CHS INC

Previous wording

•Earnings remained strong across our segments, although down from the record first quarter of fiscal 2023.

Current wording

•Financial performance was solid across our segments, although down from the record second quarter of fiscal 2023.

Previous wording

•Equity method investments performed well, with our CF Nitrogen investment being the largest contributor.

Current wording

•Equity method investments continued to perform well, with our CF Nitrogen investment being the largest contributor.

Previous wording

Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results. We anticipate that various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, which could have a significant impact on each of our segments during the remainder of fiscal 2024. These factors include the ongoing war between Russia and Ukraine and escalation of conflict in the Middle East, shifts in global trade flows for commodities, a higher interest rate environment, and inflationary pressures increasing costs of labor, freight and materials. In addition to these broad macroeconomic factors, other factors could impact the demand and pricing for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs while remaining profitable. These include the cost of renewable energy credits, the prices of which remains volatile and could continue to negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change. We currently expect the imbalance between global supply and strong global demand for energy and agricultural commodities to continue to moderate through the remainder of fiscal 2024. We are unable to predict how long the current environment will last or the severity of the financial and operational impacts to us in fiscal 2024. Refer to Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2023 for additional impacts that these and other risks may have on our business operations and financial performance.

Current wording

Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results. We anticipate that various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, which could have a significant impact on each of our segments during the remainder of fiscal 2024. These factors include the ongoing war between Russia and Ukraine and any escalation of conflict in the Middle East; shifts in global trade flows for commodities; a higher interest rate environment; and inflationary pressures increasing costs of labor, freight and materials. In addition to these broad macroeconomic factors, other factors could impact the demand and pricing for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs while remaining profitable. These include the cost of renewable energy credits, the prices of which remains volatile and could continue to negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change. We currently expect the imbalance between global supply and strong global demand for energy and agricultural commodities to continue to moderate through the remainder of fiscal 2024. We are unable to predict how long the current environment will last or the severity of the financial and operational impacts to us in fiscal 2024. Refer to Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2023 for additional impacts that these and other risks may have on our business operations and financial performance.

Previous wording

We are subject to the Renewable Fuel Standard that requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. In June 2023, the EPA issued a final renewable volume obligation ("RVO") for calendar years 2020 through 2025. We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity; therefore, RINs must be purchased on the open market. The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 biodiesel RINs decreasing by 42% and 47%, respectively, during the three months ended November 30, 2023, compared to the same period during the prior year, which positively impacted our earnings. Estimates of our RIN expenses are calculated using an average RIN price each month.

Current wording

We are subject to the Renewable Fuel Standard that requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. In June 2023, the EPA issued a final renewable volume obligation ("RVO") for calendar years 2020 through 2025. We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity; therefore, RINs must be purchased on the open market. The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 biodiesel RINs decreasing by 59% and 60%, respectively, during the three months ended February 29, 2024, compared to the same period during the prior year, which positively impacted our earnings. Estimates of our RIN expenses are calculated using an average RIN price each month.

Previous wording

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 crude oil inputs) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by supply and demand of refined products. Crack spreads and WCS crude oil discounts both decreased during the three months ended November 30, 2023, compared to the same period during the prior year, contributing to lower IBIT for the Energy segment. The table below provides information about average market reference prices and differentials that impacted our Energy segment:

Current wording

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 crude oil inputs) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by supply and demand of refined products. Crack spreads and WCS crude oil discounts both decreased during the three and six months ended February 29, 2024, compared to the same period during the prior year, contributing to lower IBIT for the Energy segment. The table below provides information about average market reference prices and differentials that impacted our Energy segment:

Previous wording

Our Ag segment operations work together to facilitate the production, purchase, sale and eventual use of grain and other agricultural commodities within the United States and internationally. Profitability in our Ag segment is largely driven by throughput and production volumes, as well as commodity price spreads; however, revenues and cost of goods sold ("COGS") are largely affected by market-driven commodity prices outside our control. The table below provides information about average market prices for agricultural commodities, as well as sales and throughput volumes that impacted our Ag segment for the three months ended November 30, 2023 and 2022:

Current wording

Our Ag segment operations work together to facilitate the production, purchase, sale and eventual use of grain and other agricultural commodities within the United States and internationally. Profitability in our Ag segment is largely driven by throughput and production volumes, as well as commodity price spreads; however, revenues and cost of goods sold ("COGS") are largely affected by market-driven commodity prices outside our control. The table below provides information about average market prices for agricultural commodities, as well as sales and throughput volumes that impacted our Ag segment:

Previous wording

◦Higher margins for propane attributable to hedging-related impacts due to global market conditions affecting the price of propane contributed $40.9 million increased IBIT; and

Current wording

•Lower margins for propane and refined fuels attributable to hedging-related impacts due to global market conditions

Previous wording

•The overall decreased IBIT was partially offset by the following:

Current wording

•The overall decreased IBIT was partially offset by decreased costs for RINs in our refined fuels business, which contributed to reduced costs of $66.8 million.

