corporate and Other
IBIT increased primarily due to our equity method investment in Ventura Foods,
LLC ("Ventura Foods "), which had significantly increased income as a result of
favorable market conditions for oils and a recovery of sales volumes compared
with the early stages of the COVID-19 pandemic.
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Revenues by Segment
Energy
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Revenues $ 1,704,798 $ 890,919 $ 813,879 91.4 %
The following waterfall analysis and commentary presents the changes in our
Energy segment revenues for the three months ended May 31, 2021 , compared to the
same period during the prior year.
[[Image Removed: chscp-20210531_g7.jpg]]
The change in Energy segment revenues reflects the following:
•Increased selling prices and volumes for refined fuels as a result of global
market conditions, including improved demand following the initial demand shocks
associated with the COVID-19 pandemic, contributed to $724.8 million and $33.8
million increases in revenues, respectively.
•Increased selling prices for propane as a result of global market conditions
during the third quarter of fiscal 2021 positively impacted revenue by $53.2
million .
•Increased revenues were partially offset by lower volumes of propane driven by
lower demand as a result of warm weather conditions during most of the third
quarter of fiscal 2021.
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Ag
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Revenues $ 9,216,204 $ 6,337,901 $ 2,878,303 45.4 %
The following waterfall analysis and commentary presents the changes in our Ag
segment revenues for the three months ended May 31, 2021 , compared to the same
period during the prior year.
[[Image Removed: chscp-20210531_g8.jpg]]
The change in Ag segment revenues reflects the following:
•Higher pricing for grain and oilseed was driven by increased global demand and
contributed to a $1.5 billion increase in revenues. The remaining price increase
was attributed to a combination of price increases and product mix across our
other Ag segment businesses, including feed and farm supplies, renewable fuels,
agronomy, and processing and food ingredients.
•Improved trade relations between the United States and foreign trade partners
drove increased grain and oilseed volumes that contributed to a $473.6 million
increase in revenues. The increased grain and oilseed volumes were partially
offset by the net impact of decreased volumes of feed and farm supplies and
increased volumes of agronomy products and renewable fuels that were driven by
global market conditions.
•Due to a planned business model change at our TEMCO LLC ("TEMCO") equity method
investment to increase its operational efficiency, we reduced our revenues and
COGS on certain transactions associated with TEMCO, which partially offset
strong volume growth in grain and oilseed during the three months ended May 31,
2021 .
All Other Segments
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Corporate and Other revenues* $ 8,974 $ 12,211 $ (3,237) (26.5) %
*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.
Corporate and Other revenues decreased during the three months endedMay 31, 2021 , compared to the same period during the prior year as a result of lower revenues in our financing and hedging businesses due to market-driven interest rate reductions and decreased commissions from hedging activities, respectively. 35
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Cost of Goods Sold by Segment
Energy
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Cost of goods sold $ 1,649,905 $ 893,922 $ 755,983 84.6 %
The following waterfall analysis and commentary presents the changes in our
Energy segment COGS for the three months ended May 31, 2021 , compared to the
same period during the prior year.
[[Image Removed: chscp-20210531_g9.jpg]]
The change in Energy segment COGS reflects the following:
•Increased costs and volumes for refined fuels contributed to $631.4 million and
$35.8 million increases of COGS, respectively. Increased refined fuels costs
resulted from global market conditions, including the impact of significantly
higher RIN prices, and increased volumes resulted from improved demand following
the initial demand shocks associated with the COVID-19 pandemic.
•Increased costs for propane as a result of global market conditions and
increased distribution costs resulted in an $80.8 million increase of COGS.
•Increased COGS was partially offset by lower volumes of propane driven by lower
demand as a result of warm weather conditions during most of the third quarter
of fiscal 2021.
