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Item 7. Management’s Discussion and Analysis

2021-11-04 compared with 2020-11-05 · 190 added, 293 removed, 250 unchanged (66% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition and results of operations, liquidity and certain other factors that may affect our future results.

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 regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results.

Our MD&A is presented in the following sections:

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• Liquidity and Capital Resources

• Off-Balance Sheet Financing Arrangements

• Contractual Obligations

• Critical Accounting Policies and Estimates

• Critical Accounting Policies

• Recent Accounting Pronouncements

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As a cooperative, we are owned by farmers, ranchers and member cooperatives across the United States.

We also have preferred shareholders who own our five series of preferred stock, all of which are listed and traded on the Global Select Market of The Nasdaq Stock Market LLC ("The Nasdaq").

We operate in the following three reportable segments:

We also have preferred shareholders that own our five series of preferred stock, all of which are listed and traded on the Global Select Market of The Nasdaq Stock Market LLC.

We operate in the following four reportable segments:

Produces and provides primarily for the wholesale distribution and transportation of petroleum products.

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• Nitrogen Production.

Consists solely of our equity method investment in CF 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.

Produces and distributes nitrogen fertilizer.

Consists of our equity method investment in CF Industries Nitrogen, LLC ("CF Nitrogen"), and allocated expenses.

Produces edible oils used in food preparation and packaged food products.

Consists of our equity method investment in Ventura Foods, LLC ("Ventura Foods"), and allocated expenses.

In addition, our financing and hedging businesses, along with our nonconsolidated wheat milling joint venture, have been aggregated within Corporate and Other.

The 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.

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

Management's Focus .

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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 income during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters,

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respectively.

Additionally, our agronomy business generally experiences higher volumes and income during the spring planting season.

Our global grain marketing operations are subject to fluctuations in volume and income based on producer harvests, world grain prices, demand and global trade volumes.

Our Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces.

Other energy products, such as propane, generally experience higher volumes and profitability during the winter heating and fall crop-drying seasons.

For example, in our Ag segment, our country operations business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively.

Additionally, our agronomy business generally experiences higher volumes and revenues during the spring

planting season.

Our global grain and processing operations are subject to fluctuations in volume and revenues based on producer harvests, world grain prices, demand and international trade relationships.

Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces.

Other energy products, such as propane, generally experience higher volumes and revenues during the winter heating and fall crop-drying seasons.

The graphs below depict the seasonality inherent in our businesses.

* The COVID-19 pandemic started during the second quarter of fiscal 2020.

Pricing and Volumes .

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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/policies, global trade disputes and general political/economic conditions.

Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail and river transportation networks, outbreaks of disease, government regulations and policies, global trade disputes and general political and/or 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, expands market access to add value for our owners, and transforms and evolves our core businesses by capitalizing on changing market dynamics.

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-performing, diverse and passionate teams;

hiring, developing and retaining high-

performing, diverse and passionate teams;

achieving operational excellence and continuous improvement;

and maintaining a strong balance sheet.

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Fiscal 2021 Highlights

• Improved weather conditions during the spring planting season compared to the prior year drove increased earnings across much of our Ag segment during the second half of fiscal 2020.

• Strong supply chain performance in our propane business driven by efficiently sourcing propane for our customers during a period of significant propane demand for crop drying and home heating positively contributed to our results, particularly in the first half of fiscal 2020.

• Less advantageous market conditions in our refined fuels business, driven primarily by the COVID-19 pandemic and other factors, resulted in volume and price declines that significantly reduced earnings compared to the prior year.

• Poor weather conditions during fiscal 2019 negatively impacted our Ag segment's operations during the first half of fiscal 2020, including lower crop yields and poor grain quality following a late harvest, as well as lower crop nutrient sales that traditionally occur during the fall.

• As more fully described in Item 9A, Controls and Procedures , of this Annual Report on Form 10-K, we continued dedicating significant internal and external resources, as well as management and Board focus, on improving our internal control environment resulting in remediation of the last remaining material weaknesses identified in our fiscal 2018 Annual Report on Form 10-K.

• We responded to the COVID-19 pandemic by implementing remote working arrangements for approximately half our global employees, increasing hygiene and infection control processes at all our facilities, increasing use of personal protective equipment and developing risk mitigation and exposure policies applicable to our enterprise.

The costs of these activities have not been and are not expected to be material in future periods.

In addition, our operations were deemed to be essential infrastructure industries by federal and state governments, which allowed us to continue operating all our facilities and operations.

• Strong global demand drove commodity prices higher, and a full year of improved trade relations between the 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.

• Unfavorable market conditions in our refined fuels business, driven primarily by exceptionally high costs for renewable energy credits and less favorable pricing on heavy Canadian crude oil processed by our refineries, resulted in lower earnings in our Energy segment.

• Lower earnings in our Energy segment were partially offset by improved crack spreads that drove increased margins in our refined fuels business as demand shocks associated with the COVID-19 pandemic began to subside.

• Equity earnings from investments, particularly from CF Nitrogen and Ventura Foods, were a significant source of earnings during fiscal 2021.

• Although a significant portion of our global employees continued with remote working arrangements throughout fiscal 2021, we began planning for our employees to return to our offices in either full or hybrid capacities when it is appropriate taking into account COVID-19 restrictions and precautions.

The costs of these activities were not material during fiscal 2021.

Fiscal 2022 Outlook

Our Energy and Ag segments operate in cyclical environments in which unforeseen market conditions can have a significant positive or negative impact.

As with virtually all other companies in the United States, we are dealing with the effects of COVID-19.

In fiscal 2021, we will focus on navigating COVID-19 to ensure the well-being of our people and business, including a detailed plan to return safely from remote work.

Our Energy and Ag segments operate in cyclical environments in which unforeseen market conditions can have significant positive or negative impacts.

For example, we expect there to be continued uncertainty during fiscal 2022 that could have significant positive or negative impacts on our results as 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 pricing within the U.S.

ethanol production, refined fuels or other industries in which we operate could result in decreased profitability and the need to assess certain assets for potential impairments.

The energy industry experienced significant volume and price swings as a result of the COVID-19 pandemic in fiscal 2020 that will likely continue to negatively impact profitability in fiscal 2021.