Previous wording

•Decreased margins for our grain and oilseed and oilseed processing product categories, primarily as a result of the timing of the impact of mark-to-market adjustments associated with our commodity derivatives and weak U.S. export demand leading to compressed margins, contributed to $105.3 million and $34.8 million decreases of IBIT, respectively.

Current wording

•Increased margins for our grain and oilseed product category resulted primarily from the timing of the impact of mark-to-market adjustments associated with our commodity derivatives and contributed to a $85.2 million increase of IBIT.

Previous wording

•Decreased selling prices resulting from global market conditions contributed to $299.1 million and $50.9 million decreases in revenues for refined fuels and propane, respectively.

Current wording

•Decreased selling prices resulting from global market conditions contributed to $279.6 million and $66.7 million decreases in revenues for refined fuels and propane, respectively.

Previous wording

◦$1.5 billion decrease for grain and oilseed primarily as a result of less favorable global market conditions;

Current wording

◦$1.9 billion decrease for grain and oilseed primarily as a result of less favorable pricing due to global market conditions;

Previous wording

Corporate and Other revenues increased during the three months ended November 30, 2023, compared to the same period during the prior year, primarily due to increased interest income as a result of a larger notes receivable balance and higher interest rates.

Current wording

Corporate and Other revenues increased during the three months ended February 29, 2024, compared to the same period during the prior year, primarily due to increased interest income as a result of a larger average notes receivable balance and higher interest rates.

Previous wording

•Lower volumes of propane and refined fuels resulting from decreased demand and global market conditions contributed to decreased COGS of $20.2 million and $18.4 million, respectively.

Current wording

•Lower volumes of propane and refined fuels resulting from decreased demand associated with the warm winter weather conditions across much of our trade territory and global market conditions contributed to decreased COGS of $29.3 million and $20.9 million, respectively.

Previous wording

Other income increased during the three months ended November 30, 2023, primarily as a result of increased interest income due to higher interest rates and a larger cash balance.

Current wording

Other income increased during the three months ended February 29, 2024, primarily as a result of increased interest income due to a larger average cash balance and higher interest rates.

Previous wording

Equity income from investments decreased during the three months ended November 30, 2023, compared to the same period during the prior year, primarily due to lower income associated with our equity method investment in CF Nitrogen as a result of lower prices of urea and UAN due to global supply and demand factors.

Current wording

Equity income from investments decreased during the three months ended February 29, 2024, compared to the same period during the prior year, primarily due to lower income associated with our equity method investments in CF Nitrogen as a result of lower prices of urea and UAN due to global supply and demand factors and Ventura Foods due to less favorable market conditions for edible oils during the second quarter of fiscal 2024 compared to the same period during the prior year.

Previous wording

•Lower crack spreads and decreased WCS crude oil discounts resulted from global market conditions, which contributed to a $228.0 million decrease of IBIT.

Current wording

•Lower crack spreads and decreased WCS crude oil discounts resulted from global market conditions, which contributed to a $427.6 million decrease of IBIT.

Previous wording

◦Decreased costs for RINs in our refined fuels business contributed to a $47.6 million cost reduction;

Current wording

•The overall decreased IBIT was partially offset by decreased costs for RINs in our refined fuels business, which contributed to a $114.4 million cost reduction.

Previous wording

Our Nitrogen Production segment IBIT decreased from the prior year due to lower equity income attributed to decreased selling prices of urea and UAN, which was partially offset by decreased natural gas costs, all due to global supply and demand factors. Corporate and Other IBIT increased primarily due to increased interest income resulting from higher interest rates and a larger cash balance.

Current wording

Our Nitrogen Production segment IBIT decreased from the prior year due to lower equity income attributed to decreased selling prices of urea and UAN, which was partially offset by decreased natural gas costs, all due to global supply and demand factors. Corporate and other IBIT remained flat as lower equity income from Ventura Foods due to less favorable market conditions for edible oils during the first half of fiscal 2024 compared to the same period during the prior year was mostly offset by increased interest income resulting from higher interest rates and a larger cash balance.

Previous wording

•Lower refined fuels and propane volumes contributed to $22.3 million and $17.3 million decreases in revenues, respectively, primarily driven by lower demand.

Current wording

•Lower propane and refined fuels volumes contributed to $52.1 million and $48.4 million decreases in revenues, respectively, primarily driven by lower demand due to warm winter weather conditions across much of our trade territory.