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Ag
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Cost of goods sold $ 8,967,297 $ 6,129,293 $ 2,838,004 46.3 %
The following waterfall analysis and commentary presents the changes in our Ag
segment COGS for the three months ended
[[Image Removed: chscp-20210531_g10.jpg]]
The change in Ag segment COGS reflects the following:
•Higher pricing for grain and oilseed was driven by increased global demand and
contributed to a $1.5 billion increase in COGS. The remaining price increase was
attributed to a combination of price increases and product mix across our other
Ag segment businesses, including feed and farm supplies, renewable fuels,
agronomy, and processing and food ingredients.
•Improved trade relations between the United States and foreign trade partners
drove increased grain and oilseed volumes that contributed to a $474.0 million
increase in COGS. The increased grain and oilseed volumes were partially offset
by the net impact of decreased volumes of feed and farm supplies and increased
volumes of agronomy products and renewable fuels that were driven by global
market conditions.
•Due to a planned business model change at our TEMCO equity method investment to
increase its operational efficiency, we reduced our revenues and COGS on certain
transactions associated with TEMCO, which partially offset strong volume growth
in grain and oilseed during the three months ended May 31, 2021 .
All Other Segments
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Nitrogen Production COGS $ 425 $ 430 $ (5) (1.2)%
Corporate and Other COGS $ (2,279) $ (973) $ (1,306) (134.2)%
There were no significant changes to COGS in our Nitrogen Production segment
or Corporate and Other during the three months ended May 31, 2021 , compared to
the same period during the prior year.
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Marketing, General and Administrative Expenses
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Marketing, general and administrative expenses
$ 180,439 $ 6,264 3.5 %
Marketing, general and administrative expenses increased during the three
months ended
Interest Expense
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Interest expense $ 28,992 $ 26,661 $ 2,331 8.7 %
Interest expense increased during the three months ended May 31, 2021 , as a
result of higher notes payable balances compared to the same period of the prior
year.
Other Income
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Other income $ 10,748 $ 8,076 $ 2,672 33.1 %
Other income increased during the three months ended May 31, 2021 , primarily
due to investment gains that did not occur during the same period of the prior
year.
Equity Income from Investments
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Equity income from investments* $ 146,522 $ 51,114 *See Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q for additional information.
We record equity income or loss for investments in which we have an ownership interest of 50% or less and have significant influence, but not control, for our proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in our Condensed Consolidated Statements of Operations. Equity income from investments increased during the three months endedMay 31, 2021 , compared to the same period during the prior year, primarily due to increased income associated with our equity method investments inVentura Foods and CF Nitrogen.Ventura Foods experienced favorable market conditions for oils and a recovery of sales volumes compared with the early stages of the COVID-19 pandemic, and CF Nitrogen experienced increased sale prices of urea and UAN. 38
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Income Tax Benefit
Three Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income tax benefit $ 17,469 $ 27,052 $ (9,583) (35.4) %
The lower income tax benefit during the three months ended May 31, 2021 ,
primarily reflected changes in the mix of full-year earnings projected across
business units and equity management assumptions. Effective tax rates for the
three months ended May 31, 2021 and 2020, were (6.8)% and (38.4)%, respectively.
Federal and state statutory rates applied to nonpatronage business activity were
24.9% and 24.7% for the three months ended May 31, 2021 and 2020, respectively.
Income taxes and effective tax rate vary each year based on profitability and
nonpatronage business activity during each of the comparable years.