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 in the United States and globally could also impact the profitability of our businesses.

Refer to Item 1A of this Annual Report on Form 10-K 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 continues 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 remains significantly higher than historical levels, which we expect will negatively impact our profitability during fiscal 2022.

We are unable to predict how long the current environment will last or the severity of the financial and operational impacts;

however, we expect the uncertain and volatile market conditions in the energy industry to continue into fiscal 2021, which will continue to put pressure on associated asset valuations.

The agricultural industry continues to operate in a challenging environment that has been characterized by generally lower margins, reduced liquidity and increased leverage that have resulted from a period of reduced commodity prices.

More favorable weather conditions during the fiscal 2020 spring planting season and the beginning of the fiscal 2021 harvest season compared to the prior year could provide an opportunity for increased volumes and improved earnings across much of our Ag segment during fiscal 2021.

However, trade relations between the United States and foreign trade partners, particularly those that purchase large quantities of agricultural commodities, while improving, are still not normalized, which could continue to result in unpredictable impacts to agricultural commodity prices and volumes sold as we move into fiscal 2021.

We are unable to predict how long the current environment will last or how severe the effects will ultimately be on our pricing and volumes.

In addition to global supply and demand impacts, regional factors such as unpredictable weather conditions could impact our operations.

Although we expect improved revenues, margins and cash flows from core operations in our Ag segment, additional or continued challenges experienced in the agricultural market are expected to continue to put pressure on associated asset valuations during fiscal 2021.

In addition to market conditions that impact our businesses, we continue to identify opportunities to sustainably reduce costs and improve cash management strategies to protect our financial health while continuing to deliver on our enterprise resource planning ("ERP") system implementation and advance toward our targeted operating model.

Implementation of our ERP system is expected to occur in phases over the next several years and will require continued significant capital investment.

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however, we expect continued uncertainty and volatility in the energy industry that could negatively impact our profitability during fiscal 2022.

agricultural industry experienced increased demand for grain and oilseed commodities during fiscal 2021 following the Phase One trade agreement with China, which resulted in increased volumes and improved commodity prices;

however, 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, including those due to climate change, could impact our operations.

For example, unfavorable weather events and conditions experienced in fiscal 2021, including the impacts of Hurricane Ida on our grain export terminal in Myrtle Grove, Louisiana, and drought conditions experienced in portions of our trade territory, are expected to negatively impact our revenues, margins and cash flows from core operations during fiscal 2022.

As with others in our industry, we are seeing significantly higher freight costs that are the result of logistical challenges in the shipping industry, and we expect these challenges to continue into fiscal 2022.

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 during fiscal 2022, while continuing to deliver on our enterprise resource planning system implementation and advance our operating model.

Operating Metrics

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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.

Environmental Protection Agency generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year.

Environmental Protection Agency ("EPA") 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 and can impact profitability.

The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 ethanol RINs rising by 287% and 141%, respectively, during fiscal 2021 compared to the prior year, which negatively impacted our profitability during fiscal 2021.

Estimates of our RIN obligations and expenses are based on the number of RINs we expect will be required by the EPA and are calculated using an average RIN price each month.

Absent the annual renewable fuel percentage standard for calendar year 2021, we have assumed the annual renewable fuel percentage standard will be consistent with calendar year 2020.

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 and WCS crude oil differentials decreased significantly during fiscal 2020 compared to the prior fiscal year.

Crack spreads increased during fiscal 2021, compared to the prior year, contributing to improved IBIT for the Energy segment.

However, WCS crude oil differentials decreased during fiscal 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:

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*Group 3 refers to the oil refining and distribution system serving the Midwest markets from the Gulf Coast through the Plains states.

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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, as well as internationally.

Our Ag segment operations work together to facilitate production, purchase, sale and eventual use of grain and other agricultural commodities within the United States and internationally.

Profitability in our Ag segment is largely driven by throughput and production volumes, as well as commodity price spreads;

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*Market source information represents the average month-end price during the period.

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Results of Operations

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Operating earnings 205,797 0.5 277,265 1.0

Gain on disposal of business (1,450) — (3,886) —

Interest expense 104,565 0.3 116,977 0.4

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Net income 553,569 1.4 423,609 1.5

Net income (loss) attributable to noncontrolling interests 1,170 — (1,823) —

Net (loss) income attributable to noncontrolling interests (383) — 1,170 —

Net income attributable to CHS Inc.

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The charts below detail revenues, net of intersegment revenues, and IBIT by reportable segment for fiscal 2021.

Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.

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Income Before Income Taxes by Segment

Our Nitrogen Production and Foods reportable segments represent equity method investments that record earnings and allocated expenses, but not revenues.

Income (Loss) Before Income Taxes by Segment

Years Ended August 31, Change

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(Dollars in thousands)

Income before income taxes $ 225,317 $ 618,188 $ (392,871) (63.6) %

(Loss) income before income taxes $ (10,596) $ 225,317 $ (235,913) (104.7) %

The following waterfall analysis and commentary presents changes in our Energy segment IBIT for the year ended August 31, 2021, compared to the prior year:

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The change in Energy segment IBIT for fiscal 2021 reflects the following:

• Significantly less advantageous market conditions in our refined fuels business compared to the prior year drove lower margins and volumes.

These market conditions were driven by the negative demand shock associated with COVID-19 that resulted in a combination of decreased WCS crude oil differentials experienced on heavy Canadian crude oil, which is processed by our refineries, and decreased crack spreads .

• An $80.8 million gain recognized that was associated with certain federal excise tax credits as a reduction of COGS during fiscal 2019 that did not reoccur during fiscal 2020.

• The decreased IBIT due to lower margins and volumes in our refined fuels business was partially offset by increased propane volumes and improved propane margins due to unrealized hedging gains, increased fixed-price contracts and significant demand for crop drying and home heating, particularly during the first quarter of fiscal 2020.

• A lower of cost or market charge of $42.0 million was recorded in COGS to reduce the carrying value of our energy inventories to their market value as of May 31, 2020.

Based upon market prices observed as of August 31, 2020, the lower of cost or market reserve was decreased by approximately $34.0 million as prices improved while inventories were sold.

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• Significantly higher RIN prices in our refined fuels business negatively impacted margins by approximately $236.0 million and decreased WCS crude oil differentials experienced on heavy Canadian crude oil processed by our refineries reduced margins by approximately $77.1 million.