Previous wording

◦$76.1 million decrease for renewable fuels due to global market conditions.

Current wording

◦$170.0 million decrease for renewable fuels resulting from lower ethanol prices due to decreased demand.

Previous wording

•Increased volumes of wholesale and retail agronomy products contributed to a $184.0 million increase in revenues, which experienced increased demand during the first quarter of fiscal 2024 as prices remained lower due to global market conditions.

Current wording

•Increased volumes of wholesale and retail agronomy products, which experienced increased demand during the first half of fiscal 2024 as prices continued to remain lower due to global market conditions, contributed to a $238.5 million increase in revenues.

Previous wording

•Global market conditions, including reduced RIN costs, contributed to decreased costs for refined fuels and propane that drove $127.9 million and $90.1 million decreases in COGS, respectively.

Current wording

•Global market conditions, including reduced RIN costs, contributed to decreased costs for refined fuels and propane that drove $230.4 million and $132.5 million decreases in COGS, respectively.

Previous wording

◦$102.1 million decrease for renewable fuels primarily resulting from lower input costs.

Current wording

◦$202.2 million decrease for renewable fuels primarily resulting from lower input costs; and

Previous wording

•Increased volumes of wholesale and retail agronomy products contributed to a $176.4 million increase in COGS, which experienced increased demand during the first quarter of fiscal 2024 as prices remained lower due to global market conditions.

Current wording

•Increased volumes of wholesale and retail agronomy products, which experienced increased demand during the first half of fiscal 2024 as prices continued to remain lower due to global market conditions, contributed to a $248.1 million increase in COGS.

Previous wording

The income tax benefit during the three months ended November 30, 2023, resulted primarily from the recognition of research and development tax credits during the period. Effective tax rates for the three months ended November 30, 2023 and 2022, were (1.3)% and 4.2%, respectively. Federal and state statutory rates of 24.5% and 24.4% were applied to nonpatronage business activity for the three months ended November 30, 2023 and 2022, respectively. Income taxes and effective tax rates vary each year based on profitability, income tax credits, nonpatronage business activity and current equity management assumptions.

Current wording

Decreased income tax expense during the six months ended February 29, 2024, resulted primarily from the recognition of research and development tax credits as well as lower nonpatronage income during the period. Effective tax rates for the six months ended February 29, 2024, and February 28, 2023, were 1.3% and 4.9%, respectively. Federal and state statutory rates of 24.5% and 24.4% were applied to nonpatronage business activity for the six months ended February 29, 2024, and February 28, 2023, respectively. Income taxes and effective tax rates vary each year based on profitability, income tax credits, nonpatronage business activity and current equity management assumptions.

Previous wording

•Capital expenditures. We expect total capital expenditures for fiscal 2024 to be approximately $971.8 million compared to capital expenditures of $564.5 million in fiscal 2023. Increased capital expenditures for fiscal 2024 are for investments in our infrastructure to meet the evolving needs of our owners and customers, enhance value for the cooperative system and propel sustainable growth. During the three months ended November 30, 2023, we acquired $142.4 million of property, plant and equipment.

Current wording

•Capital expenditures. We expect total capital expenditures for fiscal 2024 to be approximately $953.0 million compared to capital expenditures of $564.5 million in fiscal 2023. Increased capital expenditures for fiscal 2024 are for investments in our infrastructure to meet the evolving needs of our owners and customers, enhance value for the cooperative system and propel sustainable growth. During the six months ended February 29, 2024, we acquired $346.1 million of property, plant and equipment.

Previous wording

•Major maintenance. We expect total major maintenance for fiscal 2024 to be approximately $22.0 million compared to major maintenance of $217.4 million in fiscal 2023. Decreased major maintenance for fiscal 2024 is due to significantly reduced turnaround activities at our refineries compared to the turnaround at our Laurel refinery during fiscal 2023. During the three months ended November 30, 2023, we paid $8.3 million in major maintenance.

Current wording

•Major maintenance. We expect total major maintenance for fiscal 2024 to be approximately $20.0 million compared to major maintenance of $217.4 million in fiscal 2023. Decreased major maintenance for fiscal 2024 is due to significantly reduced turnaround activities at our refineries compared to the turnaround at our Laurel refinery during fiscal 2023. During the six months ended February 29, 2024, we paid $10.7 million in major maintenance.

Previous wording

•Debt and interest. We expect to repay approximately $9.6 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $88.3 million during fiscal 2024. During the three months ended November 30, 2023, we repaid $2.4 million of scheduled long-term debt maturities and finance lease obligations.