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Nine months ended
Nine Months Ended
2021 % of Revenues 2020 % of Revenues
(Dollars in thousands)
Revenues $ 27,965,778 100.0 % $ 21,460,742 100.0 %
Cost of goods sold 27,371,326 97.9 20,601,785 96.0
Gross profit 594,452 2.1 858,957 4.0
Marketing, general and administrative expenses 518,875 1.9 548,340 2.6
Operating earnings 75,577 0.3 310,617 1.4
Interest expense 82,897 0.3 95,043 0.4
Other income (41,219) (0.1) (32,926) (0.2)
Equity income from investments (260,654) (0.9) (135,174) (0.6)
Income before income taxes 294,553 1.1 383,674 1.8
Income tax benefit (10,130) - (18,258) (0.1)
Net income 304,683 1.1 401,932 1.9
Net (loss) income attributable to
noncontrolling interests (350) - 955 -
Net income attributable to CHS Inc. $ 305,033 1.1 % $ 400,977 1.9 %
The charts below detail revenues, net of intersegment revenues, and IBIT by
reportable segment for the nine months ended
[[Image Removed: chscp-20210531_g11.jpg]]
[[Image Removed: chscp-20210531_g12.jpg]]
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Income (Loss) Before Income Taxes by Segment
Energy
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income (loss) before income taxes $ (116,908) $ 246,309 $ (363,217) (147.5) %
The following waterfall analysis and commentary presents the changes in our
Energy segment IBIT for the nine months ended
[[Image Removed: chscp-20210531_g13.jpg]]*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: •Less advantageous market conditions in our refined fuels business compared to the same period of the prior year resulted in significantly lower margins and volumes. These market conditions were driven by continued impact of the demand shocks occurring during the COVID-19 pandemic during the first three quarters of fiscal 2021, which resulted in a combination of decreased WCS crude oil differentials experienced on heavy Canadian crude oil processed by our refineries and decreased crack spreads. •Significantly higher RIN prices negatively impacted margins by approximately$145.0 million . •Lower propane margins due to the reversal of hedging gains recognized during the prior year and reduced propane volumes as a result of warmer and drier weather conditions during fiscal 2021 reduced income compared to the same period during the prior year. 41
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Ag
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income (loss) before income taxes $ 237,185 $ 60,653 The following waterfall analysis and commentary presents the changes in our Ag segment IBIT for the nine months endedMay 31, 2021 , compared to the same period during the prior year. [[Image Removed: chscp-20210531_g14.jpg]]
*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: •Favorable weather conditions for the fall harvest and spring planting seasons and improved trade relations betweenthe United States and foreign trade partners during fiscal 2021 compared to the prior year contributed to increased volumes and margins across most of our Ag segment. These improved margins were partially offset by decreased grain and oilseed and processing and food ingredients margins, including mark-to-market losses that we expect to reverse over time. •We experienced decreased marketing, general and administrative expenses associated with focused cost-reduction initiatives and increased equity income from our investment in TEMCO. All Other Segments Nine Months Ended May 31, Change 2021 2020 Dollars Percent (Dollars in thousands)
Nitrogen Production IBIT* $ 62,270 $ 45,698
Corporate and Other IBIT $ 112,006 $ 31,014 *See Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q for additional information.
Our Nitrogen Production segment experienced increased IBIT due to increased equity method income attributed to higher sale prices of urea and UAN, which were partially offset by increased natural gas costs. Corporate and Other IBIT increased primarily due to increased income from our equity method investments inVentura Foods and Ardent Mills as a result of favorable market conditions for oils and a recovery of sales volumes compared with the early stages of the COVID-19 pandemic; decreased marketing, general and administrative expenses as a result of focused cost reduction efforts; and decreased interest expense due to lower interest rates. 42
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Revenues by Segment
Energy
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Revenues $ 4,334,803 $ 4,247,392 $ 87,411 2.1 %
The following waterfall analysis and commentary presents the changes in our
Energy segment revenues for the nine months ended
[[Image Removed: chscp-20210531_g15.jpg]]
The change in Energy segment revenues reflects the following:
•Increased selling prices for propane and refined fuels as a result of global
market conditions, including improved demand following the initial demand shocks
associated with the COVID-19 pandemic, resulted in increased revenues of $126.7
million and $99.3 million , respectively.
•Decreased volumes of propane and refined fuels contributed to $89.9 million and
$47.7 million decreases in revenues, respectively. Decreased propane volumes
resulted from lower demand due to warmer and drier weather conditions during
fiscal 2021 and the decreased volumes of refined fuels resulted from global
market conditions, including the continued impact of the demand shocks occurring
during the COVID-19 pandemic, as well as product mix.
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Ag
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Revenues $ 23,599,818 $ 17,173,958 $ 6,425,860 37.4 %
The following waterfall analysis and commentary presents the changes in our Ag
segment revenues for the nine months ended May 31, 2021 , compared to the same
period during the prior year.