• Reduced margins in our refined fuels business were partially offset by improved crack spreads and the liquidation of historical last-in, first-out ("LIFO") layers for certain refined fuels inventories that resulted in improved margins of approximately $153.7 million and $35.3 million, respectively.

• Lower propane margins primarily due to global market conditions and the reversal of hedging gains recognized during the prior year resulted in a margin decrease of approximately $56.1 million.

• Reduced propane volumes resulting from warmer and drier weather conditions during fiscal 2021 contributed to a $15.8 million decrease of IBIT, which was partially offset by increased refined fuels volumes as the demand shocks experienced during the COVID-19 pandemic continued to subside.

Years Ended August 31, Change

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The following waterfall analysis and commentary presents changes in our Ag segment IBIT for the year ended August 31, 2021, compared to the prior year:

*See commentary related to these changes in the marketing, general and administrative expenses, (gain) loss on disposal of business, interest expense, other income and equity income from investments sections of this Results of Operations.

*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 for fiscal 2021 reflects the following:

• Improved margins across certain Ag segment businesses, including feed and farm supplies, grain and oilseed and renewable fuels resulted from a combination of optimism for improved trade relations between the United States and foreign trade partners and favorable weather conditions for spring planting during the year ended August 31, 2020.

These improved margins were partially offset by reduced margins related to agronomy products due to oversupply in the market and processing and food ingredients, which experienced decreased margins as a result of the COVID-19 pandemic.

• Decreased volumes across much of the Ag segment were due to the impacts of poor weather conditions in fiscal 2019 that led to a smaller harvest in fiscal 2020, impacts of the COVID-19 pandemic on our processing and food ingredients business and global trade tensions between the United States and foreign trading partners, particularly during the first half of fiscal 2020.

These volume decreases were partially offset by increased volumes associated with agronomy products that were primarily attributable to our acquisition of the remaining 75% ownership interest in West Central Distribution, LLC ("WCD"), that we did not previously own on March 1, 2019, the results of which were not included in the entire comparable period of the prior year.

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• Favorable weather conditions for the fall harvest and spring planting seasons, a full year of improved trade relations between the United States and foreign trade partners and favorable market conditions for our processing business during fiscal 2021 compared to the prior year contributed to increased volumes and margins across most of our Ag segment.

The improved margins were partially offset by lower grain and oilseed margins, including the impact of mark-to-market losses that are expected to reverse over time.

• We experienced increased equity income from our investment in TEMCO, LLC ("TEMCO"), and gains on the sale of businesses during fiscal 2021 that did not occur during fiscal 2020.

All Other Segments

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Nitrogen Production IBIT* $ 121,035 $ 51,837 $ 69,198 133.5 %

Foods IBIT* $ 67,902 $ 24,179 $ 43,723 180.8 %

Corporate and Other IBIT $ 38,883 $ 31,821 $ 7,062 22.2 %

*See Note 6, Investments, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information.

Our Nitrogen Production segment IBIT decreased as a result of lower equity method income attributed to reduced sale prices of urea and UAN, which are produced and sold by CF Nitrogen.

Corporate and Other IBIT decreased primarily as a result of lower earnings from our investment in Ventura Foods, LLC ("Ventura Foods"), which experienced a significant reduction in demand due to COVID-19, and decreased income from our financing business due to lower interest rates during the year ended August 31, 2020, compared to the year ended August 31, 2019.

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*See Note 6, Investments, of the notes to the consolidated financial statements included in this Annual Report on Form 10-K 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.

Our Foods segment experienced increased IBIT as a result of favorable market conditions for edible oils and a recovery of sales volumes in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020.

Corporate and Other IBIT increased primarily due to increased income from our equity method investment in Ardent Mills, LLC, as a result of strong sales volumes and improved commodity margins in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020.

Revenues by Segment

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The change in Energy segment revenues for fiscal 2021 reflects the following:

• Decreased selling prices for refined fuels and propane were driven by global market conditions, including the impact of the demand shocks occurring during the COVID-19 pandemic, as well as product mix, which contributed to $1.3 billion and $135.5 million decreases in revenues, respectively.

• A 4% decrease of refined fuels volumes contributed to a $235.7 million decrease in revenues, which was partially offset by a 3% increase of propane volumes that contributed to a $22.6 million increase in revenues.

Decreased volumes of refined fuels were attributable primarily to lower demand resulting from demand shock in the transportation sector that followed the COVID-19 pandemic and during the fall 2019 harvest as a result of poor weather conditions and a smaller crop across much of the agricultural region of the United States in which we operate.

Increased volumes of propane resulted from significant propane demand for crop drying and home heating, particularly during the first half of fiscal 2020.

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• Increased selling prices for refined fuels and propane as a result of improved global market conditions, including improved demand following the initial demand shocks in fiscal 2020 associated with the COVID-19 pandemic resulted in increased revenues of $793.4 million and $183.6 million, respectively.

• Decreased volumes of propane resulting from lower demand due to warmer and drier weather conditions during fiscal 2021 contributed to decreased revenues of $90.1 million.

Decreased propane volumes were partially offset by increased volumes of refined fuels as the demand shocks experienced during the COVID-19 pandemic continued to subside.

Years Ended August 31, Change

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The change in Ag segment revenues for fiscal 2021 reflects the following:

• Lower grain and oilseed and feed and farm supply volumes contributed to $671.6 million and $629.3 million decreases in revenues, respectively.

These decreases resulted from poor spring weather conditions during fiscal 2019 that led to lower crop yields and fewer acres harvested during fall of fiscal 2020 and the impact of global trade tensions between the United States and foreign trading partners, particularly during the first half of fiscal 2020.

• Lower renewable fuels and processing and food ingredients volumes contributed to $119.5 million and $117.3 million decreases in revenues, respectively.

These decreases resulted from reduced demand for renewable fuels and processing and food ingredient products as a result of the COVID-19 pandemic.

• The volume decreases were partially offset by increased volumes associated with agronomy products due to heightened spring 2020 demand and the increase in revenues that resulted from the March 1, 2019, acquisition of the remaining 75% ownership interest in WCD that we did not previously own, the results of which were not included in the entire comparable period of the prior year.