Current wording

•Debt and interest. We expect to repay approximately $9.6 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $88.3 million during fiscal 2024. During the six months ended February 29, 2024, we repaid $4.5 million of scheduled long-term debt maturities and finance lease obligations.

Previous wording

•Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of November 30, 2023. We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2024. Dividends paid on our preferred stock during the three months ended November 30, 2023, were $42.2 million.

Current wording

•Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of February 29, 2024. We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2024. Dividends paid on our preferred stock during the six months ended February 29, 2024, were $84.3 million.

Previous wording

•Patronage. Our Board of Directors has authorized approximately $365.0 million of our fiscal 2023 patronage-sourced earnings to be paid to our member-owners during fiscal 2024.

Current wording

•Patronage. Our Board of Directors has authorized approximately $365.0 million of our fiscal 2023 patronage-sourced earnings to be paid to our member-owners during fiscal 2024. During the six months ended February 29, 2024, we distributed $300.8 million of cash patronage related to the year ended August 31, 2023, with the remaining amount expected to be distributed in the third quarter of fiscal 2024.

Previous wording

•Equity redemptions. Our Board of Directors has authorized equity redemptions of up to $365.0 million to be distributed in fiscal 2024 in the form of redemptions of qualified and nonqualified equity owned by individual producer-members and association members. During the three months ended November 30, 2023 we redeemed $11.2 million of member equity.

Current wording

•Equity redemptions. Our Board of Directors has authorized equity redemptions of up to $365.0 million to be distributed in fiscal 2024 in the form of redemptions of qualified and nonqualified equity owned by individual producer-members and association members. During the six months ended February 29, 2024, we redeemed $16.5 million of member equity.

Previous wording

As of November 30, 2023, working capital increased by $391.3 million compared with August 31, 2023. Current asset balance changes increased working capital by $1.5 billion, primarily driven by increases in inventories and receivables, which were driven by the fall harvest. Current liability balance changes decreased working capital by $1.1 billion, primarily due to increases in accounts payable, which were also driven by the fall harvest.

Current wording

As of February 29, 2024, working capital increased by $186.3 million compared with August 31, 2023. Current asset balance changes increased working capital by $194.5 million, primarily driven by increases in inventories, supplier advance payments and receivables, which were partially offset by a decrease in our cash balance, all of which were driven by seasonality in our business. Current liability balance changes decreased working capital by $8.1 million, primarily due to increases in customer advance payments, which were also driven by seasonality in our business.

Previous wording

For information regarding our estimated contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended August 31, 2023. No material changes occurred during the three months ended November 30, 2023.

Current wording

For information regarding our estimated contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended August 31, 2023. No material changes occurred during the six months ended February 29, 2024.

Previous wording

The following table presents summarized cash flow data for the three months ended November 30, 2023:

Current wording

The following table presents summarized cash flow data for the six months ended February 29, 2024, and February 28, 2023:

Previous wording

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 $32.6 million decrease in cash used in operating activities primarily reflects inventory decreases, which resulted from reduced prices during the first three months of fiscal 2024 compared to the same period during fiscal 2023.

Current wording

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 $413.8 million increase in cash used in operating activities primarily reflects increased receivables and decreased net income during the first half of fiscal 2024 compared to the same period during fiscal 2023, which was partially offset by decreased inventories primarily due to market-driven price declines.

Previous wording

The $11.1 million decrease of cash used in investing activities reflects timing differences in borrowings and payments for CHS Capital notes receivable partially offset by higher acquisitions of property, plant and equipment during the first three months of fiscal 2024, compared to the same period during fiscal 2023.

Current wording

The $248.1 million decrease of cash used in investing activities reflects timing differences in borrowings and payments for CHS Capital notes receivable partially offset by higher acquisitions of property, plant and equipment during the first half of fiscal 2024, compared to the same period during fiscal 2023.

Previous wording

The $304.5 million decrease in cash provided by financing activities relative to the previous year primarily reflects decreased net cash inflows associated with our notes payable due to lower short-term funding needs resulting from our balance sheet and cash earnings.

Current wording

The $653.4 million decrease in cash provided by financing activities relative to the previous year primarily reflects decreased net cash inflows associated with our notes payable due to lower short-term funding needs resulting from decreased working capital needs and strong cash earnings. The decrease is partially offset by decreased cash outflows for patronage paid during the first half of fiscal 2024, compared to the same period during fiscal 2023.

Previous wording

Our critical accounting policies as presented in the MD&A in our Annual Report on Form 10-K for the year ended August 31, 2023, have not materially changed during the three months ended November 30, 2023.

Current wording

Our critical accounting policies as presented in the MD&A in our Annual Report on Form 10-K for the year ended August 31, 2023, have not materially changed during the six months ended February 29, 2024.