[[Image Removed: chscp-20210531_g16.jpg]]
The change in Ag segment revenues reflects the following:
•Trade relations improved between the United States and foreign trade partners
and weather conditions were more favorable compared to the same period of the
prior year. Stronger grain and oilseed shipments contributed to a $2.1 billion
increase in revenues with the remaining increase being composed primarily of
improved sales volumes of feed and farm supplies and agronomy products.
•Due to a planned business model change at our TEMCO equity method investment to
increase its operational efficiency, we reduced our revenues and COGS on certain
transactions associated with TEMCO, which partially offset strong volume growth
in grain and oilseed during fiscal 2021.
•Higher pricing for grain and oilseed was driven by increased global demand and
contributed to a $3.2 billion increase in revenues. The remaining price increase
was attributed to a combination of price increases and product mix across our
other businesses, including feed and farm supplies, renewable fuels, agronomy
and processing and food ingredients.
All Other Segments
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Corporate and Other revenues* $ 31,157 $ 39,392 *Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.
Corporate and Other revenues decreased during the nine months endedMay 31, 2021 , compared to the same period during the prior year as a result of lower revenues in our financing business due to market-driven interest rate reductions. 44
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Cost of Goods Sold by Segment
Energy
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Cost of goods sold $ 4,310,992 $ 3,850,176 $ 460,816 12.0 %
The following waterfall analysis and commentary presents the changes in our
Energy segment COGS for the nine months ended May 31, 2021 , compared to the same
period during the prior year.
[[Image Removed: chscp-20210531_g17.jpg]]
The change in Energy segment COGS reflects the following:
•Increased refined fuel prices resulted from global market conditions and
contributed to a $375.2 million increase of COGS, including the impact of
significantly higher costs for RINs of approximately $145.0 million .
•Global market conditions, the reversal of hedging gains recognized during the
prior year and increased distribution costs contributed to a $201.7 million
increase of COGS for propane.
•Lower volumes of propane and refined fuels contributed to $73.2 million and
$44.2 million decreases of COGS, respectively. Decreased propane volumes were
driven by lower demand that resulted from warmer and drier weather conditions
during fiscal 2021, and lower volumes of refined fuels resulted from global
market conditions, including the continued impact of demand shocks occurring
during the COVID-19 pandemic.
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Ag
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Cost of goods sold $ 23,068,732 $ 16,752,073 $ 6,316,659 37.7 %
The following waterfall analysis and commentary presents the changes in our Ag
segment COGS for the nine months ended May 31, 2021 , compared to the same period
during the prior year.
[[Image Removed: chscp-20210531_g18.jpg]]
The change in Ag segment COGS reflects the following:
•Improved trade relations between the United States and foreign trade partners
and favorable weather conditions compared to the same period of the prior year
drove volumes higher. Stronger grain and oilseed shipments contributed to a $2.0
billion increase of COGS with the remaining increase being composed primarily of
improved volumes of agronomy products and feed and farm supplies.
•Due to a planned business model change at our TEMCO equity method investment to
increase its operational efficiency, we reduced our revenues and COGS on certain
transactions associated with TEMCO, which partially offset strong volume growth
in grain and oilseed during fiscal 2021.
•Higher prices for grain and oilseed resulted from increased global demand and
contributed to a $3.3 billion increase of COGS. The remaining price increase was
driven by a combination of global market conditions and product mix, which
increased costs for renewable fuels, agronomy products, and processing and food
ingredients, as well as partially offsetting price decreases for feed and farm
supplies.
All Other Segments
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Nitrogen Production COGS $ 1,268 $ 1,964 $ (696) (35.4)%
Corporate and Other COGS $ (9,666) $ (2,428) $ (7,238) (298.1)%
There were no significant changes to COGS in our Nitrogen Production segment
or Corporate and Other during the nine months ended May 31, 2021 , compared to
the same period during the prior year.