• Decreased pricing driven by global market conditions and product mix contributed to $584.7 million and $578.6 million decreases in revenues for agronomy and grain and oilseed, respectively.

However, these price decreases were partially offset by market-driven price increases for other products, including feed and farm supplies, that increased revenues by $433.7 million.

• A full year of improved trade relations between the United States and foreign trade partners and more favorable weather conditions compared to the prior year resulted in increased volumes.

Stronger grain and oilseed shipments contributed to a $1.9 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 experienced reduced revenues and COGS on certain transactions associated with TEMCO, which partially offset strong volume revenue growth in grain and oilseed during fiscal 2021.

• Higher pricing for grain and oilseed was driven by increased global demand, which contributed to a $5.3 billion increase in revenues.

The remaining increase was attributed to a combination of price increases and product mix across our other businesses, including agronomy and processing, as well as partially offsetting price decreases for feed and farm supplies.

All Other Segments*

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Corporate and Other revenues $ 37,430 49,132 $ (11,702) (23.8) %

*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 year ended August 31, 2020, compared to the year ended August 31, 2019, primarily due to lower revenues in our financing business due to market-driven interest rate reductions.

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*Our Nitrogen Production and Foods reportable segments represent equity method investments that record earnings and allocated expenses, but not revenues.

Corporate and Other revenues decreased during the year ended August 31, 2021, compared to the year ended August 31, 2020, mostly as a result of lower revenues in our financing business due to market-driven interest rate reductions.

Cost of Goods Sold by Segment

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The change in Energy segment COGS for fiscal 2021 reflects the following:

• Decreased costs and a 4% volume decrease for refined fuels driven by global market conditions, including the demand shock in the transportation sector that followed the COVID-19 pandemic and product mix, which contributed to decreases in COGS of $914.6 million and $207.6 million, respectively.

• Decreased costs for propane driven by global market conditions and unrealized hedging gains contributed to a $249.8 million decrease in COGS.

The decreased costs were partially offset by a 3% volume increase that contributed to a $21.6 million increase in COGS, which was driven by significant propane demand for crop drying and home heating during the first half of fiscal 2020 during a period of poor weather conditions.

• The cost decrease was partially offset by the recognition of an $80.8 million gain associated with certain federal excise tax credits as a reduction of COGS during the second quarter of fiscal 2019 that did not reoccur during fiscal 2020.

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• Increased refined fuel prices resulted from global market conditions and contributed to a $961.2 million increase of COGS, which includes the impact of significantly higher costs for RINs of approximately $236.0 million.

• Global market conditions and the reversal of hedging gains recognized during the prior year contributed to a $239.7 million increase of COGS for propane.

• Decreased volumes of propane resulting from lower demand due to warmer and drier weather conditions during fiscal 2021 contributed to lower COGS of $74.2 million.

Decreased propane volumes were partially offset by increased volumes of refined fuels as the demand shocks experienced during the COVID-19 pandemic continued to subside.

Years Ended August 31, Change

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The change in Ag segment COGS for fiscal 2021 reflects the following:

• Lower grain and oilseed and feed and farm supply volumes contributed to $669.3 million and $570.8 million decreases in COGS, respectively.

• Lower renewable fuels and processing and food ingredients volumes contributed to $119.5 million and $110.2 million decreases in COGS, respectively.

These decreases resulted from reduced demand for renewable fuels and processing and food ingredient products as a result of the COVID-19 pandemic.

• Lower pricing driven by global market conditions and product mix contributed to $627.0 million and $533.1 million decreases in COGS for grain and oilseed and agronomy, respectively.

However, these price decreases were partially offset by market-driven price increases for other products, including feed and farm supplies that increased COGS by $357.4 million.

• A full year of improved trade relations between the United States and foreign trade partners and favorable weather conditions compared to the prior year drove volumes higher.

Stronger grain and oilseed shipments and mark-to-market losses that we expect to reverse over time contributed to a $1.9 billion increase of COGS with the remaining increase being composed primarily of improved volumes of feed and farm supplies and agronomy products.

• Higher prices for grain and oilseed resulted from increased global demand and contributed to a $5.3 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 a partially offsetting price decrease for feed and farm supplies.

All Other Segments*

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Corporate and Other COGS $ (11,370) $ (5,097) $ (6,273) (123.1)%

There were no significant changes to COGS for our Nitrogen Production segment or Corporate and Other during fiscal 2020.

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*Our Foods reportable segment represents an equity method investment that did not record any COGS during fiscal 2021 or fiscal 2020.

There were no significant changes to COGS for our Nitrogen Production segment or Corporate and Other during fiscal 2021 compared to the prior year.

Marketing, General and Administrative Expenses

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Marketing, general and administrative expenses $ 745,602 $ 704,542 $ 41,060 5.8 %

The decrease in marketing, general and administrative expenses for fiscal 2020 was primarily due to the impact of loan loss reserves and impairments recorded during fiscal 2019 that did not reoccur and decreased incentive-based compensation during fiscal 2020.

The decrease was partially offset by decreased recoveries of amounts reserved and impaired, increased maintenance expenses associated with our information technology platforms and increased payroll expenses due to the employees who joined CHS following our acquisition of the remaining 75% ownership interest in WCD, which were not included in the entire comparable period of the prior year.

Gain on Disposal of Business

Years Ended August 31, Change

2020 2019 Dollars Percent

(Dollars in thousands)

Gain on disposal of business $ 1,450 $ 3,886 $ (2,436) (62.7) %

Gain on disposal of business did not change significantly during fiscal 2020.

The increase in marketing, general and administrative expenses for fiscal 2021 compared to the prior year reflects higher performance-based incentive compensation expenses associated with improved annual results in comparison to the prior year, which was partially offset by lower expenses due to focused cost reduction initiatives realized during fiscal 2021.

Interest Expense

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Interest expense $ 104,565 $ 116,977 $ (12,412) (10.6) %

Interest expense decreased during fiscal 2020 as a result of lower interest rates and decreased average outstanding debt balances compared to the prior year.

Interest expense decreased during fiscal 2021 as a result of lower interest rates compared to the prior year.

Years Ended August 31, Change

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Other income $ 59,559 $ 39,875 $ 19,684 49.4 %

Other income decreased primarily as a result of nonoperating gains recognized during fiscal 2019 that did not reoccur during fiscal 2020, including a $19.1 million gain recognized in connection with the acquisition of the remaining 75% ownership in WCD.

Additionally, decreased interest income resulting from lower interest rates adversely impacted other income.

Other income increased during fiscal 2021 primarily due to increased gains on the sale of businesses and investment gains compared to the prior year.

Equity Income from Investments

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*See Note 6, Investments, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information.

The decreased equity income from investments for fiscal 2020 was primarily due to lower equity income recognized from our equity method investments in CF Nitrogen and Ventura Foods, which decreased by $32.4 million and $17.6 million, respectively.

The decreases were driven by reduced urea and UAN pricing for CF Nitrogen and the significantly reduced demand in the foodservice industry during the COVID-19 pandemic experienced by Ventura Foods.

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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 Consolidated Statements of Operations.

Equity income from investments increased during fiscal 2021 compared to the prior year, primarily due to increased income associated with our equity method investments in CF Nitrogen, Ventura Foods and TEMCO.

CF Nitrogen experienced increased sale prices of urea and UAN;

Ventura Foods experienced favorable market conditions for edible oils and a recovery of sales volumes in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020;

and TEMCO experienced a significant increase in volumes and profitability with increased trade flows to China.

Additionally, TEMCO changed its business model during fiscal 2021, which has improved its operating efficiency and contributed to increased profitability.

Income Tax Benefit

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Income tax benefit $ 38,249 $ 36,731 $ 1,518 4.1 %

Increased income tax benefit during fiscal 2020 primarily reflects a tax benefit related to the settlement of a U.S.

federal audit resulting in additional tax credit carryovers, as well as equity management assumptions used in fiscal 2020 and the associated impact on income taxes.

Federal and state statutory rates applied to nonpatronage business activity were 24.9% and 24.7% for the years ended August 31, 2020 and 2019, respectively.

Income taxes and effective tax rates vary each year based upon profitability and nonpatronage business activity, which resulted in effective tax rates of (9.5)% and (1.5)% for the years ended August 31, 2020 and 2019, respectively.

Increased income tax benefit during fiscal 2021 primarily resulted from a benefit associated with tax planning for certain assets.

The increased income tax benefit was partially offset by a benefit earned during fiscal 2020 related to the settlement of a U.S.

federal audit resulting in additional tax credit carryovers that did not reoccur during fiscal 2021.

Federal and state statutory rates applied to nonpatronage business activity were 24.5% and 24.9% for the years ended August 31, 2021

and 2020, respectively.

Income taxes and effective tax rates vary each year based upon profitability and nonpatronage business activity, which resulted in negative effective tax rates of (7.4)% and (9.5)% for the years ended August 31, 2021 and 2020, respectively.

Comparison of Results of Operations for the Years Ended August 31, 2020 and 2019

For a discussion of results of operations for fiscal 2020 compared to fiscal 2019, please refer to Part II, Item 7 , Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 31, 2020, filed with the SEC on November 5, 2020.

The addition of the Foods segment in fiscal 2021, which was previously included in our Corporate and Other category, did not have a material impact to our comparison of results of operations for the years ended August 31, 2020 and 2019, as the year-over-year changes for the Foods segment were previously discussed within the Corporate and Other category.

Liquidity and Capital Resources

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 short-term borrowings through our revolving credit facilities.

We fund our capital expenditures and growth primarily through cash, operating cash flow and long-term debt financing.

On August 31, 2020 and 2019, we had working capital, defined as current assets less current liabilities, of $1.3 billion and $1.1 billion, respectively.

The increase in working capital was driven primarily by reductions in our notes payable and accounts payable.

Our current ratio, defined as current assets divided by current liabilities, was 1.3 and 1.2 as of August 31, 2020 and 2019, respectively.

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 of August 31, 2020, we had cash and cash equivalents of $140.9 million, total equities of $8.8 billion, long-term debt (including current maturities) of $1.8 billion and notes payable of $1.6 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 continue to navigate the impact of COVID-19 on our business and operations, we have strengthened our liquidity through a variety of means, including curtailing certain spending and reprioritizing capital expenditures.

We are actively managing our short-term and long-term liquidity needs.

Fiscal 2020 and 2019 Activity

On August 14, 2020, we entered into the 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 on November 2, 2020, and will be used to refinance upcoming debt maturities in fiscal 2021 and add liquidity.

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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 August 31, 2020, total availability under the Securitization Facility was $ 423.0 million, all of which had been utilized.

We also have a repurchase facility ("Repurchase Facility") related to the Securitization Facility.

Under the Repurchase Facility, we can borrow up to $ 150.0 million, collateralized by a subordinated note issued by Cofina in favor of the Originators and representing a portion of the outstanding balance of the Receivables sold by the Originators to Cofina under the Securitization Facility.

As of August 31, 2020 and 2019, the outstanding balance under the Repurchase Facility was $ 150.0 million.

On June 26, 2020, we amended our existing Securitization Facility and Repurchase Facility.

As a result of the amendment, the maximum availability of the Securitization Facility was decreased from $700.0 million to $500.0 million.

On September 24, 2020, the Securitization Facility and Repurchase Facility were further 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.

During fiscal 2019, we completed the acquisition of the remaining 75 % ownership interest in WCD that we did not previously own by paying $ 106.7 million;

net cash flows were reduced by $ 8.0 million of cash acquired.

WCD is now included in our Ag segment and deepens our presence in the agronomy products market.

See Note 20, Acquisitions, of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.

We also completed planned major maintenance activities during fiscal 2020 and 2019, which contributed to cash outflows of $14.5 million and $232.1 million for the years ended August 31, 2020 and 2019, respectively.

Years Ended August 31, Change

2020 2019 Dollars Percent

In assessing our financial condition, we consider factors such as working capital, internal benchmarking related to our applicable covenants, and other financial information.