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Marketing, General and Administrative Expenses
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Marketing, general and administrative expenses
$ 548,340 $ (29,465) (5.4) % Marketing, general and administrative expenses decreased during the nine months endedMay 31, 2021 , compared to the nine months endedMay 31, 2020 , due to lower employee-related expenses, lower bad debt expenses and focused cost reduction initiatives launched during the current year. Interest Expense Nine Months Ended May 31, Change 2021 2020 Dollars Percent (Dollars in thousands)
Interest expense $ 82,897 $ 95,043 $(12,146) (12.8) %
Interest expense decreased during the nine months endedMay 31, 2021 , as a result of lower interest rates compared to the same period of the prior year. Other Income Nine Months Ended May 31, Change 2021 2020 Dollars Percent (Dollars in thousands) Other income$ 41,219 $ 32,926 $ 8,293 25.2 %
Other income increased during the nine months ended
Equity Income from Investments
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Equity income from investments* $ 260,654 $ 135,174 *See Note 5, Investments, of the notes to the condensed consolidated financial statements that are included in this Quarterly Report on Form 10-Q for additional information.
We record equity income or loss for investments in which we have an ownership interest of 50% or less and have significant influence, but not control, for our proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in our Condensed Consolidated Statements of Operations. Equity income from investments increased during the nine months endedMay 31, 2021 , compared to the same period during the prior year, primarily due to increased income associated with our equity method investments inVentura Foods and TEMCO.Ventura Foods experienced increased volumes and profitability as a result of favorable market conditions for oils and a recovery of sales volumes compared with the early stages of the COVID-19 pandemic, and TEMCO experienced a significant increase in volumes and profitability with increased trade flows toChina . In addition, TEMCO changed its business model during the nine months endedMay 31, 2021 , which has improved its operating efficiency. 47
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Income Tax Benefit
Nine Months Ended May 31, Change
2021 2020 Dollars Percent
(Dollars in thousands)
Income tax benefit $ 10,130 $ 18,258 $ (8,128) (44.5) %
The lower income tax benefit during the nine months ended May 31, 2021 ,
primarily reflects changes in the mix of full-year earnings projected across
business units and equity management assumptions, which were partially offset by
tax benefits related to an intercompany transfer of assets for tax planning.
Effective tax rates for the nine months ended May 31, 2021 and 2020, were (3.4)%
and (4.8)%, respectively. Federal and state statutory rates applied to
nonpatronage business activity were 24.9% and 24.7% for the nine months ended
May 31, 2021 and 2020, respectively. Income taxes and effective tax rate vary
each year based on profitability and nonpatronage business activity during each
of the comparable years.
Liquidity and Capital Resources
Summary
In assessing our financial condition, we consider factors such as working capital and internal benchmarking related to our applicable covenants and other financial criteria. We fund our operations primarily through a combination of cash flows from operations supplemented with borrowings under our revolving credit facility. We fund our capital expenditures and growth primarily through cash, operating cash flow and long-term debt financing. OnMay 31, 2021 , we had working capital, defined as current assets less current liabilities, of$1.5 billion , and a current ratio, defined as current assets divided by current liabilities, of 1.2 compared to working capital of$1.3 billion and a current ratio of 1.3 onAugust 31, 2020 . OnMay 31, 2020 , we had working capital of$1.4 billion and a current ratio of 1.3 compared to working capital of$1.1 billion and a current ratio of 1.2 onAugust 31, 2019 . Working capital and the current ratio may not be computed the same as similarly titled measures used by other companies. We believe this information is meaningful to investors as a measure of operational efficiency and short-term financial health. As ofMay 31, 2021 , we had cash and cash equivalents of$301.2 million , total equities of$9.0 billion , long-term debt (including current maturities) of$1.8 billion and notes payable of$2.8 billion . Our capital allocation priorities 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 owners. We will continue to consider opportunities to further diversify and enhance our sources and amounts of liquidity. We believe cash generated by operating and investing activities, along with available borrowing capacity under our credit facilities, will be sufficient to support our operations for the foreseeable future and we expect to remain in compliance with our loan covenants. As we navigate the lingering impact of COVID-19 on our business and operations, we continue to strengthen our liquidity through a variety of means, including curtailing certain spending and reprioritizing capital expenditures. We are also actively managing our short-term and long-term liquidity.