The following financial information is used when assessing our liquidity and capital resources to meet our capital allocation priorities, which include maintaining the safety and compliance of our operations, paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and equity redemptions and taking advantage of strategic opportunities that benefit our owners:

August 31, 2021 August 31, 2020

(Dollars in thousands)

Net cash provided by operating activities $ 1,087,229 $ 1,139,931 $ (52,702) (4.6) %

Net cash used in investing activities ( 243,705 ) ( 661,283 ) 417,578 63.1 %

Net cash used in financing activities ( 931,148 ) ( 725,646 ) (205,502) (28.3) %

Effect of exchange rate changes on cash and cash equivalents 4,942 2,733 2,209 80.8 %

Net decrease in cash and cash equivalents and restricted cash $ (82,682) $ (244,265) $ 161,583 66.2 %

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 $52.7 million decrease in cash provided by operating activities reflects decreased net income during fiscal 2020 compared to the prior fiscal year, which was partially offset by working capital decreases, primarily associated with decreased receivables.

The $417.6 million decrease in cash used in investing activities primarily reflects increased collections of $130.5 million, decreased expenditures for major maintenance, CHS Capital, LLC ("CHS Capital") notes receivable and acquisition of the remaining 75 % ownership interest in WCD in fiscal 2019, which did not reoccur in fiscal 2020.

The $205.5 million increase in cash used in financing activities primarily reflects increased net cash outflows associated with our notes payable and long-term debt facilities, an increase in cash patronage paid and an increase in equity redemption payments.

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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.

Cash and cash equivalents $ 413,159 $ 140,874

Notes payable 1,740,859 1,575,491

Long-term debt including current maturities 1,618,361 1,791,123

Total equities 9,017,326 8,819,173

Working capital 1,672,938 1,346,506

Current ratio* 1.3 1.3

*Current ratio is defined as current assets divided by current liabilities.

Summary of Our Major Sources of Cash and Cash Equivalents

We fund our current operations primarily through a combination of cash flows from operations supplemented with short-term borrowings through our committed and uncommitted revolving credit facilities, including our securitization facility with certain unaffiliated financial institutions ("Securitization Facility") and our repurchase facility relating thereto ("Repurchase Facility").

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.

See Note 9, Notes Payable and Long-Term Debt , of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information on our short-term borrowings and long-term debt, including tables with summarized long-term debt outstanding.

We will continue to consider opportunities to further diversify and enhance our sources and amounts of liquidity.

On February 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 until February 19, 2022.

On February 19, 2022, the total funded loan balance outstanding reverts to a nonrevolving term loan that is payable on September 4, 2025.

On August 14, 2020, we entered into a Note Purchase Agreement to borrow $375.0 million of debt in the form of notes.

The notes under this Note Purchase Agreement are structured in four series with maturities ranging from seven 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 on November 2, 2020.

This funding was used to pay debt maturities and manage liquidity.

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 termination dates to July 30, 2021, and September 24, 2021, respectively.

On July 30, 2021, the Securitization Facility was further amended to extend its

termination date to August 31, 2021.

Subsequently on August 31, 2021, the Securitization Facility and Repurchase Facility were again amended, increasing the maximum committed availability under the Securitization Facility to $700.0 million from $600.0 million, adding a $250.0 million uncommitted portion to the Securitization Facility and extending their respective maturity dates to August 30, 2022.

Summary of Our Major Uses of Cash and Cash Equivalents

Annually, our Board of Directors approves our capital expenditure budget.

Our fiscal 2022 capital expenditure priorities include maintaining our assets through maintenance;

compliance with environmental, health and safety requirements;

information technology;

productivity;

Our refining business requires continued investment in our refining process to maintain its operational reliability, profitability and safety.

In addition, our Board of Directors annually approves our cash patronage and equity redemptions to be paid in fiscal 2022, based on fiscal 2021 financial performance.

The following is a summary of our primary cash requirements for fiscal 2022:

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Excluded from the capital expenditures for fiscal 2022 is approximately $53.7 million for major maintenance at our Laurel refinery.

• Debt and interest.

We expect to repay approximately $189.3 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $74.6 million during fiscal 2021.

• Preferred stock dividends.

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Our Board of Directors has authorized equity redemptions of $ 100.0 million to be distributed in fiscal 2022 in the form of redemptions of qualified and nonqualified equity owned by individual producer members and association members.

The Board of Directors will continue to periodically evaluate the level of equity redemption activity throughout fiscal 2021 in respect to the amounts it has authorized for redemption during the fiscal year.

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.

On August 14, 2020, we entered into the Note Purchase Agreement to borrow $375.0 million of long-term debt in the form of notes that was funded on November 2, 2020.

This funding will be used to refinance maturing long-term debt as well as add liquidity.

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 lines of credit will provide adequate liquidity to meet our working capital needs.

The following table summarizes our primary lines of credit as of August 31, 2020 and 2019:

Primary Revolving Credit Facilities Fiscal Year

of Maturity Total Capacity Borrowings Outstanding Interest Rates

2020 2020 2019

(Dollars in thousands)

Committed five-year unsecured facility 2024 $ 2,750,000 $ 345,000 $ 335,000 LIBOR or base rate +0.00% to 1.55%

Uncommitted bilateral facilities* 2021 300,000 — 430,000 LIBOR or base rate + applicable margin

*Total capacity for the uncommitted bilateral facilities was $630.0 million at August 31, 2019.

As of August 31, 2020, the uncommitted bilateral facilities do not include $300.0 million of capacity with a banking partner for which we are currently in the process of terminating the related agreement.

Our primary line of credit is a five-year, unsecured revolving credit facility with a syndicate of domestic and international banks.

The credit facility provides a committed amount of $ 2.75 billion that expires on July 16, 2024.

We also maintain certain uncommitted bilateral facilities to support our working capital needs.

In addition to our facilities above, our wholly-owned subsidiaries CHS Europe S.a.r.l.

and CHS Agronegocio Industria e Comercio Ltda had uncommitted lines of credit with $ 318.4 million outstanding as of August 31, 2020.

In addition, our other international subsidiaries had lines of credit outstanding of $ 69.7 million as of August 31, 2020.

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Long-Term Debt Financing

Long-term debt including current maturities was $1.8 billion as of August 31, 2020 and 2019.

During the year ended August 31, 2020, we repaid approximately $ 25.4 million of long-term debt consisting of scheduled debt maturities and optional prepayments.

On August 14, 2020, we entered into the Note Purchase Agreement to borrow $375.0 million of long-term debt in the form of notes that was funded on November 2, 2020.