Fiscal 2021 and 2020 Activity
OnFebruary 19, 2021 , we amended our 10-year term loan facility to convert the entire$366.0 million aggregate principle amount outstanding thereunder into a revolving loan, which can be paid down and readvanced in an amount up to the referenced$366.0 million untilFebruary 19, 2022 . OnFebruary 19, 2022 , the total funded loan balance outstanding reverts to a nonrevolving term loan that is payable onSeptember 4, 2025 . There was no balance outstanding under this facility as ofMay 31, 2021 . OnAugust 14, 2020 , we entered into a Note Purchase Agreement to borrow$375.0 million of debt in the form of notes. The notes under this Note Purchase Agreement are structured in four series with maturities ranging from 7 to 15 years and interest accruing at rates ranging from 3.24% to 3.73%, subject to certain adjustments depending on our ratio of consolidated funded debt to consolidated cash flow and whether the notes have an investment grade rating from a nationally recognized statistical rating organization. The funding of these notes took place onNovember 2, 2020 . This funding is being used to pay debt maturities and manage liquidity. 48
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We have a receivables and loans securitization facility ("Securitization
Facility") with certain unaffiliated financial institutions ("Purchasers").
Under the Securitization Facility, we and certain of our subsidiaries
("Originators") sell trade accounts and notes receivable ("Receivables") to
Cofina Funding, LLC ("Cofina"), a wholly-owned bankruptcy-remote indirect
subsidiary of CHS. Cofina in turn transfers the Receivables to the Purchasers
and this arrangement is accounted for as a secured borrowing. We use the
proceeds from the sale of Receivables under the Securitization Facility for
general corporate purposes and settlements are made on a monthly basis. The
amount available under the Securitization Facility fluctuates over time based on
the total amount of eligible Receivables generated during the normal course of
business. As of May 31, 2021 , and August 31, 2020 , total availability under the
Securitization Facility was $600.0 million and $423.0 million , respectively, all
of which had been utilized.
We also have a repurchase facility ("Repurchase Facility") related to the
Securitization Facility. Under the Repurchase Facility, we can borrow up to
$150.0 million , collateralized by a subordinated note issued by Cofina in favor
of the Originators and representing a portion of the outstanding balance of the
Receivables sold by the Originators to Cofina under the Securitization Facility.
As of May 31, 2021 , and August 31, 2020 , the outstanding balance under the
Repurchase Facility was $150.0 million .
On September 24, 2020 , the Securitization Facility and Repurchase Facility
were amended, increasing the maximum availability under the Securitization
Facility to $600.0 million from $500.0 million and extending their respective
termination dates to July 30, 2021 .
Cash Flows
The following table presents summarized cash flow data for the nine months endedMay 31, 2021 and 2020: Nine Months Ended May 31, Change 2021 2020 Dollars (Dollars in thousands) Net cash (used in) provided by operating activities$ (632,378) $ 525,843 $ (1,158,221) Net cash used in investing activities (177,509) (48,533) (128,976) Net cash provided by (used in) financing activities 1,012,006 (292,207) 1,304,213 Effect of exchange rate changes on cash and cash equivalents (451) (786) 335 Increase in cash and cash equivalents and restricted cash$ 201,668 $ 184,317 $ 17,351 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$1.2 billion decrease in cash provided by operating activities reflects decreased net income during fiscal 2021 compared to the same period of the prior fiscal year and working capital increases, primarily associated with increased receivables and inventories. The$129.0 million increase in cash used in investing activities primarily reflects timing differences associated with borrowings and payments forCHS Capital notes receivable balances during fiscal 2021 compared to the same period during fiscal 2020. The$1.3 billion increase in cash provided by financing activities primarily reflects increased net cash inflows associated with our notes payable and long-term debt facilities, including the$375.0 million Note Purchase Agreement funding during the first quarter of fiscal 2021.
Future Uses of Cash
We expect to utilize cash and cash equivalents, cash generated by operating activities and cash raised through the Note Purchase Agreement to fund capital expenditures, major maintenance, debt and interest payments, preferred stock dividends, patronage and equity redemptions. The following is a summary of our primary cash requirements for fiscal 2021: •Capital expenditures. We expect total capital expenditures for fiscal 2021 to be approximately$415.1 million , compared to capital expenditures of$418.4 million in fiscal 2020. During the nine months endedMay 31, 2021 , we acquired property, plant and equipment of$238.8 million . •Debt and interest. We expect to repay approximately$555.3 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately$73.7 million during fiscal 2021. During the 49
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nine months endedMay 31, 2021 , we repaid$20.0 million of scheduled long-term debt maturities and an additional$366.0 million of long-term debt maturities. •Preferred stock dividends. We had approximately$2.3 billion of preferred stock outstanding onMay 31, 2021 . We expect to pay dividends on our preferred stock of approximately$168.7 million during fiscal 2021. •Patronage. Our Board of Directors authorized approximately$30.0 million of our fiscal 2020 patronage-sourced earnings to be paid to our member-owners during fiscal 2021. •Equity redemptions. Our Board of Directors has authorized equity redemptions of$83.0 million to be distributed in fiscal 2021 in the form of redemptions of qualified and nonqualified equity owned by individual producer members and association members. During the nine months endedMay 31, 2021 , we redeemed$37.8 million of member equity.
Future Sources of Cash
We fund our current operations primarily through a combination of cash flows from operations and committed and uncommitted revolving credit facilities, including our Securitization Facility and Repurchase Facility. We believe these sources will provide adequate liquidity to meet our working capital needs. 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 and term loans. In addition, our wholly-owned subsidiary,CHS Capital , makes loans to member cooperatives, businesses and individual producers of agricultural products included in our cash flows from investing activities and has financing sources as detailed below in "CHS Capital Financing." Working Capital Financing 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. Our primary line of credit is a five-year unsecured revolving credit facility with a syndicate of domestic and international banks that expires onJuly 16, 2024 . The credit facility provides a committed amount of$2.75 billion of which$1.2 billion was outstanding as ofMay 31, 2021 . We also maintain certain uncommitted bilateral facilities to support our working capital needs with borrowings outstanding of$330.0 million as ofMay 31, 2021 . In addition to our facilities above, our wholly-owned subsidiaries CHS Europe S.a.r.l. and CHS Agronegocio Industria e Comercio Ltda have lines of credit with$325.5 million outstanding as ofMay 31, 2021 , and our other international subsidiaries have lines of credit with$119.2 million outstanding as ofMay 31, 2021 . Long-term Debt Financing
The following table presents summarized long-term debt data (including current
maturities) as of
May 31, August 31,
2021 2020
(Dollars in thousands)
Private placement debt $ 1,713,949 $ 1,363,725
Bank financing - 366,000
Finance lease obligations 26,459 31,460
Other notes and contract payable 33,661 34,709
Deferred financing costs (4,278) (4,771)
$ 1,769,791 $ 1,791,123
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CHS Capital Financing
For a description of the Securitization Facility and the Repurchase Facility, see above in "Fiscal 2021 and 2020 Activity."
CHS Capital sells loan commitments it has originated toCompeer Financial, PCA , d/b/a ProPartners Financial on a recourse basis. Total outstanding commitments under the program were$150.0 million as ofMay 31, 2021 , of which$11.3 million was borrowed.