See Note 9, Notes Payable and Long-Term Debt, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information, including tables with summarized long-term debt outstanding.

CHS Capital Financing

For a description of the Securitization Facility and the Repurchase Facility, see above in "Fiscal 2020 and 2019 Activity."

CHS Capital sells loan commitments it has originated to Compeer Financial, PCA, d/b/a ProPartners Financial on a recourse basis.

Total outstanding commitments under the program were $ 150.0 million as of August 31, 2020, of which $ 133.3 million was borrowed with an interest rate of 1.45 %.

CHS Capital borrows funds under short-term notes issued as part of a surplus funds program.

Borrowings under this program are unsecured and bear interest at variable rates ranging from 0.35 % to 1.40 % as of August 31, 2020, and are due upon demand.

Borrowings under these notes totaled $ 134.9 million as of August 31, 2020.

On September 30, 2019, CHS Capital entered into a credit agreement with a revolving note.

Under this agreement, CHS Capital had available capacity of $100.0 million of which no amount was outstanding as of August 31, 2020.

This agreement matured subsequent to August 31, 2020, and was not renewed.

Our long-term debt is mostly unsecured;

however, restrictive covenants under various debt agreements require the maintenance of minimum consolidated net worth and other financial ratios.

We were in compliance with all debt covenants and restrictions as of August 31, 2020.

The Board of Directors will continue to periodically evaluate the level of equity redemption activity throughout fiscal 2022 with respect to the amounts it has authorized for redemption during the fiscal year.

Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum consolidated net worth and other financial ratios.

We were in compliance with all our debt covenants and restrictions as of August 31, 2021.

Based on our current 2022 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 flow 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 both fiscal 2020 and 2019, our ratio of consolidated funded debt to consolidated cash flow 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 amounts using financial statement earnings.

The cash portion of the qualified patronage distribution, if any, is determined annually by our Board of Directors, with the balance issued in the form of qualified and/or nonqualified capital equity certificates.

Total patronage distributions for fiscal 2020 are estimated to be $ 242.0 million, with the qualified cash portion estimated to be $ 30.0 million and nonqualified equity distributions of $ 212.0 million.

No portion of annual net earnings for fiscal 2020 will be issued in the form of qualified capital equity certificates.

The following table presents estimated patronage distributions for the year ending August 31, 2021, and actual patronage distributions for the years ended August 31, 2020, 2019 and 2018:

2021 2020 2019 2018

(Dollars in millions)

Patronage distributed in cash $ 30.0 $ 90.1 $ 75.8 $ —

Patronage distributed in equity 212.0 474.4 353.0 128.8

Total patronage distributed $ 242.0 $ 564.5 $ 428.8 $ 128.8

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Our Board of Directors has authorized equity redemptions of $ 33.0 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.

These redemptions are classified as a current liability on the August 31, 2020, Consolidated Balance Sheet.

Other Financing

See Note 12, Equities, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for a summary of our outstanding preferred stock as of August 31, 2020, each series of which is listed and traded on the Global Select Market of The Nasdaq Stock Market LLC.

Off-Balance Sheet Financing Arrangements

We are a guarantor for lines of credit and performance obligations of related, nonconsolidated companies.

Our bank covenants allow maximum guarantees of $1.0 billion, of which $127.9 million were outstanding on August 31, 2020.

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 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 of August 31, 2020.

There is no material off-balance sheet debt.

Loan Participations

We engage 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 that are included in this Annual Report on Form 10-K.

Working Capital

We measure working capital as current assets less current liabilities and believe this information is meaningful to investors as a measure of operational efficiency and short-term financial health.

Working capital is not defined under U.S.

generally accepted accounting principles ("U.S.

GAAP") and may not be computed the same as similarly titled measures used by other companies.

Working capital as of August 31, 2021 and 2020, is as follows:

2021 2020 Change

(Dollars in thousands)

Current assets $ 7,998,951 $ 6,266,547 $ 1,732,404

Less current liabilities 6,326,013 4,920,041 1,405,972

Working capital $ 1,672,938 $ 1,346,506 $ 326,432

As of August 31, 2021, working capital increased by $326.4 million compared with August 31, 2020.

Current asset balance changes increased working capital by $1.7 billion, primarily driven by increases in receivables and inventories.

Current liabilities balance changes decreased working capital by $1.4 billion, primarily due to increases in accounts payable and notes payable.

We finance our working capital needs through committed and uncommitted lines of credit with domestic and international banks.

We believe our current cash balances and available capacity on our committed and uncommitted lines of credit will provide adequate liquidity to meet our working capital needs.

Contractual Obligations

We had certain contractual obligations as of August 31, 2020, which require the following payments to be made:

Payments Due by Period

Total Less than

Years More than

Our estimated future obligations as of August 31, 2021, include both current and long-term obligations.

During fiscal 2022, we have a current obligation to repay $31.1 million of long-term debt, as well as $68.2 million of interest related to long-term debt.

Beyond fiscal 2022, our long-term debt obligation is $1.6 billion and interest payments related to long-term debt of $423.0 million.

For finance leases, we have a current and long-term obligation of $8.5 million and $35.9 million, respectively.

For operating leases, we have a current and long-term obligation of $66.1 million and $237.8 million, respectively.

See Note 9, Notes Payable and Long-Term Debt, and Note 19 , Leases , of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information on our long-term debt and leases, respectively.

We enter into purchase obligations that are legally binding and into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement.

Our current and long-term obligation for such arrangements is $8.6 billion and $946.9 million, respectively.

Years Ended August 31,

2021 2020 Change

(Dollars in thousands)

Long-term debt obligations (1)

$ 1,750,947 $ 181,628 $ 313,656 $ 697,560 $ 558,103

Interest payments (2)

498,157 74,573 134,426 108,726 180,432

Finance lease obligations (3)

35,337 8,845 13,070 5,489 7,933

Operating lease obligations 305,828 64,379 90,667 55,229 95,553

Purchase obligations (4)

6,555,832 5,587,252 440,551 217,226 310,803

Other liabilities (5)

449,206 — 32,082 14,846 402,278

Total obligations $ 9,595,307 $ 5,916,677 $ 1,024,452 $ 1,099,076 $ 1,555,102

(1) Excludes fair value adjustments to the long-term debt reported on our Consolidated Balance Sheet as of August 31, 2020, resulting from fair value interest rate swaps and related hedge accounting.