Covenants
Our long-term debt is mostly unsecured; however, restrictive covenants under various debt agreements require maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with all debt covenants and restrictions as ofMay 31, 2021 . Based on our current fiscal 2021 projections, we expect continued covenant compliance. All outstanding private placement notes conform to financial covenants applicable to those of our amended and restated five-year unsecured revolving credit facility. The notes provide that if our ratio of consolidated funded debt to consolidated cash flows is greater than 3.0 to 1.0, the interest rate on outstanding notes will be increased between 0.25% and 1.00%, depending on the related note series, the actual ratio and/or whether the notes have an investment grade rating from a nationally recognized statistical rating organization, until the ratio becomes 3.0 to 1.0, or less. During the three months endedMay 31, 2021 and 2020, our ratio of consolidated funded debt to consolidated cash flows remained below 3.0 to 1.0.
Patronage and Equity Redemptions
In accordance with our bylaws and by action of our Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year and are based on financial performance. During the nine months endedMay 31, 2021 , we distributed$30.0 million of cash patronage related to the year endedAugust 31, 2020 . During the nine months endedMay 31, 2020 , we distributed cash patronage of$90.1 million . In accordance with authorization from our Board of Directors, we expect total cash redemptions related to the year endedAugust 31, 2020 , which will be distributed in fiscal 2021, to be approximately$83.0 million and to include redemptions of qualified and nonqualified equity owned by individual producer members and association members. During the nine months endedMay 31, 2021 ,$37.8 million of that amount was redeemed in cash, compared to$86.3 million redeemed in cash during the nine months endedMay 31, 2020 . 51
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Preferred Stock
Dividends paid on our preferred stock during the nine months endedMay 31, 2021 and 2020, were$126.5 million . The following is a summary of our outstanding preferred stock as ofMay 31, 2021 , all shares of which are listed on the Global Select Market ofThe Nasdaq Stock Market LLC : Net Proceeds Dividend Rate Dividend Payment Nasdaq Symbol Issuance Date Shares Outstanding Redemption Value (a) (b) (c) Frequency Redeemable Beginning (d) (Dollars in millions) 8% Cumulative Redeemable CHSCP (e) 12,272,003 $ 306.8$ 311.2 8.00 % Quarterly7/18/2023 ClassB Cumulative Redeemable, Series 1 CHSCO (f) 21,459,066 $ 536.5$ 569.3 7.875 % Quarterly9/26/2023 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 CHSCM9/15/2014 19,700,000 $ 492.5$ 476.7 6.75 % Quarterly
ClassB Cumulative Redeemable, Series 4 CHSCL1/21/2015 20,700,000 $ 517.5$ 501.0 7.50 % Quarterly1/21/2025 (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 untilMarch 31, 2024 , and then at a rate equal to the three-month LIBOR plus 4.298%, not to exceed 8.00% per annum, subsequent toMarch 31, 2024 . (c) Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3, accumulates dividends at a rate of 6.75% per year untilSeptember 30, 2024 , and then at a rate equal to the three-month LIBOR plus 4.155%, not to exceed 8.00% per annum, subsequent toSeptember 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 onSeptember 26, 2013 ;August 25, 2014 ;March 31, 2016 ; andMarch 30, 2017 .
Off-Balance Sheet Financing Arrangements
Guarantees
We are a guarantor for lines of credit and performance obligations of related companies. As ofMay 31, 2021 , our bank covenants allowed maximum guarantees of$1.0 billion , of which$188.8 million were outstanding. We have collateral for a portion of these contingent obligations. We have not recorded a liability related to the contingent obligations as we do not expect to pay out any cash related to them, and the fair values are considered immaterial. The underlying loans to the counterparties for which we provide guarantees were current as ofMay 31, 2021 . Debt
We have no material off-balance sheet debt.
Loan Participations
We engaged in off-balance sheet arrangements through certain loan participation agreements. Refer to further details about these arrangements in Note 3, Receivables, of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the year endedAugust 31, 2020 . 52
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Critical Accounting Policies
Other than as described within the Significant Accounting Policies section of Note 1, Basis of Presentation and Significant Accounting Policies, to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, our critical accounting policies as presented in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedAugust 31, 2020 , have not materially changed during the nine months endedMay 31, 2021 .
Recent Accounting Pronouncements
See Note 1, Basis of Presentation and Significant Accounting Policies, to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements that apply to us.
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