(2) Based on interest rates and long-term debt balances as of August 31, 2020.

(3) Future minimum lease payments under finance leases include amounts related to bargain purchase options and residual value guarantees, which represent economic obligations as opposed to contractual payment obligations.

(4) Purchase obligations are legally binding and enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities;

fixed, minimum or variable price provisions;

and approximate time of the transactions.

In the ordinary course of business, we enter into a significant number of forward purchase commitments for agricultural and energy commodities and related freight.

The purchase obligation amounts shown above include both short- and long-term obligations and are based on a) fixed or minimum quantities to be purchased and b) fixed or estimated prices to be paid at the time of settlement.

Current estimates are based on

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assumptions about future market conditions that will exist at the time of settlement.

Consequently, actual amounts paid under these contracts may differ due to the variable pricing provisions.

Market risk related to the variability of our forward purchase commitments is economically hedged by offsetting forward sale contracts that are not included in the amounts above.

(5) Other liabilities include the long-term portion of deferred compensation, deferred tax liabilities and contractual redemptions.

Of the total other liabilities and deferred tax liabilities of $652.9 million on our Consolidated Balance Sheet as of August 31, 2020, the timing of the payments of $394.6 million of such liabilities cannot be determined and $203.7 million relate to long-term operating lease liabilities.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("U.S.

Net cash provided by operating activities $ 757,811 $ 1,087,229 $ (329,418)

Net cash used in investing activities ( 101,672 ) ( 243,705 ) 142,033

Net cash used in financing activities ( 326,585 ) ( 931,148 ) 604,563

Effect of exchange rate changes on cash and cash equivalents ( 4,063 ) 4,942 (9,005)

Net increase (decrease) in cash and cash equivalents and restricted cash $ 325,491 $ (82,682) $ 408,173

The $329.4 million decrease in cash provided by operating activities in fiscal 2021 is primarily the result of a higher proportion of income generated by equity method investments, which do not result in an increase in cash until dividends are distributed to us.

The decrease is also driven by working capital increases, primarily associated with increased receivables and inventories.

The $142.0 million decrease in cash used in investing activities in fiscal 2021 primarily reflects decreased expenditures for property, plant and equipment net of the proceeds from the sales of certain locations in our Ag segment.

The $604.6 million decrease in cash used in financing activities in fiscal 2021 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.

The decrease is also partially due to lower amounts paid for cash patronage and equity redemptions in fiscal 2021 compared to the prior fiscal year.

Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with U.S.

Preparation of these consolidated financial statements requires use of estimates, as well as management's judgments and assumptions regarding matters that are subjective, uncertain or involve a high degree of complexity, all of which affect the results of operations and financial condition for the periods presented.

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Inventory Valuation and Reserves

Grain, processed grain, oilseed and processed oilseed inventories are stated at net realizable value.

Grain, processed grain, oilseed, processed oilseed and other minimally processed soy-based inventories are stated at net realizable value.

All other inventories are stated at the lower of cost or net realizable value.

The costs of certain energy inventories (wholesale refined products, crude oil and asphalt) are determined on the last-in, first-out ("LIFO") method;

The costs of certain energy inventories (wholesale refined products, crude oil and asphalt) are determined on the LIFO method;

all other inventories of nongrain products purchased for resale are valued on the first-in, first-out ("FIFO") and average cost methods.

Estimates are used in determining the net realizable values of grain and oilseed and processed grains and oilseeds inventories.

These estimates include measurement of grain in bins and other storage facilities, which uses formulas in addition to actual measurements taken to arrive at appropriate quantities.

Other determinations made by management include quality of inventory and estimates for freight.

Grain shrink reserves and other reserves that account for spoilage also affect inventory valuations.

If estimates regarding the valuation of inventories, or the adequacy of reserves, are less favorable than management’s assumptions, then additional reserves or write-downs of inventories may be required.

Estimates are used in determining the net realizable values of grain and oilseed and processed grain and oilseed inventories.

These estimates include using inputs that are generally based on exchange traded prices and/or recent market bids and offers, including location-specific adjustments.

If estimates regarding the valuation of inventories are less favorable than management's assumptions, write-downs of inventories may be required.

Derivative Financial Instruments

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We are exposed to loss in the event of nonperformance by the counterparties to the contracts and, therefore, contract values are reviewed and adjusted to reflect potential nonperformance.

Risk of nonperformance by counterparties includes the inability to perform because of a counterparty’s financial condition and a risk that the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are significantly different than the current market prices.

Risk of nonperformance by counterparties includes the inability to perform because of a counterparty's financial condition and a risk that the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are significantly different from the current market prices.

Pension and Other Postretirement Benefits

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While our management believes the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other postretirement obligations and future expenses.

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Deferred Tax Assets and Uncertain Tax Positions

4 unchanged sentences

Our net operating loss carryforwards for tax purposes are available to offset future taxable income.

If our loss carryforwards are not used, these loss carryforwards will expire.

If our loss carryforwards are not used, they will expire.

Tax benefits related to uncertain tax positions are recognized in our financial statements if it is more likely than not that the position would be sustained upon examination by a tax authority that has full knowledge of all relevant information.

10 unchanged sentences

An impaired asset is written down to its estimated fair value based on the best information available.

Fair value is generally measured by discounting estimated future cash flows.

Fair value is generally measured by discounting estimated future

Considerable management judgment is necessary to estimate discounted future cash flows and our estimates may differ from actual results.

4 unchanged sentences

When a date or range of dates can reasonably be estimated for the retirement of any component part of a refinery or other asset, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that future cost.

We have other assets that we may be obligated to dismantle at the end of corresponding lease terms subject to lessor discretion for which we have recorded asset retirement obligations.

We have other assets that we may be obligated to dismantle at the end of corresponding lease terms subject to the lessor's discretion for which we have recorded asset retirement obligations.

Based on our estimates of the timing, cost and probability of removal, these obligations are not material.

1 unchanged sentence

See Note 1, Organization, Basis of Presentation and Significant Accounting Policies, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for information concerning new accounting standards and the impact of implementation of those standards on our financial statements.

Table of Content s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis