As filed with the Securities and Exchange Commission on
December 14, 2007
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CHS INC.
(EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER)
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Minnesota
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41-0251095
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5150
(Primary Standard Industrial
Classification Code Number)
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-6000
(Address, including zip code,
and telephone number,
including area code, of
registrants principal executive offices)
David Kastelic
Senior Vice President and General Counsel
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-3712
Fax (651) 355-4554
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copy to:
David P. Swanson
Michael W. Clausman
Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
(612) 340-2600
Fax (612) 340-8738
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this
registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box:
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration number of the
earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Aggregate Offering
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Amount of
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Title of Each Class of Securities to be Registered
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Price
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Registration Fee
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8% Cumulative Redeemable Preferred Stock
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$45,559,084
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$1,398.66
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to Section 8(a) of the
Securities Act, may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and we are not soliciting offers
to buy these securities in any jurisdiction where the offer or
sale is not permitted.
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SUBJECT TO COMPLETION DATED
DECEMBER 14, 2007
PROSPECTUS
Shares
CHS Inc.
8% Cumulative
Redeemable Preferred Stock
We are issuing up to 1,810,055 shares of our 8% Cumulative
Redeemable Preferred Stock to redeem up to $45,559,084 of our
patrons equities. The shares will be issued to
redeem our outstanding patrons equities on a pro rata
basis. Subject to the exceptions described below in Plan
of Distribution, shares of preferred stock issued in
redemption of the patrons equities will be issued only to
non-individual active members who have conducted business with
us during the past five years and whose pro rata share of the
redemption amount is equal to or greater than $500. For each
member eligible to receive such preferred stock, shares will be
issued only in a number that does not exceed 18,100 shares
of preferred stock (which equals one-quarter of one percent
(0.25%) of our total shares of preferred stock outstanding as of
the end of the 2007 calendar year). See Membership in CHS
and Authorized Capital Patrons Equities
for a description of patrons equities and our annual pro
rata redemptions of patrons equities. The amount of
patrons equities that will be redeemed with each share of
preferred stock issued will be
which is the greater of $25.17 (equal to the $25.00 liquidation
preference per share of preferred stock plus $0.17 of
accumulated dividends from and including January 1, 2008 to
and including January 31, 2008) or the closing price
for one share of the preferred stock on January
, 2008. There will not be any cash proceeds
from the issuance of the preferred stock. However, by issuing
shares of preferred stock in redemption of patrons
equities, we will make the cash that we would otherwise have
used to redeem those patrons equities available for
working capital purposes.
Holders of the preferred stock are entitled to receive cash
dividends at the rate of $2.00 per share per year. Dividends are
payable quarterly in arrears when, as and if declared on
March 31, June 30, September 30 and December 31 of
each year (each, a payment date), except that if a
payment date is a Saturday, Sunday or legal holiday, the
dividend is paid without interest on the next day that is not a
Saturday, Sunday or legal holiday. Dividends payable on the
preferred stock are cumulative. The preferred stock is subject
to redemption and has the preferences described in this
prospectus. The preferred stock is not convertible into any of
our other securities and is non-voting except in certain limited
circumstances.
The preferred stock is traded on The NASDAQ Global Select Market
under the trading symbol CHSCP. On December 13,
2007, the closing price of the preferred stock was $25.27 per
share.
Ownership of our preferred
stock involves risks. See Risk Factors
beginning on page 7.
We expect to issue the preferred stock on or about
January 31, 2008.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-6000
The date of this prospectus is
.
TABLE OF
CONTENTS
IMPORTANT
INFORMATION ABOUT THIS PROSPECTUS
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different or
additional information. This prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates. We are
not making an offer of these securities in any state where the
offer is not permitted. The information in this prospectus is
current as of the date on the front of this prospectus.
References in this prospectus, and the documents incorporated by
reference in this prospectus, to CHS, CHS
Cooperatives, Cenex Harvest States
Cooperatives, the Company, we,
our and us refer to CHS Inc., a
Minnesota cooperative corporation, and its subsidiaries. We
maintain a web site at
http://www.chsinc.com.
Information contained in our website does not constitute part of
this prospectus.
All references to preferred stock in this prospectus
are to our 8% Cumulative Redeemable Preferred Stock unless the
context requires otherwise.
The following summary highlights information we present in
greater detail elsewhere in this prospectus and in the
information incorporated by reference in it. This summary may
not contain all of the information that is important to you and
you should carefully consider all of the information contained
or incorporated by reference in this prospectus. This prospectus
contains forward-looking statements that are subject to risks
and uncertainties that could cause our actual results to differ
materially from the forward-looking statements. These factors
include those listed under Risk Factors and
elsewhere in this prospectus.
CHS
Inc.
CHS Inc. (referred to herein as CHS, we
or us) is one of the nations leading
integrated agricultural companies. As a cooperative, we are
owned by farmers and ranchers and their member cooperatives
(referred to herein as members) from the Great Lakes
to the Pacific Northwest and from the Canadian border to Texas.
We also have preferred stockholders that own shares of our 8%
Cumulative Redeemable Preferred Stock, which is listed on the
NASDAQ Global Select Market under the symbol CHSCP. On
August 31, 2007, we had 7,240,221 shares of preferred
stock outstanding. We buy commodities from and provide products
and services to patrons (including our members and other
non-member customers), both domestic and international. We
provide a wide variety of products and services, from initial
agricultural inputs such as fuels, farm supplies, crop nutrients
and crop protection products, to agricultural outputs that
include grains and oilseeds, grain and oilseed processing and
food products. A portion of our operations are conducted through
equity investments and joint ventures whose operating results
are not fully consolidated with our results; rather, a
proportionate share of the income or loss from those entities is
included as a component in our net income under the equity
method of accounting. For the fiscal year ended August 31,
2007, our total revenues were $17.2 billion and net income
was $750.3 million.
We have aligned our business segments based on an assessment of
how our businesses operate and the products and services they
sell. Our three business segments: Energy, Ag Business and
Processing, create vertical integration to link producers with
consumers. Our Energy segment derives its revenues through
refining, wholesaling, marketing and retailing of petroleum
products. Our Ag Business segment derives its revenues through
the origination and marketing of grain, including service
activities conducted at export terminals, through the retail
sales of petroleum and agronomy products, processed sunflowers,
feed and farm supplies, and records equity income from
investments in our agronomy joint ventures, grain export joint
ventures and other investments. As of September 2007, our Ag
Business segment revenues also include sales of crop nutrient
products due to the acquisition of that business from our
Agriliance LLC joint venture. Our Processing segment derives its
revenues from the sales of soybean meal and soybean refined oil,
and records equity income from three wheat milling joint
ventures, a vegetable oil-based food manufacturing and
distribution joint venture, and an ethanol manufacturing
company. We include other business operations in Corporate and
Other because of the nature of their products and services, as
well as the relative revenue size of those businesses. These
businesses primarily include our insurance, hedging and other
service activities related to crop production.
In May 2005, we sold the majority of our Mexican foods business
for proceeds of $38.3 million resulting in a loss on
disposition of $6.2 million. During the year ended
August 31, 2006, we sold all of the remaining assets for
proceeds of $4.2 million and a gain of $1.6 million.
Membership in CHS is restricted to certain producers of
agricultural products and to associations of producers of
agricultural products that are organized and operating so as to
adhere to the provisions of the Agricultural Marketing Act and
the Capper-Volstead Act, as amended. Our Board of Directors may
establish other qualifications for membership, as it may from
time to time deem advisable.
Our earnings from cooperative business are allocated to members
(and to a limited extent to non-members with which we have
agreed to do business on a patronage basis) based on the volume
of business they do with us. We allocate these earnings to our
patrons in the form of patronage refunds (which are also called
patronage dividends) in cash and patrons equities, which
may be redeemed over time. Earnings derived from non-members,
which are not allocated patronage, are taxed at federal and
state statutory corporate rates and are
1
retained by us as unallocated capital reserve. We also receive
patronage refunds from the cooperatives in which we are a
member, if those cooperatives have earnings to distribute and if
we qualify for patronage refunds from them.
Our origins date back to the early 1930s with the founding of
the predecessor companies of Cenex, Inc. and Harvest States
Cooperatives. CHS Inc. emerged as the result of the merger of
those two entities in 1998, and is headquartered in Inver Grove
Heights, Minnesota.
Energy
We are the nations largest cooperative energy company
based on revenues and identifiable assets, with operations that
include petroleum refining and pipelines; the supply, marketing
(including ethanol and biodiesel) and distribution of refined
fuels (gasoline, diesel and other energy products); the
blending, sale and distribution of lubricants; and the wholesale
supply of propane. Our Energy segment processes crude oil into
refined petroleum products at refineries in Laurel, Montana
(wholly-owned) and McPherson, Kansas (an entity in which we have
an approximate 74.5% ownership interest) and sells those
products under the
Cenex
®
brand to member cooperatives and others through a network of
approximately 1,600 independent retail sites, including
approximately 850 that operate Cenex/Ampride convenience stores.
Ag
Business
Agronomy.
Through our fiscal year ended
August 31, 2007, we conducted our wholesale and some of our
retail agronomy operations through our 50% ownership interest in
Agriliance LLC (Agriliance), in which Land OLakes, Inc.
holds the other 50% ownership interest. Prior to September 2007,
Agriliance was one of North Americas largest wholesale
distributors of crop nutrients, crop protection products and
other agronomy products based upon annual sales. Our 50%
ownership interest in Agriliance is treated as an equity method
investment, and therefore, Agriliances revenues and
expenses are not reflected in our operating results. At
August 31, 2007, our equity investment in Agriliance was
$182.8 million.
In September 2007, Agriliance distributed the assets of the crop
nutrients business to us, and the assets of the crop protection
business to Land OLakes, Inc. (Land OLakes).
Agriliance continues to exist as a
50-50
joint
venture and primarily operates and sells agronomy products on a
retail basis. We currently are exploring, with Land
OLakes, the repositioning options for the remaining
portions of the Agriliance retail business.
Given the different values assigned to the assets of the crop
nutrients and the crop protection businesses of Agriliance, at
the closing of the distribution transaction, Land OLakes
owed us $133.5 million. Land OLakes paid us
$32.6 million in cash, and in order to maintain equal
capital accounts in Agriliance, paid down certain portions of
Agriliances debt on our behalf in the amount of
$100.9 million. Values of the distributed assets were
determined after the closing, and in October 2007, we made an
estimated value
true-up
payment to Land OLakes in the amount of
$45.7 million, plus interest.
In August 2005, we sold 81% of our 20% ownership interest in CF
Industries, Inc., a crop nutrients manufacturer and distributor,
in an initial public offering (IPO). After the IPO, our
ownership interest was reduced to approximately 3.9% in the
post-IPO company named CF Industries Holdings, Inc. (CF). During
our fiscal year ended August 31, 2007, we sold
540,000 shares of our CF stock for proceeds of
$10.9 million, and recorded a pretax gain of
$5.3 million. During the first quarter of fiscal 2008, we
sold all of our remaining 1,610,396 shares of CF stock for
proceeds of $108.3 million and recorded a pretax gain of
$91.7 million.
There is significant seasonality in the sale of agronomy
products and services, with peak activity coinciding with the
planting and input seasons.
Country Operations.
Our country operations
business purchases a variety of grains from our producer members
and other third parties, and provides cooperative members and
producers with access to a full range of products and services
including farm supplies and programs for crop and livestock
production. Country operations operates at 335 locations, which
includes 3 sunflower plants, dispersed throughout Minnesota,
North Dakota, South Dakota, Montana, Nebraska, Kansas, Oklahoma,
Colorado, Idaho, Washington and Oregon. Most of these locations
purchase grain from farmers and sell agronomy products, energy
products and feed to those same producers and others, although
not all locations provide every product and service.
2
Grain Marketing.
We are the nations
largest cooperative marketer of grain and oilseed based on grain
storage capacity and grain sales, handling about
1.5 billion bushels annually. During fiscal 2007, we
purchased approximately 60% of our total grain volumes from
individual and cooperative association members and our country
operations business, with the balance purchased from third
parties. We arrange for the transportation of the grains either
directly to customers or to our owned or leased grain terminals
and elevators awaiting delivery to domestic and foreign
purchasers. We primarily conduct our grain marketing operations
directly, but do conduct some of our business through joint
ventures.
Processing
Our Processing segment converts raw agricultural commodities
into ingredients for finished food products or into finished
consumer food products. We have focused on areas that allow us
to utilize the products supplied by our member producers. These
areas are oilseed processing, wheat milling, foods and renewable
fuels.
The
Issuance
We are issuing up to 1,810,055 shares of our 8% Cumulative
Redeemable Preferred Stock to redeem up to $45,559,084 of our
patrons equities. The shares will be issued to
redeem our outstanding patrons equities on a pro rata
basis. Subject to the exceptions described below in Plan
of Distribution, shares of preferred stock issued in
redemption of the patrons equities will be issued only to
non-individual active members who have conducted business with
us during the past five years and whose pro rata share of the
redemption amount is equal to or greater than $500. For each
member eligible to receive such preferred stock, shares will be
issued only in a number that does not exceed 18,100 shares
of preferred stock (which equals one-quarter of one percent
(0.25%) of our total shares of preferred stock outstanding as of
December 31, 2007). See Membership in CHS and
Authorized Capital Patrons Equities for
a description of patrons equities and our annual pro rata
redemptions of patrons equities. The amount of
patrons equities that will be redeemed with each share of
preferred stock issued will be $ ,
which is the greater of $25.17 (equal to the $25.00 liquidation
preference per share of preferred stock plus $0.17 of
accumulated dividends from and including January 1, 2008 to
and including January 31, 2008) or the closing price
for one share of the preferred stock on The NASDAQ Global Select
Market on January , 2008. There will not be any
cash proceeds from the issuance of the preferred stock. However,
by issuing shares of preferred stock in redemption of
patrons equities, we will make the cash that we would
otherwise have used to redeem those patrons equities
available for working capital purposes.
Terms of
the Preferred Stock
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Dividends
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Holders of the preferred stock (which include both members and
non-member third parties) are entitled to receive cash dividends
at the rate of $2.00 per share per year when, as and if declared
by our board of directors. Dividends are cumulative and are
payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, a payment
date), except that if a payment date is a Saturday, Sunday
or legal holiday, the dividend is paid without interest on the
next day that is not a Saturday, Sunday or legal holiday.
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Liquidation Rights
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In the event of our liquidation, holders of the preferred stock
are entitled to receive $25.00 per share plus all dividends
accumulated and unpaid on the shares to and including the date
of liquidation, subject, however, to the rights of any of our
securities that rank senior or on parity with the preferred
stock.
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Rank
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As to payment of dividends and as to distributions of assets
upon the liquidation, dissolution or winding up of CHS, whether
voluntary or involuntary, the preferred stock ranks prior to:
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any patronage refund;
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any other class or series of our capital stock
designated by our board of directors as junior to the preferred
stock; and
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our common stock, if any.
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Shares of any class or series of our capital stock that are not
junior to the preferred stock, rank equally with the preferred
stock as to the payment of dividends and the distribution of
assets.
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Redemption at our Option
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We may not redeem the preferred stock prior to February 1,
2008. On or after that date we may, at our option, redeem the
preferred stock, in whole or from time to time in part, for cash
at a price of $25.00 per share plus all dividends accumulated
and unpaid on that share to and including the date of
redemption. We have no current plan or intention to redeem the
preferred stock.
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Redemption at the Holders Option
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In the event of a change in control initiated by our board of
directors, holders of the preferred stock will have the right,
for a period of 90 days from the date of the change in
control, to require us to repurchase their shares of preferred
stock at a price of $25.00 per share plus all dividends
accumulated and unpaid on that share to and including the date
of redemption. Change in control is defined in
Description of the Preferred Stock-Redemption at the
Holders Option.
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No Exchange or Conversion Rights, No Sinking Fund
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The preferred stock is not exchangeable for or convertible into
any other shares of our capital stock or any other securities or
property. The preferred stock is not subject to the operation of
any purchase, retirement or sinking fund.
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Voting Rights
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Holders of the preferred stock do not have voting rights, except
as required by applicable law; provided, that the affirmative
vote of two-thirds of the outstanding preferred stock will be
required to approve:
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any amendment to our articles of incorporation or
the resolutions establishing the terms of the preferred stock if
the amendment adversely affects the rights or preferences of the
preferred stock; or
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the creation of any class or series of equity
securities having rights senior to the preferred stock as to the
payment of dividends or distribution of assets upon the
liquidation, dissolution or winding up of CHS.
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No Preemptive Rights
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Holders of the preferred stock have no preemptive right to
acquire shares of any class or series of our capital stock.
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Trading
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The preferred stock is listed on The NASDAQ Global Select Market
under the symbol CHSCP.
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Comparison of Rights
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Holders of the preferred stock have different rights from those
of holders of patrons equities. See Comparison of
Rights of Holders of Patrons Equities and Rights of
Holders of Preferred Stock.
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Risk Factors
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Ownership of our preferred stock involves risks. See Risk
Factors beginning on page 7.
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Summary
Selected Consolidated Financial Data
The selected financial information below has been derived from
our consolidated financial statements for the years ended
August 31. The selected consolidated financial information
for August 31, 2007, 2006 and 2005 should be read in
conjunction with our consolidated financial statements and notes
thereto included elsewhere in this filing. In May 2005, we sold
the majority of our Mexican foods business and have recorded the
Mexican foods business as discontinued operations.
Summary
Consolidated Financial Data
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2007
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2006
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2005
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2004
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2003
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(Dollars in thousands)
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Income Statement Data:
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Revenues
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$
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17,215,992
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$
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14,383,835
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$
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11,926,962
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$
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10,969,081
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$
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9,314,116
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Cost of goods sold
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16,139,691
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13,570,507
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11,449,858
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10,527,715
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8,989,050
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Gross profit
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1,076,301
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813,328
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477,104
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441,366
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325,066
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Marketing, general and administrative
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245,357
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231,238
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199,354
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202,455
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175,662
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Operating earnings
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830,944
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582,090
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277,750
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238,911
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149,404
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Gain on investments
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(20,616
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)
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(13,013
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)
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(14,666
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Gain on legal settlements
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(692
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(10,867
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Interest, net
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31,098
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41,305
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41,509
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42,758
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40,516
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Equity income from investments
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(109,685
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)
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(84,188
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)
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(95,742
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)
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(79,022
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(47,299
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)
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Minority interests
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143,214
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85,974
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47,736
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33,830
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21,950
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Income from continuing operations before income taxes
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786,933
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538,999
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297,260
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256,703
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145,104
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Income taxes
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36,600
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49,327
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30,434
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29,462
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16,031
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Income from continuing operations
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750,333
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489,672
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|
|
266,826
|
|
|
|
227,241
|
|
|
|
129,073
|
|
(Income) loss on discontinued operations, net of taxes
|
|
|
|
|
|
|
(625
|
)
|
|
|
16,810
|
|
|
|
5,909
|
|
|
|
5,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
|
$
|
221,332
|
|
|
$
|
123,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (August 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
815,634
|
|
|
$
|
828,954
|
|
|
$
|
758,703
|
|
|
$
|
493,440
|
|
|
$
|
458,738
|
|
Net property, plant and equipment
|
|
|
1,728,171
|
|
|
|
1,476,239
|
|
|
|
1,359,535
|
|
|
|
1,249,655
|
|
|
|
1,122,982
|
|
Total assets
|
|
|
6,693,586
|
|
|
|
4,942,583
|
|
|
|
4,726,937
|
|
|
|
4,031,292
|
|
|
|
3,807,968
|
|
Long-term debt, including current maturities
|
|
|
688,321
|
|
|
|
744,745
|
|
|
|
773,074
|
|
|
|
683,818
|
|
|
|
663,173
|
|
Total equities
|
|
|
2,432,990
|
|
|
|
2,017,391
|
|
|
|
1,757,897
|
|
|
|
1,628,086
|
|
|
|
1,481,711
|
|
Ratio of earnings to fixed charges and preferred dividends(1)
|
|
|
10.0x
|
|
|
|
7.9x
|
|
|
|
4.6x
|
|
|
|
4.5x
|
|
|
|
3.2x
|
|
|
|
|
(1)
|
|
For purposes of computing the ratio of earnings to fixed charges
and preferred dividends, earnings consist of income from
continuing operations before income taxes on consolidated
operations, distributed income from equity investees and fixed
charges. Fixed charges consist of interest expense and one-third
of rental expense, considered representative of that portion of
rental expense estimated to be attributable to interest.
|
5
The selected financial information below has been derived from
our three business segments, and Corporate and Other, for the
fiscal years ended August 31, 2007, 2006 and 2005. The
intercompany revenues between segments were $247.7 million,
$251.6 million and $180.8 million for the fiscal years
ended August 31, 2007, 2006 and 2005, respectively.
Summary
Financial Data By Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Ag Business
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,105,067
|
|
|
$
|
7,414,361
|
|
|
$
|
5,794,266
|
|
|
$
|
8,575,389
|
|
|
$
|
6,575,165
|
|
|
$
|
5,670,644
|
|
Cost of goods sold
|
|
|
7,274,638
|
|
|
|
6,834,676
|
|
|
|
5,487,813
|
|
|
|
8,388,476
|
|
|
|
6,401,527
|
|
|
|
5,541,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
830,429
|
|
|
|
579,685
|
|
|
|
306,453
|
|
|
|
186,913
|
|
|
|
173,638
|
|
|
|
129,362
|
|
Marketing, general and administrative
|
|
|
94,939
|
|
|
|
82,867
|
|
|
|
69,951
|
|
|
|
97,299
|
|
|
|
99,777
|
|
|
|
83,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
735,490
|
|
|
|
496,818
|
|
|
|
236,502
|
|
|
|
89,614
|
|
|
|
73,861
|
|
|
|
45,762
|
|
Gain on investments
|
|
|
|
|
|
|
|
|
|
|
(862
|
)
|
|
|
(5,348
|
)
|
|
|
|
|
|
|
(11,358
|
)
|
Interest, net
|
|
|
(6,106
|
)
|
|
|
6,534
|
|
|
|
8,918
|
|
|
|
28,550
|
|
|
|
23,559
|
|
|
|
20,535
|
|
Equity income from investments
|
|
|
(4,468
|
)
|
|
|
(3,840
|
)
|
|
|
(3,478
|
)
|
|
|
(51,830
|
)
|
|
|
(40,902
|
)
|
|
|
(55,473
|
)
|
Minority interests
|
|
|
143,230
|
|
|
|
86,483
|
|
|
|
46,741
|
|
|
|
(16
|
)
|
|
|
(509
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
602,834
|
|
|
$
|
407,641
|
|
|
$
|
185,183
|
|
|
$
|
118,258
|
|
|
$
|
91,713
|
|
|
$
|
92,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(228,930
|
)
|
|
$
|
(242,430
|
)
|
|
$
|
(170,642
|
)
|
|
$
|
(18,372
|
)
|
|
$
|
(8,779
|
)
|
|
$
|
(9,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
2,737,044
|
|
|
$
|
2,164,217
|
|
|
$
|
2,238,614
|
|
|
$
|
2,846,950
|
|
|
$
|
1,806,243
|
|
|
$
|
1,604,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing
|
|
|
Corporate and Other
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
754,743
|
|
|
$
|
614,471
|
|
|
$
|
613,766
|
|
|
$
|
28,465
|
|
|
$
|
31,415
|
|
|
$
|
29,070
|
|
Cost of goods sold
|
|
|
726,510
|
|
|
|
588,732
|
|
|
|
604,198
|
|
|
|
(2,261
|
)
|
|
|
(2,851
|
)
|
|
|
(2,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,233
|
|
|
|
25,739
|
|
|
|
9,568
|
|
|
|
30,726
|
|
|
|
34,266
|
|
|
|
31,721
|
|
Marketing, general and administrative
|
|
|
23,545
|
|
|
|
21,645
|
|
|
|
20,750
|
|
|
|
29,574
|
|
|
|
26,949
|
|
|
|
25,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses)
|
|
|
4,688
|
|
|
|
4,094
|
|
|
|
(11,182
|
)
|
|
|
1,152
|
|
|
|
7,317
|
|
|
|
6,668
|
|
Gain on investments
|
|
|
(15,268
|
)
|
|
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
(336
|
)
|
Interest, net
|
|
|
14,783
|
|
|
|
11,096
|
|
|
|
12,287
|
|
|
|
(6,129
|
)
|
|
|
116
|
|
|
|
(231
|
)
|
Equity income from investments
|
|
|
(48,446
|
)
|
|
|
(35,504
|
)
|
|
|
(36,202
|
)
|
|
|
(4,941
|
)
|
|
|
(3,942
|
)
|
|
|
(589
|
)
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
53,619
|
|
|
$
|
28,502
|
|
|
$
|
13,190
|
|
|
$
|
12,222
|
|
|
$
|
11,143
|
|
|
$
|
6,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(370
|
)
|
|
$
|
(368
|
)
|
|
$
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
681,118
|
|
|
$
|
518,186
|
|
|
$
|
420,373
|
|
|
$
|
428,474
|
|
|
$
|
453,937
|
|
|
$
|
463,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
You should be aware that ownership of our preferred stock
involves risks. In consultation with your own financial and
legal advisers, you should carefully consider the following
discussion of risks that we believe to be significant, together
with the other information contained or incorporated by
reference in this prospectus, including the section entitled
Special Note Regarding Forward-Looking Statements
and our consolidated financial statements and the notes to them.
The value of any preferred stock that you own may decline and
you could lose the entire value of your preferred stock.
Risks
Related to our Operations
Our revenues and operating results could be adversely
affected by changes in commodity prices.
Our revenues and earnings are affected by market prices for
commodities such as crude oil, natural gas, grain, oilseeds,
flour, and crude and refined vegetable oil. Commodity prices
generally are affected by a wide range of factors beyond our
control, including weather, disease, insect damage, drought, the
availability and adequacy of supply, government regulation and
policies, and general political and economic conditions. We are
also exposed to fluctuating commodity prices as the result of
our inventories of commodities, typically grain and petroleum
products, and purchase and sale contracts at fixed or partially
fixed prices. At any time, our inventory levels and unfulfilled
fixed or partially fixed price contract obligations may be
substantial. Increases in market prices for commodities that we
purchase without a corresponding increase in the prices of our
products or our sales volume or a decrease in our other
operating expenses could reduce our revenues and net income.
In our energy operations, profitability depends largely on the
margin between the cost of crude oil that we refine and the
selling prices that we obtain for our refined products. Although
the prices for crude oil reached historical highs during 2007,
the prices for both crude oil and for gasoline, diesel fuel and
other refined petroleum products fluctuate widely. Factors
influencing these prices, many of which are beyond our control,
include:
|
|
|
|
|
levels of worldwide and domestic supplies;
|
|
|
|
capacities of domestic and foreign refineries;
|
|
|
|
the ability of the members of OPEC to agree to and maintain oil
price and production controls, and the price and level of
foreign imports;
|
|
|
|
disruption in supply;
|
|
|
|
political instability or armed conflict in oil-producing
regions; the level of consumer demand;
|
|
|
|
the price and availability of alternative fuels;
|
|
|
|
the availability of pipeline capacity; and
|
|
|
|
domestic and foreign governmental regulations and taxes.
|
The long-term effects of these and other conditions on the
prices of crude oil and refined petroleum products are uncertain
and ever-changing. Increases in crude oil prices without a
corresponding increase in the prices of our refined petroleum
products could reduce our net income. Accordingly, we expect our
margins on and the profitability of our energy business to
fluctuate, possibly significantly, over time.
Our operating results could be adversely affected if our
members were to do business with others rather than with
us.
We do not have an exclusive relationship with our
members and our members are not obligated to supply us with
their products or purchase products from us. Our members often
have a variety of distribution outlets and product sources
available to them. If our members were to sell their products to
other purchasers or purchase products from other sellers, our
revenues would decline and our results of operations could be
adversely affected.
7
We participate in highly competitive business markets in
which we may not be able to continue to compete
successfully.
We operate in several highly competitive business
segments and our competitors may succeed in developing new or
enhanced products that are better than ours, and may be more
successful in marketing and selling their products than we are
with ours. Competitive factors include price, service level,
proximity to markets, product quality and marketing. In some of
our business segments, such as Energy, we compete with companies
that are larger, better known and have greater marketing,
financial, personnel and other resources. As a result, we may
not be able to continue to compete successfully with our
competitors.
Changes in federal income tax laws or in our tax status
could increase our tax liability and reduce our net
income.
Current federal income tax laws, regulations and
interpretations regarding the taxation of cooperatives, which
allow us to exclude income generated through business with or
for a member (patronage income) from our taxable income, could
be changed. If this occurred, or if in the future we were not
eligible to be taxed as a cooperative, our tax liability would
significantly increase and our net income significantly decrease.
We incur significant costs in complying with applicable
laws and regulations. any failure to make the capital
investments necessary to comply with these laws and regulations
could expose us to financial liability.
We are subject to numerous federal, state and local
provisions regulating our business and operations and we incur
and expect to incur significant capital and operating expenses
to comply with these laws and regulations. We may be unable to
pass on those expenses to customers without experiencing volume
and margin losses. For example, capital expenditures for
upgrading our refineries, largely to comply with regulations
requiring the reduction of sulfur levels in refined petroleum
products, were completed in fiscal year 2006. We incurred
capital expenditures from fiscal years 2003 through 2006 related
to these upgrades of $88.1 million for our Laurel, Montana
refinery and $328.7 million for the National Cooperative
Refinery Associations (NCRA) McPherson, Kansas refinery.
We establish reserves for the future cost of known compliance
obligations, such as remediation of identified environmental
issues. However, these reserves may prove inadequate to meet our
actual liability. Moreover, amended, new or more stringent
requirements, stricter interpretations of existing requirements
or the future discovery of currently unknown compliance issues
may require us to make material expenditures or subject us to
liabilities that we currently do not anticipate. Furthermore,
our failure to comply with applicable laws and regulations could
subject us to administrative penalties and injunctive relief,
civil remedies including fines and injunctions, and recalls of
our products.
Environmental liabilities could adversely affect our
results and financial condition.
Many of our current and former facilities have been
in operation for many years and, over that time, we and other
operators of those facilities have generated, used, stored and
disposed of substances or wastes that are or might be considered
hazardous under applicable environmental laws, including
chemicals and fuels stored in underground and above-ground
tanks. Any past or future actions in violation of applicable
environmental laws could subject us to administrative penalties,
fines and injunctions. Moreover, future or unknown past releases
of hazardous substances could subject us to private lawsuits
claiming damages and to adverse publicity. Liabilities,
including legal costs, related to remediation of contaminated
properties are not recognized until the related costs are
considered probable and can be reasonably estimated.
Actual or perceived quality, safety or health risks
associated with our products could subject us to liability and
damage our business and reputation.
If any of our food or feed products became
adulterated or misbranded, we would need to recall those items
and could experience product liability claims if consumers were
injured as a result. A widespread product recall or a
significant product liability judgment could cause our products
to be unavailable for a period of time or a loss of consumer
confidence in our products. Even if a product liability claim is
unsuccessful or is not fully pursued, the negative publicity
surrounding any assertion that our products caused
8
illness or injury could adversely affect our reputation with
existing and potential customers and our corporate and brand
image. Moreover, claims or liabilities of this sort might not be
covered by our insurance or by any rights of indemnity or
contribution that we may have against others. In addition,
general public perceptions regarding the quality, safety or
health risks associated with particular food or feed products,
such as concerns regarding genetically modified crops, could
reduce demand and prices for some of the products associated
with our businesses. To the extent that consumer preferences
evolve away from products that our members or we produce for
health or other reasons, such as the growing demand for organic
food products, and we are unable to develop products that
satisfy new consumer preferences, there will be a decreased
demand for our products.
Our operations are subject to business interruptions and
casualty losses; we do not insure against all potential losses
and could be seriously harmed by unexpected liabilities.
Our operations are subject to business interruptions
due to unanticipated events such as explosions, fires, pipeline
interruptions, transportation delays, equipment failures, crude
oil or refined product spills, inclement weather and labor
disputes. For example:
|
|
|
|
|
our oil refineries and other facilities are potential targets
for terrorist attacks that could halt or discontinue production;
|
|
|
|
our inability to negotiate acceptable contracts with unionized
workers in our operations could result in strikes or work
stoppages;
|
|
|
|
the significant inventories that we carry or the facilities we
own could be damaged or destroyed by catastrophic events,
extreme weather conditions or contamination; and
|
|
|
|
an occurrence of a pandemic flu or other disease affecting a
substantial part of our workforce or our customers could cause
an interruption in our business operations, the affects of which
could be significant.
|
We maintain insurance coverages against many, but not all
potential losses or liabilities arising from these operating
hazards, but uninsured losses or losses above our coverage
limits are possible. Uninsured losses and liabilities arising
from operating hazards could have a material adverse effect on
our financial position or results of operations.
Our cooperative structure limits our ability to access
equity capital.
As a cooperative, we may not sell common equity in
our company. In addition, existing laws and our articles of
incorporation and bylaws contain limitations on dividends of 8%
of any preferred stock that we may issue. These limitations
restrict our ability to raise equity capital and may adversely
affect our ability to compete with enterprises that do not face
similar restrictions.
Consolidation among the producers of products we purchase
and customers for products we sell could adversely affect our
revenues and operating results.
Consolidation has occurred among the producers of
products we purchase, including crude oil and grain, and it is
likely to continue in the future. Consolidation could increase
the price of these products and allow suppliers to negotiate
pricing and other contract terms that are less favorable to us.
Consolidation also may increase the competition among consumers
of these products to enter into supply relationships with a
smaller number of producers resulting in potentially higher
prices for the products we purchase.
Consolidation among purchasers of our products and in wholesale
and retail distribution channels has resulted in a smaller
customer base for our products and intensified the competition
for these customers. For example, ongoing consolidation among
distributors and brokers of food products and food retailers has
altered the buying patterns of these businesses, as they have
increasingly elected to work with product suppliers who can meet
their needs nationwide rather than just regionally or locally.
If these distributors, brokers and retailers elect not to
purchase our products, our sales volumes, revenues and
profitability could be significantly reduced.
9
If our customers choose alternatives to our refined
petroleum products, our revenues and profits may decline.
Numerous alternative energy sources currently under
development could serve as alternatives to our gasoline, diesel
fuel and other refined petroleum products. If any of these
alternative products become more economically viable or
preferable to our products for environmental or other reasons,
demand for our energy products would decline. Demand for our
gasoline, diesel fuel and other refined petroleum products also
could be adversely affected by increased fuel efficiencies.
Operating results from our agronomy business could be
volatile and are dependent upon certain factors outside of our
control.
Planted acreage, and consequently the volume of
fertilizer and crop protection products applied, is partially
dependent upon government programs and the perception held by
the producer of demand for production. Weather conditions during
the spring planting season and early summer spraying season also
affect agronomy product volumes and profitability.
Technological improvements in agriculture could decrease
the demand for our agronomy and energy products.
Technological advances in agriculture could decrease
the demand for crop nutrients, energy and other crop input
products and services that we provide. Genetically engineered
seeds that resist disease and insects, or that meet certain
nutritional requirements, could affect the demand for our crop
nutrients and crop protection products. Demand for fuel that we
sell could decline as technology allows for more efficient usage
of equipment.
We operate some of our business through joint ventures in
which our rights to control business decisions are
limited.
Several parts of our business, including in
particular, our agronomy operations and portions of our grain
marketing, wheat milling, foods and renewable fuels operations,
are operated through joint ventures with third parties. By
operating a business through a joint venture, we have less
control over business decisions than we have in our wholly-owned
or majority-owned businesses. In particular, we generally cannot
act on major business initiatives in our joint ventures without
the consent of the other party or parties in those ventures.
Risks
Related to the Preferred Stock
The preferred stock may not continue to qualify for
listing on the Nasdaq Global Select Market.
Although the preferred stock is listed on The NASDAQ
Global Select Market, it may not continue to qualify for
listing. For example, we may be unable to satisfy the
requirements regarding independent directors as now
or subsequently in effect. If our preferred stock were delisted,
the liquidity of the market for the preferred stock could be
reduced, possibly significantly.
The trading market for the preferred stock may not be
maintained, which may limit your ability to resell your
shares.
The trading market for the preferred stock may not
be maintained or provide any significant liquidity. If you
decide to sell your preferred stock there may be either no or
only a limited number of potential buyers. This, in turn, may
affect the price you receive for your preferred stock or your
ability to sell your preferred stock at all.
If you are able to resell your preferred stock, many
factors may affect the price you receive, which may be lower
than you believe to be appropriate.
As with other publicly traded securities, many
factors could affect the market price of our preferred stock. In
addition to those factors relating to CHS and the preferred
stock described elsewhere in this Risk Factors
section and elsewhere in this prospectus, the market price of
our preferred stock could be affected by
10
conditions in and perceptions of agricultural and energy markets
and companies and also by broader, general market, political and
economic conditions.
Furthermore, U.S. stock markets have experienced price and
volume volatility that has affected many companies stock
prices, often for reasons unrelated to the operating performance
of those companies. Fluctuations such as these also may affect
the market price of our preferred stock. As a result of these
factors, you may only be able to sell your preferred stock at
prices below those you believe to be appropriate. The trading
price for the preferred stock may at any time be less than its
issue price pursuant to this prospectus or its liquidation value.
Issuances of substantial amounts of preferred stock could
adversely affect the market price of our preferred stock.
From time to time in the future, we expect to again
issue shares of preferred stock to our members in redemption of
a portion of their patrons equities or other equity
securities and may do so as frequently as annually. We expect
these shares to be freely tradeable upon issuance to our
members, and some or all members who receive preferred stock may
seek to sell their shares in the public market. Furthermore,
from time to time we may sell additional shares of preferred
stock to the public. Future issuances or sales of our preferred
stock or the availability of our preferred stock for sale may
adversely affect the market price for our preferred stock or our
ability to raise capital by offering equity securities.
The terms of the preferred stock are fixed and changes in
market conditions, including market interest rates, may decrease
the market price for the preferred stock.
The terms of the preferred stock, such as the 8%
dividend rate, the amount of the liquidation preference and the
redemption terms, are fixed and will not change, even if market
conditions with respect to these terms fluctuate. This may mean
that you could obtain a higher return from an investment in
other securities. It also means that an increase in market
interest rates is likely to decrease the market price for the
preferred stock.
You will have limited voting rights.
As a holder of the preferred stock, you will be
entitled to vote only on actions that would amend, alter or
repeal our articles of incorporation or the resolutions
establishing the preferred stock if the amendment, alteration or
repeal would adversely affect the rights or preferences of the
preferred stock or that would create a series of senior equity
securities. You will not have the right to vote on actions
customarily subject to shareholder vote or approval, including
the election of directors, the approval of significant
transactions, and other amendments to our articles of
incorporation that would not adversely affect the rights and
preferences of the preferred stock.
Payment of dividends on the preferred stock is not
guaranteed.
Although dividends on the preferred stock
accumulate, our board of directors must approve the actual
payment of those dividends. Our board of directors can elect at
any time or from time to time, and for an indefinite duration,
not to pay the accumulated dividends. Our board of directors
could do so for any reason, including the following:
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unanticipated cash requirements;
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the need to make payments on our indebtedness;
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concluding that the payment of dividends would cause us to
breach the terms of any agreement, such as financial ratio
covenants; or
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determining that the payment of dividends would violate
applicable law regarding unlawful distributions to shareholders.
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11
We can redeem the preferred stock at our discretion, which
redemption may be at a price less than its market price and may
limit the trading price for the preferred stock.
We have the option of redeeming your shares at any
time on or after February 1, 2008 for $25.00 per share plus
any accumulated and unpaid dividends. If we redeem your shares,
the redemption price may be less than the price you might
receive if you were to sell your shares in the open market. In
addition, the fact that the shares are redeemable may limit the
price at which they trade.
The amount of your liquidation preference or redemption
payment is fixed and you will have no right to receive any
greater payment regardless of the circumstances.
The payment due upon a liquidation or redemption is
fixed at $25.00 per share plus accumulated and unpaid dividends.
If we have value remaining after payment of this amount, you
will have no right to participate in that value. If the market
price for our preferred stock is greater than the redemption
price, you will have no right to receive the market price from
us upon liquidation or redemption.
Your liquidation rights will be subordinate to those of
holders of our indebtedness and of any senior equity securities
we have issued or may issue in the future and may be subject to
the equal rights of other equity securities.
There are no restrictions in the terms of the
preferred stock on our ability to incur indebtedness. We can
also, with the consent of holders of two-thirds of the
outstanding preferred stock, issue preferred equity securities
that are senior with respect to liquidation payments to the
preferred stock. If we were to liquidate our business, we would
be required to repay all of our outstanding indebtedness and to
satisfy the liquidation preferences of any senior equity
securities that we may issue in the future before we could make
any distributions to holders of our preferred stock. We could
have insufficient cash available to do so, in which case you
would not receive any payment on the amounts due you. Moreover,
there are no restrictions on our ability to issue preferred
equity securities that rank on a parity with the preferred stock
as to liquidation preferences and any amounts remaining after
the payment of senior securities would be split equally among
all holders of those securities, which might result in your
receiving less than the full amount due you.
The shares of preferred stock that are being issued pursuant to
this prospectus and the registration statement of which it is a
part are being issued to redeem up to $45,559,084 of our
patrons equities. The shares will be issued to
redeem our outstanding patrons equities on a pro rata
basis. Subject to the exceptions described below in Plan
of Distribution, shares of preferred stock issued in
redemption of the patrons equities will be issued only to
non-individual active members who have conducted business with
us during the past five years and whose pro rata share of the
redemption amount is equal to or greater than $500. For each
member eligible to receive such preferred stock, shares will be
issued only in a number that does not exceed 18,100 shares
of preferred stock (which equals one-quarter of one percent
(0.25%) of our total shares of preferred stock outstanding as of
December 31, 2007). See Membership and Authorized
Capital Patrons Equities for a
discussion of patrons equities and our redemption of them.
There will not be any cash proceeds from the issuance of
preferred stock. However, by issuing shares of preferred stock
in redemption of patrons equities we will make the cash
that we would otherwise have used to redeem those patrons
equities available for working capital purposes.
12
We are one of the nations leading integrated agricultural
companies. As a cooperative, we are owned by farmers and
ranchers and their member cooperatives (referred to herein as
members) from the Great Lakes to the Pacific
Northwest and from the Canadian border to Texas. We also have
preferred stockholders (both members and non-member third
parties) that own shares of our 8% Cumulative Redeemable
Preferred Stock, which is listed on the NASDAQ Global Select
Market under the symbol CHSCP. On August 31, 2007, we had
7,240,221 shares of preferred stock outstanding. We buy
commodities from and provide products and services to patrons
(including our members and other non-member customers), both
domestic and international. We provide a wide variety of
products and services, from initial agricultural inputs such as
fuels, farm supplies, crop nutrients and crop protection
products, to agricultural outputs that include grains and
oilseeds, grain and oilseed processing and food products. A
portion of our operations are conducted through equity
investments and joint ventures whose operating results are not
fully consolidated with our results; rather, a proportionate
share of the income or loss from those entities is included as a
component in our net income under the equity method of
accounting. For the fiscal year ended August 31, 2007, our
total revenues were $17.2 billion and net income was
$750.3 million.
We have aligned our business segments based on an assessment of
how our businesses operate and the products and services they
sell. Our three business segments: Energy, Ag Business and
Processing, create vertical integration to link producers with
consumers. Our Energy segment derives its revenues through
refining, wholesaling and retailing of petroleum products. Our
Ag Business segment derives its revenues through the origination
and marketing of grain, including service activities conducted
at export terminals, through the retail sales of petroleum and
agronomy products, processed sunflowers, feed and farm supplies,
and records equity income from investments in our agronomy joint
ventures, grain export joint ventures and other investments. As
of September 2007, our Ag Business segment revenues also include
sales of crop nutrient products due to the acquisition of that
business from our Agriliance LLC joint venture. Our Processing
segment derives its revenues from the sales of soybean meal and
soybean refined oil, and records equity income from three wheat
milling joint ventures, a vegetable oil-based food manufacturing
and distribution joint venture, and an ethanol manufacturing
company. We include other business operations in Corporate and
Other because of the nature of their products and services, as
well as the relative revenue size of those businesses. These
businesses primarily include our insurance, hedging and other
service activities related to crop production.
In May 2005, we sold the majority of our Mexican foods business
for proceeds of $38.3 million resulting in a loss on
disposition of $6.2 million. During the year ended
August 31, 2006, we sold all of the remaining assets for
proceeds of $4.2 million and a gain of $1.6 million.
The operating results of the Mexican foods business are reported
as discontinued operations.
Membership in CHS is restricted to certain producers of
agricultural products and to associations of producers of
agricultural products that are organized and operating so as to
adhere to the provisions of the Agricultural Marketing Act and
the Capper-Volstead Act, as amended. Our Board of Directors may
establish other qualifications for membership, as it may from
time to time deem advisable.
Our earnings from cooperative business are allocated to members
(and to a limited extent to non-members with which we have
agreed to do business on a patronage basis) based on the volume
of business they do with us. We allocate these earnings to our
patrons in the form of patronage refunds (which are also called
patronage dividends) in cash and patrons equities, which
may be redeemed over time. Earnings derived from non-members,
which are not allocated patronage, are taxed at federal and
state statutory corporate rates and are retained by us as
unallocated capital reserve. We also receive patronage refunds
from the cooperatives in which we are a member, if those
cooperatives have earnings to distribute and if we qualify for
patronage refunds from them.
Our origins date back to the early 1930s with the founding of
the predecessor companies of Cenex, Inc. and Harvest States
Cooperatives. CHS Inc. emerged as the result of the merger of
those two entities in 1998, and is headquartered in Inver Grove
Heights, Minnesota.
13
The following table presents a summary of our primary subsidiary
holdings and equity investments for each of our business
segments at August 31, 2007:
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CHS
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Income
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Business Segment
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Entity Name
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Business Activity
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Ownership%
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Recognition
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Energy
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National Cooperative Refinery Association
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Petroleum refining
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74.5
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%
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Consolidated
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Provista Renewable Fuels
Marketing, LLC
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Ethanol marketing
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50
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%
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|
Consolidated
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Front Range Pipeline, LLC
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Crude oil transportation
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100
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%
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Consolidated
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Cenex Pipeline, LLC
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Finished product transportation
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100
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%
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Consolidated
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Ag Business
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Agriliance LLC
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Wholesale and retail distribution of agronomy products.
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50
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%
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Equity Method
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CHS do Brasil Ltda.
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Soybean procurement in Brazil
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100
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%
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Consolidated
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United Harvest, LLC
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Grain exporter
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50
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%
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Equity Method
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TEMCO, LLC
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Grain exporter
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50
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%
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Equity Method
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Multigrain S.A.
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Soybean procurement in Brazil
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37.5
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%
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Equity Method
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Processing
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Horizon Milling, LLC
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Wheat milling in U.S.
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24
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%
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Equity Method
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Horizon Milling General Partnership
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Wheat milling in Canada
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24
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%
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Equity Method
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Ventura Foods, LLC
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Food manufacturing
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50
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%
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Equity Method
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US BioEnergy Corporation
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Ethanol manufacturing
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20
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%
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Equity Method
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Corporate and Other
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Country Hedging, Inc.
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Risk management products broker
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100
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%
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Consolidated
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Ag States Agency, LLC
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Insurance agency
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100
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%
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Consolidated
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Cofina Financial, LLC
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Finance company
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49
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%
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Equity Method
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Our international sales information and segment information in
Notes 2 and 12 to the consolidated financial statements, as
well as Selected Consolidated Financial Data section of this
Registration Statement on
Form S-1,
are incorporated by reference into the following business
segment descriptions.
The business segment financial information presented below may
not represent the results that would have been obtained had the
relevant business segment been operated as an independent
business due to efficiencies in scale, corporate cost
allocations and intersegment activity.
Overview
We are the nations largest cooperative energy company
based on revenues and identifiable assets, with operations that
include petroleum refining and pipelines; the supply, marketing
(including ethanol and biodiesel) and distribution of refined
fuels (gasoline, diesel and other energy products); the
blending, sale and distribution of lubricants; and the wholesale
supply of propane. Our Energy segment processes crude oil into
refined petroleum products at refineries in Laurel, Montana
(wholly-owned) and McPherson, Kansas (an entity in which we have
an approximate 74.5% ownership interest) and sells those
products under the
Cenex
®
brand to member cooperatives and others through a network of
approximately 1,600 independent retail sites, including
approximately 850 that operate Cenex/Ampride convenience stores.
Operations
Laurel Refinery.
Our Laurel, Montana refinery
processes medium and high sulfur crude oil into refined
petroleum products that primarily include gasoline, diesel and
asphalt. Our Laurel refinery sources approximately 92% of its
crude oil supply from Canada, with the balance obtained from
domestic sources, and we have access to Canadian and northwest
Montana crude through our wholly-owned Front Range Pipeline, LLC
and other common carrier pipelines. Our Laurel refinery also has
access to Wyoming crude via common carrier pipelines from the
south.
14
Our Laurel facility processes approximately 55,000 barrels
of crude oil per day to produce refined products that consist of
approximately 37% gasoline, 31% diesel and other distillates,
and 32% asphalt and other residual products. During fiscal 2005,
our Board of Directors approved the installation of a coker unit
at Laurel, along with other refinery improvements, which will
allow us to extract a greater volume of high value gasoline and
diesel fuel from a barrel of crude oil and less relatively low
value asphalt. Total cost for this project is expected to be
approximately $380.0 million, of which $284.3 million
has been spent through August 31, 2007, with completion
planned during fiscal 2008. Refined fuels produced at Laurel,
Montana are available via the Yellowstone Pipeline to western
Montana terminals and to Spokane and Moses Lake, Washington,
south via common carrier pipelines to Wyoming terminals and
Denver, Colorado, and east via our wholly-owned Cenex Pipeline,
LLC to Glendive, Montana, and Minot and Fargo, North Dakota. Our
Board of Directors has approved $30 million in capital
expenditures to construct three product terminals tied into the
Yellowstone Pipeline that include rail capabilities. These
investments are being undertaken to preserve our long-term
ability to participate in western U.S. markets.
McPherson Refinery.
The McPherson, Kansas
refinery is owned and operated by National Cooperative Refinery
Association (NCRA), of which we own approximately 74.5%. The
McPherson refinery processes approximately 85% low and medium
sulfur crude oil and 15% heavy sulfur crude oil into gasoline,
diesel and other distillates, propane and other products. NCRA
sources its crude oil through its own pipelines as well as
common carrier pipelines. The low and medium sulfur crude oil is
sourced from Kansas, Oklahoma and Texas, and the heavy sulfur
crude oil is sourced from Canada.
The McPherson refinery processes approximately
80,000 barrels of crude oil per day to produce refined
products that consist of approximately 53% gasoline, 40% diesel
and other distillates, and 7% propane and other products.
Approximately 32% of the refined fuels are loaded into trucks at
the McPherson refinery or shipped via NCRAs proprietary
products pipeline to its terminal in Council Bluffs, Iowa. The
remaining refined fuel products are shipped to other markets via
common carrier pipelines.
Provista Renewable Fuels Marketing, LLC.
In
fiscal 2006, we acquired a 50% ownership interest in an ethanol
and biodiesel marketing and distribution company, Provista
Renewable Fuels Marketing, LLC, (Provista) formally known as
United BioEnergy Fuels, LLC. US BioEnergy Corporation (US
BioEnergy), of which we own approximately 20%, is the other 50%
owner of Provista. Provista contracts with ethanol and biodiesel
production plants, including US BioEnergy, to market and
distribute their finished products. During fiscal 2007, volume
totaled 405.8 million gallons of ethanol. Provista is
consolidated within our financial statements, and we currently
guarantee up to $10.0 million ($20.0 million as of
August 31, 2007) of Provistas $25.0 million
revolving credit facility. We are the operating manager of
Provista.
Other Energy Operations.
We own and operate a
propane terminal, four asphalt terminals, five refined product
terminals and three lubricants blending and packaging
facilities. We also own and lease a fleet of liquid and pressure
trailers and tractors, which are used to transport refined
fuels, propane, anhydrous ammonia and other products.
Products
and Services
Our Energy segment produces and sells (primarily wholesale)
gasoline, diesel, propane, asphalt, lubricants and other related
products and provides transportation services. We obtain the
petroleum products that we sell from our Laurel and McPherson
refineries, and from third parties. Over the past two years, we
have obtained approximately 55% of the petroleum products we
sell from our Laurel and McPherson refineries, and approximately
45% from third parties.
Sales and
Marketing; Customers
We make approximately 72% of our refined fuel sales to members,
with the balance sold to non-members. Sales are made wholesale
to member cooperatives and through a network of independent
retailers that operate convenience stores under the
Cenex/Ampride tradename. We sold approximately 1.3 billion
gallons of gasoline and approximately 1.5 billion gallons
of diesel fuel in fiscal 2007. We also blend, package and
wholesale auto and farm machinery lubricants to both members and
non-members. In fiscal 2007, our
15
lubricants operations sold approximately 20 million gallons
of lube oil. We are one of the nations largest propane
wholesalers based on revenues. In fiscal 2007, our propane
operations sold approximately 567 million gallons of
propane. Most of the propane sold in rural areas is for heating
and agricultural usage. Annual sales volumes of propane vary
greatly depending on weather patterns and crop conditions.
Industry;
Competition
Regulation.
Governmental regulations and
policies, particularly in the areas of taxation, energy and the
environment, have a significant impact on our Energy segment.
Our Energy segments operations are subject to laws and
related regulations and rules designed to protect the
environment that are administered by the Environmental
Protection Agency, the Department of Transportation and similar
government agencies. These laws, regulations and rules govern
the discharge of materials to the environment, air and water;
reporting storage of hazardous wastes; the transportation,
handling and disposition of wastes; and the labeling of
pesticides and similar substances. Failure to comply with these
laws, regulations and rules could subject us (and, in the case
of the McPherson refinery, NCRA) to administrative penalties,
injunctive relief, civil remedies and possible recalls of
products. We believe that we and NCRA are in compliance with
these laws, regulations and rules in all material respects and
do not expect continued compliance to have a material effect on
capital expenditures, earnings or competitive position, of
either us or NCRA.
Like many other refineries, our Energy segments refineries
recently focused their capital spending on reducing pollution
emissions and at the same time increasing production to help pay
for those expenditures. In particular, our refineries have
completed work to comply with the Environmental Protection
Agency low sulfur fuel regulations required by 2006, which are
intended to lower the sulfur content of gasoline and diesel. We
incurred capital expenditures from fiscal 2003 through 2006
related to this compliance of $88.1 million for our Laurel,
Montana refinery and $328.7 million for NCRAs
McPherson, Kansas refinery.
The petroleum business is highly cyclical. Demand for crude oil
and energy products is driven by the condition of local and
worldwide economies, local and regional weather patterns and
taxation relative to other energy sources, which can
significantly affect the price of refined fuel products. Most of
our energy product market is located in rural areas, so sales
activity tends to follow the planting and harvesting cycles.
More fuel-efficient equipment, reduced crop tillage, depressed
prices for crops, weather conditions and government programs
which encourage idle acres, may all reduce demand for our energy
products.
Competition.
The petroleum refining and
wholesale fuels business is very competitive. Among our
competitors are some of the worlds largest integrated
petroleum companies, which have their own crude oil supplies,
distribution and marketing systems. We also compete with smaller
domestic refiners and marketers in the midwestern and
northwestern United States, with foreign refiners who import
products into the United States and with producers and
marketers in other industries supplying other forms of energy
and fuels to consumers. Given the commodity nature of the end
products, profitability in the refining and marketing industry
depends largely on margins, as well as operating efficiency,
product mix, and costs of product distribution and
transportation. The retail gasoline market is highly
competitive, with much larger competitors that have greater
brand recognition and distribution outlets throughout the
country and the world. Our owned and non-owned retail outlets
are located primarily in the northwestern, midwestern and
southern United States.
We market refined fuels, motor gasoline and distillate products
in five principal geographic areas. The first area includes the
Midwest and northern plains. Competition at the wholesale level
in this area includes the major oil companies ConocoPhillips,
Valero and Citgo, independent refiners including Flint Hills
Resources and Growmark, Inc., and wholesale brokers/suppliers
including Western Petroleum Company. This area has a robust spot
market and is influenced by the large refinery center along the
Gulf coast.
To the East is another unique marketing area. This area centers
around Chicago, Illinois and includes eastern Wisconsin,
Illinois and Indiana. CHS principally competes with the major
oil companies Marathon, BP Amoco and ExxonMobil, independent
refineries including Flint Hills Resources and Growmark, Inc.,
and wholesale brokers/suppliers including U.S. Oil.
16
Another market area is located south of Chicago, Illinois. Most
of this area includes Arkansas, Missouri and the northern part
of Texas. Competition in this area includes the major oil
companies Valero and ExxonMobil, and independent refiners
including Lion. This area is principally supplied from the Gulf
coast refinery center and is also driven by a strong spot market
that reacts quickly to changes in the international and national
supply balance.
Another geographic area includes Montana, western North Dakota,
Wyoming, Utah, Idaho, Colorado and western South Dakota.
Competition at the wholesale level in this area include the
major oil companies ExxonMobil and ConocoPhillips, and
independent refiners including Frontier Refining and Sinclair.
This area is also noted for being fairly well balanced in demand
and supply, but is typically influenced by Canadian refined
fuels moving into the U.S. through terminals in Canada and
by rail from independent Canadian refiners.
The last area includes much of Washington and Oregon. We compete
with the major oil companies Tesoro, BP Amoco and Chevron in
this area. This area is also known for volatile prices and an
active spot market.
Summary
Operating Results
Summary operating results and identifiable assets for our Energy
segment for the fiscal years ended August 31, 2007, 2006
and 2005 are shown below:
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2007
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2006
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2005
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(Dollars in thousands)
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Revenues
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$
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8,105,067
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$
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7,414,361
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$
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5,794,266
|
|
Cost of goods sold
|
|
|
7,274,638
|
|
|
|
6,834,676
|
|
|
|
5,487,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
830,429
|
|
|
|
579,685
|
|
|
|
306,453
|
|
Marketing, general and administrative
|
|
|
94,939
|
|
|
|
82,867
|
|
|
|
69,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
735,490
|
|
|
|
496,818
|
|
|
|
236,502
|
|
Gain on investments
|
|
|
|
|
|
|
|
|
|
|
(862
|
)
|
Interest, net
|
|
|
(6,106
|
)
|
|
|
6,534
|
|
|
|
8,918
|
|
Equity income from investments
|
|
|
(4,468
|
)
|
|
|
(3,840
|
)
|
|
|
(3,478
|
)
|
Minority interests
|
|
|
143,230
|
|
|
|
86,483
|
|
|
|
46,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
602,834
|
|
|
$
|
407,641
|
|
|
$
|
185,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(228,930
|
)
|
|
$
|
(242,430
|
)
|
|
$
|
(170,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
2,737,044
|
|
|
$
|
2,164,217
|
|
|
$
|
2,238,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Our Ag Business segment includes agronomy, country operations
and grain marketing.
Agronomy
Overview
Through our fiscal year ended August 31, 2007, we conducted
our wholesale and some of our retail agronomy operations through
our 50% ownership interest in Agriliance LLC (Agriliance), in
which Land OLakes, Inc. holds the other 50% ownership
interest. Prior to September 2007, Agriliance was one of
North Americas largest wholesale distributors of crop
nutrients, crop protection products and other agronomy products
based upon annual sales. Our 50% ownership interest in
Agriliance is treated as an equity method investment, and
therefore, Agriliances revenues and expenses are not
reflected in our operating results. At August 31, 2007, our
equity investment in Agriliance was $182.8 million.
In September 2007, Agriliance distributed the assets of the crop
nutrients business to us, and the assets of the crop protection
business to Land OLakes, Inc. Agriliance continues to
exist as a
50-50
joint
venture and primarily operates and sells agronomy products on a
retail basis. We currently are exploring, with Land
OLakes, Inc., the repositioning options for the remaining
portions of the Agriliance retail business.
Given the different values assigned to the assets of the crop
nutrients and the crop protection businesses of Agriliance, at
the closing of the distribution transaction, Land OLakes
owed us $133.5 million. Land OLakes paid us
$32.6 million in cash, and in order to maintain equal
capital accounts in Agriliance, paid down certain portions of
Agriliances debt on our behalf in the amount of
$100.9 million. Values of the distributed assets were
determined after the closing, and in October 2007, we made an
estimated value
true-up
payment to Land OLakes in the amount of
$45.7 million, plus interest.
In August 2005, we sold 81% of our 20% ownership interest in CF
Industries, Inc., a crop nutrients manufacturer and distributor,
in an initial public offering (IPO). After the IPO, our
ownership interest was reduced to approximately 3.9% in the
post-IPO company named CF Industries Holdings, Inc. (CF). During
our fiscal year ended August 31, 2007, we sold
540,000 shares of our CF stock for proceeds of
$10.9 million, and recorded a pretax gain of
$5.3 million. During the first quarter of fiscal 2008, we
sold all of our remaining 1,610,396 shares of CF stock for
proceeds of $108.3 million and recorded a pretax gain of
$91.7 million.
There is significant seasonality in the sale of agronomy
products and services, with peak activity coinciding with the
planting and input seasons.
Operations
Our wholesale crop nutrients business sells approximately
6.0 million tons of fertilizer annually, making it one of
the largest wholesale fertilizer operations in the United
States. Product is either delivered directly to the customer
from the manufacturer, or through our 15 inland or river
warehouse terminals and other non-owned storage facilities
located throughout the country. In addition, our Galveston,
Texas deep water port and terminal receives fertilizer by vessel
from originations such as the Middle East and Caribbean basin
where less expensive natural gas tends to give a price advantage
over domestically produced fertilizer. The fertilizer is then
shipped by rail to destinations within crop producing regions of
the country. Based on fertilizer market data, the Agriliance
sales of crop nutrients account for an estimated 9% of the
U.S. market. The demand for corn by the expanding ethanol
industry has in turn increased sales of nitrogen fertilizer, an
input on which corn is highly dependant.
Primary suppliers for our wholesale crop nutrients business
include CF, PCS, Mosaic, Koch Industries, Yara and PIC. During
the year ended August 31, 2007, CF was the largest supplier
of crop nutrients to Agriliance, and as we operate the crop
nutrients business in the future, CF will continue to be a
primary supplier to us.
18
Products
and Services
Our wholesale crop nutrients business sells nitrogen,
phosphorus, potassium and sulfate based products. During the
year ended August 31, 2007, the primary products purchased
by Agriliance were urea, potash, UAN, phosphates and ammonia.
Sales
and Marketing; Customers
Our wholesale crop nutrients business sells product to
approximately 2,200 local retailers from Ohio to the west coast
and from the Canadian border south to Texas. Our largest
customer is our own country operations business, also included
in our Ag Business segment. During the year ended
August 31, 2007, Agriliance sales for the wholesale crop
nutrients business were $1.9 billion with about 6% of those
sales made to our country operations business. Many of the
customers of the crop nutrients business are also customers of
our Energy segment or suppliers to our grain marketing business.
Industry;
Competition
Regulation.
Our wholesale crop nutrients
operations are subject to laws and related regulations and rules
designed to protect the environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar government agencies. These laws,
regulations and rules govern the discharge of materials to the
environment, air and water; reporting storage of hazardous
wastes; the transportation, handling and disposition of wastes;
and the labeling of pesticides and similar substances. Failure
to comply with these laws, regulations and rules could subject
us to administrative penalties, injunctive relief, civil
remedies and possible recalls of products. We believe that we
are in compliance with these laws, regulations and rules in all
material respects and do not expect continued compliance to have
a material effect on our capital expenditures, earnings or
competitive position.
Competition.
The wholesale distribution of
agronomy products is highly competitive and dependent upon
relationships with local cooperatives and private retailers,
proximity to the customer and competitive pricing. We compete
with other large agronomy distributors, as well as other
regional or local distributors, retailers and manufacturers.
Major competitors in crop nutrients distribution include Agrium,
Mosaic, Koch Industries, United Agri-Products (UAP) and United
Suppliers.
Country
Operations
Overview
Our country operations business purchases a variety of grains
from our producer members and other third parties, and provides
cooperative members and producers with access to a full range of
products and services including farm supplies and programs for
crop and livestock production. Country operations operates at
335 locations, which includes 3 sunflower plants, dispersed
throughout Minnesota, North Dakota, South Dakota, Montana,
Nebraska, Kansas, Oklahoma, Colorado, Idaho, Washington and
Oregon. Most of these locations purchase grain from farmers and
sell agronomy products, energy products and feed to those same
producers and others, although not all locations provide every
product and service.
Products
and Services
Grain Purchasing.
We are one of the largest
country elevator operators in North America based on revenues.
Through a majority of our elevator locations, the country
operations business purchases grain from member and non-member
producers and other elevators and grain dealers. Most of the
grain purchased is either sold through our grain marketing
operations or used for local feed and processing operations. For
the year ended August 31, 2007, country operations
purchased approximately 408 million bushels of grain,
primarily wheat (201 million bushels), corn
(98 million bushels) and soybeans (62 million
bushels). Of these bushels, 368 million were purchased from
members and 262 million were sold through our grain
marketing operations.
19
Other Products.
Our country operations
business manufactures and sells other products, both directly
and through ownership interests in other entities. These include
seed, crop nutrients, crop protection products, energy products,
animal feed, animal health products and processed sunflowers. We
sell agronomy products at 191 locations, feed products at 125
locations and energy products at 135 locations.
Fin-Ag, Inc.
In the past, through our
wholly-owned subsidiary Fin-Ag, Inc., we provided seasonal
cattle feeding and swine financing loans, facility financing
loans and crop production loans to our members. Financing
activity through Fin-Ag, Inc. has decreased substantially as
most of the production loans were contributed to Cofina
Financial, LLC (Cofina Financial), a 49% owned joint venture
that was formed during the fourth quarter of fiscal 2005 (see
Corporate and Other section below). The only
activity of Fin-Ag, Inc. is seasonal cattle feeding financing
and a small amount of crop loans not transferred to Cofina
Financial.
Industry;
Competition
Regulation.
Our country operations business is
subject to laws and related regulations and rules designed to
protect the environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar government agencies. These laws,
regulations and rules govern the discharge of materials to the
environment, air and water; reporting storage of hazardous
wastes; the transportation, handling and disposition of wastes;
and the labeling of pesticides and similar substances. Our
country operations business is also subject to laws and related
regulations and rules administered by the United States
Department of Agriculture, the Federal Food and Drug
Administration, and other federal, state, local and foreign
governmental agencies that govern the processing, packaging,
storage, distribution, advertising, labeling, quality and safety
of feed and grain products. Failure to comply with these laws,
regulations and rules could subject us to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. We believe that we are in compliance with
these laws, regulations and rules in all material respects and
do not expect continued compliance to have a material effect on
our capital expenditures, earnings or competitive position.
Competition.
We compete primarily on the basis
of price, services and patronage. Competitors for the purchase
of grain include Archer Daniels Midland (ADM), Cargill,
Incorporated (Cargill), local cooperatives and smaller private
grain companies and processors at the majority of our locations
in our trade territory, as previously defined in the
Overview. In addition, Columbia Grain is also our
competitor in Montana.
Competitors for our farm supply businesses include Cargill,
United Agri-Products (UAP), local cooperatives and smaller
private companies at the majority of locations throughout our
trade territory. In addition, Land OLakes Purina Feed,
LLC, Hubbard Feed and Cargill are our major competitors for the
sale of feed products.
Grain
Marketing
Overview
We are the nations largest cooperative marketer of grain
and oilseed based on grain storage capacity and grain sales,
handling about 1.5 billion bushels annually. During fiscal
2007, we purchased approximately 60% of our total grain volumes
from individual and cooperative association members and our
country operations business, with the balance purchased from
third parties. We arrange for the transportation of the grains
either directly to customers or to our owned or leased grain
terminals and elevators awaiting delivery to domestic and
foreign purchasers. We primarily conduct our grain marketing
operations directly, but do conduct some of our business through
joint ventures.
Operations
Our grain marketing operations purchases grain directly and
indirectly from agricultural producers primarily in the
midwestern and western United States. The purchased grain is
typically contracted for sale for future delivery at a specified
location, and we are responsible for handling the grain and
arranging for its transportation to that location. The sale of
grain is recorded after title to the commodity has transferred
and
20
final weights, grades and settlement price have been agreed
upon. Amounts billed to the customer as part of a sales
transaction include the costs for shipping and handling. Our
ability to arrange efficient transportation, including loading
capabilities onto unit trains, ocean-going vessels and barges,
is a significant part of the services we offer to our customers.
Rail, vessel, barge and truck transportation is carried out by
third parties, often under long-term freight agreements with us.
Grain intended for export is usually shipped by rail or barge to
an export terminal, where it is loaded onto ocean-going vessels.
Grain intended for domestic use is usually shipped by rail or
truck to various locations throughout the country.
We own and operate export terminals, river terminals and
elevators involved in the handling and transport of grain. Our
river terminals at Savage and Winona, Minnesota, Davenport, Iowa
and a terminal in St. Louis, Missouri in which we have a
put-through agreement with Bulk Services, are used to load grain
onto barges for shipment to both domestic and export customers
via the Mississippi River system. Our export terminal at
Superior, Wisconsin provides access to the Great Lakes and St.
Lawrence Seaway, and our export terminal at Myrtle Grove,
Louisiana serves the gulf market. In the Pacific Northwest, we
conduct our grain marketing operations through United Harvest,
LLC (a 50% joint venture with United Grain Corporation), and
TEMCO, LLC (a 50% joint venture with Cargill, Incorporated).
United Harvest, LLC, operates grain terminals in Vancouver and
Kalama, Washington, and primarily exports wheat. TEMCO, LLC
operates an export terminal in Tacoma, Washington, and primarily
exports corn and soybeans. These facilities serve the Pacific
market, as well as domestic grain customers in the western
United States. We also own two 110-car shuttle-receiving
elevator facilities in Friona, Texas and Collins, Mississippi
that serve large-scale feeder cattle, dairy and poultry
producers in those regions. In 2003, we opened an office in Sao
Paulo, Brazil for the procurement of soybeans for our grain
marketing operations international customers. During the year
ended August 31, 2007, we invested $22.2 million for
an equity position in a Brazil-based grain handling and
merchandising company, Multigrain S.A., an agricultural
commodities business headquartered in Sao Paulo, Brazil, and
currently have a 37.5% ownership interest. This venture, which
includes grain storage and export facilities, builds on our
South American soybean origination and helps meet customer needs
year-round.
Our grain marketing operations purchases most of its grain
during the summer and fall harvest period. Because of our
geographic location and the fact that we are further from our
export facilities, the grain that we handle tends to be sold
later, after the harvest period, than in other parts of the
country. However, as many producers have significant on-farm
storage capacity and in light of our own storage capacity, our
grain marketing operations buys and ships grain throughout the
year. Due to the amount of grain purchased and held in
inventory, our grain marketing operations has significant
working capital needs at various times of the year. The amount
of borrowings for this purpose, and the interest rate charged on
those borrowings, directly affects the profitability of our
grain marketing operations.
Products
and Services
The primary grains purchased by our grain marketing operations
for the year ended August 31, 2007 were corn
(507 million bushels), wheat (424 million bushels) and
soybeans (354 million bushels). Of the total grains
purchased by our grain marketing operations during the year
ended August 31, 2007, there were 537 million bushels
from our individual and cooperative association members,
262 million bushels from our country operations business,
and the remainder was from third parties.
Sales
and Marketing; Customers
Purchasers of our grain and oilseed include domestic and foreign
millers, maltsters, feeders, crushers and other processors. To a
much lesser extent purchasers include intermediaries and
distributors. Our grain marketing operations are not dependent
on any one customer, and its supply relationships call for
delivery of grain at prevailing market prices.
Industry;
Competition
Regulation.
Our grain marketing operations are
subject to laws and related regulations and rules designed to
protect the environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar government agencies. These laws,
regulations and rules govern the discharge of materials to
environment, air and water; reporting storage of hazardous
wastes; and the
21
transportation, handling and disposition of wastes. Our grain
marketing operations are also subject to laws and related
regulations and rules administered by the United States
Department of Agriculture, the Federal Food and Drug
Administration, and other federal, state, local and foreign
governmental agencies that govern the processing, packaging,
storage, distribution, advertising, labeling, quality and safety
of food and grain products. Failure to comply with these laws,
regulations and rules could subject us to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. We believe that we are in compliance with
these laws, regulations and rules in all material respects and
do not expect continued compliance to have a material effect on
our capital expenditures, earnings or competitive position.
Competition.
Our grain marketing operations
compete for both the purchase and the sale of grain. Competition
is intense and margins are low. Some competitors are integrated
food producers, which may also be customers. A few major
competitors have substantially greater financial resources than
we have.
In the purchase of grain from producers, location of a delivery
facility is a prime consideration, but producers are
increasingly willing to transport grain longer distances for
sale. Price is affected by the capabilities of the facility; for
example, if it is cheaper to deliver to a customer by unit train
than by truck, a facility with unit train capabilities provides
a price advantage. We believe that our relationships with
individual members serviced by our local country operations
locations and with our cooperative members give us a broad
origination capability.
Our grain marketing operations compete for grain sales based on
price, services and ability to provide the desired quantity and
quality of grains. Location of facilities is a major factor in
the ability to compete. Our grain marketing operations compete
with numerous grain merchandisers, including major grain
merchandising companies such as Archer Daniels Midland (ADM),
Cargill, Incorporated (Cargill), ConAgra, Bunge and Louis
Dreyfus, each of which handle grain volumes of more than one
billion bushels annually.
The results of our grain marketing operations may be adversely
affected by relative levels of supply and demand, both domestic
and international, commodity price levels (including grain
prices reported on national markets) and transportation costs
and conditions. Supply is affected by weather conditions,
disease, insect damage, acreage planted and government
regulations and policies. Demand may be affected by foreign
governments and their programs, relationships of foreign
countries with the United States, the affluence of foreign
countries, acts of war, currency exchange fluctuations and
substitution of commodities. Demand may also be affected by
changes in eating habits, population growth, the level of per
capita consumption of some products and the level of renewable
fuels production.
Summary
Operating Results
Summary operating results and identifiable assets for our Ag
Business segment for the fiscal years ended August 31,
2007, 2006 and 2005 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
8,575,389
|
|
|
$
|
6,575,165
|
|
|
$
|
5,670,644
|
|
Cost of goods sold
|
|
|
8,388,476
|
|
|
|
6,401,527
|
|
|
|
5,541,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
186,913
|
|
|
|
173,638
|
|
|
|
129,362
|
|
Marketing, general and administrative
|
|
|
97,299
|
|
|
|
99,777
|
|
|
|
83,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
89,614
|
|
|
|
73,861
|
|
|
|
45,762
|
|
Gain on investments
|
|
|
(5,348
|
)
|
|
|
|
|
|
|
(11,358
|
)
|
Interest, net
|
|
|
28,550
|
|
|
|
23,559
|
|
|
|
20,535
|
|
Equity income from investments
|
|
|
(51,830
|
)
|
|
|
(40,902
|
)
|
|
|
(55,473
|
)
|
Minority interests
|
|
|
(16
|
)
|
|
|
(509
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
118,258
|
|
|
$
|
91,713
|
|
|
$
|
92,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(18,372
|
)
|
|
$
|
(8,779
|
)
|
|
$
|
(9,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
2,846,950
|
|
|
$
|
1,806,243
|
|
|
$
|
1,604,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Overview
Our Processing segment converts raw agricultural commodities
into ingredients for finished food products or into finished
consumer food products. We have focused on areas that allow us
to utilize the products supplied by our member producers. These
areas are oilseed processing, wheat milling, foods and renewable
fuels.
Regulation.
Our Processing segments
operations are subject to laws and related regulations and rules
designed to protect the environment that are administered by the
Environmental Protection Agency, the Department of
Transportation and similar government agencies. These laws,
regulations and rules govern the discharge of materials to
environment, air and water; reporting storage of hazardous
wastes; and the transportation, handling and disposition of
wastes. Our Processing segments operations are also
subject to laws and related regulations and rules administered
by the United States Department of Agriculture, the Federal Food
and Drug Administration, and other federal, state, local and
foreign governmental agencies that govern the processing,
packaging, storage, distribution, advertising, labeling, quality
and safety of food and grain products. Failure to comply with
these laws, regulations and rules could subject us, or our foods
partners, or our renewable fuels partners to administrative
penalties, injunctive relief, civil remedies and possible
recalls of products. We believe that we are in compliance with
these laws, regulations and rules in all material respects and
do not expect continued compliance to have a material effect on
our capital expenditures, earnings or competitive position.
Oilseed
Processing
Our oilseed processing operations convert soybeans into soybean
meal, soyflour, crude soyoil, refined soybean oil and associated
by-products. These operations are conducted at a facility in
Mankato, Minnesota that can crush approximately 39 million
bushels of soybeans on an annual basis, producing approximately
940,000 short tons of soybean meal and 460 million pounds
of crude soybean oil. The same facility is able to process
approximately 1 billion pounds of refined soybean oil
annually. Another crushing facility in Fairmont, Minnesota has a
crushing capacity of over 45 million bushels of soybeans on
an annual basis.
Our oilseed processing operations produce three primary
products: refined oils, soybean meal and soyflour. Refined oils
are used in processed foods, such as margarine, shortening,
salad dressings and baked goods, as well as methyl
ester/biodiesel production, and to a lesser extent, for certain
industrial uses such as plastics, inks and paints. Soybean meal
has high protein content and is used for feeding livestock.
Soyflour is used in the baking industry, as a milk replacement
in animal feed and in industrial applications.
Our soy processing facilities are located in areas with a strong
production base of soybeans and end-user market for the meal and
soyflour. We purchase virtually all of our soybeans from
members. Our oilseed crushing operations currently produce
approximately 90% of the crude oil that we refine, and purchase
the balance from outside suppliers.
Our customers for refined oil are principally large food product
companies located throughout the United States. However,
over 50% of our customers are located in the midwest due to
relatively lower freight costs and slightly higher profitability
potential. Our largest customer for refined oil products is
Ventura Foods, LLC (Ventura Foods), in which we hold a 50%
ownership interest and with which we have a long-term supply
agreement to supply minimum quantities of edible soybean oils as
long as we maintain a minimum 25.5% ownership interest and our
price is competitive with other suppliers of the product. Our
sales to Ventura Foods were $62.3 million in fiscal 2007.
We also sell soymeal to about 350 customers, primarily feed lots
and feed mills in southern Minnesota. In fiscal 2007, Commodity
Specialists Company accounted for 14% of soymeal sold and Land
OLakes Purina Feed, LLC accounted for 12% of soymeal sold.
We sell soyflour to customers in the baking industry both
domestically and for export.
The refined soybean products industry is highly competitive.
Major industry competitors include ADM, Cargill, Ag Processing
Inc. and Bunge. These and other competitors have acquired other
processors, expanded
23
existing plants, or constructed new plants, both domestically
and internationally. Price, transportation costs, services and
product quality drive competition. We estimate that we have a
market share of approximately 4% to 5% of the domestic refined
soybean oil market and also the domestic soybean crushing
capacity.
Soybeans are a commodity and their price can fluctuate
significantly depending on production levels, demand for the
products, and other supply factors.
Wheat
Milling
In January 2002, we formed a joint venture with Cargill named
Horizon Milling, LLC (Horizon Milling), in which we hold an
ownership interest of 24%, with Cargill owning the remaining
76%. Horizon Milling is the largest U.S. wheat miller based
on output volume. We own five mills that we lease to Horizon
Milling. Sales and purchases of wheat and durum by us to Horizon
Milling during fiscal 2007 were $241.1 million and
$10.5 million, respectively. Horizon Millings advance
payments on grain to us were $5.9 million on
August 31, 2007, and are included in customer advance
payments on our Consolidated Balance Sheet. We account for
Horizon Milling using the equity method of accounting. At
August 31, 2007, our net book value of assets leased to
Horizon Milling was $76.4 million.
During the year ended August 31, 2007, we invested
$15.6 million in Horizon Milling G.P. (24% CHS ownership
with Cargill owning the remaining 76%), a joint venture that
acquired the Canadian grain-based foodservice and industrial
businesses of Smucker Foods of Canada, which includes three
flour milling operations and two dry baking mixing facilities in
Canada. We account for Horizon Milling G.P. using the equity
method of accounting.
Foods
Our primary focus in the foods area is Ventura Foods, which
produces and distributes vegetable oil-based products such as
margarine, salad dressing and other food products. Ventura Foods
was created in 1996, and is owned 50% by us and 50% by Wilsey
Foods, Inc., a majority owned subsidiary of Mitsui &
Co., Ltd. We account for our Ventura Foods investment under the
equity method of accounting, and at August 31, 2007, our
investment was $134.1 million.
Ventura Foods manufactures, packages, distributes and markets
bulk margarine, salad dressings, mayonnaise, salad oils, syrups,
soup bases and sauces, many of which utilize soybean oil as a
primary ingredient. Approximately 40% of Ventura Foods
volume, based on sales, comes from products for which Ventura
Foods owns the brand, and the remainder comes from products that
it produces for third parties. A variety of Ventura Foods
product formulations and processes are proprietary to it or its
customers. Ventura Foods is the largest manufacturer of
margarine for the foodservice sector in the U.S. and is a
major producer of many other products.
Ventura Foods currently has 13 manufacturing and distribution
locations across the United States, and is expected to complete
a new facility in Ontario, California, in calendar 2008, that
will combine some of its existing locations. It sources its raw
materials, which consist primarily of soybean oil, canola oil,
cottonseed oil, peanut oil and various other ingredients and
supplies, from various national suppliers, including our oilseed
processing operations. It sells the products it manufactures to
third parties as a contract manufacturer, as well as directly to
retailers, food distribution companies and large institutional
food service companies. Ventura Foods sales are approximately
60% in foodservice and the remainder is split between retail and
industrial customers who use edible oil products as ingredients
in foods they manufacture for resale. During Ventura Foods
2007 fiscal year, Sysco accounted for 22% of its net sales.
During our fourth quarter of fiscal 2005, Ventura Foods
purchased two Dean Foods businesses: Maries dressings and
Deans dips. This transaction included a license agreement
for Ventura Foods to use the Deans trademark on dips.
Ventura Foods competes with a variety of large companies in the
food manufacturing industry. Some of its major competitors are
ADM, Cargill, Bunge, Unilever, ConAgra, ACH Food Companies,
Smuckers, Kraft and CF Sauer, Kens, Marzetti and Nestle.
24
Renewable
Fuels
In fiscal 2006, we invested $70.0 million in US BioEnergy
Corporation (US BioEnergy), an ethanol manufacturing company,
representing an approximate 24% ownership on August 31,
2006. During the year ended August 31, 2007, we made
additional investments of $45.4 million in US BioEnergy,
bringing our total cash investment for common stock in that
company to $115.4 million. In December 2006, US BioEnergy
completed an initial public offering (IPO), and the effect of
the issuance of additional shares of its stock was to dilute our
ownership interest from approximately 25% to 21%. In addition,
on August 29, 2007, US BioEnergy completed an acquisition
with total aggregate net consideration comprised of the issuance
of US BioEnergy common stock and cash. Due to US
BioEnergys increase in equity, primarily from these two
transactions, we recognized a non-cash net gain of
$15.3 million on our investment during the year ended
August 31, 2007, to reflect our proportionate share of the
increase in the underlying equity of US BioEnergy. On
August 31, 2007, our ownership interest in US BioEnergy was
approximately 19%, and based upon the market price of US
BioEnergys stock of $10.41 per share on that date, our
investment had a fair value of approximately
$159.3 million. During the first quarter of fiscal 2008, we
purchased additional shares of US BioEnergy common stock for
$6.5 million, which increased our ownership interest to
approximately 20%. We are recognizing earnings of US BioEnergy,
to the extent of our ownership interest, using the equity method
of accounting.
On November 29, 2007, US BioEnergy and VeraSun Energy
Corporation announced that they have entered into a definitive
merger agreement subject to shareholder and regulatory approval.
If the merger is consummated, we would own approximately eight
percent of the combined entity.
US BioEnergy currently has four ethanol plants in operation
which have a combined production capacity of 310 million
gallons per year and are located in Iowa, Michigan and Nebraska.
In addition, there are four ethanol plants under construction in
Iowa, Minnesota, Nebraska and South Dakota with expected
combined production capacity of 440 million gallons per
year.
Summary
Operating Results
Summary operating results and identifiable assets for our
Processing segment for the fiscal years ended August 31,
2007, 2006 and 2005 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
754,743
|
|
|
$
|
614,471
|
|
|
$
|
613,766
|
|
Cost of goods sold
|
|
|
726,510
|
|
|
|
588,732
|
|
|
|
604,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,233
|
|
|
|
25,739
|
|
|
|
9,568
|
|
Marketing, general and administrative
|
|
|
23,545
|
|
|
|
21,645
|
|
|
|
20,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses)
|
|
|
4,688
|
|
|
|
4,094
|
|
|
|
(11,182
|
)
|
Gain on investments
|
|
|
(15,268
|
)
|
|
|
|
|
|
|
(457
|
)
|
Interest, net
|
|
|
14,783
|
|
|
|
11,096
|
|
|
|
12,287
|
|
Equity income from investments
|
|
|
(48,446
|
)
|
|
|
(35,504
|
)
|
|
|
(36,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
53,619
|
|
|
$
|
28,502
|
|
|
$
|
13,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(370
|
)
|
|
$
|
(368
|
)
|
|
$
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
681,118
|
|
|
$
|
518,186
|
|
|
$
|
420,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Services
Financial Services.
We have provided open
account financing to approximately 115 of our members that are
cooperatives (cooperative association members) in the past year.
These arrangements involve the discretionary extension of credit
in the form of a clearing account for settlement of grain
purchases and as a cash management tool.
Cofina Financial, a joint venture finance company in which we
hold a 49% ownership interest, makes seasonal and term loans to
member cooperatives and individuals. During the fourth quarter
of fiscal 2005, we contributed certain assets related to our
financial services business and related to Fin-Ag Inc., along
with cash, to form Cofina Financial. Cenex Finance
Association, which prior to the formation of Cofina Financial
operated as an independent finance company, owns the other 51%
of Cofina Financial, however, the governance of this joint
venture is 50/50. We participated in the formation of Cofina
Financial for the purpose of expanding the size of our financing
platform, to improve the scope of services offered to customers,
to gain efficiencies in sourcing funds and to achieve some
synergies through participation in larger customer-financing
programs. We account for our Cofina Financial investment using
the equity method of accounting.
We may, at our own discretion, choose to guarantee certain loans
made by Cofina Financial. On August 31, 2007, we had
guarantees related to Cofina Financial loans totaling
$24.5 million.
Country Hedging, Inc.
Our wholly-owned
subsidiary Country Hedging, Inc., which is a registered futures
commission merchant and a clearing member of both the
Minneapolis Grain Exchange and the Kansas City Board of Trade,
is a full-service commodity futures and options broker.
Ag States Agency, LLC.
Ag States Agency, LLC,
is an independent insurance agency, and after the purchase of
the minority owners interest during fiscal 2005, is now a
wholly-owned subsidiary. It sells insurance, including group
benefits, property and casualty, and bonding programs. Its
approximately 1,800 customers are primarily agricultural
businesses, including local cooperatives and independent
elevators, petroleum outlets, agronomy, feed and seed plants,
implement dealers, fruit and vegetable packers/warehouses, and
food processors.
When we enter into a commodity purchase commitment, we incur
risks of carrying inventory, including risks related to price
change and performance (including delivery, quality, quantity,
and shipment period). We are exposed to risk of loss in the
market value of positions held, consisting of inventory and
purchase contracts at a fixed or partially fixed price in the
event market prices decrease. We are also exposed to risk of
loss on our fixed price or partially fixed price sales contracts
in the event market prices increase.
To reduce the price change risks associated with holding fixed
price commitments, we generally take opposite and offsetting
positions by entering into commodity futures contracts (either a
straight futures contract or an options futures contract) on
regulated commodity futures exchanges for grain, and regulated
mercantile exchanges for refined products and crude oil. The
crude oil and most of the grain and oilseed volume we handle can
be hedged. Some grains cannot be hedged because there are no
futures for certain commodities. For those commodities, risk is
managed through the use of forward sales and various pricing
arrangements and to some extent cross-commodity futures hedging.
While hedging activities reduce the risk of loss from changing
market values of inventory, such activities also limit the gain
potential which otherwise could result from changes in market
prices of inventory. Our policy is to generally maintain hedged
positions in grain. Our profitability from operations is
primarily derived from margins on products sold and grain
merchandised, not from hedging transactions. Hedging
arrangements do not protect against nonperformance by
counterparties to contracts, and therefore, contract values are
reviewed and adjusted to reflect potential non-performance.
When a futures contract is entered into, an initial margin
deposit must be sent to the applicable exchange or broker. The
amount of the deposit is set by the exchange and varies by
commodity. If the market price of a
26
short futures contract increases, then an additional maintenance
margin deposit would be required. Similarly, if the price of a
long futures contract decreases, a maintenance margin deposit
would be required and sent to the applicable exchange.
Subsequent price changes could require additional maintenance
margins or could result in the return of maintenance margins.
At any one time, inventory and purchase contracts for delivery
to us may be substantial. We have risk management policies and
procedures that include net position limits. These limits are
defined for each commodity and include both trader and
management limits. This policy, and computerized procedures in
our grain marketing operations, requires a review by operations
management when any trader is outside of position limits and
also a review by our senior management if operating areas are
outside of position limits. A similar process is used in our
energy operations. The position limits are reviewed at least
annually with our management. We monitor current market
conditions and may expand or reduce our risk management policies
or procedures in response to changes in those conditions. In
addition, all purchase and sales contracts are subject to credit
approvals and appropriate terms and conditions.
At August 31, 2007, we had approximately 6,885 full,
part-time, temporary and seasonal employees, which included
approximately 615 employees of NCRA. Of that total,
approximately 2,080 were employed in our Energy segment, 3,695
in our country operations business (including approximately
1,325 seasonal and temporary employees), 450 in our grain
marketing operations, 260 in our Processing segment and 400 in
Corporate and Other. In addition to those employed directly by
us, many employees work for joint ventures in which we have a
50% or less ownership interest, and are not included in these
totals. A portion of all of our business segments and Corporate
and Other are employed in this manner.
Employees in certain areas are represented by collective
bargaining agreements. Refinery and pipeline workers in Laurel,
Montana are represented by agreements with two unions: United
Steel Workers of America (USWA) (198 employees) and Oil
Basin Pipeliners Union (OBP) (19 employees), for which
agreements are in place through 2009 and 2008, respectively, in
regards to wages and benefits. The contracts covering the NCRA
McPherson, Kansas refinery (272 employees in the USWA
union) are also in place through 2009. There are approximately
152 employees in transportation and lubricant plant
operations that are covered by other collective bargaining
agreements that expire at various times. Certain production
workers in our oilseed processing operations are subject to
collective bargaining agreements with the Bakery, Confectionary,
Tobacco Worker and Grain Millers (BTWGM) (120 employees)
and the Pipefitters Union (2 employees) for which
agreements are in place through 2009. The BTWGM also represents
50 employees at our Superior, Wisconsin grain export
terminal with a contract expiring in 2010. The USWA represents
79 employees at our Myrtle Grove, Louisiana grain export
terminal with a contract expiring in 2009, the Teamsters
represent 9 employees at our Winona, Minnesota export
terminal with a contract expiring in 2008, and the International
Longshoremens and Warehousemens Union (ILWU)
represents 38 employees at our Kalama, Washington export
terminal with a contract in place through 2009. Finally, certain
employees in our country operations business are represented by
collective bargaining agreements with two unions; the BTWGM
(24 employees), with contracts expiring in December 2008
and June 2010, and the United Food and Commercial Workers
(11 employees), with a contract expiring in July 2008.
We are involved as a defendant in various lawsuits, claims and
disputes, which are in the normal course of our business. The
resolution of any such matters may affect consolidated net
income for any fiscal period; however, our management believes
any resulting liabilities, individually or in the aggregate,
will not have a material effect on our consolidated financial
position, results of operations or cash flows during any fiscal
year.
In October 2003, we and NCRA reached agreements with the
Environmental Protection Agency (EPA) and the State of
Montanas Department of Environmental Quality and the State
of Kansas Department of
27
Health and Environment, regarding the terms of settlements with
respect to reducing air emissions at our Laurel, Montana and
NCRAs McPherson, Kansas refineries. These settlements are
part of a series of similar settlements that the EPA has
negotiated with major refiners under the EPAs Petroleum
Refinery Initiative. The settlements take the form of consent
decrees filed with the U.S. District Court for the District
of Montana (Billings Division) and the U.S. District Court
for the District of Kansas. Each consent decree details
potential capital improvements, supplemental environmental
projects and operational changes that we and NCRA have agreed to
implement at the relevant refinery over several years. The
consent decrees also required us, and NCRA, to pay approximately
$0.5 million in aggregate civil cash penalties. As of
August 31, 2007, the aggregate capital expenditures for us
and NCRA related to these settlements was approximately
$22 million, and we anticipate spending an additional
$9 million over the next four years. We do not believe that
the settlements will have a material adverse affect on us or
NCRA.
We own or lease energy, grain handling and processing, and
agronomy related facilities throughout the United States. Below
is a summary of these locations.
Energy
Facilities in our Energy segment include the following, all of
which are owned except where indicated as leased:
|
|
|
Refinery
|
|
Laurel, Montana
|
Propane terminal
|
|
Glenwood, Minnesota
|
Transportation terminals/repair facilities
|
|
12 locations in Iowa, Kansas, Minnesota, Montana, North Dakota,
South Dakota, Texas, Washington and Wisconsin, 3 of which are
leased
|
Petroleum & asphalt terminals/storage facilities
|
|
9 locations in Montana, North Dakota and Wisconsin
|
Pump stations
|
|
11 locations in Montana and North Dakota
|
Pipelines:
|
|
|
Cenex Pipeline, LLC
|
|
Laurel, Montana to Fargo, North Dakota
|
Front Range Pipeline, LLC
|
|
Canadian border to Laurel, Montana and on to Billings, Montana
|
Convenience stores/gas stations
|
|
42 locations in Iowa, Minnesota, Montana, North Dakota, South
Dakota and Wyoming, 13 of which are leased
|
Lubricant plants/warehouses
|
|
3 locations in Minnesota, Ohio and Texas, 1 of which is leased
|
We have a 74.5% interest in NCRA,which owns and operates the
following facilities:
|
|
|
Refinery
|
|
McPherson, Kansas
|
Petroleum terminals/storage
|
|
2 locations in Iowa and Kansas
|
Pipeline
|
|
McPherson, Kansas to Council Bluffs, Iowa
|
Jayhawk Pipeline, LLC
|
|
Throughout Kansas, with branches in Oklahoma, Texas and Nebraska
|
Jayhawk stations
|
|
26 locations located in Kansas, Oklahoma and Nebraska
|
Osage Pipeline (50% owned by NCRA)
|
|
Oklahoma to Kansas
|
Kaw Pipeline (67% owned by NCRA)
|
|
Throughout Kansas
|
28
Ag
Business
Within our Ag Business segment, we own or lease the following
facilities:
Crop
Nutrients
As of September 1, 2007, we use ports and terminals in our
crop nutrients operations at the following locations:
Galveston, Texas (deep water port, land leased from port
authority)
Little Rock, Arkansas (river terminal, owned; land and building,
leased)
Post Falls, Idaho (terminal, owned)
Crescent City, Illinois (terminal, owned)
Briggs, Indiana (terminal, owned)
Hagerstown, Indiana (terminal, leased)
Indianapolis, Indiana (terminal, leased)
Muscatine, Iowa (river terminal, owned)
St. Paul, Minnesota (river terminal, owned)
Winona, Minnesota (river terminal, owned)
Grand Forks, North Dakota (terminal, owned)
Crestline, Ohio (terminal, owned)
Fostoria, Ohio (terminal, owned)
Watertown, South Dakota (terminal, owned)
Memphis, Tennessee (river terminal, owned)
Green Bay, Wisconsin (terminal, owned)
Country
Operations
In our country operations business, we own 316 agri-operations
locations (of which some of the facilities are on leased land),
9 feed manufacturing facilities and 2 sunflower plants located
in Minnesota, North Dakota, South Dakota, Montana, Nebraska,
Kansas, Oklahoma, Colorado, Idaho, Washington and Oregon. In
addition, we lease 6 agri-operations locations, 1 feed
manufacturing facility and 1 sunflower plant.
Grain
Marketing
We use grain terminals in our grain marketing operations at the
following locations:
Collins, Mississippi (owned)
Davenport, Iowa (2 owned)
Friona, Texas (owned)
Kalama, Washington (leased)
Minneapolis, Minnesota (owned, idle)
Myrtle Grove, Louisiana (owned)
Savage, Minnesota (owned)
Spokane, Washington (owned)
Superior, Wisconsin (owned)
Winona, Minnesota (1 owned, 1 leased)
Processing
Within our Processing segment, we own and lease the following
facilities:
Oilseed
Processing
We own a campus in Mankato, Minnesota, comprised of a soybean
crushing plant, an oilseed refinery, a soyflour plant, a quality
control laboratory and an administration office. We also own a
crushing plant in Fairmont, Minnesota.
29
Wheat
Milling
We own five milling facilities at the following locations, all
of which are leased to Horizon Milling:
Rush City, Minnesota
Kenosha, Wisconsin
Houston, Texas
Mount Pocono, Pennsylvania
Fairmount, North Dakota
Corporate
Headquarters
We are headquartered in Inver Grove Heights, Minnesota. We own a
33-acre
campus consisting of one main building with approximately
320,000 square feet of office space and two smaller
buildings with approximately 13,400 and 9,000 square feet
of space.
Our internet address is www.chsinc.com.
MEMBERSHIP
IN CHS AND AUTHORIZED CAPITAL
Introduction
We are an agricultural membership cooperative organized under
Minnesota cooperative law to do business with member and
non-member patrons. Our patrons, not us, are subject to income
taxes on income from patronage sources, which is distributed to
them. We are subject to income taxes on undistributed patronage
income and non-patronage-sourced income. See
Tax Treatment below.
Distribution
of Net Income; Patronage Dividends
We are required by our organizational documents annually to
distribute net earnings derived from patronage business with
members, after payment of dividends on equity capital, to
members on the basis of patronage, except that the Board of
Directors may elect to retain and add to our unallocated capital
reserve an amount not to exceed 10% of the distributable net
income from patronage business. We may also distribute net
income derived from patronage business with a non-member if we
have agreed to conduct business with the non-member on a
patronage basis. Net income from non-patronage business may be
distributed to members or added to the unallocated capital
reserve, in whatever proportions the Board of Directors deems
appropriate.
These distributions, referred to as patronage
dividends, may be made in cash, patrons equities,
revolving fund certificates, our securities, securities of
others, or any combination designated by the Board of Directors.
Since fiscal 1998 through fiscal 2005, the Board of Directors
has distributed patronage dividends in the form of 30% cash and
70% patrons equities (see Patrons
Equities below). For fiscal 2006 and 2007, the Board of
Directors approved the distribution of patronage dividends in
the form of 35% cash and 65% patrons equities. The Board
of Directors may change the mix in the form of the patronage
dividends in the future. In making distributions, the Board of
Directors may use any method of allocation that, in its
judgment, is reasonable and equitable.
Patronage dividends distributed during the years ended
August 31, 2007, 2006 and 2005 were $379.9 million
($133.1 million in cash), $207.9 million
($62.5 million in cash) and $171.3 million
($51.6 million in cash), respectively.
Patrons
Equities
Patrons equities are in the form of book entries and
represent a right to receive cash or other property when we
redeem them. Patrons equities form part of our capital, do
not bear interest, and are not subject to redemption upon
request of a member. Patrons equities are redeemable only
at the discretion of the Board of Directors and in accordance
with the terms of the redemption policy adopted by the Board of
Directors, which may be modified at any time without member
consent. Redemptions of capital equity certificates approved by
30
the Board of Directors are divided into two pools, one for
non-individuals (primarily member cooperatives) who may
participate in an annual pro-rata program for equities held by
them, and another for individuals who are eligible for equity
redemptions at age 72 or upon death. Commencing in fiscal
2008, until further resolution, the Board of Directors has
reduced the age for individuals who are eligible for equity
redemptions to age 70. The amount that each non-individual
receives under the pro-rata program in any year will be
determined by multiplying the dollars available for pro-rata
redemptions, if any that year, as determined by the Board of
Directors, by a fraction, the numerator of which is the face
value of patronage certificates eligible for redemption held by
them, and the denominator of which is the sum of the patronage
certificates eligible for redemption held by all eligible
holders of patronage certificates that are not individuals. In
addition to the annual pro-rata program, the Board of Directors
approved additional equity redemptions targeting older capital
equity certificates which were paid in fiscal 2007 and that are
authorized to be paid in fiscal 2008. In accordance with
authorization from the Board of Directors, we expect total
redemptions related to the year ended August 31, 2007, that
will be distributed in fiscal 2008, to be approximately
$179.4 million.
Cash redemptions of patrons and other equities during the years
ended August 31, 2007, 2006 and 2005 were
$70.8 million, $55.9 million and $23.7 million,
respectively. An additional $35.9 million, $23.8 and
$20.0 million of equities were redeemed by issuance of
shares of our 8% Cumulative Redeemable Preferred Stock during
the years ended August 31, 2007, 2006 and 2005,
respectively.
Governance
We are managed by a Board of Directors of not less than
17 persons elected by the members at our annual meeting.
Terms of directors are staggered so that no more than six
directors are elected in any year. The Board of Directors is
currently comprised of 17 directors. Our articles of
incorporation and bylaws may be amended only upon approval of a
majority of the votes cast at an annual or special meeting of
our members, except for the higher vote described under
Certain Antitakeover Measures
below.
Membership
Membership in CHS is restricted to certain producers of
agricultural products and to associations of producers of
agricultural products that are organized and operating so as to
adhere to the provisions of the Agricultural Marketing Act and
the Capper-Volstead Act, as amended. The Board of Directors may
establish other qualifications for membership, as it may from
time to time deem advisable.
As a membership cooperative, we do not have common stock. We may
issue equity or debt instruments, on a patronage basis or
otherwise, to our members. We have two classes of outstanding
membership. Individual members are individuals actually engaged
in the production of agricultural products. Cooperative
associations are associations of agricultural producers and may
be either cooperatives or other associations organized and
operated under the provisions of the Agricultural Marketing Act
and the Capper-Volstead Act.
Voting
Rights
Voting rights arise by virtue of membership in CHS, not because
of ownership of any equity or debt instruments. Members that are
cooperative associations are entitled to vote based upon a
formula that takes into account the equity held by the
cooperative in CHS and the average amount of business done with
us over the previous three years.
Members who are individuals are entitled to one vote each.
Individual members may exercise their voting power directly or
through a patrons association affiliated with a grain
elevator, feed mill, seed plant or any other of our facilities
(with certain historical exceptions) recognized by the Board of
Directors. The number of votes of patrons associations is
determined under the same formula as cooperative association
members.
Most matters submitted to a vote of the members require the
approval of a majority of the votes cast at a meeting of the
members, although certain actions require a greater vote. See
Certain Antitakeover Measures below.
31
Debt and
Equity Instruments
We may issue debt and equity instruments to our current members
and patrons, on a patronage basis or otherwise, and to persons
who are neither members nor patrons. Capital Equity Certificates
issued by us are subject to a first lien in favor of us for all
indebtedness of the holder to us. On August 31, 2007, our
outstanding capital included patrons equities (consisting
of capital equity certificates and non-patronage earnings
certificates), 8% Cumulative Redeemable Preferred Stock and
certain capital reserves.
Distribution
of Assets upon Dissolution; Merger and Consolidation
In the event of our dissolution, liquidation or winding up,
whether voluntary or involuntary, all of our debts and
liabilities would be paid first according to their respective
priorities. After such payment, the holders of each share of our
preferred stock would then be entitled to receive out of
available assets, up to $25.00 per share, plus all dividends
accumulated and unpaid on that share, whether or not declared,
to and including the date of distribution. This distribution to
the holders of our preferred stock would be made before any
payment is made or assets distributed to the holders of any
security that ranks junior to the preferred stock but after the
payment of the liquidation preference of any of our securities
that rank senior to the preferred stock. After such distribution
to the holders of equity capital, any excess would be paid to
patrons on the basis of their past patronage with us. Our bylaws
provide for the allocation among our members and nonmember
patrons of the consideration received in any merger or
consolidation to which we are a party.
Certain
Antitakeover Measures
Our governing documents may be amended upon the approval of a
majority of the votes cast at an annual or special meeting.
However, if the Board of Directors, in its sole discretion,
declares that a proposed amendment to our governing documents
involves or is related to a hostile takeover, the
amendment must be adopted by 80% of the total voting power of
our members.
The approval of not less than two-thirds of the votes cast at a
meeting is required to approve a change of control
transaction which would include a merger, consolidation,
liquidation, dissolution, or sale of all or substantially all of
our assets. If the Board of Directors determines that a proposed
change of control transaction involves a hostile takeover, the
80% approval requirement applies. The term hostile
takeover is not further defined in the Minnesota
cooperative law or our governing documents.
Tax
Treatment
Subchapter T of the Internal Revenue Code sets forth rules for
the tax treatment of cooperatives and applies to both
cooperatives exempt from taxation under Section 521 of the
Internal Revenue Code and to nonexempt corporations operating on
a cooperative basis. We are a nonexempt cooperative.
As a cooperative, we are not taxed on qualified patronage
dividends (minimum cash requirement of 20%) allocated and
distributed to our members in the form of cash and equities.
Consequently, those amounts are taxed only at the patron level.
However, the amounts of any allocated but undistributed
patronage earnings (called non-qualified unit retains) are
taxable to us when allocated. Upon redemption of any
non-qualified unit retains, the amount is deductible to us and
taxable to the member.
Income derived by us from non-patronage sources is not entitled
to the single tax benefit of Subchapter T and is
taxed to us at corporate income tax rates.
NCRA is not consolidated for tax purposes.
32
SELECTED
CONSOLIDATED FINANCIAL DATA
The selected financial information below has been derived from
our consolidated financial statements for the years ended
August 31. The selected consolidated financial information
for August 31, 2007, 2006 and 2005 should be read in
conjunction with our consolidated financial statements and notes
thereto included elsewhere in this filing. In May 2005, we sold
the majority of our Mexican foods business and have recorded the
Mexican foods business as discontinued operations.
Summary
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,215,992
|
|
|
$
|
14,383,835
|
|
|
$
|
11,926,962
|
|
|
$
|
10,969,081
|
|
|
$
|
9,314,116
|
|
Cost of goods sold
|
|
|
16,139,691
|
|
|
|
13,570,507
|
|
|
|
11,449,858
|
|
|
|
10,527,715
|
|
|
|
8,989,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,076,301
|
|
|
|
813,328
|
|
|
|
477,104
|
|
|
|
441,366
|
|
|
|
325,066
|
|
Marketing, general and administrative
|
|
|
245,357
|
|
|
|
231,238
|
|
|
|
199,354
|
|
|
|
202,455
|
|
|
|
175,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
830,944
|
|
|
|
582,090
|
|
|
|
277,750
|
|
|
|
238,911
|
|
|
|
149,404
|
|
Gain on investments
|
|
|
(20,616
|
)
|
|
|
|
|
|
|
(13,013
|
)
|
|
|
(14,666
|
)
|
|
|
|
|
Gain on legal settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(692
|
)
|
|
|
(10,867
|
)
|
Interest, net
|
|
|
31,098
|
|
|
|
41,305
|
|
|
|
41,509
|
|
|
|
42,758
|
|
|
|
40,516
|
|
Equity income from investments
|
|
|
(109,685
|
)
|
|
|
(84,188
|
)
|
|
|
(95,742
|
)
|
|
|
(79,022
|
)
|
|
|
(47,299
|
)
|
Minority interests
|
|
|
143,214
|
|
|
|
85,974
|
|
|
|
47,736
|
|
|
|
33,830
|
|
|
|
21,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
786,933
|
|
|
|
538,999
|
|
|
|
297,260
|
|
|
|
256,703
|
|
|
|
145,104
|
|
Income taxes
|
|
|
36,600
|
|
|
|
49,327
|
|
|
|
30,434
|
|
|
|
29,462
|
|
|
|
16,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
750,333
|
|
|
|
489,672
|
|
|
|
266,826
|
|
|
|
227,241
|
|
|
|
129,073
|
|
(Income) loss on discontinued operations, net of taxes
|
|
|
|
|
|
|
(625
|
)
|
|
|
16,810
|
|
|
|
5,909
|
|
|
|
5,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
|
$
|
221,332
|
|
|
$
|
123,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (August 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
815,634
|
|
|
$
|
828,954
|
|
|
$
|
758,703
|
|
|
$
|
493,440
|
|
|
$
|
458,738
|
|
Net property, plant and equipment
|
|
|
1,728,171
|
|
|
|
1,476,239
|
|
|
|
1,359,535
|
|
|
|
1,249,655
|
|
|
|
1,122,982
|
|
Total assets
|
|
|
6,693,586
|
|
|
|
4,942,583
|
|
|
|
4,726,937
|
|
|
|
4,031,292
|
|
|
|
3,807,968
|
|
Long-term debt, including current maturities
|
|
|
688,321
|
|
|
|
744,745
|
|
|
|
773,074
|
|
|
|
683,818
|
|
|
|
663,173
|
|
Total equities
|
|
|
2,432,990
|
|
|
|
2,017,391
|
|
|
|
1,757,897
|
|
|
|
1,628,086
|
|
|
|
1,481,711
|
|
Ratio of earnings to fixed charges and preferred dividends(1)
|
|
|
10.0x
|
|
|
|
7.9x
|
|
|
|
4.6x
|
|
|
|
4.5x
|
|
|
|
3.2x
|
|
|
|
|
(1)
|
|
For purposes of computing the ratio of earnings to fixed charges
and preferred dividends, earnings consist of income from
continuing operations before income taxes on consolidated
operations, distributed income from equity investees and fixed
charges. Fixed charges consist of interest expense and one-third
of rental expense, considered representative of that portion of
rental expense estimated to be attributable to interest.
|
33
The selected financial information below has been derived from
our three business segments, and Corporate and Other, for the
fiscal years ended August 31, 2007, 2006 and 2005. The
intercompany revenues between segments were $247.7 million,
$251.6 million and $180.8 million for the fiscal years
ended August 31, 2007, 2006 and 2005, respectively.
Summary
Financial Data By Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Ag Business
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
8,105,067
|
|
|
$
|
7,414,361
|
|
|
$
|
5,794,266
|
|
|
$
|
8,575,389
|
|
|
$
|
6,575,165
|
|
|
$
|
5,670,644
|
|
Cost of goods sold
|
|
|
7,274,638
|
|
|
|
6,834,676
|
|
|
|
5,487,813
|
|
|
|
8,388,476
|
|
|
|
6,401,527
|
|
|
|
5,541,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
830,429
|
|
|
|
579,685
|
|
|
|
306,453
|
|
|
|
186,913
|
|
|
|
173,638
|
|
|
|
129,362
|
|
Marketing, general and administrative
|
|
|
94,939
|
|
|
|
82,867
|
|
|
|
69,951
|
|
|
|
97,299
|
|
|
|
99,777
|
|
|
|
83,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
735,490
|
|
|
|
496,818
|
|
|
|
236,502
|
|
|
|
89,614
|
|
|
|
73,861
|
|
|
|
45,762
|
|
Gain on investments
|
|
|
|
|
|
|
|
|
|
|
(862
|
)
|
|
|
(5,348
|
)
|
|
|
|
|
|
|
(11,358
|
)
|
Interest, net
|
|
|
(6,106
|
)
|
|
|
6,534
|
|
|
|
8,918
|
|
|
|
28,550
|
|
|
|
23,559
|
|
|
|
20,535
|
|
Equity income from investments
|
|
|
(4,468
|
)
|
|
|
(3,840
|
)
|
|
|
(3,478
|
)
|
|
|
(51,830
|
)
|
|
|
(40,902
|
)
|
|
|
(55,473
|
)
|
Minority interests
|
|
|
143,230
|
|
|
|
86,483
|
|
|
|
46,741
|
|
|
|
(16
|
)
|
|
|
(509
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
602,834
|
|
|
$
|
407,641
|
|
|
$
|
185,183
|
|
|
$
|
118,258
|
|
|
$
|
91,713
|
|
|
$
|
92,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(228,930
|
)
|
|
$
|
(242,430
|
)
|
|
$
|
(170,642
|
)
|
|
$
|
(18,372
|
)
|
|
$
|
(8,779
|
)
|
|
$
|
(9,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
2,737,044
|
|
|
$
|
2,164,217
|
|
|
$
|
2,238,614
|
|
|
$
|
2,846,950
|
|
|
$
|
1,806,243
|
|
|
$
|
1,604,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing
|
|
|
Corporate and Other
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
754,743
|
|
|
$
|
614,471
|
|
|
$
|
613,766
|
|
|
$
|
28,465
|
|
|
$
|
31,415
|
|
|
$
|
29,070
|
|
Cost of goods sold
|
|
|
726,510
|
|
|
|
588,732
|
|
|
|
604,198
|
|
|
|
(2,261
|
)
|
|
|
(2,851
|
)
|
|
|
(2,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,233
|
|
|
|
25,739
|
|
|
|
9,568
|
|
|
|
30,726
|
|
|
|
34,266
|
|
|
|
31,721
|
|
Marketing, general and administrative
|
|
|
23,545
|
|
|
|
21,645
|
|
|
|
20,750
|
|
|
|
29,574
|
|
|
|
26,949
|
|
|
|
25,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses)
|
|
|
4,688
|
|
|
|
4,094
|
|
|
|
(11,182
|
)
|
|
|
1,152
|
|
|
|
7,317
|
|
|
|
6,668
|
|
Gain on investments
|
|
|
(15,268
|
)
|
|
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
(336
|
)
|
Interest, net
|
|
|
14,783
|
|
|
|
11,096
|
|
|
|
12,287
|
|
|
|
(6,129
|
)
|
|
|
116
|
|
|
|
(231
|
)
|
Equity income from investments
|
|
|
(48,446
|
)
|
|
|
(35,504
|
)
|
|
|
(36,202
|
)
|
|
|
(4,941
|
)
|
|
|
(3,942
|
)
|
|
|
(589
|
)
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
53,619
|
|
|
$
|
28,502
|
|
|
$
|
13,190
|
|
|
$
|
12,222
|
|
|
$
|
11,143
|
|
|
$
|
6,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(370
|
)
|
|
$
|
(368
|
)
|
|
$
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets August 31
|
|
$
|
681,118
|
|
|
$
|
518,186
|
|
|
$
|
420,373
|
|
|
$
|
428,474
|
|
|
$
|
453,937
|
|
|
$
|
463,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Supplementary
Financial Information
Supplementary financial information required by Item 302 of
Regulation S-K
for each quarter during the years ended August 31, 2007 and
2006 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
February 28,
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
3,751,070
|
|
|
$
|
3,734,580
|
|
|
$
|
4,732,465
|
|
|
$
|
4,997,877
|
|
Gross profit
|
|
|
222,276
|
|
|
|
145,708
|
|
|
|
327,925
|
|
|
|
380,392
|
|
Income from continuing operations
|
|
|
153,453
|
|
|
|
87,359
|
|
|
|
259,734
|
|
|
|
286,387
|
|
Net income
|
|
|
136,282
|
|
|
|
82,309
|
|
|
|
237,773
|
|
|
|
293,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
February 28,
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Revenues
|
|
$
|
3,453,549
|
|
|
$
|
3,156,834
|
|
|
$
|
3,743,021
|
|
|
$
|
4,030,431
|
|
Gross profit
|
|
|
254,481
|
|
|
|
114,668
|
|
|
|
218,528
|
|
|
|
225,651
|
|
Income from continuing operations
|
|
|
154,026
|
|
|
|
40,247
|
|
|
|
136,563
|
|
|
|
158,836
|
|
Net income
|
|
|
154,234
|
|
|
|
40,148
|
|
|
|
136,593
|
|
|
|
159,322
|
|
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
CHS Inc. (CHS, we or us) is a diversified company, which
provides grain, foods and energy resources to businesses and
consumers. As a cooperative, we are owned by farmers, ranchers
and their member cooperatives from the Great Lakes to the
Pacific Northwest and from the Canadian border to Texas. We also
have preferred stockholders that own shares of our 8% Cumulative
Redeemable Preferred Stock.
We provide a full range of production agricultural inputs such
as refined fuels, propane, farm supplies, animal nutrition and
agronomy products, as well as services, which include hedging,
financing and insurance services. We own and operate petroleum
refineries and pipelines and market and distribute refined fuels
and other energy products under the
Cenex
®
brand through a network of member cooperatives and independent
retailers. We purchase grains and oilseeds directly and
indirectly from agricultural producers primarily in the
midwestern and western United States. These grains and oilseeds
are either sold to domestic and international customers, or
further processed into a variety of food products.
We have aligned our business segments based on an assessment of
how our businesses operate and the products and services they
sell. Our three business segments: Energy, Ag Business and
Processing, create vertical integration to link producers with
consumers. Our Energy segment produces and provides primarily
for the wholesale distribution of petroleum products and
transports those products. Our Ag Business segment purchases and
resells grains and oilseeds originated by our country operations
business, by our member cooperatives and by third parties, and
also serves as wholesaler and retailer of crop inputs. Our
Processing segment converts grains and oilseeds into value-added
products.
Summary data for each of our business segments for the fiscal
years ended August 31, 2007, 2006 and 2005 is provided in
the Selected Consolidated Financial Data section of this
Registration Statement on Form S-1. Except as otherwise
specified, references to years indicate our fiscal year ended
August 31, 2007 or ended August 31 of the year referenced.
Corporate administrative expenses are allocated to all three
business segments, and Corporate and Other, based on either
direct usage for services that can be tracked, such as
information technology and legal, and other factors or
considerations relevant to the costs incurred.
Many of our business activities are highly seasonal and
operating results will vary throughout the year. Overall, our
income is generally lowest during the second fiscal quarter and
highest during the third fiscal quarter. Our business segments
are subject to varying seasonal fluctuations. For example in our
Ag Business segment, agronomy and country operations businesses
experience higher volumes and income during the spring planting
season and in the fall, which corresponds to harvest. Also in
our Ag Business segment, our grain marketing operations are
subject to fluctuations in volume and earnings based on producer
harvests, world grain prices and demand. Our Energy segment
generally experiences higher volumes and profitability in
certain operating areas, such as refined products, in the summer
and early fall when gasoline and diesel fuel usage is highest
and is subject to global supply and demand forces. Other energy
products, such as propane, may experience higher volumes and
profitability during the winter heating and crop drying seasons.
Our revenues can be significantly affected by global market
prices for commodities such as petroleum products, natural gas,
grains, oilseeds and flour. Changes in market prices for
commodities that we purchase without a corresponding change in
the selling prices of those products can affect revenues and
operating earnings. Commodity prices are affected by a wide
range of factors beyond our control, including the weather, crop
damage due to disease or insects, drought, the availability and
adequacy of supply, government regulations and policies, world
events, and general political and economic conditions.
While our revenues and operating results are derived from
businesses and operations which are
wholly-owned
and majority-owned, a portion of our business operations is
conducted through companies in which we hold ownership interests
of 50% or less and do not control the operations. We account for
these investments primarily using the equity method of
accounting, wherein we record our proportionate share of
36
income or loss reported by the entity as equity income from
investments, without consolidating the revenues and expenses of
the entity in our Consolidated Statements of Operations. These
investments principally include our 50% ownership in each of the
following companies: Agriliance LLC (Agriliance), TEMCO, LLC
(TEMCO) and United Harvest, LLC (United Harvest), and our 37.5%
ownership in Multigrain S.A. included in our Ag Business
segment; our 50% ownership in Ventura Foods, LLC (Ventura
Foods), our 24% ownership in Horizon Milling, LLC (Horizon
Milling) and Horizon Milling G.P., and our approximately 20%
ownership in US BioEnergy Corporation (US BioEnergy) included in
our Processing segment; and our 49% ownership in Cofina
Financial, LLC (Cofina Financial) included in Corporate and
Other.
Agriliance is owned and governed by United Country Brands, LLC
(50%) and Land OLakes, Inc. (50%). United Country Brands,
LLC is a 100% owned subsidiary of CHS. We account for our share
of the Agriliance investment using the equity method of
accounting. In June 2007, we announced that two business
segments of Agriliance were being repositioned. In September
2007, Agriliance distributed the assets of the crop nutrients
business to us, and the assets of the crop protection business
to Land OLakes, Inc. Agriliance continues to exist as a
50-50
joint
venture and primarily operates an agronomy retail business. We
currently are exploring, with Land OLakes, Inc., the
repositioning options for the remaining portions of the
Agriliance retail business.
In May 2005, we sold the majority of our Mexican foods business
for proceeds of $38.3 million resulting in a loss on
disposition of $6.2 million, with minor activity continuing
in 2006. During the year ended August 31, 2006, we sold all
of the remaining assets for proceeds of $4.2 million and a
gain of $1.6 million. The operating results of the Mexican
foods business have been reported as discontinued operations.
The consolidated financial statements include the accounts of
CHS and all of our wholly-owned and majority-owned subsidiaries,
including the National Cooperative Refinery Association (NCRA),
which is in our Energy segment. All significant intercompany
accounts and transactions have been eliminated.
Certain reclassifications have been made to prior years
amounts to conform to current year classifications. These
reclassifications had no effect on previously reported net
income, equities and comprehensive income, or cash flows.
Recent
Events
On November 29, 2007, US BioEnergy and VeraSun Energy
Corporation announced that they have entered into a definitive
merger agreement subject to shareholder and regulatory approval.
If the merger is consummated, we would own approximately eight
percent of the combined entity.
On December 12, 2007, we established a ten-year long-term
credit agreement through a syndication of cooperative banks in
the amount of $150.0 million, with an interest rate of
5.59%. Repayments are due in equal semi-annual installments of
$15.0 million each starting in June 2013 through December
2018.
Results
of Operations
Comparison
of the years ended August 31, 2007 and 2006
General.
We recorded income from continuing
operations before income taxes of $786.9 million in fiscal
2007 compared to $539.0 million in fiscal 2006, an increase
of $247.9 million (46%). These results reflected increased
pretax earnings in our Energy, Ag Business and Processing
segments, and Corporate and Other.
Our Energy segment generated income from continuing operations
before income taxes of $602.8 million for the year ended
August 31, 2007 compared to $407.6 million in fiscal
2006. This increase in earnings of $195.2 million (48%) is
primarily attributable to higher margins on refined fuels, which
resulted mainly from changes in the refining capacity and global
demand, including industry supply shortages. Earnings in our
propane business increased significantly, from a
$1.5 million loss in fiscal 2006 to income of
$9.7 million during 2007. Earnings in our renewable fuels
marketing, lubricants and transportation businesses also
improved during fiscal 2007 when compared to 2006.
Our Ag Business segment generated income from continuing
operations before income taxes of $118.3 million for the
year ended August 31, 2007 compared to $91.7 million
in fiscal 2006, an increase in earnings of $26.6 million
(29%). Strong demand for grain and oilseeds, much of it driven
by increased
37
U.S. ethanol production, contributed to improved
performances by both our grain marketing and country operations
businesses. Our country operations earnings increased
$17.0 million, primarily as a result of overall improved
product margins, including historically high margins on
agronomy, energy, processed sunflower and grain transactions.
Continued market expansion into Oklahoma and Kansas also
increased country operations volumes. Our grain marketing
operations improved earnings by $2.3 million during the
year ended August 31, 2007 compared with fiscal 2006,
primarily from increased grain volumes. Volatility in the grain
markets creates opportunities for increased grain margins, and
additionally during 2007, increased interest in renewable fuels,
and changes in transportation costs shifted marketing patterns
and dynamics for our grain marketing business. Improved earnings
generated by Agriliance, an agronomy joint venture in which we
hold a 50% interest, resulted in a $2.0 million increase in
our share of that joint ventures earnings, net of an
impairment of retail assets, a Canadian agronomy joint venture
and allocated internal expenses. These improved earnings were
attributable to improved margins for wholesale and retail crop
nutrient products sold during the spring planting season,
partially offset by our share of an impairment of retail assets
of $10.2 million. Additionally, in our first fiscal quarter
of 2007, we sold approximately 25% of our investment in CF, a
domestic fertilizer manufacturer in which we held a minority
interest, for which we received cash of $10.9 million and
recorded a gain of $5.3 million. During the first quarter
of fiscal 2008, CHS sold all of its remaining
1,610,396 shares of CF stock for proceeds of
$108.3 million and recorded a pretax gain of
$91.7 million.
Our Processing segment generated income from continuing
operations before income taxes of $53.6 million for the
year ended August 31, 2007 compared to $28.5 million
in fiscal 2006, an increase in earnings of $25.1 million
(88%). Oilseed processing earnings increased $2.2 million
during the year ended August 31, 2007 as compared to fiscal
2006. This was primarily the result of improved crushing
margins, partially offset by reduced oilseed refining margins.
Contributing factors include a 7% increase in volume at our two
crushing facilities, but primarily includes significant
improvement in oilseed crushing margins, when comparing the year
ended August 31, 2007 with fiscal 2006. Our share of
earnings from Ventura Foods, our packaged foods joint venture,
net of allocated internal expenses, increased by
$3.0 million during the year ended August 31, 2007
compared to fiscal 2006, primarily from improved product
margins. Our share of earnings from our wheat milling joint
ventures, net of allocated internal expenses, reported improved
earnings of $0.8 million for fiscal 2007 compared to 2006.
Our share of earnings from US BioEnergy, an ethanol
manufacturing company in which we hold a minority ownership
interest, net of allocated internal expenses, increased by
$3.8 million during fiscal 2007 compared to 2006. In
December 2006, US BioEnergy completed an initial public offering
(IPO) and the effect of the issuance of additional shares of its
stock was to dilute our ownership interest from approximately
25% to 21%. Due to US BioEnergys increase in equity, we
recognized a non-cash net gain of $11.4 million on our
investment to reflect our proportionate share of the increase in
the underlying equity of US BioEnergy. Subsequent to the IPO,
our ownership interest decreased to approximately 19%, and our
gain was increased by $3.9 million, to bring the net gain
to a total of $15.3 million during fiscal 2007.
Corporate and Other generated income from continuing operations
before income taxes of $12.2 million for the year ended
August 31, 2007 compared to $11.1 million in fiscal
2006, an increase in earnings of $1.1 million (10%). This
improvement is primarily attributable to our business
solutions financial and hedging services.
Net Income.
Consolidated net income for the
year ended August 31, 2007 was $750.3 million compared
to $490.3 million for the year ended August 31, 2006,
which represented a $260.0 million (53%) increase.
Revenues.
Consolidated revenues of
$17.2 billion for the year ended August 31, 2007
compared to $14.4 billion for the year ended
August 31, 2006, which represented a $2.8 billion
(20%) increase.
Total revenues include other revenues generated primarily within
our Ag Business segment and Corporate and Other. Our Ag Business
segments country operations elevators and agri-service
centers derive other revenues from activities related to
production agriculture, which include grain storage, grain
cleaning, fertilizer spreading, crop protection spraying and
other services of this nature, and our grain marketing
operations receive other revenues at our export terminals from
activities related to loading vessels. Corporate and Other
derives revenues primarily from our hedging and insurance
operations.
38
Our Energy segment revenues, after elimination of intersegment
revenues, of $7.9 billion increased by $704.2 million
(10%) during the year ended August 31, 2007 compared to
fiscal 2006. During the years ended August 31, 2007 and
2006, our Energy segment recorded revenues from our Ag Business
segment of $228.9 million and $242.4 million,
respectively. The revenues net increase of $704.2 million
is comprised of a net increase of $609.5 million in sales
volume and a $94.7 million increase related to a net price
appreciation on refined fuels, renewable fuels and propane
products. The net change in revenues includes volume increases
of $606.0 million from our ethanol marketing venture, which
we acquired in April of fiscal 2006. Refined fuels revenues
increased $94.5 million (2%), of which $111.2 million
was due to increased volumes, partially offset by
$16.7 million related to a net average selling price
decrease compared to fiscal 2006. Our refined fuels volumes
increased 2%, while the sales price of refined fuels decreased,
only slightly, or less than $.01 per gallon, when comparing the
year ended August 31, 2007 with fiscal 2006. Lower crude
oil prices during fiscal 2007 compared to 2006 were primarily
attributable to the effects of the hurricanes in the United
States during the fall of 2005. Production disruptions due to
hurricanes during the fall of 2005 along with strong demand
contributed to the increases in refined fuels selling prices
during fiscal 2006. Propane revenues decreased by
$125.5 million (17%), of which, $165.1 million was
related to decreases in volume, partially offset by
$39.6 million related to a net average selling price
increase when compared to fiscal 2006. Propane sales volume
decreased 22% in comparison to fiscal 2006, while the average
selling price of propane increased $0.06 per gallon (6%).
Propane prices tend to follow the prices of crude oil and
natural gas, both of which decreased during the year ended
August 31, 2007 compared to 2006, and are also affected by
changes in propane demand and domestic inventory levels. The
decrease in propane volumes reflects a loss of exclusive propane
marketing rights at our former suppliers proprietary
terminals.
Our Ag Business segment revenues, after elimination of
intersegment revenues, of $8.6 billion increased
$2.0 billion (30%) during the year ended August 31,
2007 compared to fiscal 2006. Grain revenues in our
Ag Business segment totaled $7,136.3 million and
$5,337.2 million during the years ended August 31,
2007 and 2006, respectively. Of the grain revenues increase of
$1,799.1 million (34%), $1,278.1 million is due to
increased average grain selling prices and $521.0 million
is attributable to increased volumes during the year ended
August 31, 2007 compared to fiscal 2006. The average sales
price of all grain and oilseed commodities sold reflected an
increase of $1.05 per bushel (24%). The 2006 fall harvest
produced good yields throughout most of the United States, with
the quality of most grains rated as excellent or good. Despite
the good harvest, prices for nearly all grain commodities
increased because of strong demand, particularly for corn, which
is used as the feedstock for most ethanol plants as well as for
livestock feed. The average month-end market price per bushel of
corn, soybeans and spring wheat increased approximately $1.33,
$1.63 and $1.20, respectively, when compared to the prices of
those same grains for fiscal 2006. Volumes increased 8% during
the year ended August 31, 2007 compared with fiscal 2006.
Corn and soybeans had the largest volume increases compared to
fiscal 2006, followed by barley and wheat. Our Ag Business
segment non-grain product revenues of $1,291.9 million
increased by $197.4 million (18%) during the year ended
August 31, 2007 compared to fiscal 2006, primarily the
result of increased revenues of crop nutrients, energy, seed,
crop protection, feed and processed sunflower products. Other
revenues within our Ag Business segment of $128.8 million
during the year ended August 31, 2007 decreased
$5.9 million (4%) compared to fiscal 2006 and is primarily
attributable to reduced storage and handling revenues.
Our Processing segment revenues, after elimination of
intersegment revenues, of $754.4 million increased
$140.3 million (23%) during the year ended August 31,
2007 compared to fiscal 2006. Because our wheat milling,
renewable fuels and packaged foods operations are operated
through non-consolidated joint ventures, revenues reported in
our Processing segment are entirely from our oilseed processing
operations. Processed soybean volumes increased 7%, accounting
for an increase in revenues of $27.8 million, and a higher
average sales price of processed oilseed and other revenues
increased total revenues for this segment by $42.4 million.
Oilseed refining revenues increased $66.6 million (23%), of
which $50.4 million was due to a higher average sales price
and $16.1 million was due to a net increase in sales
volume. The average selling price of processed oilseed increased
$22 per ton and the average selling price of refined oilseed
products increased $0.05 per pound compared to 2006. Increased
processed soyflour sales of $3.5 million (27%) accounts for
the remaining increase in revenues. The changes in the average
selling price of products are primarily driven by the higher
price of soybeans.
39
Cost of Goods Sold.
Consolidated cost of goods
sold of $16.1 billion for the year ended August 31,
2007 compared to $13.6 billion for the year ended
August 31, 2006, which represents a $2.5 billion (19%)
increase.
Our Energy segment cost of goods sold, after elimination of
intersegment costs, of $7.0 billion increased by
$453.5 million (7%) during the year ended August 31,
2007 compared to fiscal 2006. This net change includes increased
cost of goods sold of $624.5 million related to changes in
volume from our ethanol marketing venture, which we acquired in
April of fiscal 2006. The remaining change in cost of goods sold
is primarily due to decreased volumes of propane, partially
offset by increased net average per gallon costs of propane. The
propane volumes decreased 22%, while the average cost of propane
increased $0.05 (5%) compared to the year ended August 31,
2006. The average cost of refined fuels decreased by $0.02 (1%)
per gallon, while volumes increased 2% compared to the year
ended August 31, 2006. We process approximately
55,000 barrels of crude oil per day at our Laurel, Montana
refinery and 80,000 barrels of crude oil per day at
NCRAs McPherson, Kansas refinery. The average cost
decrease on refined fuels is reflective of lower input costs at
our two crude oil refineries compared to the year ended
August 31, 2006. The average per unit cost of crude oil
purchased for the two refineries decreased 5% compared to the
year ended August 31, 2006.
Our Ag Business segment cost of goods sold, after elimination of
intersegment costs, of $8.4 billion increased
$2.0 billion (31%) during the year ended August 31,
2007 compared to fiscal 2006. Grain cost of goods sold in our Ag
Business segment totaled $7,037.3 million and
$5,265.3 million during the years ended August 31,
2007 and 2006, respectively. The cost of grains and oilseed
procured through our Ag Business segment increased
$1,772.0 million (34%) compared to the year ended
August 31, 2006. This is the result of an 8% increase in
bushels sold along with an increase of $1.04 (24%) average cost
per bushel as compared to fiscal 2006. Corn and soybeans had the
largest volume increase compared to the year ended
August 31, 2006 followed by barley and wheat. Commodity
prices on corn, spring wheat and soybeans have increased
compared to the prices that were prevalent during the same
period in fiscal 2006. Our Ag Business segment cost of goods
sold, excluding the cost of grains procured through this
segment, increased during the year ended August 31, 2007
compared to fiscal 2006, primarily due to higher volumes and
price per unit costs of crop nutrients, energy, seed, crop
protection, feed and processed sunflower products. The higher
volumes are primarily related to acquisitions.
Our Processing segment cost of goods sold, after elimination of
intersegment costs, of $726.1 million increased
$137.8 million (23%) compared to the year ended
August 31, 2006, which was primarily due to increased costs
of soybeans in addition to increased volumes.
Marketing, General and
Administrative.
Marketing, general and
administrative expenses of $245.4 million for the year
ended August 31, 2007 increased by $14.1 million (6%)
compared to fiscal 2006. The net increase of $14.1 million
is primarily due to an increase of $1.0 million for
educational funding and increased performance-based incentive
plan expense, in addition to other employee benefits and general
inflation, partially offset by a $3.0 million net increase
in gains on disposals of fixed assets.
Gain on Investments.
During our first fiscal
quarter in 2007, we sold approximately 25% of our investment in
CF. We received cash proceeds of $10.9 million and recorded
a gain of $5.3 million, which is reflected within the
results reported for our Ag Business segment. In December 2006,
US BioEnergy completed an initial public offering (IPO) and the
effect of the issuance of additional shares of its stock was to
dilute our ownership interest from approximately 25% to 21%. Due
to US BioEnergys increase in equity, we recognized a
non-cash net gain of $11.4 million on our investment to
reflect our proportionate share of the increase in the
underlying equity of US BioEnergy. Subsequent to the IPO, our
ownership interest decreased to approximately 19% and our gain
was increased by $3.9 million, which brings the net gain to
a total of $15.3 million. This net gain is reflected in our
Processing segment.
Interest, net.
Net interest of
$31.1 million for the year ended August 31, 2007
decreased $10.2 million (25%) compared to fiscal 2006.
Interest expense for the years ended August 31, 2007 and
2006 was $51.8 million and $50.6 million,
respectively. Interest income, generated primarily from
marketable securities, was $20.7 million and
$9.3 million, for the years ended August 31, 2007 and
2006, respectively. The interest expense increase of
$1.2 million (2%) includes an increase in short-term
borrowings, primarily created by
40
higher working capital needs, and an increase in the average
short-term interest rate, partially offset by an increase in
capitalized interest of $7.1 million. For the years ended
August 31, 2007 and 2006, we capitalized interest of
$11.7 million and $4.6 million, respectively,
primarily related to construction projects in our Energy
segment. The increase in capitalized interest primarily relates
to financing interest on our coker project mostly during 2007,
partially offset by the final stages of the ultra-low sulfur
upgrades at our energy refineries during fiscal 2006. The
average level of short-term borrowings increased
$263.6 million during the year ended August 31, 2007
compared to fiscal 2006, and the average short-term interest
rate increased 0.69%. The interest income increase of
$11.4 million (124%) was primarily at NCRA within our
Energy segment and relates to marketable securities and in
Corporate and Other which relates to an increase in interest
income on our hedging services.
Equity Income from Investments.
Equity income
from investments of $109.7 million for the year ended
August 31, 2007 increased $25.5 million (30%) compared
to fiscal 2006. We record equity income or loss primarily from
the 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. The net increase in
equity income from investments was attributable to improved
earnings from investments in all of our business segments and
Corporate and Other. These improvements included
$0.6 million for Energy, $10.9 million for Ag
Business, $13.0 million for Processing and
$1.0 million for Corporate and Other.
Our Ag Business segment generated improved earnings of
$10.9 million from equity investments. Our share of equity
investment earnings or losses in Agriliance increased earnings
by $3.0 million and is primarily attributable to improved
margins for wholesale and retail crop nutrient products sold
during the spring planting season, partially offset by an
impairment related to repositioning of their retail operations.
Our investment in a Canadian agronomy joint venture contributed
an increase in earnings of $0.4 million. During the first
fiscal quarter of 2007, we invested $22.2 million for an
equity position in a Brazil-based grain handling and
merchandising company, Multigrain S.A., which was owned jointly
(50/50) with Multigrain Comercia, an agricultural commodities
business headquartered in Sao Paulo, Brazil. We recorded income
of $4.8 million during the year ended August 31, 2007
for that equity investment. This income for Multigrain S.A.
includes a gain of $2.1 million on a sale of 25% of its
investment during the fourth fiscal quarter of 2007. At the same
time, Mitsui Corporation invested in this business so that as of
August 31, 2007, our ownership interest in Multigrain S.A.
was 37.5%. Our wheat exporting investment in United Harvest
contributed improved earnings of $0.2 million, and our
equity income from our investment in TEMCO, a joint venture
which exports primarily corn and soybeans, also reflected
$2.7 million of improved earnings. Our country operations
business reported an aggregate decrease in equity investment
earnings of $0.2 million for several small equity
investments.
Our Processing segment generated improved earnings of
$13.0 million from equity investments. During fiscal 2006
and 2007, we invested $115.4 million in US BioEnergy, an
ethanol manufacturing company, and recorded improved earnings of
$9.3 million during the year ended August 31, 2007
compared to fiscal 2006, primarily from operating margins as US
BioEnergy had additional plants put into production compared to
fiscal 2006. Ventura Foods, our vegetable oil-based products and
packaged foods joint venture, recorded improved earnings of
$2.3 million, and Horizon Milling, our domestic and
Canadian wheat milling joint ventures, recorded improved
earnings of $1.1 million compared to fiscal 2006. Ventura
Foods improved results were primarily due to improved
product margins. A shifting demand balance for soybeans for both
food and renewable fuels meant addressing supply and price
challenges for both CHS and our Ventura Foods joint venture.
Horizon Millings results are primarily affected by
U.S. dietary habits. Although the preference for a low
carbohydrate diet appears to have reached the bottom of its
cycle, milling capacity, which had been idled over the past few
years because of lack of demand for flour products, can easily
be put back into production as consumption of flour products
increases, which may continue to depress gross margins in the
milling industry.
Our Energy segment generated increased equity investment
earnings of $0.6 million related to improved margins in an
equity investment held by NCRA, and Corporate and Other
generated improved earnings of
41
$1.0 million from equity investment earnings, primarily
from Cofina Financial, our financial services equity investment,
as compared to fiscal 2006.
Minority Interests.
Minority interests of
$143.2 million for the year ended August 31, 2007
increased by $57.2 million (67%) compared to fiscal 2006.
This net increase was a result of more profitable operations
within our majority-owned subsidiaries compared to fiscal 2006.
Substantially all minority interests relate to NCRA, an
approximately 74.5% owned subsidiary, which we consolidate in
our Energy segment.
Income Taxes.
Income tax expense, excluding
discontinued operations, of $36.6 million for the year
ended August 31, 2007 compares with $49.3 million for
fiscal 2006, resulting in effective tax rates of 4.7% and 9.2%,
respectively. During the year ended August 31, 2007, we
recognized additional tax benefits of $9.6 million upon the
receipt of a tax refund from the Internal Revenue Service
related to export incentive credits. The federal and state
statutory rate applied to nonpatronage business activity was
38.9% for the years ended August 31, 2007 and 2006. The
income taxes and effective tax rate vary each year based upon
profitability and nonpatronage business activity during each of
the comparable years.
Discontinued Operations.
During the year ended
August, 31, 2005, we reclassified our Mexican foods operations,
previously reported in Corporate and Other, along with gains and
losses recognized on sales of assets, and impairments on assets
for sale, as discontinued operations that were sold or have met
required criteria for such classification. In our Consolidated
Statements of Operations, all of our Mexican foods operations
have been accounted for as discontinued operations. The amounts
recorded for the years ended August 31, 2006 and 2005 were
$1.0 million income ($0.6 million in income, net of
taxes), primarily the result of the sale of remaining assets,
and $27.5 million loss ($16.8 million loss, net of
taxes), respectively.
Comparison
of the years ended August 31, 2006 and 2005
General.
We recorded income from continuing
operations before income taxes of $539.0 million in fiscal
2006 compared to $297.3 million in fiscal 2005, an increase
of $241.7 million (81%). These results reflected increased
pretax earnings in our Energy and Processing segments, and
Corporate and Other, partially offset by slightly decreased
earnings in our Ag Business segment.
Our Energy segment generated income from continuing operations
before income taxes of $407.6 million for the year ended
August 31, 2006 compared to $185.2 million in fiscal
2005. This increase in earnings of $222.4 million (120%) is
primarily attributable to higher margins on refined fuels, which
resulted mainly from limited refining capacity and increased
global demand. With hurricane damages in the fall of 2005, the
energy industry faced supply restrictions and distribution
disruptions. Pipeline shutdowns later in fiscal 2006 also
limited crude oil volumes. Earnings in our propane and
transportation operations also improved compared to 2005. These
improvements were partially offset by decreased earnings in our
lubricants and petroleum equipment businesses.
Our Ag Business segment generated income from continuing
operations before income taxes of $91.7 million for the
year ended August 31, 2006 compared to $92.1 million
in fiscal 2005, a decrease in earnings of $0.4 million
(less than 1%). Strong domestic grain movement, much of it
driven by increased U.S. ethanol production, contributed to
good performances by both our country operations and grain
marketing businesses. Our country operations earnings increased
$14.3 million, primarily as a result of increased grain
volumes and overall improved product margins, including
historically high margins on grain and energy transactions.
Market expansion into Oklahoma and Kansas also increased country
operations volumes. Our grain marketing operations
improved earnings by $11.0 million in fiscal 2006 compared
with 2005, primarily from increased grain volumes and improved
margins on those grains. Volatility in the grain markets creates
opportunities for increased grain margins, and additionally
during fiscal 2006, increased interest in renewable fuels, and
higher transportation costs shifted marketing patterns and
dynamics for our grain marketing business. These improvements in
earnings in our country operations and grain marketing
businesses were partially offset by reduced earnings generated
through our wholesale and retail agronomy ownership interests,
primarily Agriliance, net of allocated internal expenses, which
decreased $16.1 million, primarily in reduced crop
nutrients and crop protection margins. Weather-interrupted
supply patterns and resulting price fluctuations dramatically
reduced crop nutrients use and sales during fiscal 2006. High
natural gas prices, increasing
42
international demand for nitrogen, and hurricane damage to
warehouse facilities and the resulting transportation grid led
to price increases early in the year. Coupled with high energy
costs and low grain prices, many crop producers elected to scale
back nutrients applications for the 2006 growing year. As a
result, larger remaining inventories later in the year drove
significant devaluation and reduced revenues.
Also affecting the agronomy business of our Ag Business segment,
in February 2005, the board of directors of CF Industries, Inc.
(CF), a domestic fertilizer manufacturer in which CHS held a
minority interest, determined after reviewing indicative values
from strategic buyers that a greater value could be derived for
the business through an initial public offering of stock in the
company. The initial public offering (IPO) was completed in
August 2005. Prior to the IPO, CHS held an ownership interest of
approximately 20% in CF, with a carrying value of
$153.0 million, which consisted primarily of noncash
patronage refunds received from CF over the years. Through the
IPO, CHS sold approximately 81% of its ownership interest for
cash proceeds of $140.4 million. As a result, the Company
recognized a pretax gain of $9.6 million pretax gain
($8.8 million net of taxes) during 2005.
Our Processing segment generated income from continuing
operations before income taxes of $28.5 million for the
year ended August 31, 2006 compared to $13.2 million
in fiscal 2005, an increase in earnings of $15.3 million
(116%). Oilseed processing earnings increased
$13.8 million, which was primarily the result of improved
crushing margins, partially offset by slightly decreased oilseed
refining margins. Contrasting the two years, the soybean harvest
in the geographical area near our two crushing facilities was
greatly improved in the fall of 2005 (fiscal 2006) compared
with the fall of 2004 (fiscal 2005) harvest. During fiscal
2005, basis levels we paid for soybeans were higher than in most
of the other soybean producing areas of the country. The
improved 2005 fall harvest (fiscal 2006) normalized soybean
prices in our geographical area. These lower soybean prices
translated into lower raw material costs and higher volumes of
soybeans crushed at our two crushing facilities. Our share of
earnings from Horizon Milling, our wheat milling joint venture,
increased $1.9 million for the year ended August 31,
2006 compared to fiscal 2005. In addition, we recorded a loss of
$2.4 million in fiscal 2005 on the disposition of wheat
milling equipment at a closed facility. Our share of earnings
from Ventura Foods, our packaged foods joint venture, decreased
$2.0 million compared to fiscal 2005. During fiscal 2006,
we invested $70.0 million in US BioEnergy, an ethanol
manufacturing company, in which we recorded a loss of
$0.7 million; including allocated interest and internal
expenses we recorded a pretax loss of $3.2 million.
Corporate and Other generated income from continuing operations
before income taxes of $11.1 million for the year ended
August 31, 2006 compared to $6.8 million in fiscal
2005, an increase in earnings of $4.3 million (64%). The
primary increase in earnings resulted from our business
solutions operations which reflected improved earnings of
$4.2 million, primarily as a result of improved hedging and
financial services income and reduced internal expenses.
Net Income.
Consolidated net income for the
year ended August 31, 2006 was $490.3 million compared
to $250.0 million for the year ended August 31, 2005,
which represented a $240.3 million (96%) increase.
Revenues.
Consolidated revenues of
$14.4 billion for the year ended August 31, 2006
compared to $11.9 billion for the year ended
August 31, 2005, which represented a $2.5 billion
(21%) increase.
Total revenues include other revenues generated primarily within
our Ag Business segment and Corporate and Other. Our Ag Business
segments country operations elevator and agri-service
centers derives other revenues from activities related to
production agriculture, which include grain storage, grain
cleaning, fertilizer spreading, crop protection spraying and
other services of this nature, and our grain marketing
operations receives other revenues at our export terminals from
activities related to loading vessels.
Our Energy segment revenues, after elimination of intersegment
revenues, of $7.2 billion increased $1,548.3 million
(28%) during the year ended August 31, 2006 compared to the
year ended August 31, 2005. During the years ended
August 31, 2006 and 2005, our Energy segment recorded
revenues to our Ag Business segment of $242.4 million and
$170.6 million, respectively. The revenues increase of
$1,548.3 million was comprised of a net increase of
$1,490.1 million related to price appreciation on refined
fuels and propane products and $58.2 million related to a
net increase in sales volume. Refined fuels revenues increased
43
$1,186.1 million (28%), of which $1,452.4 million was
related to a net average selling price increase, partially
offset by $266.3 million, which was related to decreased
volumes, compared to fiscal 2005. The increased revenues also
included $220.6 million from ethanol marketing, which was
partially offset by decreased volumes of other refined fuels and
propane products. The sales price of refined fuels increased
$0.53 per gallon (35%) while volumes decreased 5% when comparing
the year ended August 31, 2006 with the fiscal 2005. Higher
crude oil prices, strong global demand and limited refining
capacity contributed to the increase in refined fuels selling
prices. The decrease in refined fuels volumes reflected
intentional reduction of lower margin unbranded volumes. Propane
revenues increased by $57.8 million (9%), of which
$125.8 million was related to a net average selling price
increase, partially offset by $68.0 million which was
related to decreased volumes compared to the same period in
fiscal 2005. Propane prices increased $0.17 per gallon (19%) and
sales volume decreased 9% in comparison to the same period of
fiscal 2005. Propane prices tend to follow the prices of crude
oil and natural gas, both of which increased during the year
ended August 31, 2006 compared to the same period in 2005.
The decrease in propane volumes reflected a loss of exclusive
propane marketing rights at our former suppliers
proprietary terminals.
Our Ag Business segment revenues, after elimination of
intersegment revenues, of $6.6 billion increased
$905.4 million (16%) during the year ended August 31,
2006 compared to the year ended August 31, 2005. Grain
revenues in our Ag Business segment totaled
$5,337.2 million and $4,613.6 million during the years
ended August 31, 2006 and 2005, respectively. Of the grain
revenues increase of $723.6 million (16%),
$417.1 million was attributable to increased volumes and
$306.5 million was due to increased average selling grain
prices during the year ended August 31, 2006 compared to
fiscal 2005. The average sales price of all grain and oilseed
commodities sold reflected an increase of $0.27 per bushel (7%).
Commodity prices in general increased following a strong fall
2005 harvest that produced good yields throughout most of the
United States, with the quality of most grains rated as
excellent or good. The higher average market price per bushel of
spring wheat and corn were approximately $0.74 and $0.15,
respectively, partially offset by lower average market price per
bushel of soybeans of approximately $0.15, as compared to the
prices of those same grains for the year ended August 31,
2005. Volumes increased 8% during the year ended August 31,
2006 compared with the same period of fiscal 2005. Corn, winter
wheat and soybeans reflected the largest volume increases
compared to the year ended August 31, 2005. While some
areas of the U.S. experienced drought conditions there was
a large harvest in 2006. Our Ag Business segment non-grain
revenues of $1.2 billion increased by $181.8 million
(17%) during the year ended August 31, 2006 compared to the
year ended August 31, 2005, primarily the result of
increased revenues of energy, crop nutrients, feed and crop
protection products, in addition to seed and processed sunflower
revenues. These increased non-grain revenues included expansion
into Oklahoma and Kansas. The average selling price of energy
products increased due to overall market conditions while
volumes, not including acquisitions, were fairly consistent to
the year ended August 31, 2005.
Our Processing segment revenues, after elimination of
intersegment revenues, of $614.1 million increased
$0.8 million (less than 1%) during the year ended
August 31, 2006 compared to the year ended August 31,
2005. Because our wheat milling and packaged foods operations
are operated through non-consolidated joint ventures, revenues
reported in our Processing segment are entirely from our oilseed
processing operations. Processed soybean volumes increased 10%,
accounting for an increase in revenues of $22.6 million,
and were partially offset by lower average sales price of
processed oilseed and other revenues which reduced revenues by
$21.8 million. Oilseed refining revenues decreased
$14.3 million (5%), of which $9.3 million was due to
lower average sales price and $5.0 million was due to a 2%
net decrease in sales volume. The average selling price of
processed oilseed decreased $7 per ton and the average selling
price of refined oilseed products decreased $0.01 per pound
compared to the same period of fiscal 2005. These changes in the
selling price of products were primarily driven by the average
price of soybeans.
Cost of Goods Sold.
Cost of goods sold of
$13.6 billion increased $2.1 billion (19%) during the
year ended August 31, 2006 compared to the year ended
August 31, 2005.
Our Energy segment cost of goods sold, after elimination of
intersegment costs, of $6.6 billion increased by
$1,275.1 million (24%) during the year ended
August 31, 2006 compared to the same period of fiscal 2005,
primarily due to increased average costs of refined fuels and
propane products. On a more product-specific
44
basis, the average cost of refined fuels increased by $0.49
(33%) per gallon, which included an increased cost of
$220.8 million from ethanol marketing, and was partially
offset by a 5% decrease in volumes compared to the year ended
August 31, 2005. We process approximately
55,000 barrels of crude oil per day at our Laurel, Montana
refinery and 80,000 barrels of crude oil per day at
NCRAs McPherson, Kansas refinery. The average cost
increase on refined fuels was reflective of higher input costs
at our two crude oil refineries and higher average prices on the
refined products that we purchased for resale compared to the
year ended August 31, 2005. The average per unit cost of
crude oil purchased for the two refineries increased 26%
compared to the year ended August 31, 2005. The average
cost of propane increased $0.16 (19%) per gallon, partially
offset by a 9% decrease in volumes compared to the year ended
August 31, 2005. The average price of propane increased due
to higher procurement costs.
Our Ag Business segment cost of goods sold, after elimination of
intersegment costs, of $6.4 billion increased
$861.1 million (16%) during the year ended August 31,
2006 compared to the same period of fiscal 2005. Grain cost of
goods sold in our Ag Business segment totaled
$5,265.3 million and $4,550.2 million during the years
ended August 31, 2006 and 2005, respectively. The cost of
grains and oilseeds procured through our Ag Business segment
increased $715.1 million (16%) compared to the year ended
August 31, 2005. This was primarily the result of a 14%
increase in bushels along with an increase of $0.07 (2%) average
cost per bushel as compared to fiscal 2005. Corn, winter wheat
and soybeans reflected the largest volume increases compared to
the year ended August 31, 2005. Commodity prices on spring
wheat and corn increased, while soybean commodity prices showed
an average decrease, compared to the prices that were prevalent
during the majority of fiscal 2005. Our Ag Business segment cost
of goods sold, excluding the cost of grains procured through
this segment, increased during the year ended August 31,
2006 compared to the year ended August 31, 2005, primarily
due to energy, crop nutrients, feed and crop protection
products, in addition to seed and processed sunflower products.
These increased costs for products included expansion into
Oklahoma and Kansas. The average cost of energy products
increased due to overall market conditions while volumes, not
including acquisitions, were fairly consistent to the year ended
August 31, 2005.
Our Processing segment cost of goods sold, after elimination of
intersegment costs, of $588.4 million decreased
$15.3 million (3%) compared to the year ended
August 31, 2005, which was primarily due to decreased input
costs of soybeans processed at our two crushing plants,
partially offset by higher volumes of soybeans processed at
those plants.
Marketing, General and
Administrative.
Marketing, general and
administrative expenses of $231.2 million for the year
ended August 31, 2006 increased by $31.9 million (16%)
compared to the year ended August 31, 2005. The net
increase of $31.9 million was primarily due to increased
performance-based incentive plan expense, in addition to other
compensation benefits, pension and general inflation.
Gain on Investments.
During the fourth quarter
of fiscal 2005, we sold approximately 81% of our investment in
CF Industries, Inc. through an initial public offering of our
equity in that company. We received cash proceeds of
$140.4 million and recorded a gain of $9.6 million,
net of an impairment charge of $35.0 million recognized
during the first quarter of fiscal 2005. This gain is reflected
within the results reported for our Ag Business segment.
During the second quarter of fiscal 2005, we sold stock
representing a portion of our investment in a publicly-traded
company for cash proceeds of $7.4 million and recorded a
gain of $3.4 million.
Interest, net.
Interest, net of
$41.3 million for the year ended August 31, 2006
decreased $0.2 million (less than 1%) compared to the year
ended August 31, 2005. Interest expense for the years ended
August 31, 2006 and 2005 was $50.6 million and
$51.5 million, respectively. Interest income, primarily
from marketable securities, for the years ended August 31,
2006 and 2005 was $9.3 million and $10.0 million,
respectively. The interest expense decrease of $0.9 million
(2%) includes a decrease of short-term borrowings primarily
related to a net decrease in working capital, partially offset
by an increase in the average short-term interest rate and a
reduction in capitalized interest. For the fiscal years ended
August 31, 2006 and 2005, we capitalized interest of
$4.7 million and $6.8 million, respectively, primarily
related to capitalized construction projects in our Energy
segment. The reduction in capitalized interest relates to the
interest on financing the final stages of the ultra-low sulfur
upgrades at our energy refineries. The average level of
short-term borrowings decreased
45
$143.4 million during fiscal 2006 compared to the year
ended August 31, 2005, while the average short-term
interest rate increased 1.50%. The interest income decrease of
$0.7 million (8%) was primarily in our Energy segment
related to a decrease in interest income from short term
investments, primarily at NCRA.
Equity Income from Investments.
Equity income
from investments of $84.2 million for the year ended
August 31, 2006 decreased $11.6 million (12%) compared
to the year ended August 31, 2005. We record equity income
or loss from the 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. The
net decrease in equity income from investments was attributable
to reduced earnings from investments within our Ag Business and
Processing segments of $14.6 million and $0.7 million,
respectively and was partially offset by improved earnings
within our Energy segment and Corporate and Other of
$0.4 million and $3.3 million, respectively.
Our Ag Business segment generated reduced earnings of
$14.6 million from equity investments. Our investment in a
Canadian joint venture contributed reduced earnings of
$1.5 million. Our share of equity investment earnings in
Agriliance decreased $12.4 million and primarily relates to
reduced crop nutrients and crop protection margins.
Weather-interrupted supply patterns and resulting wide price
fluctuations dramatically reduced crop nutrients use and sales
during fiscal 2006. High natural gas prices, increasing
international demand for nitrogen, and hurricane damage to
warehouse facilities and the related transportation grid led to
price increases early in fiscal 2006. Coupled with high energy
costs and low grain prices, many crop producers elected to scale
back nutrient applications for the 2006 growing year. As a
result, larger remaining inventories later in fiscal 2006 drove
significant devaluation and reduced revenues. Our equity income
from our investment in TEMCO, a joint venture, which exports
primarily corn and soybeans, recorded reduced earnings primarily
on logistics of $4.2 million, while our wheat exporting
investment in United Harvest contributed improved earnings of
$2.4 million. Our country operations reported an aggregate
increase in equity investment earnings of $1.1 million for
several small equity investments.
Our Processing segment generated reduced earnings of
$0.7 million from equity investments. Ventura Foods, our
vegetable oil-based products and packaged foods joint venture,
recorded reduced earnings of $2.0 million, partially offset
by Horizon Milling, our wheat milling joint venture, which
recorded improved earnings of $1.9 million compared to
fiscal 2005. During 2006, we invested $70.0 million in US
BioEnergy Corporation (US BioEnergy), an ethanol manufacturing
company, representing an approximate 24% ownership and recorded
losses of $0.7 million. A shifting demand balance for
soybeans for both food and renewable fuels meant addressing
supply and price challenges for both CHS and our joint venture
with Ventura Foods. Ventura Foods also completed integration of
its dressing and dips acquisition, and exited a large part of
its nutritional products business, all of which resulted in
increased general expenses. Horizon Millings results are
primarily affected by U.S. dietary habits. Although the
preference for a low carbohydrate diet appears to have reached
the bottom of its cycle, milling capacity, which had been idled
over the past few years because of lack of demand for flour
products, can easily be put back in production as consumption of
flour products increases, which will continue to depress gross
margins in the milling industry.
Our Energy segment generated improved earnings of
$0.4 million related to improved margins in an NCRA equity
investment, and Corporate and Other generated improved earnings
of $3.3 million from equity investments, primarily from
Cofina Financial, our financial services equity investment, as
compared to the year ended August 31, 2005.
Minority Interests.
Minority interests of
$86.0 million for the year ended August 31, 2006
increased by $38.2 million (80%) compared to the year ended
August 31, 2005. This net increase was a result of more
profitable operations within our majority-owned subsidiaries
compared to fiscal 2005. Substantially all minority interests
relate to NCRA, an approximately 74.5% owned subsidiary, which
we consolidate in our Energy segment.
Income Taxes.
Income tax expense, excluding
discontinued operations, of $49.3 million for the year
ended August 31, 2006 compares with $30.4 million for
the year ended August 31, 2005, resulting in effective tax
rates of 9.2% and 10.2%, respectively. The federal and state
statutory rate applied to nonpatronage business
46
activity was 38.9% for the years ended August 31, 2006 and
2005. The income taxes and effective tax rate vary each year
based upon profitability and nonpatronage business activity
during each of the comparable years.
Discontinued Operations.
During the year ended
August, 31, 2005, we reclassified our Mexican foods operations,
previously reported in Corporate and Other, along with gains and
losses recognized on sales of assets, and impairments on assets
for sale, as discontinued operations that were sold or have met
required criteria for such classification. In our Consolidated
Statements of Operations, all of our Mexican foods operations
have been accounted for as discontinued operations. The amounts
recorded for the years ended August 31, 2006 and 2005 were
$1.0 million income ($0.6 million in income, net of
taxes), primarily the result of the sale of remaining assets,
and $27.5 million loss ($16.8 million loss, net of
taxes), respectively.
Liquidity
and Capital Resources
On August 31, 2007, we had working capital, defined as
current assets less current liabilities, of $815.6 million
and a current ratio, defined as current assets divided by
current liabilities of 1.3 to 1.0, compared to working capital
of $829.0 million and a current ratio of 1.5 to 1.0 on
August 31, 2006.
On August 31, 2007 our committed line of credit consisted
of a five-year revolving facility in the amount of
$1.1 billion, with a $200.0 million potential addition
for future expansion accordion feature. On October 1, 2007,
we exercised the accordion feature of the agreement and obtained
additional commitments in the amount of $200.0 million from
certain lenders under the agreement. The additional commitments
increased the total to $1.3 billion on the facility. This
credit facility was established with a syndicate of domestic and
international banks, and our inventories and receivables
financed with it are highly liquid. On August 31, 2007, we
had $600.0 million outstanding on this line of credit
compared with no amount outstanding on August 31, 2006. In
addition, we have two commercial paper programs totaling
$125.0 million with banks participating in our
five-year
revolver. On August 31, 2007, we had $51.9 million of
commercial paper outstanding. Late summer and early fall are
typically our lowest points of seasonal borrowings however, due
to recent appreciation in commodity prices, further discussed in
Cash Flows from Operations, our borrowings have been
much higher in comparison to prior years. In addition to
exercising the accordion feature of our five-year revolver, on
October 4, 2007, we entered into a private placement note
purchase agreement and received proceeds of $400.0 million
which were used to pay down the five-year revolver. With this
recent additional borrowing capacity, we believe that we have
adequate liquidity to cover any increase in net operating assets
and liabilities in the foreseeable future.
Cash
Flows from Operations
Cash flows from operations are generally affected by commodity
prices and the seasonality of our businesses. These commodity
prices are affected by a wide range of factors beyond our
control, including weather, crop conditions, drought, the
availability and the adequacy of supply and transportation,
government regulations and policies, world events, and general
political and economic conditions. These factors are described
in the Risk Factors section of this Registration Statement on
Form S-1, and may affect net operating assets and liabilities,
and liquidity.
Cash flows provided by operating activities were
$372.6 million, $454.9 million and $276.5 million
for the years ended August 31, 2007, 2006 and 2005,
respectively. Volatility in cash flows from operations between
fiscal 2007 and 2006 is primarily the result of an increase in
operating assets and liabilities partially offset by greater net
income during fiscal 2007. Grain prices during fiscal 2007 have
been quite volatile. Because we hedge most of our grain
positions with futures contracts on regulated exchanges,
volatile prices create margin calls, reflected in other current
assets, which are a use of cash. In addition, higher commodity
prices affect inventory and receivable balances which consume
cash until inventories are sold and receivables are collected.
Volatility in cash flows from operations between fiscal 2006 and
2005 is primarily the result of greater net income during fiscal
2006.
Our operating activities provided net cash of
$372.6 million during the year ended August 31, 2007.
Net income of $750.3 million and net non-cash expenses and
cash distributions from equity investments of
47
$261.0 million were partially offset by an increase in net
operating assets and liabilities of $638.7 million. The
primary components of net non-cash expenses and cash
distributions from equity investments included minority
interests of $143.2 million, depreciation and amortization
of $140.6 million and deferred taxes of $46.8 million,
which were partially offset by income from equity investments,
net of distributions, of $43.0 million and a pretax gain on
investments of $20.6 million. The increase in net operating
assets and liabilities was caused primarily by increased
commodity prices reflected in increased inventories,
receivables, and derivative assets and hedging deposits, both
included in other current assets, partially offset by an
increase in accounts payable and accrued expenses on
August 31, 2007 when compared to August 31, 2006. On
August 31, 2007, the market prices of our three primary
grain commodities, soybeans, spring wheat and corn, increased by
$3.26 (60%) per bushel, $2.37 (52%) per bushel and $0.92 (40%)
per bushel, respectively, when compared to the prices on
August 31, 2006. In addition, grain inventories in our Ag
Business segment increased by 39.6 million bushels (36%)
when comparing inventories at August 31, 2007 and 2006. In
general, crude oil prices increased $3.78 (5%) per barrel on
August 31, 2007 when compared to August 31, 2006.
Our operating activities provided net cash of
$454.9 million during the year ended August 31, 2006.
Net income of $490.3 million and net non-cash expenses and
cash distributions from equity investments of
$255.3 million were partially offset by an increase in net
operating assets and liabilities of $290.7 million. The
primary components of net non-cash expenses and cash
distributions from equity investments included depreciation and
amortization of $126.8 million, minority interests of
$86.0 million and deferred taxes of $78.3 million,
which were partially offset by income from equity investments,
net of distributions, of $25.9 million. The increase in net
operating assets and liabilities was caused primarily by an
increase in inventories and a decrease in payables on
August 31, 2006 when compared to August 31, 2005. The
increase in inventories was primarily due to an increase in
grain prices and grain inventory quantities in our Ag Business
segment. On August 31, 2006, the market prices of two of
our primary grain commodities, spring wheat and corn, increased
by $1.04 (29%) per bushel and $0.31 (15%) per bushel,
respectively, and soybeans, another high volume commodity, saw a
decline in price of $0.45 (8%) per bushel when compared to
August 31, 2005. Grain inventories in our Ag Business
segment increased by 16.3 million bushels (18%) when
comparing inventories at August 31, 2006 and 2005. In
addition, energy inventories at NCRA increased by 763 thousand
barrels (26%) on August 31, 2006 when compared to
August 31, 2005, and were also valued using prices that
were 46% higher than the previous year. The decrease in accounts
payable is related to NCRA, and is primarily due to a decrease
in payables for crude oil purchased. The decrease in crude oil
payables was related to the planned major maintenance
turnaround, during which time the refinery was shut down and
inventory was not used for production. The turnaround was
completed by the end of August 2006.
Our operating activities provided net cash of
$276.5 million during the year ended August 31, 2005.
Net income of $250.0 million and net non-cash expenses and
cash distributions from equity investments of
$137.3 million were partially offset by an increase in net
operating assets and liabilities of $110.8 million. The
primary components of net non-cash expenses and cash
distributions from equity investments included depreciation and
amortization of $110.3 million, minority interests of
$47.7 million and deferred tax expense of
$26.4 million, which were partially offset by income from
equity investments, net of distributions, of $30.9 million,
and a pretax gain on the sale of investments of
$13.0 million. The increase in net operating assets and
liabilities was caused primarily by an increase in crude oil
prices of $26.82 per barrel (64%) on August 31, 2005 when
compared to August 31, 2004, and an increase in grain and
oilseed inventories in our Ag Business segment of
36.1 million bushels (64%) when comparing those same fiscal
year-end dates.
Crude oil prices are expected to be volatile in the foreseeable
future, but related inventories and receivables are turned in a
relatively short period, thus somewhat mitigating the effect on
operating assets and liabilities. Grain prices are influenced
significantly by global projections of grain stocks available
until the next harvest. Demand for corn by the ethanol industry
created an incentive to divert acres, from soybeans and wheat,
to corn this past planting year. The affect has been to
stabilize corn prices at a relatively high level, and also to
appreciate the prices for soybeans and wheat. Grain prices were
volatile during fiscal 2007, and have continued to be volatile
into the first quarter of fiscal 2008. We anticipate that high
demand for all grains and oilseeds will likely continue to
create high prices and price volatility for those commodities
into fiscal 2008.
48
Cash
Flows from Investing Activities
For the years ended August 31, 2007, 2006 and 2005, the net
cash flows used in our investing activities totaled
$495.3 million, $265.3 million and $91.9 million,
respectively.
The acquisition of property, plant and equipment comprised the
primary use of cash totaling $373.3 million,
$235.0 million and $257.5 million for the years ended
August 31, 2007, 2006 and 2005, respectively. Capital
expenditures primarily related to the U.S. Environmental
Protection Agency (EPA) low sulfur fuel regulations required by
2006 are complete at our Laurel, Montana refinery and
NCRAs McPherson, Kansas refinery. We incurred capital
expenditures from fiscal 2003 through 2006 related to these
projects of $88.1 million for our Laurel, Montana refinery
and $328.7 million for NCRAs McPherson, Kansas
refinery. Expenditures for the projects at the two refineries in
total during the years ended August 31, 2006 and 2005 were
$71.5 million and $165.1 million, respectively.
For the year ending August 31, 2008, we expect to spend
approximately $355.0 million for the acquisition of
property, plant and equipment. Included in our projected capital
spending through fiscal 2008 is completion of the installation
of a coker unit at our Laurel, Montana refinery, along with
other refinery improvements, which will allow us to extract a
greater volume of high value gasoline and diesel fuel from a
barrel of crude oil and less relatively low value asphalt, that
is expected to increase yields by about 14 percent. The
total cost for this project is expected to be approximately
$380.0 million, with completion planned during fiscal 2008.
Funding of the project is expected to continue to be from cash
flows from operations and long-term borrowings. Total
expenditures for this project as of August 31, 2007, were
$284.3 million, of which $221.5 million and
$62.8 million were incurred during the years ended
August 31, 2007 and 2006, respectively.
In October 2003, we and NCRA reached agreements with the EPA and
the State of Montanas Department of Environmental Quality
and the State of Kansas Department of Health and Environment
regarding the terms of settlements with respect to reducing air
emissions at our Laurel, Montana and NCRAs McPherson,
Kansas refineries. These settlements are part of a series of
similar settlements that the EPA has negotiated with major
refiners under the EPAs Petroleum Refinery Initiative. The
settlements take the form of consent decrees filed with the
U.S. District Court for the District of Montana (Billings
Division) and the U.S. District Court for the District of
Kansas. Each consent decree details potential capital
improvements, supplemental environmental projects and
operational changes that we and NCRA have agreed to implement at
the relevant refinery over several years. The consent decrees
also required us, and NCRA, to pay approximately
$0.5 million in aggregate civil cash penalties. As of
August 31, 2007, the aggregate capital expenditures for us
and NCRA related to these settlements was approximately
$22 million, and we anticipate spending an additional
$9 million over the next four years. We do not believe that
the settlements will have a material adverse effect on us, or
NCRA.
Investments made during the years ended August 31, 2007,
2006 and 2005 totaled $95.8 million, $73.0 million and
$25.9 million, respectively. During the year ended
August 31, 2007, we invested $22.2 million for an
equity position in a Brazil-based grain handling and
merchandising company, Multigrain S.A., an agricultural
commodities business headquartered in Sao Paulo, Brazil, and
currently have a 37.5% ownership interest which is included in
our Ag Business segment. This venture, which includes grain
storage and export facilities, builds on our South American
soybean origination, and helps meet customer needs year-round.
We plan to continue to expand our presence in South America by
exploring processing opportunities in other commodity areas. Our
grain marketing operations have also added to our global
presence by opening offices in Geneva and Hong Kong, and
continue to explore other opportunities to establish a presence
in emerging grain origination and export markets. We have also
invested $15.6 million in Horizon Milling G.P. (24% CHS
ownership) during the year ended August 31, 2007, a joint
venture included in our Processing segment, that acquired the
Canadian grain-based foodservice and industrial businesses of
Smucker Foods of Canada, which includes three flour milling
operations and two dry baking mixing facilities in Canada.
During the year ended August 31, 2007, we made additional
investments of $45.4 million in US BioEnergy, bringing our
total cash investment for common stock in that company to
$115.4 million. Prior investments in US BioEnergy include
$70.0 million of stock purchased during the year ended
August 31, 2006. In December
49
2006, US BioEnergy completed an initial public offering (IPO),
and the effect of the issuance of additional shares of its stock
was to dilute our ownership interest from approximately 25% to
21%. In addition, on August 29, 2007, US BioEnergy
completed an acquisition with total aggregate net consideration
comprised of the issuance of US BioEnergy common stock and cash.
Due to US BioEnergys increase in equity, primarily from
these two transactions, we recognized a non-cash net gain of
$15.3 million on our investment during the year ended
August 31, 2007, to reflect our proportionate share of the
increase in the underlying equity of US BioEnergy. This
gain is reflected in our Processing segment. On August 31,
2007, our ownership interest in US BioEnergy was approximately
19%, and based upon the market price of $10.41 per share on that
date, our investment had a fair value of approximately
$159.3 million. During the first quarter of fiscal 2008, we
purchased additional shares of US BioEnergy common stock for
$6.5 million, which increased our ownership interest to
approximately 20%. We are recognizing earnings of US BioEnergy
to the extent of our ownership interest using the equity method
of accounting. During the year ended August 31, 2005, we
contributed $19.6 million in cash (plus an additional
$18.5 million in net assets, primarily loans) to Cofina
Financial for a 49% equity interest. Cofina Financial was formed
by us and Cenex Finance Association to provide financing for
agricultural cooperatives and businesses, and to producers of
agricultural products
During the years ended August 31, 2007, 2006 and 2005,
changes in notes receivable resulted in a decrease in cash flows
of $29.3 million, an increase in cash flows of
$21.0 million and a decrease in cash flows of
$23.8 million, respectively. The notes were primarily from
related party notes receivable at NCRA from its minority owners,
Growmark, Inc. and MFA Oil Company.
Various cash acquisitions of intangibles totaled
$15.6 million during the year ended August 31, 2007.
The largest intangible acquired was $6.5 million, which was
included in the $15.1 million total acquisition price of a
distillers dried grain business included in our Ag Business
segment. The balance of this business acquisition included
$8.6 million of net working capital. During the years ended
August 31, 2006 and 2005, acquisitions of intangibles
totaled $2.9 million and $0.4 million, respectively.
Partially offsetting our cash outlays for investing activities
were proceeds from the disposition of property, plant and
equipment of $13.5 million, $13.9 million and
$21.1 million for the years ended August 31, 2007,
2006 and 2005, respectively. During the year ended
August 31, 2005, we sold the majority of our Mexican foods
business for proceeds of $38.3 million. The proceeds from
the sale of our Mexican foods business includes
$13.8 million received for equipment that was used to buy
out operating leases during the same period. Also partially
offsetting cash usages were investments redeemed totaling
$4.9 million, $7.3 million and $13.5 million for
the years ended August 31, 2007, 2006 and 2005,
respectively. During the year ended August 31, 2007, we
sold 540,000 shares of our CF stock, included in our Ag
Business segment, for proceeds of $10.9 million, and
recorded a pretax gain of $5.3 million, reducing our
ownership interest in CF to approximately 2.9%. During the first
quarter of fiscal 2008, we sold all of our remaining
1,610,396 shares of CF stock for proceeds of
$108.3 million and recorded a pretax gain of
$91.7 million. During the year ended August 31, 2005,
we received proceeds of $140.4 million from the sale of our
CF Industries, Inc. investment and recorded a pretax gain of
$9.6 million.
Cash
Flows from Financing Activities
We finance our working capital needs through short-term lines of
credit with a syndication of domestic and international banks.
In May 2006, we renewed and expanded our committed lines of
revolving credit to include a five-year revolver in the amount
of $1.1 billion, with a $200.0 million potential
addition for future expansion accordion feature. On
August 31, 2007, the committed amount on this facility was
$1.1 billion. On October 1, 2007, we exercised the
accordion feature of the agreement and obtained additional
commitments in the amount of $200.0 million from certain
lenders under the agreement. The additional commitments
increased the total to $1.3 billion on the facility. In
addition to this line of credit, we have a revolving credit
facility dedicated to NCRA, with a syndication of banks in the
amount of $15.0 million committed. In November 2007, the
line of credit dedicated to NCRA was renewed for an additional
year until December 2008. We also have a committed
revolving line of credit dedicated to Provista Renewable Fuels
Marketing, LLC (Provista), which expires in November 2009, in
the amount of $25.0 million. On August 31, 2007 and
2006, we had total short-term
50
indebtedness outstanding on these various facilities and other
miscellaneous short-term notes payable totaling
$620.7 million and $22.0 million, respectively, with
interest rates ranging from 1.00% to 8.25%.
During the year ended August 31, 2007, we instituted two
commercial paper programs, totaling up to $125.0 million,
with two banks participating in our five-year revolving credit
facility. Terms of our five-year revolving credit facility allow
a maximum usage of commercial paper of $100.0 million at
any point in time. The commercial paper programs do not increase
our committed borrowing capacity in that we are required to have
at least an equal amount of undrawn capacity available on our
five-year revolving facility as to the amount of commercial
paper issued. On August 31, 2007, we had $51.9 million
of commercial paper outstanding, all with maturities of less
than 60 days from their issuance with interest rates
ranging from 5.45% to 6.29%.
We typically finance our long-term capital needs, primarily for
the acquisition of property, plant and equipment, with long-term
agreements with various insurance companies and banks. In June
1998, we established a long-term credit agreement through the
cooperative banks. This facility committed $200.0 million
of long-term borrowing capacity to us, with repayments through
fiscal 2009. The amount outstanding on this credit facility was
$75.4 million and $98.4 million on August 31,
2007 and 2006, respectively. Interest rates on August 31,
2007 ranged from 6.17% to 7.13%. Repayments of
$23.0 million, $16.4 million and $16.4 million
were made on this facility during the three years ended
August 31, 2007, 2006 and 2005, respectively.
Also in June 1998, we completed a private placement offering
with several insurance companies for long-term debt in the
amount of $225.0 million with an interest rate of 6.81%.
Repayments are due in equal annual installments of
$37.5 million each in the years 2008 through 2013.
In January 2001, we entered into a note purchase and private
shelf agreement with Prudential Insurance Company. The long-term
note in the amount of $25.0 million has an interest rate of
7.9% and is due in equal annual installments of approximately
$3.6 million, in the years 2005 through 2011. A subsequent
note for $55.0 million was issued in March 2001, related to
the private shelf facility. The $55.0 million note has an
interest rate 7.43% and is due in equal annual installments of
approximately $7.9 million, in the years 2005 through 2011.
During each of the years ended August 31, 2007, 2006 and
2005, repayments on these notes totaled $11.4 million.
In October 2002, we completed a private placement with several
insurance companies for long-term debt in the amount of
$175.0 million, which was layered into two series. The
first series of $115.0 million has an interest rate of
4.96% and is due in equal semi-annual installments of
approximately $8.8 million during the years 2007 through
2013. The second series of $60.0 million has an interest
rate of 5.60% and is due in equal semi-annual installments of
approximately $4.6 million during years 2012 through 2018.
Repayments of $17.7 million were made on the first series
notes during the year ended August 31, 2007.
In March 2004, we entered into a note purchase and private shelf
agreement with Prudential Capital Group, and in April 2004, we
borrowed $30.0 million under this arrangement. One
long-term note in the amount of $15.0 million has an
interest rate of 4.08% and is due in full at the end of the
six-year term in 2010. Another long-term note in the amount of
$15.0 million has an interest rate of 4.39% and is due in
full at the end of the seven-year term in 2011. In April 2007,
we amended our Note Purchase and Private Shelf Agreement with
Prudential Investment Management, Inc. and several other
participating insurance companies to expand the uncommitted
facility from $70.0 million to $150.0 million.
In September 2004, we entered into a private placement with
several insurance companies for long-term debt in the amount of
$125.0 million with an interest rate of 5.25%. The debt is
due in equal annual installments of $25.0 million during
years 2011 through 2015.
We, through NCRA, had revolving term loans outstanding of
$3.0 million and $6.0 million for the years ended
August 31, 2007 and 2006, respectively. Interest rates on
August 31, 2007 ranged from 6.48% to 6.99%. Repayments of
$3.0 million were made during each of the three years ended
August 31, 2007, 2006 and 2005.
51
On August 31, 2007, we had total long-term debt outstanding
of $688.3 million, of which $80.6 million was bank
financing, $583.0 million was private placement debt and
$24.7 million was industrial development revenue bonds and
other notes and contracts payable. On August 31, 2006, we
had long-term debt outstanding of $744.7 million. Our
long-term debt is unsecured except for NCRA term loans of
$3.0 million and other notes and contracts in the amount of
$8.3 million; however, restrictive covenants under various
agreements have requirements for maintenance of minimum working
capital levels and other financial ratios. In addition, NCRA
term loans of $3.0 million are collateralized by
NCRAs investment in CoBank, ACB. We were in compliance
with all debt covenants and restrictions as of August 31,
2007. The aggregate amount of long-term debt payable as of
August 31, 2007 was as follows (dollars in thousands):
|
|
|
|
|
2008
|
|
$
|
98,977
|
|
2009
|
|
|
117,910
|
|
2010
|
|
|
82,634
|
|
2011
|
|
|
111,665
|
|
2012
|
|
|
94,517
|
|
Thereafter
|
|
|
182,618
|
|
|
|
|
|
|
|
|
$
|
688,321
|
|
|
|
|
|
|
In December 2006, NCRA entered into an agreement with the City
of McPherson, Kansas related to certain of its ultra-low sulfur
fuel assets, with a cost of approximately $325.0 million.
The City of McPherson issued $325.0 million of Industrial
Revenue Bonds (IRBs) which were transferred to NCRA as
consideration in a financing agreement between the City of
McPherson and NCRA related to the ultra-low sulfur fuel assets.
The term of the financing obligation is ten years, at which time
NCRA has the option of extending the financing obligation or
purchasing the assets for a nominal amount. NCRA has the right
at anytime to offset the financing obligation to the City of
McPherson against the IRBs. No cash was exchanged in the
transaction and none is anticipated to be exchanged in the
future. Due to the structure of the agreement, the financing
obligation and the IRBs are shown net in our consolidated
financial statements. On March 18, 2007, notification was
sent to the bond trustees to pay the IRBs down by
$324.0 million, at which time the financing obligation to
the City of McPherson was offset against the IRBs. The balance
of $1.0 million will remain outstanding until final
maturity in ten years.
During the years ended August 31, 2007 and 2005, we
borrowed on a long-term basis, $4.1 million and
$125.0 million, respectively. There were no long-term
borrowings during the year ended August 31, 2006. During
the years ended August 31, 2007, 2006 and 2005, we repaid
long-term debt of $60.9 million, $36.7 million and
$36.0 million, respectively.
Subsequent to our fiscal year-end, on October 4, 2007, we
entered into a private placement with several insurance
companies and banks for long-term debt in the amount of
$400.0 million with an interest rate of 6.18%. The debt is
due in equal annual installments of $80.0 million during
years 2013 through 2017.
Distributions to minority owners for the years ended
August 31, 2007, 2006 and 2005 were $76.8 million,
$80.5 million and $29.9 million, respectively, and
were primarily related to NCRA. NCRAs cash distributions
to members were lower as a percent of earnings in 2005 and 2004
when compared to other years, due to the funding requirements
for environmental capital expenditures previously discussed.
During the years ended August 31, 2007, 2006 and 2005,
changes in checks and drafts outstanding resulted in an increase
in cash flows of $85.4 million, a decrease in cash flows of
$10.5 million and an increase in cash flows of
$2.8 million, respectively.
In accordance with the bylaws and by action of the Board of
Directors, annual net earnings from patronage sources are
distributed to consenting patrons following the close of each
fiscal year. Patronage refunds are calculated based on amounts
using financial statement earnings. The cash portion of the
patronage distribution is determined annually by the Board of
Directors, with the balance issued in the form of capital equity
certificates. The patronage earnings from the fiscal year ended
August 31, 2006, were primarily distributed during the
second fiscal quarter of the year ended August 31, 2007.
The cash portion of this
52
distribution deemed by the Board of Directors to be 35% was
$133.1 million. During the years ended August 31, 2006
and 2005, we distributed cash patronage of $62.5 million
and $51.6 million, respectively.
Cash patronage for the year ended August 31, 2007,
determined by the Board of Directors to be 35% and to be
distributed in fiscal 2008, is expected to be approximately
$192.5 million and is classified as a current liability on
the August 31, 2007 Consolidated Balance Sheet in dividends
and equities payable.
Redemptions of capital equity certificates approved by the Board
of Directors are divided into two pools, one for non-individuals
(primarily member cooperatives) who may participate in an annual
pro-rata program for equities held by them, and another for
individuals who are eligible for equity redemptions at
age 72 or upon death. Commencing in fiscal 2008, until
further resolution, the Board of Directors has reduced the age
for individuals who are eligible for equity redemptions to
age 70. The amount that each non-individual receives under
the pro-rata program in any year is determined by multiplying
the dollars available for pro-rata redemptions, if any that
year, as determined by the Board of Directors, by a fraction,
the numerator of which is the amount of patronage certificates
eligible for redemption held by them, and the denominator of
which is the sum of the patronage certificates eligible for
redemption held by all eligible holders of patronage
certificates that are not individuals. In addition to the annual
pro-rata program, the Board of Directors approved additional
equity redemptions targeting older capital equity certificates
which were paid in fiscal 2007 and that are authorized to be
paid in fiscal 2008. In accordance with authorization from the
Board of Directors, we expect total redemptions related to the
year ended August 31, 2007, that will be distributed in
fiscal 2008, to be approximately $179.4 million. These
expected distributions are classified as a current liability on
the August 31, 2007 Consolidated Balance Sheet.
For the years ended August 31, 2007, 2006 and 2005, we
redeemed in cash, equities in accordance with authorization from
the Board of Directors, in the amounts of $70.8 million,
$55.9 million and $23.7 million, respectively. An
additional $35.9 million, $23.8 million and
$20.0 million of capital equity certificates were redeemed
in fiscal 2007, 2006 and 2005, respectively, by issuance of
shares of our 8% Cumulative Redeemable Preferred Stock
(Preferred Stock). The amount of equities redeemed with each
share of Preferred Stock issued was $26.09, $26.10 and $27.58,
which was the closing price per share of the stock on the NASDAQ
Global Select Market on February 8, 2007, January 23,
2006 and January 24, 2005, respectively.
Our Preferred Stock is listed on the NASDAQ Global Select Market
under the symbol CHSCP. On August 31, 2007, we had
7,240,221 shares of Preferred Stock outstanding with a
total redemption value of approximately $181.0 million,
excluding accumulated dividends. Our Preferred Stock accumulates
dividends at a rate of 8% per year, which are payable quarterly,
and is redeemable at our option after February 1, 2008. At
this time, we have no intention of redeeming any Preferred
Stock. Dividends paid on our preferred stock during the years
ended August 31, 2007, 2006 and 2005 were
$13.1 million, $10.8 million and $9.2 million,
respectively.
Off
Balance Sheet Financing Arrangements
Lease
Commitments:
We have commitments under operating leases for various refinery,
manufacturing and transportation equipment, rail cars, vehicles
and office space. Some leases include purchase options at not
less than fair market value at the end of the lease term.
Total rental expense for all operating leases, net of rail car
mileage credits received from the railroad and sublease income
for the years ended August 31, 2007, 2006 and 2005, was
$44.3 million, $38.5 million and $31.0 million,
respectively.
53
Minimum future lease payments required under noncancellable
operating leases as of August 31, 2007 were as follows:
|
|
|
|
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2008
|
|
$
|
32.9
|
|
2009
|
|
|
24.6
|
|
2010
|
|
|
20.1
|
|
2011
|
|
|
13.0
|
|
2012
|
|
|
8.7
|
|
Thereafter
|
|
|
8.2
|
|
|
|
|
|
|
Total minimum future lease payments
|
|
$
|
107.5
|
|
|
|
|
|
|
Guarantees:
We are a guarantor for lines of credit for related companies.
Our bank covenants allow maximum guarantees of
$150.0 million, of which $33.2 million was outstanding
on August 31, 2007. In addition, our bank covenants allow
for guarantees dedicated solely for NCRA in the amount of
$125.0 million, for which there are no outstanding
guarantees. All outstanding loans with respective creditors are
current as of August 31, 2007.
Debt:
There is no material off balance sheet debt.
Contractual
Obligations
We had certain contractual obligations at August 31, 2007
which require the following payments to be made:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1 - 3
|
|
|
3 - 5
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Notes payable(1)
|
|
$
|
672,571
|
|
|
$
|
672,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
|
688,321
|
|
|
|
98,977
|
|
|
$
|
200,544
|
|
|
$
|
206,182
|
|
|
$
|
182,618
|
|
Interest payments(2)
|
|
|
147,300
|
|
|
|
40,394
|
|
|
|
59,981
|
|
|
|
32,692
|
|
|
|
14,233
|
|
Operating leases
|
|
|
107,476
|
|
|
|
32,877
|
|
|
|
44,754
|
|
|
|
21,663
|
|
|
|
8,182
|
|
Purchase obligations(3)
|
|
|
3,686,847
|
|
|
|
2,434,178
|
|
|
|
1,244,419
|
|
|
|
2,212
|
|
|
|
6,038
|
|
Other liabilities(4)
|
|
|
215,611
|
|
|
|
|
|
|
|
21,237
|
|
|
|
48,187
|
|
|
|
146,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
5,518,126
|
|
|
$
|
3,278,997
|
|
|
$
|
1,570,935
|
|
|
$
|
310,936
|
|
|
$
|
357,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included on our Consolidated Balance Sheet.
|
|
(2)
|
|
Based on interest rates and long-term debt balances as of
August 31, 2007.
|
|
(3)
|
|
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 time of the
transactions. Of our total purchase obligations,
$1,199.8 million is included in accounts payable and
accrued expenses on our Consolidated Balance Sheet.
|
|
(4)
|
|
Other liabilities includes the long-term portion of deferred
compensation, deferred income taxes, accrued turnaround and
contractual redemptions, and is included on our Consolidated
Balance Sheet. Of our total other liabilities on our
Consolidated Balance Sheet in the amount of $359.2 million,
the timing of the payments of $143.6 million of such
liabilities cannot be determined.
|
54
Critical
Accounting Policies
Our consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States of America. The preparation of these consolidated
financial statements requires the use of estimates as well as
managements 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. We believe that
of our significant accounting policies, the following may
involve a higher degree of estimates, judgments and complexity.
Allowances
for Doubtful Accounts
The allowances for doubtful accounts are maintained at a level
considered appropriate by our management based on analyses of
credit quality for specific accounts, historical trends of
charge-offs and recoveries, and current and projected economic,
market and other conditions. Different assumptions, changes in
economic circumstances, or the deterioration of the financial
condition of our customers, could result in additional
provisions to the allowances for doubtful accounts and increased
bad debt expense.
Inventory
Valuation and Reserves
Grain, processed grains, oilseed and processed oilseeds are
stated at net realizable values which approximates market
values. All other inventories are stated at the lower of cost or
market. The cost of certain energy inventories (wholesale
refined products, crude oil and asphalt), are determined on the
last-in,
first-out (LIFO) method; all other energy inventories are valued
on the
first-in,
first-out (FIFO) and average cost methods. Estimates are used in
determining the net realizable value of grain and oilseed and
processed grains and oilseeds inventories. These estimates
include the measurement of grain in bins and other storage
facilities, which use formulas in addition to actual
measurements taken to arrive at appropriate quantity. Other
determinations made by management include quality of the
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
managements assumptions, then additional reserves or
write-downs of inventories may be required.
Derivative
Financial Instruments
We enter into exchange-traded commodity futures and options
contracts to hedge our exposure to price fluctuations on energy,
grain and oilseed transactions to the extent considered
practicable for minimizing risk. We do not use derivatives for
speculative purposes. Futures and options contracts used for
hedging are purchased and sold through regulated commodity
exchanges. Fluctuations in inventory valuations, however, may
not be completely hedged, due in part to the absence of
satisfactory hedging facilities for certain commodities and
geographical areas and, in part, to our assessment of our
exposure from expected price fluctuations. We also manage our
risks by entering into fixed-price purchase contracts with
pre-approved producers and establishing appropriate limits for
individual suppliers. Fixed-price sales contracts are entered
into with customers of acceptable creditworthiness, as
internally evaluated. The fair value of futures and options
contracts are determined primarily from quotes listed on
regulated commodity exchanges. Fixed-price purchase and sales
contracts are with various counterparties, and the fair values
of such contracts are determined from the market price of the
underlying product. 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.
Pension
and Other Postretirement Benefits
Pension and other postretirement benefits costs and obligations
are dependent on assumptions used in calculating such amounts.
These assumptions include discount rates, health care cost trend
rates, benefits earned, interest costs, expected return on plan
assets, mortality rates and other factors. In accordance with
accounting principles generally accepted in the United States of
America, actual results that differ from the assumptions are
accumulated and amortized over future periods and, therefore,
generally affect recognized
55
expenses and the recorded obligations in future periods. While
our management believes that the assumptions used are
appropriate, differences in actual experience or changes in
assumptions may affect our pension and other postretirement
obligations and future expenses.
Deferred
Tax Assets
We assess whether a valuation allowance is necessary to reduce
our deferred tax assets to the amount that we believe is more
likely than not to be realized. While we have considered future
taxable income, as well as other factors, in assessing the need
for the valuation allowance, in the event that we were to
determine that we would not be able to realize all, or part of,
our net deferred tax assets in the future, an adjustment to our
deferred tax assets would be charged to income in the period
such determination was made. We are also significantly impacted
by the utilization of loss carryforwards and tax benefits
primarily passed to us from National Cooperative Refinery
Association (NCRA), which are associated with refinery upgrades
that enable NCRA to produce ultra-low sulfur fuels. 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.
Long-Lived
Assets
Depreciation and amortization of our property, plant and
equipment is provided on the straight-line method by charges to
operations at rates based upon the expected useful lives of
individual or groups of assets. Economic circumstances, or other
factors, may cause managements estimates of expected
useful lives to differ from actual.
All long-lived assets, including property plant and equipment,
goodwill, investments in unconsolidated affiliates and other
identifiable intangibles, are evaluated for impairment on the
basis of undiscounted cash flows, at least annually for
goodwill, and whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impaired asset is written down to its estimated
fair market value based on the best information available.
Estimated fair market value is generally measured by discounting
estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows and may
differ from actual.
Environmental
Liabilities
Liabilities, including legal costs, related to remediation of
contaminated properties are recognized when the related costs
are considered probable and can be reasonably estimated.
Estimates of these costs are based on current available facts,
existing technology, undiscounted site-specific costs and
currently enacted laws and regulations. Recoveries, if any, are
recorded in the period in which recovery is considered probable.
It is often difficult to estimate the cost of environmental
compliance, remediation and potential claims given the
uncertainties regarding the interpretation and enforcement of
applicable environmental laws and regulations, the extent of
environmental contamination and the existence of alternate
cleanup methods. All liabilities are monitored and adjusted as
new facts or changes in law or technology occur and management
believes adequate provisions have been made for environmental
liabilities. Changes in facts or circumstances may have an
adverse impact on our consolidated financial results.
Revenue
Recognition
We record revenue from grain and oilseed sales after the
commodity has been delivered to its destination and final
weights, grades and settlement prices have been agreed upon. All
other sales are recognized upon transfer of title, which could
occur upon either shipment or receipt by the customer, depending
upon the transaction. Amounts billed to a customer as part of a
sales transaction related to shipping and handling are included
in revenues. Service revenues are recorded only after such
services have been rendered and are included in other revenues.
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Effect of
Inflation and Foreign Currency Transactions
We believe that inflation and foreign currency fluctuations have
not had a significant effect on our operations during the three
years ended August 31, 2007, since we conduct essentially
all of our business in U.S. dollars.
Recent
Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting for income
taxes recognized in an enterprises financial statements
and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure. FIN 48 is effective for fiscal
years beginning after December 15, 2006, with early
adoption permitted. We do not expect that the adoption of
FIN 48 will have a material impact on our financial
statements.
In September 2006, the FASB issued FASB Staff Position (FSP) AUG
AIR-1, Accounting for Planned Major Maintenance
Activities, addressing the accounting for planned major
maintenance activities which includes refinery turnarounds. This
FSP prohibits the use of the
accrue-in-advance
method of accounting for planned major maintenance activities in
annual and interim financial reporting periods but allows the
alternative deferral method. The FSP is effective for fiscal
years beginning after December 15, 2006. We are currently
using the
accrue-in-advance
method of accounting and are in the final stages of determining
the impact this FSP will have on our consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) to increase consistency and
comparability in fair value measurements by defining fair value,
establishing a framework for measuring fair value in generally
accepted accounting principles, and expanding disclosures about
fair value measurements. SFAS No. 157 emphasizes that
fair value is a market-based measurement, not an entity-specific
measurement. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. We are in the
process of evaluating the effect that the adoption of
SFAS No. 157 will have on our consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 provides entities with
an option to report certain financial assets and liabilities at
fair value, with changes in fair value reported in earnings, and
requires additional disclosures related to an entitys
election to use fair value reporting. It also requires entities
to display the fair value of those assets and liabilities for
which the entity has elected to use fair value on the face of
the balance sheet. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We are in
the process of evaluating the effect that the adoption of
SFAS No. 159 will have on our consolidated results of
operations and financial condition.
57
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity
Price Risk
We are exposed to price fluctuations on energy, grain and
oilseed transactions due to fluctuations in the market value of
inventories and fixed or partially fixed purchase and sales
contracts. Our use of derivative instruments, reduces the
effects of price volatility, thereby protecting against adverse
short-term price movements, while somewhat limiting the benefits
of short-term price movements. However, fluctuations in
inventory valuations may not be completely hedged, due in part
to the absence of satisfactory hedging facilities for certain
commodities and geographical areas and, in part, to our
assessment of our exposure from expected price fluctuations.
We generally enter into opposite and offsetting positions using
futures contracts or options to the extent practical, in order
to arrive at a net commodity position within the formal position
limits we have established and deemed prudent for each of those
commodities. These contracts are purchased and sold through
regulated commodity exchanges. The contracts are economic hedges
of price risk, but are not designated or accounted for as
hedging instruments for accounting purposes in any of our
operations, with the exception of some contracts included in our
Energy segment operations discussed below. These contracts are
recorded on the Consolidated Balance Sheet at fair values based
on quotes listed on regulated commodity exchanges. Unrealized
gains and losses on these contracts are recognized in cost of
goods sold in our Consolidated Statements of Operations using
market-based prices.
We also manage our risks by entering into fixed-price purchase
and sales contracts with pre-approved producers and by
establishing appropriate limits for individual suppliers.
Fixed-price contracts are entered into with customers of
acceptable creditworthiness, as internally evaluated. We are
also 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.
These contracts are recorded on the Consolidated Balance Sheet
at fair values based on the market prices of the underlying
products listed on regulated commodity exchanges, except for
certain fixed-price contracts related to propane in our Energy
segment. The propane contracts within our Energy segment meet
the normal purchase and sales exemption, and thus are not
required to be marked to fair value. Unrealized gains and losses
on fixed-price contracts are recognized in cost of goods sold in
our Consolidated Statements of Operations using market-based
prices.
Changes in the fair values of derivative instruments described
above are recognized in cost of goods sold, in our Consolidated
Statements of Operations; in the period such changes occur for
all operations with the exception of some derivative instruments
included in our Energy segment. Included in other current assets
on August 31, 2007 and 2006, are derivative assets of
$247.1 million and $74.3 million, respectively.
Included in accrued expenses on August 31, 2007 and 2006,
are derivative liabilities of $177.2 million and
$97.8 million, respectively.
In our Energy segment, certain financial contracts entered into
for the spread between crude oil purchase value and distillate
selling price have been designated and accounted for as hedging
instruments (cash flow hedges). The unrealized gains or losses
of these contracts are deferred to accumulated other
comprehensive income in the equity section of our Consolidated
Balance Sheet for the fiscal year ended August 31, 2006,
and will be included in earnings upon settlement. Settlement
dates for cash flow hedges extend through December 31,
2007. At August 31, 2007, the cash flow hedges did not
qualify for hedge accounting and, therefore, are recorded in
cost of goods sold in our Consolidated Statements of Operations.
A loss of $2.8 million and a gain of $2.8 million, net
of taxes, were recorded in accumulated other comprehensive
income for the years ended August 31, 2007 and 2006,
respectively, for the change in the fair value of cash flow
hedges related to these derivatives. During the year ended
August 31, 2007, net gains of $9.7 million from these
contract settlements were recorded in the Consolidated Statement
of Operations. No gains or losses were recorded in the
Consolidated Statement of Operations during the year ended
August 31, 2006, since there were no settlements.
58
A 10% adverse change in market prices would not materially
affect our results of operations, financial position or
liquidity, since our operations have effective economic hedging
requirements as a general business practice.
Interest
Rate Risk
We use fixed and floating rate debt to lessen the effects of
interest rate fluctuations on interest expense. Short-term debt
used to finance inventories and receivables is represented by
notes payable with maturities of 30 days or less, so that
our blended interest rate for all such notes approximates
current market rates. Long-term debt used to finance non-current
assets carries various fixed interest rates and is payable at
various dates to minimize the effect of market interest rate
changes. Our effective interest rate on fixed rate debt
outstanding on August 31, 2007, was approximately 6.0%.
We entered into interest rate treasury lock instruments to fix
interest rates related to a portion of our private placement
debts. These instruments were designated and are effective as
cash flow hedges for accounting purposes and, accordingly,
changes in fair value of $2.2 million, net of taxes, are
included in accumulated other comprehensive income. Interest
expense for each of the years ended August 31, 2007, 2006
and 2005, includes $0.9 million which relates to the
interest rate derivatives. The additional interest expense is an
offset to the lower actual interest paid on the outstanding debt
instruments.
Foreign
Currency Risk
We conduct essentially all of our business in U.S. dollars,
except for grain marketing operations in Brazil and purchases of
products from Canada, and had minimal risk regarding foreign
currency fluctuations during 2007 or in recent years. Foreign
currency fluctuations do, however, impact the ability of foreign
buyers to purchase U.S. agricultural products and the
competitiveness of U.S. agricultural products compared to
the same products offered by alternative sources of world supply.
The information specified in Items 10, 11, 12 and 13 of
Part III of our Annual Report on
Form 10-K
for the year ended August 31, 2007 is incorporated herein
by reference. Except as set forth below with regard to recently
re-elected directors, this information has not materially
changed since our Annual Report on
Form 10-K
for the year ended August 31, 2007 was filed on
November 20, 2007.
We held our Annual Meeting November 29th through
November 30th and the following directors were
re-elected to the Board of Directors for a three-year term:
Robert Bass, Dennis Carlson, Randy Knecht, Steve Riegel and
Michael Toelle. The following directors terms of office
continued after the meeting: Bruce Anderson, Donald Anthony,
Curt Eischens, Steve Fritel, Robert Grabarski, Jerry Hasnedl,
David Kayser, James Kile, Michael Mulcahey, Richard Owen, Daniel
Schurr and Duane Stenzel.
DESCRIPTION
OF THE PREFERRED STOCK
The following section summarizes the material terms and
provisions of our preferred stock. This summary is not a
complete legal description of our preferred stock, and is
qualified in its entirety by reference to our restated articles
of incorporation, as amended, our bylaws, as amended, and the
resolution of our board of directors establishing the preferred
stock.
General
The shares of preferred stock are shares of a series of
preferred equity securities created by our board of directors.
Subject to the restrictions noted below under Limitations
and Restrictions on Future Issuances, there is no limit on
the number of shares in the series and shares may be issued from
time to time. Our board of directors has expressly authorized
the initial sale and subsequent transfer of the shares of
preferred stock in accordance with our articles of incorporation.
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The shares of preferred stock to be issued as described in this
prospectus will be fully paid and nonassessable when issued.
Rank
As to payment of dividends and as to distributions of assets
upon the liquidation, dissolution or winding up of CHS, whether
voluntary or involuntary, the preferred stock ranks prior to:
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any patronage refund (as that term is used in our bylaws),
whether or not represented by a certificate, and any redemption
thereof;
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any other class or series of our capital stock designated by our
board of directors as junior to the preferred stock; and
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our common stock, if any.
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Shares of any class or series of our capital stock that are not
junior to the preferred stock rank equally with the preferred
stock as to the payment of dividends and the distribution of
assets.
Dividends
Holders of the preferred stock are entitled to receive quarterly
dividends when, as and if declared by our board of directors out
of funds legally available for that purpose at the rate of $2.00
per share per year. Dividends are payable on March 31,
June 30, September 30 and December 31 of each year (each a
payment date), except that if a payment date is a
Saturday, Sunday or legal holiday, the dividend is payable
without interest on the next day that is not a Saturday, Sunday
or legal holiday. Dividends on the preferred stock are fully
cumulative and accumulate without interest from and including
the day immediately following the most recent date as to which
dividends have been paid. The most recent date as to which
dividends have been paid is September 30, 2007.
Dividends are computed on the basis of a
360-day
year
of twelve
30-day
months. Each payment of dividends includes dividends to and
including the date on which paid.
Dividends are paid to holders of record as they appear on our
books ten business days prior to the relevant payment date. We
may, in our sole discretion, pay dividends by any one or more of
the following means:
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check mailed to the address of the record holder as it appears
on our books;
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electronic transfer in accordance with instructions provided by
the record holder; or
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any other means mutually agreed between us and the record holder.
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We may not make any distribution to the holders of any security
that ranks junior to the preferred stock unless and until all
accumulated and unpaid dividends on the preferred stock and on
any other class or series of our capital stock that ranks
equally with the preferred stock, including the full dividend
for the then-current dividend period, have been paid or declared
and set apart for payment. For these purposes, a
distribution does not include any distribution made
in connection with a liquidation, dissolution or winding up,
which will be governed by the provisions summarized under
Description of the Preferred Stock Liquidation
Preference below.
Liquidation
Preference
In a liquidation, dissolution or winding up of CHS, whether
voluntary or involuntary, the holders of the preferred stock are
entitled to receive out of our available assets $25.00 per share
plus all dividends accumulated and unpaid on that share, whether
or not declared, to and including the date of distribution. This
distribution to the holders of the preferred stock will be made
before any payment is made or assets distributed to the holders
of any security that ranks junior to the preferred stock but
after the payment of the liquidation preference of any of our
securities that rank senior to the preferred stock. Any
distribution to the holders of
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the preferred stock will be made ratably among the holders of
the preferred stock and any other of our capital stock which
ranks on a parity as to liquidation rights with the preferred
stock in proportion to the respective preferential amounts to
which each is entitled. After payment in full of the liquidation
preference of the shares of preferred stock, the holders of the
preferred stock will not participate further in the distribution
of our assets.
Neither a consolidation or merger with another entity nor a sale
or transfer of all or part of our assets for cash, securities or
other property will constitute a liquidation, dissolution or
winding up if, following the transaction, the preferred stock
remains outstanding as duly authorized stock of us or any
successor entity.
Redemption
At Our
Option
From and after February 1, 2008, we may, at our option,
redeem at any time all, or from time to time any portion, of the
preferred stock. Any optional redemption will be at a price of
$25.00 per share plus all dividends accumulated and unpaid on
that share, whether or not declared, to and including the date
fixed for redemption. If we redeem less than all of the then
outstanding shares of preferred stock, we will designate the
shares to be redeemed either by lot or in any other manner that
our board of directors may determine or may effect the
redemption pro rata. However, we may not redeem less than all of
the then outstanding shares of preferred stock until all
dividends accumulated and unpaid on all then outstanding shares
of preferred stock have been paid for all past dividend periods.
We have no current plan or intention to redeem the preferred
stock.
At the
Holders Option
If at any time there has been a change in control (as defined
below), each record holder of shares of the preferred stock will
have the right, for a period of 90 days from the date of
the change in control, to require us to redeem all or any
portion of the shares of preferred stock owned by that record
holder. Not later than 130 days after the date of the
change in control (or, if that date is a Saturday, Sunday or
legal holiday, the next day that is not a Saturday, Sunday or
legal holiday) we will redeem all shares the record holder has
elected to have redeemed in a written notice delivered to us on
or prior to the 90th day after the change in control. The
redemption price is $25.00 per share plus all dividends
accumulated and unpaid on that share, whether or not declared,
to and including the date fixed for redemption.
A change in control will have occurred if, in
connection with a merger or consolidation that has been approved
by our board of directors (prior to submitting the merger or
consolidation to our members for approval), whether or not we
are the surviving entity, those persons who were members of our
board of directors on January 1, 2003, together with those
persons who became members of our board of directors after that
date at our annual meeting, have ceased to constitute a majority
of our board of directors. Under the Minnesota cooperative
statute, our members could initiate a merger or consolidation
without the approval of our board of directors; a
member-initiated merger or consolidation would not meet this
definition and thus would not trigger a redemption right.
Mechanics
of Redemption
Not less than 30 days prior to any redemption date pursuant
to the exercise of our optional redemption right, we will give
written notice to the holders of record of the shares of
preferred stock to be redeemed. This notice will specify:
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the redemption date;
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the redemption price;
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the number of shares of preferred stock held by the record
holder that are subject to redemption;
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the time, place and manner in which the holder should surrender
the certificate or certificates, if any, representing the shares
of preferred stock to be redeemed, including the steps that a
holder should take
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with respect to any certificates which have been lost, stolen or
destroyed or to any uncertificated shares; and
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that from and after the redemption date, dividends will cease to
accumulate on the shares and the shares will no longer be deemed
outstanding.
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On or after the redemption date, once a holder surrenders the
certificate or certificates representing the shares of preferred
stock called for redemption in the manner provided in the
redemption notice or takes the appropriate steps with respect to
lost, stolen or destroyed certificates or uncertificated shares,
the holder will be entitled to receive payment of the redemption
price. If fewer than all of the shares of preferred stock
represented by a surrendered certificate or certificates are
redeemed, we will issue a new certificate representing the
unredeemed shares.
Effect
of Redemption
From and after the redemption date, if funds necessary for the
redemption are and have been irrevocably deposited or set aside,
then:
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dividends will cease to accumulate with respect to the shares of
preferred stock called for redemption;
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the shares will no longer be deemed outstanding;
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the holders of the shares will cease to be shareholders; and
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all rights with respect to the shares of preferred stock will
terminate except the right of the holders to receive the
redemption price, without interest.
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Purchases
We may at any time and from time to time in compliance with
applicable law purchase shares of preferred stock on the open
market, pursuant to a tender offer or otherwise, at whatever
price or prices and other terms we determine. We may not make
any purchases at a time when there are accumulated but unpaid
dividends for past dividend periods.
Voting
Except as described below, the holders of the preferred stock
have only those voting rights that are required by applicable
law. As a result, the holders of the preferred stock have very
limited voting rights and, among other things, do not have any
right to vote for the election of directors.
Unless the preferred stock is redeemed pursuant to its terms,
the affirmative vote of the holders of at least two-thirds of
the outstanding shares of the preferred stock, voting separately
as a class, is required:
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for any amendment, alteration or repeal, whether by merger or
consolidation or otherwise, of our articles of incorporation or
the resolutions establishing the terms of the preferred stock,
if the amendment, alteration or repeal adversely affects the
rights or preferences of the preferred stock; and
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to establish, by board resolution or otherwise, any class or
series of our equity securities having rights senior to the
preferred stock as to the payment of dividends or distribution
of assets upon the liquidation, dissolution or winding up of
CHS, whether voluntary or involuntary.
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The creation and issuance of any other class of our securities
ranking on a parity with or junior to the preferred stock,
including an increase in the authorized number of shares of any
such securities, will not be deemed to adversely affect the
rights or preferences of the preferred stock.
Our board of directors ability to authorize, without
preferred shareholder approval, the issuance of additional
classes or series of preferred stock with conversion and other
rights may adversely affect you as a holder of preferred stock
or the rights of holders of any series of preferred stock that
may be outstanding.
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Limitations
and Restrictions on Future Issuances
We may not offer to issue additional shares of preferred stock
in exchange for or in redemption of outstanding patrons
equities or other equity securities held by our members more
than one time per calendar year. If, in connection with an offer
of this type, any member would receive more than 0.25% of the
number of shares of preferred stock outstanding at the end of
the prior calendar year, that member will instead be entitled to
receive the shares in quarterly installments as nearly equal as
possible. In any calendar year, we may not issue additional
shares of preferred stock in exchange for or in redemption of
outstanding patrons equities or other equity securities
held by our members in excess of:
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for issuances during the years 2004, 2005 and 2006, 20% of the
number of shares of preferred stock outstanding at the end of
the prior calendar year or 400,000 shares, whichever is
greater; and
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for issuances during any calendar year after the year 2006, 25%
of the number of shares of preferred stock outstanding at the
end of the prior calendar year or 400,000 shares, whichever
is greater.
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We may not issue additional shares of preferred stock in
exchange for or in redemption of outstanding patrons
equities owned by an estate of one of our former individual
members or in redemption of outstanding patrons equities
owned by individual members who have reached age 70,
pursuant to our current policy.
No
Exchange or Conversion Rights; No Sinking Fund
Shares of the preferred stock are not exchangeable or
convertible into other class or series of our capital stock or
other securities or property. The preferred stock is not subject
to the operation of a purchase, retirement or sinking fund.
Certain
Charter Provisions
For a description of some of the provisions of our articles of
incorporation that might have an effect of delaying, deferring
or preventing a change in control of us, see Membership in
CHS and Authorized Capital Certain Antitakeover
Measures.
As noted above under Membership in CHS and Authorized
Capital Debt and Equity Instruments, under our
articles of incorporation all equity we issue (including the
preferred stock) is subject to a first lien in favor of us for
all indebtedness of the holder to us. However, we have not to
date taken, and do not intend to take, any steps to perfect this
lien against shares of the preferred stock.
No
Preemptive Rights
Holders of the preferred stock have no preemptive right to
acquire shares of any class or series of our capital stock.
Market
for the Preferred Stock
The preferred stock is currently listed on The NASDAQ Global
Select Market under the symbol CHSCP. The following
is a listing of the high and low sales prices as listed on The
NASDAQ Global Select Market for the preferred stock during our
fiscal quarters ended November 30, 2007, August 31,
2007, May 31, 2007, February 28, 2007,
November 30, 2006, August 31, 2006, May 31, 2006
and February 28, 2006:
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November 30,
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August 31,
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May 31,
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February 28,
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November 30,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
February 28,
|
|
Price
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
High
|
|
$
|
25.90
|
|
|
$
|
25.90
|
|
|
$
|
26.16
|
|
|
$
|
26.50
|
|
|
$
|
26.60
|
|
|
$
|
26.55
|
|
|
$
|
26.20
|
|
|
$
|
26.55
|
|
Low
|
|
$
|
25.15
|
|
|
$
|
25.12
|
|
|
$
|
25.50
|
|
|
$
|
25.90
|
|
|
$
|
25.81
|
|
|
$
|
25.01
|
|
|
$
|
25.23
|
|
|
$
|
25.49
|
|
Transfer
Agent and Registrar
Wells Fargo Bank, National Association serves as transfer agent
and registrar with respect to the preferred stock.
63
COMPARISON
OF RIGHTS OF HOLDERS OF PATRONS
EQUITIES AND RIGHTS OF HOLDERS OF PREFERRED STOCK
The following describes the material differences between the
rights that the patrons equities being redeemed provided
to the members of CHS holding them and the rights that the
preferred stock provides to the holders. While CHS believes that
the description covers the material differences between the two,
this summary may not contain all of the information that is
important to you. You should carefully read this entire
prospectus, including the sections entitled Membership in
CHS and Authorized Capital and Description of the
Preferred Stock, and refer to the documents discussed in
those sections for a more complete understanding of the
differences.
Priority
on Liquidation
In a liquidation, dissolution or winding up of CHS, the rights
of a holder of preferred stock rank senior to those of a holder
of patrons equities.
Dividends
A holder of patrons equities is not entitled to any
interest or dividends on those patrons equities. A holder
of preferred stock is entitled to dividends as described under
Description of the Preferred Stock
Dividends.
Redemption
Patrons equities are redeemable only at the discretion of
our board of directors and in accordance with the terms of the
redemption policy adopted by our board of directors, as in
effect from time to time. See Membership in CHS and
Authorized Capital Patrons Equities for
a description of the redemption policy as currently in effect.
Shares of preferred stock are subject to redemption both at the
option of CHS and at the holders option under certain
circumstances, both as described under Description of the
Preferred Stock Redemption.
Voting
Rights
Ownership of patrons equities does not, by itself, entail
any voting rights, although the amount of patrons equities
held by a member that is a cooperative association or a member
that is part of a patrons association is considered in the
formula used to determine the level of the members voting
rights of that cooperative association or patrons
association. See Membership in CHS and Authorized
Capital Voting Rights. Ownership of preferred
stock entails the limited voting rights described under
Description of the Preferred Stock Voting
Rights.
Transfers
Patrons equities may not be transferred without the
approval of our board of directors. Shares of preferred stock
are not subject to any similar restrictions on transfer.
Market
There is no public market for patrons equities. The
preferred stock is listed on The NASDAQ Global Select Market.
64
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the material federal income tax
consequences of the issuance of shares of our preferred stock in
redemption of patrons equities (the Exchange)
and the consequences of the ownership, redemption and
disposition of the preferred stock. This summary is based upon
the provisions of the Internal Revenue Code of 1986, as amended
(the Code), the final, temporary and proposed
regulations promulgated thereunder and administrative rulings
and judicial decisions now in effect, all of which are subject
to change (possibly with retroactive effect). This summary
addresses only the tax consequences to a person who is a
U.S. holder of patrons equities or the preferred
stock. You are a U.S. holder if you are:
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|
|
|
|
an individual who is a citizen or resident of the U.S.;
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|
|
|
a corporation (or any entity treated as a corporation for
U.S. federal income tax purposes, such as a cooperative)
organized under the laws of the U.S. or any political
subdivision of the U.S.;
|
|
|
|
an estate if its income is subject to U.S. federal income
tax regardless of its source; or
|
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|
|
a trust if a U.S. court can exercise primary supervision
over the trusts administration and one or more
U.S. persons are authorized to control all substantial
decisions of the trust.
|
This summary assumes that you will hold your shares of preferred
stock as capital assets within the meaning of Section 1221
of the Code. The summary also assumes that all dividends will be
paid as they accrue and that, if the preferred stock is
redeemed, there will be no dividend arrearages at the time of
redemption. The summary does not purport to deal with all
aspects of federal taxation that may be relevant to your receipt
of preferred stock pursuant to the Exchange, or to your
ownership, redemption or disposition of the preferred stock,
such as estate and gift tax consequences, nor does it deal with
tax consequences arising under the laws of any state, local or
other taxing jurisdiction. This summary also does not apply to
you if you belong to a category of investors subject to special
tax rules, such as dealers in securities, financial
institutions, insurance companies, tax-exempt organizations,
foreign persons, qualified retirement plans, individual
retirement accounts, regulated investment companies,
U.S. expatriates, pass-through entities or investors in
pass-through entities or persons subject to the alternative
minimum tax.
We can give no assurance that the Internal Revenue Service (the
IRS) will take a similar view with respect to the
tax consequences described below. We have not requested, nor do
we plan to request, a ruling from the IRS on any tax matters
relating to the Exchange or the preferred stock. We strongly
encourage you to consult your own tax advisor regarding the
federal, state, local, and foreign tax consequences to you of
the Exchange and of the ownership, redemption, and disposition
of the preferred stock in light of your particular tax
circumstances.
The
Exchange
Although no transaction closely comparable to the Exchange, as
described in this prospectus, has been the subject of any
Treasury regulation, ruling or administrative or judicial
decision, we will receive an opinion of Dorsey &
Whitney LLP that the exchange of patrons equities for
preferred stock should constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Code.
You should be aware that the opinion of Dorsey &
Whitney LLP will be subject to the following qualifications and
assumptions: it relies on certifications of relevant facts by
us, is based upon provisions of the Code, regulations, and
administrative and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect),
is subject to the assumption that the Exchange will be effected
in the manner described in this prospectus, and is limited to
the federal income tax matters expressly set forth therein. In
addition, the opinion assumes that the fair market value of the
preferred stock received will be approximately equal to the fair
market value of the patrons equities surrendered in
exchange therefor and that we have no current plan or intention
to redeem the preferred stock. The opinion represents
counsels legal judgment and is not binding on the IRS or
the courts.
65
If the exchange of patrons equities for preferred stock
constitutes a reorganization within the meaning of
Section 368(a)(1)(E), the following tax consequences will
result:
l. We will be a party to a reorganization
within the meaning of Section 368(b) of the Code.
2. We will recognize no gain or loss upon the receipt of
the patrons equities in exchange for the preferred stock.
3. The participants will recognize no gain or loss on the
exchange of patrons equities for preferred stock, assuming
that Section 305(c) of the Code does not apply in
connection with the Exchange.
4. Provided the participants recognize no gain or loss on
the exchange of patrons equities for preferred stock, the
basis of the preferred stock received by the participants in the
transaction will be the same as the basis of the patrons
equities surrendered in exchange therefor.
5. The holding period of the preferred stock received by
each participant will include the period during which the
participant held the patrons equities surrendered in
exchange therefor, provided that the patrons equities
surrendered were held as capital assets on the date of the
Exchange and assuming that Section 305(c) of the Code does
not apply in connection with the Exchange.
6. It is also the opinion of Dorsey & Whitney LLP that
the preferred stock received by the participants in the Exchange
will not constitute section 306 stock within
the meaning of Section 306(c) of the Code. Accordingly, a
disposition of the Preferred Stock will not be subject to
Section 306(a) of the Code, which provides generally that
the gross proceeds from the sale or redemption of section 306
stock shall be treated either as ordinary income or as a
distribution of property to which section 301 of the Code
(concerning amounts taxable as dividends) applies.
Dorsey & Whitney LLP will express no opinion regarding
whether Section 305(c) of the Code will apply in connection
with the Exchange, including, but not limited to whether a
participant in the Exchange will be deemed to receive a
distribution to which Section 301 of the Code applies by
means of Section 305(c) of the Code. Pursuant to
Section 305(c) of the Code and applicable Treasury
Regulations, a recapitalization may be deemed to result in the
receipt of a taxable stock dividend by some shareholders of a
corporation, if the recapitalization is pursuant to a plan to
periodically increase a shareholders proportionate
interest in the assets or earnings and profits of the
corporation. The amount of any such deemed stock dividend would
generally be equal to the amount of the increase in the
shareholders proportionate interest in the assets or
earnings and profits of a corporation. Although the matter is
not free from doubt, we believe, based on the nature of
cooperatives and cooperative taxation, and the fact that the
members in a cooperative share in the assets and earnings and
profits of the cooperative primarily in accordance with each
members annual patronage, that the Exchange is not part of
any plan to periodically increase the proportionate interests of
any participants. Accordingly, although there is no authority
directly on point, we believe that no participant in the
exchange should be deemed to receive a taxable stock dividend
pursuant to Section 305(c) of the Code. You should consult
your own tax advisor about the possibility that
Section 305(c) could apply in these circumstances.
Dividends
and Other Distributions on the Preferred Stock
Distributions on the preferred stock are treated as dividends
and taxable as ordinary income to the extent of our current or
accumulated earnings and profits, as determined for federal
income tax purposes taking into account the special rules
applicable to cooperatives. Any distribution in excess of our
current or accumulated earnings and profits is treated first as
a nontaxable return of capital reducing your tax basis in the
preferred stock. Any amount in excess of your tax basis is
treated as a capital gain.
Dividends received by corporate holders of the preferred stock
may be eligible for a dividends received deduction equal to 70%
of the amount of the distribution, subject to applicable
limitations, including limitations related to debt
financed portfolio stock under Section 246A of the
Code and to the holding period requirements of Section 246
of the Code. In addition, any amount received by a corporate
holder that is treated as a dividend may constitute an
extraordinary dividend subject to the provisions of
Section 1059 of the Code (except as may otherwise be
provided in Treasury Regulations yet to be promulgated). Under
Section 1059, a corporate holder generally must reduce the
tax basis of all of the holders shares (but not below
zero) by the non-taxed portion of any
extraordinary dividend and, if the non-taxed portion
exceeds
66
the holders tax basis for the shares, must treat any
excess as gain from the sale or exchange of the shares in the
year the payment is received. If you are a corporate holder, we
strongly encourage you to consult your own tax advisor regarding
the extent, if any, to which these provisions may apply to you
in light of your particular facts and circumstances. Under
current law, qualifying dividends received by individual
shareholders are taxed at a 15% rate.
Sale or
Exchange of Preferred Stock
On the sale or exchange of the preferred stock to a party other
than us, you generally will realize capital gain or loss in an
amount equal to the difference between (a) the amount of
cash and the fair market value of any property you receive on
the sale and (b) your adjusted tax basis in the preferred
stock. We strongly encourage you to consult your own tax advisor
regarding applicable rates, holding periods and netting rules
for capital gains and losses in light of your particular facts
and circumstances. Certain limitations exist on the deduction of
capital losses by both corporate and non-corporate taxpayers.
Redemption
of Preferred Stock
If we exercise our right to redeem the preferred stock or if you
exercise your right to redeem the preferred stock upon a change
in control, your surrender of the preferred stock for the
redemption proceeds will be treated either as a payment received
upon sale or exchange of the preferred stock or as a
distribution with respect to all of your equity interests in us.
Resolution of this issue will turn on the application of
Section 302 of the Code to your individual facts and
circumstances.
The redemption will be treated as gain or loss from the sale or
exchange of the preferred stock (as discussed above under
Sale or Exchange of Preferred Stock) if:
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|
|
the redemption is substantially disproportionate
with respect to you within the meaning of Section 302(b)(2)
of the Code; or
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|
|
|
your interest in the preferred stock and any other equity
interest in us is completely terminated (within the meaning of
Section 302(b) (3) of the Code) as a result of such
redemption; or
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|
|
the redemption is not essentially equivalent to a
dividend (within the meaning of Section 302(b)(1) of
the Code). In general, redemption proceeds are not
essentially equivalent to a dividend if the redemption
results in a meaningful reduction of your interest
in the issuer.
|
In determining whether any of these tests has been met, you must
take into account not only shares of preferred stock and other
equity interests in us (including patrons equities and
other equity interests) that you actually own, but also shares
and other equity interests that you constructively own within
the meaning of Section 318 of the Code.
If none of the above tests giving rise to sale treatment is
satisfied, then a payment made in redemption of the preferred
stock will be treated as a distribution that is subject to the
tax treatment described above under Dividends
and other Distributions on the Preferred Stock. The amount
of the distribution will be measured by the amount of cash and
the fair market value of property you receive without any offset
for your basis in the preferred stock. Your adjusted tax basis
in the redeemed shares of preferred stock will be transferred to
any of your remaining stock holdings in us. If, however, you
have no remaining stock holdings in us, your basis could be lost.
We strongly encourage you to consult your own tax advisor
regarding:
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|
|
whether the redemption payment will qualify for sale or exchange
treatment under Section 302 of the Code or, alternatively,
will be characterized as a distribution; and
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|
the resulting tax consequences to you in light of your
individual facts and circumstances.
|
67
Backup
Withholding
We may be required to withhold federal income tax at a rate of
28% from dividends and redemption proceeds paid to you if
(i) you fail to furnish us with your correct taxpayer
identification number in the manner required (ii) the IRS
notifies us that your taxpayer identification number is
incorrect (iii) the IRS notifies us that you have failed to
report properly certain interest and dividend income to the IRS
and to respond to notices to that effect or (iv) when
required to do so, you fail to certify that you are not subject
to backup withholding. Any amounts withheld can be credited
against your federal income tax liability.
On October 3, 2007, our board of directors authorized us to
redeem, on a pro rata basis, up to $45,559,084 of our
patrons equities. In connection with this
redemption, shares of preferred stock issued in redemption of
the patrons equities will be issued only to non-individual
active members who have conducted business with us during the
past five years and whose pro rata share of the redemption
amount is equal to or greater than $500 and, for each member
eligible to receive such preferred stock, only in a number that
does not exceed 18,100 shares of preferred stock (which
equals one-quarter of one percent (0.25%) of our total shares of
preferred stock outstanding as of December 31, 2007). See
Membership in CHS and Authorized Capital
Patrons Equities for a description of patrons
equities and our annual pro rata redemptions of patrons
equities. The amount of patrons equities that will be
redeemed with each share of preferred stock issued will be
$
, which is the greater of
$25.17 (equal to the $25.00 liquidation preference per share of
preferred stock plus $0.17 of accumulated dividends from and
including January 1, 2008 to and including January 31,
2008) or the closing price for one share of the preferred
stock on The NASDAQ Global Select Market on January
, 2008, subject to the exceptions described
below. We will not issue any fractional shares of preferred
stock. The amount of patrons equities that would otherwise
be issued as a fractional share to any member will instead be
retained as part of that members patrons equities.
We are issuing the shares of preferred stock directly to the
relevant members. We have not engaged and will not engage any
underwriter, broker-dealer, placement agent or similar agent or
representative in connection with the issuance of the preferred
stock described in this prospectus.
will not pay any commissions or other compensation related to
the issuance of the shares of preferred stock. We estimate that
the total expenses of the issuance will be approximately
$115,000, all of which we will bear.
Except in the circumstances described below, we will not prepare
or distribute stock certificates to represent the shares of
preferred stock so issued. Instead, we will issue the shares of
preferred stock in book-entry form on the records of our
transfer agent for the preferred stock (Wells Fargo Bank,
National Association). Members who require a stock certificate
should contact Wells Fargo Shareowner Services in writing or by
telephoning at the following address or telephone number:
Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, Minnesota 55075
(800) 468-9716
Some of our members have pledged their patrons equities
and made those pledged patrons equities the subject of
control agreements between us and various financial
institutions. For these members, we will prepare stock
certificates representing the shares issued in redemption of
their patrons equities. We will retain those stock
certificates subject to our control agreements with the relevant
financial institutions until otherwise instructed by the
relevant financial institution. We will also instruct the
transfer agent to place a stop transfer order with
respect to those shares. Members whose shares are issued as
described in this paragraph may obtain more information by
contacting David Kastelic in writing or by telephone at the
following address or telephone number:
David Kastelic
Senior Vice President and General Counsel
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-3712
68
Dorsey & Whitney LLP, Minneapolis, Minnesota, is
providing an opinion that the shares of preferred stock issued
pursuant to this prospectus have been duly authorized and
validly issued and will be fully paid and nonassessable.
The consolidated financial statements and financial statement
schedule of CHS Inc. and subsidiaries as of August 31, 2007
and 2006 and for each of the three years in the period ended
August 31, 2007 included in this prospectus have been so
included in reliance on the reports of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and file reports and other
information with the Securities and Exchange Commission. Our SEC
filings are available to the public over the Internet at the
SECs website at
http://www.sec.gov.
You may also read and copy any document we file with the SEC at
its Public Reference Room at 100 F Street N.E.,
Washington, D.C. 20549. Additionally, you can obtain copies
of the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 100 F Street N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of its Public Reference
Room.
The SEC allows us to incorporate by reference into
this prospectus information we have filed with it. The
information incorporated by reference is an important part of
this prospectus and is considered to be part of this prospectus.
We incorporate by reference the documents listed below:
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our Annual Report on
Form 10-K
for the fiscal year ended August 31, 2007, and
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|
our
Form 8-K
filed November 29, 2007.
|
You may request a copy of these filings, at no cost, by writing
or telephoning us at the following address:
CHS Inc.
Attention: Jodell M. Heller, Vice President and Controller
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
(651) 355-5270
We maintain a web site at www.chsinc.com. You may access our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act with the SEC
free of charge through our web site as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC.
You should rely only on the information provided in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information.
69
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in
it include forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Words and phrases such as will likely result,
are expected to, is anticipated,
estimate, project and similar
expressions identify forward-looking statements. These
forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking
statements. These risks and uncertainties include, but are not
limited to, risks related to the level of commodity prices, loss
of member business, competition, changes in the taxation of
cooperatives, compliance with laws and regulations,
environmental liabilities, perceptions of food quality and
safety, business interruptions and casualty losses, access to
equity capital, consolidation of producers and customers,
fluctuations in prices for crude oil and refined petroleum
products, alternative energy sources, the performance of our
agronomy business, technological improvements and joint
ventures. These risks and uncertainties are further described
under Risk Factors and elsewhere in this prospectus.
We do not guarantee future results, levels of activity,
performance or achievements and we wish to caution you not to
place undue reliance on any forward-looking statements, which
speak only as of the date on which they were made.
70
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS CHS INC.
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|
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|
|
|
|
Page No.
|
|
CHS Inc.
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
F-i
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Members and Patrons of CHS Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of equities
and comprehensive income and of cash flows present fairly, in
all material respects, the financial position of CHS Inc. and
subsidiaries at August 31, 2007 and 2006, and the results
of their operations and their cash flows for each of the three
years in the period ended August 31, 2007, in conformity
with accounting principles generally accepted in the United
States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 11 to the consolidated financial
statements, CHS Inc. changed the manner in which it accounts for
defined benefit arrangements effective August 31, 2007.
November 2, 2007
Minneapolis, Minnesota
F-1
CONSOLIDATED
BALANCE SHEETS
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|
|
|
|
August 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
357,712
|
|
|
$
|
112,525
|
|
Receivables
|
|
|
1,401,251
|
|
|
|
1,076,602
|
|
Inventories
|
|
|
1,666,632
|
|
|
|
1,130,824
|
|
Other current assets
|
|
|
511,263
|
|
|
|
298,666
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,936,858
|
|
|
|
2,618,617
|
|
Investments
|
|
|
880,592
|
|
|
|
624,253
|
|
Property, plant and equipment
|
|
|
1,728,171
|
|
|
|
1,476,239
|
|
Other assets
|
|
|
147,965
|
|
|
|
223,474
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,693,586
|
|
|
$
|
4,942,583
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
672,571
|
|
|
$
|
22,007
|
|
Current portion of long-term debt
|
|
|
98,977
|
|
|
|
60,748
|
|
Customer credit balances
|
|
|
110,818
|
|
|
|
66,468
|
|
Customer advance payments
|
|
|
161,525
|
|
|
|
82,362
|
|
Checks and drafts outstanding
|
|
|
143,133
|
|
|
|
57,083
|
|
Accounts payable
|
|
|
1,120,822
|
|
|
|
904,143
|
|
Accrued expenses
|
|
|
439,084
|
|
|
|
347,078
|
|
Dividends and equities payable
|
|
|
374,294
|
|
|
|
249,774
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,121,224
|
|
|
|
1,789,663
|
|
Long-term debt
|
|
|
589,344
|
|
|
|
683,997
|
|
Other liabilities
|
|
|
359,198
|
|
|
|
310,157
|
|
Minority interests in subsidiaries
|
|
|
190,830
|
|
|
|
141,375
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equities
|
|
|
2,432,990
|
|
|
|
2,017,391
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equities
|
|
$
|
6,693,586
|
|
|
$
|
4,942,583
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
Revenues
|
|
$
|
17,215,992
|
|
|
$
|
14,383,835
|
|
|
$
|
11,926,962
|
|
Cost of goods sold
|
|
|
16,139,691
|
|
|
|
13,570,507
|
|
|
|
11,449,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,076,301
|
|
|
|
813,328
|
|
|
|
477,104
|
|
Marketing, general and administrative
|
|
|
245,357
|
|
|
|
231,238
|
|
|
|
199,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
830,944
|
|
|
|
582,090
|
|
|
|
277,750
|
|
Gain on investments
|
|
|
(20,616
|
)
|
|
|
|
|
|
|
(13,013
|
)
|
Interest, net
|
|
|
31,098
|
|
|
|
41,305
|
|
|
|
41,509
|
|
Equity income from investments
|
|
|
(109,685
|
)
|
|
|
(84,188
|
)
|
|
|
(95,742
|
)
|
Minority interests
|
|
|
143,214
|
|
|
|
85,974
|
|
|
|
47,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
786,933
|
|
|
|
538,999
|
|
|
|
297,260
|
|
Income taxes
|
|
|
36,600
|
|
|
|
49,327
|
|
|
|
30,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
750,333
|
|
|
|
489,672
|
|
|
|
266,826
|
|
(Income) loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(625
|
)
|
|
|
16,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Patronage refunds
|
|
$
|
550,000
|
|
|
$
|
374,000
|
|
|
$
|
203,000
|
|
Unallocated capital reserve
|
|
|
200,333
|
|
|
|
116,297
|
|
|
|
47,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
CONSOLIDATED
STATEMENTS OF EQUITIES AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Nonpatronage
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
Other
|
|
|
Allocated
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
Preferred
|
|
|
Patronage
|
|
|
Capital
|
|
|
Comprehensive
|
|
|
Capital
|
|
|
Total
|
|
|
|
Certificates
|
|
|
Certificates
|
|
|
Stock
|
|
|
Refunds
|
|
|
Reserve
|
|
|
Income (Loss)
|
|
|
Reserve
|
|
|
Equities
|
|
|
|
(Dollars in thousands)
|
|
|
Balances, September 1, 2004
|
|
$
|
1,114,641
|
|
|
$
|
27,586
|
|
|
$
|
106,692
|
|
|
$
|
116,790
|
|
|
$
|
261,462
|
|
|
$
|
(7,135
|
)
|
|
$
|
8,050
|
|
|
$
|
1,628,086
|
|
Dividends and equity retirement determination
|
|
|
32,100
|
|
|
|
|
|
|
|
|
|
|
|
50,060
|
|
|
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
83,569
|
|
Patronage distribution
|
|
|
119,736
|
|
|
|
|
|
|
|
|
|
|
|
(166,850
|
)
|
|
|
(4,464
|
)
|
|
|
|
|
|
|
|
|
|
|
(51,578
|
)
|
Equities retired
|
|
|
(23,625
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,673
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(19,996
|
)
|
|
|
|
|
|
|
19,996
|
|
|
|
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
(87
|
)
|
Equities issued
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,375
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,178
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,178
|
)
|
Other, net
|
|
|
(666
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,000
|
|
|
|
47,016
|
|
|
|
|
|
|
|
|
|
|
|
250,016
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,106
|
|
|
|
|
|
|
|
12,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and equities payable
|
|
|
(69,856
|
)
|
|
|
|
|
|
|
|
|
|
|
(60,900
|
)
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2005
|
|
|
1,153,709
|
|
|
|
27,467
|
|
|
|
126,688
|
|
|
|
142,100
|
|
|
|
294,912
|
|
|
|
4,971
|
|
|
|
8,050
|
|
|
|
1,757,897
|
|
Dividends and equity retirement determination
|
|
|
69,856
|
|
|
|
|
|
|
|
|
|
|
|
60,900
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
132,406
|
|
Patronage distribution
|
|
|
145,333
|
|
|
|
|
|
|
|
|
|
|
|
(203,000
|
)
|
|
|
(4,850
|
)
|
|
|
|
|
|
|
|
|
|
|
(62,517
|
)
|
Equities retired
|
|
|
(55,836
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,933
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(23,824
|
)
|
|
|
|
|
|
|
23,824
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
Equities issued
|
|
|
11,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,064
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,816
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,816
|
)
|
Other, net
|
|
|
(3,300
|
)
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
(3,276
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374,000
|
|
|
|
116,297
|
|
|
|
|
|
|
|
|
|
|
|
490,297
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,131
|
|
|
|
|
|
|
|
8,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and equities payable
|
|
|
(116,919
|
)
|
|
|
|
|
|
|
|
|
|
|
(130,900
|
)
|
|
|
(1,955
|
)
|
|
|
|
|
|
|
|
|
|
|
(249,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2006
|
|
|
1,180,083
|
|
|
|
27,173
|
|
|
|
150,512
|
|
|
|
243,100
|
|
|
|
395,371
|
|
|
|
13,102
|
|
|
|
8,050
|
|
|
|
2,017,391
|
|
Dividends and equity retirement determination
|
|
|
116,919
|
|
|
|
|
|
|
|
|
|
|
|
130,900
|
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
249,774
|
|
Patronage distribution
|
|
|
246,802
|
|
|
|
|
|
|
|
|
|
|
|
(374,000
|
)
|
|
|
(5,860
|
)
|
|
|
|
|
|
|
|
|
|
|
(133,058
|
)
|
Equities retired
|
|
|
(70,402
|
)
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,784
|
)
|
Capital equity certificates exchanged for preferred stock
|
|
|
(35,899
|
)
|
|
|
|
|
|
|
35,899
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
Equities issued
|
|
|
10,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,132
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,104
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,104
|
)
|
Other, net
|
|
|
(3,203
|
)
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(3,189
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,000
|
|
|
|
200,333
|
|
|
|
|
|
|
|
|
|
|
|
750,333
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,353
|
|
|
|
|
|
|
|
62,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FASB Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,419
|
)
|
|
|
|
|
|
|
(62,419
|
)
|
Dividends and equities payable
|
|
|
(179,381
|
)
|
|
|
|
|
|
|
|
|
|
|
(192,500
|
)
|
|
|
(2,413
|
)
|
|
|
|
|
|
|
|
|
|
|
(374,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2007
|
|
$
|
1,265,051
|
|
|
$
|
26,646
|
|
|
$
|
186,411
|
|
|
$
|
357,500
|
|
|
$
|
576,305
|
|
|
$
|
13,036
|
|
|
$
|
8,041
|
|
|
$
|
2,432,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended August 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
Adjustment to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
140,596
|
|
|
|
126,777
|
|
|
|
110,332
|
|
Income from equity investments
|
|
|
(109,685
|
)
|
|
|
(84,188
|
)
|
|
|
(95,742
|
)
|
Distributions from equity investments
|
|
|
66,693
|
|
|
|
58,240
|
|
|
|
64,869
|
|
Minority interests
|
|
|
143,214
|
|
|
|
85,974
|
|
|
|
47,736
|
|
Noncash portion of patronage dividends received
|
|
|
(3,302
|
)
|
|
|
(4,969
|
)
|
|
|
(3,060
|
)
|
Gain on sale of property, plant and equipment
|
|
|
(6,916
|
)
|
|
|
(5,232
|
)
|
|
|
(7,370
|
)
|
Loss on sale of business
|
|
|
|
|
|
|
|
|
|
|
6,163
|
|
Gain on investments
|
|
|
(20,616
|
)
|
|
|
|
|
|
|
(13,013
|
)
|
Deferred taxes
|
|
|
46,800
|
|
|
|
78,300
|
|
|
|
26,400
|
|
Other, net
|
|
|
4,261
|
|
|
|
460
|
|
|
|
1,027
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(278,179
|
)
|
|
|
44,650
|
|
|
|
(250,202
|
)
|
Inventories
|
|
|
(528,288
|
)
|
|
|
(198,501
|
)
|
|
|
(190,081
|
)
|
Other current assets and other assets
|
|
|
(256,925
|
)
|
|
|
64,677
|
|
|
|
(74,911
|
)
|
Customer credit balances
|
|
|
44,030
|
|
|
|
(25,915
|
)
|
|
|
3,216
|
|
Customer advance payments
|
|
|
79,138
|
|
|
|
(48,062
|
)
|
|
|
62,773
|
|
Accounts payable and accrued expenses
|
|
|
277,722
|
|
|
|
(142,934
|
)
|
|
|
328,961
|
|
Other liabilities
|
|
|
23,746
|
|
|
|
15,368
|
|
|
|
9,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
372,622
|
|
|
|
454,942
|
|
|
|
276,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(373,300
|
)
|
|
|
(234,992
|
)
|
|
|
(257,470
|
)
|
Proceeds from disposition of property, plant and equipment
|
|
|
13,548
|
|
|
|
13,911
|
|
|
|
21,109
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
|
|
|
|
38,286
|
|
Investments
|
|
|
(95,834
|
)
|
|
|
(72,989
|
)
|
|
|
(25,938
|
)
|
Investments redeemed
|
|
|
4,935
|
|
|
|
7,283
|
|
|
|
13,514
|
|
Proceeds from sale of investments
|
|
|
10,918
|
|
|
|
|
|
|
|
147,801
|
|
Changes in notes receivable
|
|
|
(29,320
|
)
|
|
|
20,955
|
|
|
|
(23,770
|
)
|
Acquisition of intangibles
|
|
|
(15,583
|
)
|
|
|
(2,867
|
)
|
|
|
(372
|
)
|
Acquisition of working capital, net
|
|
|
(8,604
|
)
|
|
|
|
|
|
|
|
|
Other investing activities, net
|
|
|
(2,051
|
)
|
|
|
3,351
|
|
|
|
(5,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(495,291
|
)
|
|
|
(265,348
|
)
|
|
|
(91,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in notes payable
|
|
|
633,203
|
|
|
|
(59,025
|
)
|
|
|
(54,968
|
)
|
Borrowings on long-term debt
|
|
|
4,050
|
|
|
|
|
|
|
|
125,000
|
|
Principal payments on long-term debt
|
|
|
(60,851
|
)
|
|
|
(36,669
|
)
|
|
|
(36,033
|
)
|
Payments for bank fees on debt
|
|
|
(104
|
)
|
|
|
(1,997
|
)
|
|
|
(2,474
|
)
|
Changes in checks and drafts outstanding
|
|
|
85,412
|
|
|
|
(10,513
|
)
|
|
|
2,814
|
|
Distributions to minority owners
|
|
|
(76,763
|
)
|
|
|
(80,529
|
)
|
|
|
(29,925
|
)
|
Costs incurred capital equity certificates redeemed
|
|
|
(145
|
)
|
|
|
(88
|
)
|
|
|
(87
|
)
|
Preferred stock dividends paid
|
|
|
(13,104
|
)
|
|
|
(10,816
|
)
|
|
|
(9,178
|
)
|
Retirements of equities
|
|
|
(70,784
|
)
|
|
|
(55,933
|
)
|
|
|
(23,673
|
)
|
Cash patronage dividends paid
|
|
|
(133,058
|
)
|
|
|
(62,517
|
)
|
|
|
(51,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
367,856
|
|
|
|
(318,087
|
)
|
|
|
(80,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
245,187
|
|
|
|
(128,493
|
)
|
|
|
104,527
|
|
Cash and cash equivalents at beginning of period
|
|
|
112,525
|
|
|
|
241,018
|
|
|
|
136,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
357,712
|
|
|
$
|
112,525
|
|
|
$
|
241,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary
of Significant Accounting Policies
Organization
CHS Inc. (CHS or the Company) is an agricultural supply, energy
and grain-based foods cooperative company organized for the
mutual benefit of its members. Members of the cooperative are
located throughout the United States. The Company provides a
wide variety of products and services, from initial agricultural
inputs such as fuels, farm supplies and agronomy products, to
agricultural outputs that include grains and oilseeds, grain and
oilseed processing and food products. Revenues are both domestic
and international.
Consolidation
The consolidated financial statements include the accounts of
CHS and all of its wholly-owned and majority-owned subsidiaries
and limited liability companies, including National Cooperative
Refinery Association (NCRA), included in our Energy segment. The
effects of all significant intercompany transactions have been
eliminated.
The Company had various insignificant acquisitions, during the
three years ended August 31, 2007, which have been
accounted for using the purchase method of accounting. Operating
results of the acquisitions are included in the consolidated
financial statements since the respective acquisition dates. The
respective purchase prices were allocated to the assets and
liabilities acquired based upon the estimated fair values. The
excess purchase prices over the estimated fair values of the net
assets acquired have been reported as identifiable intangible
assets. During 2006, our investment in Provista Renewable Fuels
Marketing, LLC (Provista) resulted in financial statement
consolidation of that entity.
Cash
Equivalents
Cash equivalents include short-term, highly liquid investments
with original maturities of three months or less at the date of
acquisition.
Inventories
Grain, processed grain, oilseed and processed oilseed are stated
at net realizable values which approximates market values. All
other inventories are stated at the lower of cost or market.
Costs for inventories produced or modified by the Company
through a manufacturing process include fixed and variable
production and raw material costs, and in-bound freight costs
for raw materials over the amount charged to cost of goods sold.
Costs for inventories purchased for resale include the cost of
products and freight incurred to place the products at the
Companys points of sales. The cost of certain energy
inventories (wholesale refined products, crude oil and asphalt)
is determined on the
last-in,
first-out (LIFO) method; all other inventories of non-grain
products purchased for resale are valued on the
first-in,
first-out (FIFO) and average cost methods.
Derivative
Financial Instruments
Commodity
Price Risk
The Company is exposed to price fluctuations on energy, grain
and oilseed transactions due to fluctuations in the market value
of inventories and fixed or partially fixed purchase and sales
contracts. The Companys use of derivative instruments
reduces the effects of price volatility, thereby protecting
against adverse short-term price movements, while somewhat
limiting the benefits of short-term price movements. However,
fluctuations in inventory valuations may not be completely
hedged, due in part to the absence of satisfactory hedging
facilities for certain commodities and geographical areas and in
part to the Companys assessment of its exposure from
expected price fluctuations.
The Company generally enters into opposite and offsetting
positions using futures contracts or options to the extent
practical, in order to arrive at a net commodity position within
the formal position limits set by the
F-6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company and deemed prudent for each of those commodities. These
contracts are purchased and sold through regulated commodity
exchanges. The contracts are economic hedges of price risk, but
are not designated or accounted for as hedging instruments for
accounting purposes in any operations, with the exception of
some contracts included in the Energy segment discussed below.
These contracts are recorded on the Consolidated Balance Sheet
at fair values based on quotes listed on regulated commodity
exchanges. Unrealized gains and losses on these contracts are
recognized in cost of goods sold in our Consolidated Statements
of Operations using market-based prices.
The Company also manages its risks by entering into fixed-price
purchase and sales contracts with pre-approved producers and by
establishing appropriate limits for individual suppliers.
Fixed-price contracts are entered into with customers of
acceptable creditworthiness, as internally evaluated. The
Company is also 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. These contracts are recorded on the Consolidated
Balance Sheet at fair values based on the market prices of the
underlying products listed on regulated commodity exchanges,
except for certain fixed-price contracts related to propane in
the Energy segment. The propane contracts within the Energy
segment meet the normal purchase and sales exemption, and thus
are not required to be marked to fair value. Unrealized gains
and losses on fixed-price contracts are recognized in cost of
goods sold using market-based prices.
Changes in the fair values of derivative instruments described
above are recognized in cost of goods sold in the Consolidated
Statements of Operations in the period such changes occur for
all operations with the exception of some derivative instruments
included in the Energy segment. Included in other current assets
on August 31, 2007 and 2006, are derivative assets of
$247.1 million and $74.3 million, respectively.
Included in accrued expenses on August 31, 2007 and 2006,
are derivative liabilities of $177.2 million and
$97.8 million, respectively.
In the Energy segment, certain financial contracts entered into
for the spread between crude oil purchase value and distillate
selling price have been designated and accounted for as hedging
instruments (cash flow hedges). The unrealized gains or losses
of these contracts are deferred to accumulated other
comprehensive income in the equity section of the Consolidated
Balance Sheet for the fiscal year ended August 31, 2006,
and will be included in earnings upon settlement. Settlement
dates for cash flow hedges extend through December 31,
2007. At August 31, 2007, the cash flow hedges did not
qualify for hedge accounting and therefore are recorded in cost
of goods sold in the Consolidated Statements of Operations. A
loss of $2.8 million and a gain of $2.8 million, net
of taxes, were recorded in accumulated other comprehensive
income for the years ended August 31, 2007 and 2006,
respectively, for the change in the fair value of cash flow
hedges related to these derivatives. During the year ended
August 31, 2007, net gains of $9.7 million from these
contract settlements were recorded in the Consolidated Statement
of Operations. No gains or losses were recorded in the
Consolidated Statement of Operations during the year ended
August 31, 2006, since there were no settlements.
Interest
Rate Risk
The Company uses fixed and floating rate debt to lessen the
effects of interest rate fluctuations on interest expense.
Short-term debt used to finance inventories and receivables is
represented by notes payable with maturities of 30 days or
less, so that the blended interest rate to the Company for all
such notes approximates current market rates. Long-term debt
used to finance non-current assets carries various fixed
interest rates and is payable at various dates to minimize the
effect of market interest rate changes. The effective interest
rate on fixed rate debt outstanding on August 31, 2007, was
approximately 6.0%.
The Company enters into interest rate treasury lock instruments
to fix interest rates related to a portion of its private
placement debts. These instruments were designated and are
effective as cash flow hedges for accounting purposes and,
accordingly, changes in fair value of $2.2 million, net of
taxes, are included in accumulated other comprehensive income.
Interest expense for each of the years ended August 31,
2007, 2006
F-7
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
and 2005, includes $0.9 million which relates to the
interest rate derivatives. The additional interest expense is an
offset to the lower actual interest paid on the outstanding debt
instruments.
Foreign
Currency Risk
The Company conducts essentially all of its business in
U.S. dollars, except for grain marketing operations in
Brazil and purchases of products from Canada, and had minimal
risk regarding foreign currency fluctuations during 2007 or in
recent years. Foreign currency fluctuations do, however, impact
the ability of foreign buyers to purchase U.S. agricultural
products and the competitiveness of U.S. agricultural
products compared to the same products offered by alternative
sources of world supply.
Investments
Investments in other cooperatives are stated at cost, plus
patronage dividends received in the form of capital stock and
other equities. Patronage dividends are recorded in cost of
goods sold at the time qualified written notices of allocation
are received. Joint ventures and other investments, in which the
Company has significant ownership and influence, but not
control, are accounted for in the consolidated financial
statements under the equity method of accounting. Investments in
other debt and equity securities are considered available for
sale financial instruments and are stated at fair value, with
unrealized amounts included as a component of accumulated other
comprehensive income (loss).
Disclosure of the fair value of financial instruments, to which
the Company is a party, includes estimates and assumptions which
may be subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be
determined with precision. Investments in debt and equity
instruments are carried at amounts that approximate estimated
fair values. Investments in cooperatives and joint ventures have
no quoted market prices.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are provided on the straight-line method by charges
to operations at rates based upon the expected useful lives of
individual or groups of assets (primarily 15 to 40 years
for land improvements and buildings and 3 to 20 years for
machinery, equipment, office and other). The cost and related
accumulated depreciation and amortization of assets sold or
otherwise disposed of are removed from the related accounts and
resulting gains or losses are reflected in operations.
Expenditures for maintenance and repairs and minor renewals are
expensed, while costs of major renewals and betterments are
capitalized.
The Company reviews property, plant and equipment and other
long-lived assets in order to assess recoverability based on
projected income and related cash flows on an undiscounted basis
when triggering events occur. Should the sum of the expected
future net cash flows be less than the carrying value, an
impairment loss would be recognized. An impairment loss would be
measured by the amount by which the carrying value of the asset
exceeds the fair value of the asset.
As of August 31, 2006, the Company has adopted Financial
Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations, and FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations. The
Company has asset retirement obligations with respect to certain
of its refineries and related assets due to various legal
obligations to clean
and/or
dispose of various component parts at the time they are retired.
However, these assets can be used for extended and indeterminate
periods of time, as long as they are properly maintained
and/or
upgraded. It is the Companys practice and current intent
to maintain refinery and related assets and to continue making
improvements to those assets based on technological advances. As
a result, the Company believes that its refineries and related
assets have indeterminate lives for purposes of estimating asset
retirement obligations because dates or ranges of dates upon
which the Company would retire refinery and related assets
cannot reasonably be estimated at this time. When a date or
range of dates can reasonably be
F-8
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
estimated for the retirement of any component part of a refinery
or related asset, the Company will estimate the cost of
performing the retirement activities and record a liability for
the fair value of that cost using established present value
techniques.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price of an
acquired entity over the amounts assigned to assets acquired and
liabilities assumed. Goodwill and other intangible assets are
reviewed for impairment annually or more frequently if certain
impairment conditions arise. Goodwill and other intangible
assets that are impaired are written down to fair value. Other
intangible assets consist primarily of trademarks, customer
lists and agreements not to compete. Intangible assets subject
to amortization are expensed over their respective useful lives
(ranging from 3 to 15 years). The Company has no material
intangible assets with indefinite useful lives.
Revenue
Recognition
The Company provides a wide variety of products and services,
from production agricultural inputs such as fuels, farm supplies
and crop nutrients, to agricultural outputs that include grain
and oilseed, processed grains and oilseeds and food products.
Grain and oilseed sales are recorded after the commodity has
been delivered to its destination and final weights, grades and
settlement prices have been agreed upon. All other sales are
recognized upon transfer of title, which could occur upon either
shipment or receipt by the customer, depending upon the
transaction. Amounts billed to a customer as part of a sales
transaction related to shipping and handling are included in
revenues. Service revenues are recorded only after such services
have been rendered.
Environmental
Expenditures
Liabilities, including legal costs, related to remediation of
contaminated properties are recognized when the related costs
are considered probable and can be reasonably estimated.
Estimates of environmental costs are based on current available
facts, existing technology, undiscounted site-specific costs and
currently enacted laws and regulations. Recoveries, if any, are
recorded in the period in which recovery is considered probable.
Liabilities are monitored and adjusted as new facts or changes
in law or technology occur. Environmental expenditures are
capitalized when such costs provide future economic benefits.
Income
Taxes
The Company is a nonexempt agricultural cooperative and files a
consolidated federal income tax return with its 80% or more
owned subsidiaries. The Company is subject to tax on income from
nonpatronage sources and undistributed patronage-sourced income.
Income tax expense is primarily the current tax payable for the
period and the change during the period in certain deferred tax
assets and liabilities. Deferred income taxes reflect the impact
of temporary differences between the amounts of assets and
liabilities recognized for financial reporting purposes and such
amounts recognized for federal and state income tax purposes, at
each fiscal year end, based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
Comprehensive
Income
Comprehensive income primarily includes net income, unrealized
net gains or losses on available for sale investments and energy
derivatives, and changes in the funded status of pension and
other postretirement plans. Total comprehensive income is
reflected in the Consolidated Statements of Equities and
Comprehensive Income.
F-9
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Use
of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Recent
Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting for income
taxes recognized in an enterprises financial statements
and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure. FIN 48 is effective for fiscal
years beginning after December 15, 2006, with early
adoption permitted. The Company does not expect that the
adoption of FIN 48 will have a material impact on its
financial statements.
In September 2006, the FASB issued FASB Staff Position (FSP) AUG
AIR-1, Accounting for Planned Major Maintenance
Activities, addressing the accounting for planned major
maintenance activities which includes refinery turnarounds. This
FSP prohibits the use of the
accrue-in-advance
method of accounting for planned major maintenance activities in
annual and interim financial reporting periods but allows the
alternative deferral method. The FSP is effective for the fiscal
year beginning after December 15, 2006. The Company is
currently using the
accrue-in-advance
method of accounting and is in the final stages of determining
the impact this FSP will have on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) to increase consistency and
comparability in fair value measurements by defining fair value,
establishing a framework for measuring fair value in generally
accepted accounting principles, and expanding disclosures about
fair value measurements. SFAS No. 157 emphasizes that
fair value is a market-based measurement, not an entity-specific
measurement. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. The Company is in
the process of evaluating the effect that the adoption of
SFAS No. 157 will have on its consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 provides entities with
an option to report certain financial assets and liabilities at
fair value, with changes in fair value reported in earnings, and
requires additional disclosures related to an entitys
election to use fair value reporting. It also requires entities
to display the fair value of those assets and liabilities for
which the entity has elected to use fair value on the face of
the balance sheet. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company
is in the process of evaluating the effect that the adoption of
SFAS No. 159 will have on its consolidated results of
operations and financial condition.
Reclassifications
Certain reclassifications have been made to prior years
amounts to conform to current year classifications. These
reclassifications had no effect on previously reported net
income, equities and comprehensive income, or cash flows.
F-10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Receivables
Receivables as of August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Trade
|
|
$
|
1,366,428
|
|
|
$
|
1,056,514
|
|
Other
|
|
|
97,783
|
|
|
|
73,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,464,211
|
|
|
|
1,130,500
|
|
Less allowances for doubtful accounts
|
|
|
62,960
|
|
|
|
53,898
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,401,251
|
|
|
$
|
1,076,602
|
|
|
|
|
|
|
|
|
|
|
All international sales are denominated in U.S. dollars.
International sales for the years ended August 31, 2007,
2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Africa
|
|
$
|
229
|
|
|
$
|
119
|
|
|
$
|
83
|
|
Asia
|
|
|
1,130
|
|
|
|
904
|
|
|
|
880
|
|
Europe
|
|
|
178
|
|
|
|
183
|
|
|
|
129
|
|
North America, excluding U.S.
|
|
|
900
|
|
|
|
717
|
|
|
|
605
|
|
South America
|
|
|
608
|
|
|
|
156
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,045
|
|
|
$
|
2,079
|
|
|
$
|
1,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company routinely enters into buy/sell contracts associated
with crude oil. These contracts are used to facilitate the
Companys crude oil purchasing activity and supply
requirements. Physical delivery occurs for each side of the
transaction, and the risk and reward of ownership are evidenced
by title transfer, assumption of environmental risk,
transportation scheduling, credit risk and risk of
nonperformance by the counterparty. As a result, the Company
accounts for these buy/sell transactions, net, in cost of goods
sold in the Consolidated Statements of Operations.
3. Inventories
Inventories as of August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Grain and oilseed
|
|
$
|
928,567
|
|
|
$
|
511,413
|
|
Energy
|
|
|
490,675
|
|
|
|
447,664
|
|
Feed and farm supplies
|
|
|
178,167
|
|
|
|
137,978
|
|
Processed grain and oilseed
|
|
|
66,407
|
|
|
|
32,198
|
|
Other
|
|
|
2,816
|
|
|
|
1,571
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,666,632
|
|
|
$
|
1,130,824
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2007, the Company valued approximately 17%
of inventories, primarily related to energy, using the lower of
cost, determined on the LIFO method, or market (21% as of
August 31, 2006). If the FIFO method of accounting for
these inventories had been used, inventories would have been
higher than the reported amount by $389.0 million and
$370.5 million at August 31, 2007 and 2006,
respectively. During 2005, energy inventory quantities were
reduced, which resulted in liquidation of LIFO inventory
quantities carried at lower costs prevailing in prior years as
compared with the cost of 2005 purchases. The effect of the
liquidation decreased cost of goods sold by $15.8 million
during 2005.
F-11
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Investments
Investments as of August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
CF Industries Holdings, Inc.
|
|
$
|
101,986
|
|
|
$
|
34,105
|
|
Cooperatives:
|
|
|
|
|
|
|
|
|
Land OLakes, Inc.
|
|
|
41,061
|
|
|
|
38,929
|
|
Ag Processing Inc.
|
|
|
20,416
|
|
|
|
21,297
|
|
CoBank, ACB (CoBank)
|
|
|
12,659
|
|
|
|
11,956
|
|
Joint ventures:
|
|
|
|
|
|
|
|
|
United Country Brands, LLC (Agriliance LLC)
|
|
|
182,834
|
|
|
|
175,306
|
|
US BioEnergy Corporation
|
|
|
138,474
|
|
|
|
69,264
|
|
Ventura Foods, LLC
|
|
|
134,079
|
|
|
|
132,222
|
|
Cofina Financial, LLC
|
|
|
39,805
|
|
|
|
38,752
|
|
Horizon Milling, LLC
|
|
|
36,092
|
|
|
|
30,753
|
|
Horizon Milling G.P.
|
|
|
15,500
|
|
|
|
|
|
Multigrain AG
|
|
|
23,082
|
|
|
|
|
|
TEMCO, LLC
|
|
|
11,957
|
|
|
|
3,486
|
|
Other
|
|
|
122,647
|
|
|
|
68,183
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
880,592
|
|
|
$
|
624,253
|
|
|
|
|
|
|
|
|
|
|
In February 2005, the board of directors of CF Industries, Inc.
(CF), a domestic fertilizer manufacturer in which CHS held a
minority interest, determined after reviewing indicative values
from strategic buyers that a greater value could be derived for
the business through an initial public offering (IPO) of stock
in the company. The IPO was completed in August 2005. Prior to
the IPO, CHS held an ownership interest of approximately 20% in
CF, with a carrying value of $153.0 million, which
consisted primarily of noncash patronage refunds received from
CF over the years. Through the IPO, CHS sold approximately 81%
of its ownership interest for cash proceeds of
$140.4 million. As a result, the Company recognized a
pretax gain of $9.6 million ($8.8 million net of
taxes) during 2005.
After the IPO transaction, CHS held an ownership interest in CF
Industries Holdings, Inc. (the post-IPO name) of approximately
3.9% or 2,150,396 shares. During the year ended
August 31, 2007, CHS sold 540,000 shares of the stock
for proceeds of $10.9 million, and recorded a pretax gain
of $5.3 million, reducing its ownership interest in CF
Industries Holdings, Inc. to approximately 2.9%. CHS accounts
for this investment as an available for sale security, and
accordingly, it has adjusted the carrying value of the shares to
the $102.0 million market value on August 31, 2007. An
unrealized pretax gain of $85.4 million related to this
investment is included in accumulated other comprehensive income
on August 31, 2007. During the first quarter of fiscal
2008, CHS sold all of its remaining 1,610,396 shares of
stock for proceeds of $108.3 million and recorded a pretax
gain of $91.7 million ($84.1 million net of taxes).
During the year ended August 31, 2007, the Company made
additional investments of $45.4 million in US BioEnergy
Corporation (US BioEnergy), bringing its total cash investment
for common stock in US BioEnergy to $115.4 million. Prior
investments in US BioEnergy include $70.0 million of stock
purchased during the year ended August 31, 2006. In
December 2006, US BioEnergy completed an IPO, and the effect of
the issuance of additional shares of its stock was to dilute the
Companys ownership interest from approximately 25% to 21%.
In addition, on August 29, 2007, US BioEnergy completed an
acquisition with total aggregate net consideration comprised of
the issuance of US BioEnergy common stock and cash. Due to US
BioEnergys increase in equity, primarily from these two
transactions, the Company recognized a non-cash net gain of
$15.3 million on its investment during the year ended
August 31, 2007, to reflect its proportionate
F-12
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
share of the increase in the underlying equity of US BioEnergy.
This gain is reflected in the Processing segment. On
August 31, 2007, the Companys ownership interest in
US BioEnergy was approximately 19%, and based upon the market
price of $10.41 per share on that date, the Companys
investment had a fair value of approximately
$159.3 million. During the first quarter of fiscal 2008,
the Company purchased additional shares of US BioEnergy common
stock for $6.5 million, which increased its ownership
interest to approximately 20%. The Company is recognizing
earnings of US BioEnergy to the extent of its ownership interest
using the equity method of accounting. The carrying value of the
Companys investment in US BioEnergy of $138.5 million
exceeds its share of US BioEnergys equity by
$19.0 million, and represents equity method goodwill.
During the year ended August 31, 2007, the Company invested
in two new ventures. The Company invested $22.2 million for
an equity position in a Brazil-based grain handling and
merchandising company, Multigrain S.A., an agricultural
commodities business headquartered in Sao Paulo, Brazil, and
currently has a 37.5% ownership interest which is included in
the Ag Business segment. This venture includes grain storage and
export facilities and builds on the Companys South
American soybean origination. The Company also invested
$15.6 million in Horizon Milling G.P. (24% CHS ownership),
a joint venture included in the Processing segment, that
acquired the Canadian grain-based foodservice and industrial
businesses of Smucker Foods of Canada, which includes three
flour milling operations and two dry baking mixing facilities in
Canada.
As of August 31, 2007, the carrying value of the
Companys equity method investees, Agriliance LLC
(Agriliance) and Ventura Foods, LLC, exceeds its share of their
equity by $43.1 million, of which $3.5 million is
being amortized with a remaining life of approximately five
years. The remaining basis difference represents equity method
goodwill.
The Company has a 50% interest in Ventura Foods, LLC, a joint
venture entity, which produces and distributes vegetable
oil-based products. The following provides summarized unaudited
financial information for Ventura Foods, LLC balance sheets as
of August 31, 2007 and 2006, and statements of operations
for the twelve months ended August 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Current assets
|
|
$
|
269,156
|
|
|
$
|
237,117
|
|
Non-current assets
|
|
|
470,359
|
|
|
|
441,435
|
|
Current liabilities
|
|
|
195,376
|
|
|
|
141,080
|
|
Non-current liabilities
|
|
|
309,221
|
|
|
|
308,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,637,998
|
|
|
$
|
1,483,583
|
|
|
$
|
1,413,426
|
|
Gross profit
|
|
|
207,148
|
|
|
|
196,847
|
|
|
|
184,466
|
|
Net income
|
|
|
62,366
|
|
|
|
57,756
|
|
|
|
61,779
|
|
Agriliance is a wholesale and retail crop nutrients and crop
protections products company and is owned and governed by United
Country Brands, LLC (50%) and Land OLakes, Inc. (50%).
United Country Brands, LLC is 100% owned by CHS. The Company
accounts for its Agriliance investment using the equity method
of accounting within the Ag Business segment.
In June 2007, the Company announced that two business segments
of Agriliance were being repositioned. In September 2007, the
Company acquired the crop nutrients business of Agriliance and
Land OLakes, Inc. acquired the crop protection business.
F-13
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following provides summarized financial information for
Agriliance balance sheets as of August 31, 2007 and 2006,
and statements of operations for the years ended August 31,
2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Current assets
|
|
$
|
1,534,432
|
|
|
$
|
1,261,874
|
|
Non-current assets
|
|
|
130,347
|
|
|
|
166,365
|
|
Current liabilities
|
|
|
1,214,019
|
|
|
|
999,038
|
|
Non-current liabilities
|
|
|
138,173
|
|
|
|
132,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$
|
4,049,088
|
|
|
$
|
3,739,632
|
|
|
$
|
3,735,125
|
|
Earnings from operations
|
|
|
116,584
|
|
|
|
76,052
|
|
|
|
90,812
|
|
Net income
|
|
|
58,701
|
|
|
|
52,268
|
|
|
|
77,113
|
|
Various agreements with other owners of investee companies and a
majority-owned subsidiary set out parameters whereby CHS may buy
and sell additional interests in those companies, upon the
occurrence of certain events, at fair values determinable as set
forth in the specific agreements.
5. Property,
Plant and Equipment
A summary of property, plant and equipment as of August 31,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Land and land improvements
|
|
$
|
90,263
|
|
|
$
|
84,347
|
|
Buildings
|
|
|
410,556
|
|
|
|
395,833
|
|
Machinery and equipment
|
|
|
2,258,108
|
|
|
|
2,112,629
|
|
Office and other
|
|
|
81,091
|
|
|
|
75,836
|
|
Construction in progress
|
|
|
320,101
|
|
|
|
121,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,160,119
|
|
|
|
2,790,024
|
|
Less accumulated depreciation and amortization
|
|
|
1,431,948
|
|
|
|
1,313,785
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,728,171
|
|
|
$
|
1,476,239
|
|
|
|
|
|
|
|
|
|
|
In January 2002, the Company formed a limited liability company
with Cargill, Incorporated, to engage in wheat flour milling and
processing. The Company holds a 24% interest in the entity,
which is known as Horizon Milling, LLC. The Company is leasing
certain of its wheat milling facilities and related equipment to
Horizon Milling, LLC under an operating lease agreement. The
book value of the leased milling assets at August 31, 2007
and 2006, was $76.4 million and $82.0 million,
respectively, net of accumulated depreciation of
$54.0 million and $48.4 million, respectively.
For the years ended August 31, 2007, 2006 and 2005, the
Company capitalized interest of $11.7 million,
$4.7 million and $6.8 million, respectively, related
to capitalized construction projects.
6. Discontinued
Operations
In May 2005, CHS sold the majority of its Mexican foods business
for proceeds of $38.3 million resulting in a loss on
disposition of $6.2 million. During 2006, the Company sold
or disposed of the remaining assets. The operating results of
the Mexican foods business are reported as discontinued
operations.
F-14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Summarized results from discontinued operations for the years
ended August 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
|
|
|
|
$
|
43,556
|
|
Cost of goods sold
|
|
|
|
|
|
|
49,919
|
|
Marketing, general and administrative*
|
|
$
|
(1,168
|
)
|
|
|
18,246
|
|
Interest, net
|
|
|
145
|
|
|
|
2,903
|
|
Income tax expense (benefit)
|
|
|
398
|
|
|
|
(10,702
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
625
|
|
|
$
|
(16,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
*
|
2006 and 2005 include a $1.6 million gain and a
$6.2 million loss on disposition, respectively.
|
7. Other
Assets
Other assets as of August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Goodwill
|
|
$
|
3,804
|
|
|
$
|
3,904
|
|
Customer lists, less accumulated amortization of $2,898 and
$11,498, respectively
|
|
|
13,894
|
|
|
|
3,381
|
|
Non-compete covenants, less accumulated amortization of $1,826
and $1,678, respectively
|
|
|
3,201
|
|
|
|
1,531
|
|
Trademarks and other intangible assets, less accumulated
amortization of $7,249 and $5,379, respectively
|
|
|
15,823
|
|
|
|
12,838
|
|
Prepaid pension and other benefits
|
|
|
101,073
|
|
|
|
192,180
|
|
Notes receivable
|
|
|
5,874
|
|
|
|
3,859
|
|
Other
|
|
|
4,296
|
|
|
|
5,781
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,965
|
|
|
$
|
223,474
|
|
|
|
|
|
|
|
|
|
|
The decrease in goodwill of $0.1 million during 2007 is
related to a disposal in the Ag Business segment.
Various cash acquisitions of intangibles totaled
$15.6 million during the year ended August 31, 2007.
The largest intangible acquired was $6.5 million, which was
included in the $15.1 million total acquisition price of a
distillers dried grain business in the Ag Business segment. The
balance of this business acquisition included $8.6 million
of net working capital.
Intangible assets amortization expense for the years ended
August 31, 2007, 2006 and 2005 were $3.2 million,
$4.9 million and $4.2 million, respectively. The
estimated amortization expense related to intangible assets
subject to amortization for the next five years will approximate
$5.0 million annually for the first three years,
$4.5 million for the next year, and $4.0 million for
the following year.
F-15
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Notes
Payable and Long-Term Debt
Notes payable and long-term debt as of August 31, 2007 and
2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates at
|
|
|
|
|
|
|
|
|
August 31, 2007
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Notes payable(a)(i)
|
|
1.00% to 8.25%
|
|
$
|
672,571
|
|
|
$
|
22,007
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
Revolving term loans from cooperative and other banks, payable
in installments through 2009, when the balance is due(b)(i)
|
|
6.17% to 13.00%
|
|
$
|
80,594
|
|
|
$
|
110,477
|
|
Private placement, payable in equal installments beginning in
2008 through 2013(c)(i)
|
|
6.81%
|
|
|
225,000
|
|
|
|
225,000
|
|
Private placement, payable in installments beginning in 2007
through 2018(d)(i)
|
|
4.96% to 5.60%
|
|
|
157,308
|
|
|
|
175,000
|
|
Private placement, payable in equal installments beginning in
2011 through 2015(e)(i)
|
|
5.25%
|
|
|
125,000
|
|
|
|
125,000
|
|
Private placement, payable in equal installments in 2005 through
2011(f)(i)
|
|
7.43% to 7.90%
|
|
|
45,714
|
|
|
|
57,143
|
|
Private placement, payable in its entirety in 2010(g)(i)
|
|
4.08%
|
|
|
15,000
|
|
|
|
15,000
|
|
Private placement, payable in its entirety in 2011(g)(i)
|
|
4.39%
|
|
|
15,000
|
|
|
|
15,000
|
|
Industrial revenue bonds, payable in its entirety in 2011
|
|
5.23%
|
|
|
3,925
|
|
|
|
3,925
|
|
Other notes and contracts(h)
|
|
1.89% to 12.17%
|
|
|
20,780
|
|
|
|
18,200
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
688,321
|
|
|
|
744,745
|
|
Less current portion
|
|
|
|
|
98,977
|
|
|
|
60,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
|
$
|
589,344
|
|
|
$
|
683,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Weighted-average interest rates at August 31:
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
6.50%
|
|
|
|
7.58%
|
|
|
|
Long-term debt
|
|
|
6.03%
|
|
|
|
6.09%
|
|
|
|
|
|
|
(a)
|
|
The Company finances its working capital needs through a
short-term line of credit with a syndication of domestic and
international banks. This revolving line of credit was a
five-year $1.1 billion committed facility on
August 31, 2007, with $600.0 million outstanding on
that date. On October 1, 2007, the Company exercised the
accordion feature of the agreement and obtained additional
commitments in the amount of $200.0 million from certain
lenders under the agreement. The additional commitments
increased the total to $1.3 billion on the facility. In
addition to this short-term line of credit, the Company has a
one-year committed credit facility dedicated to NCRA, with a
syndication of banks in the amount of $15.0 million, with
no amount outstanding on August 31, 2007. The Company also
has a committed revolving line of credit dedicated to Provista
in the amount of $25.0 million, with $2.0 million
outstanding on August 31, 2007. In addition, the Company
has two commercial paper programs totaling up to
$125.0 million with two banks participating in the
five-year revolving credit facility. The commercial paper
programs do not increase the committed borrowing capacity in
that the Company is required to have at least an equal amount of
undrawn capacity
|
F-16
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
available on the five-year revolving facility as to the amount
of commercial paper issued. On August 31, 2007,
$51.9 million of commercial paper was outstanding. Other
miscellaneous notes payable totaled $18.7 million on
August 31, 2007.
|
|
(b)
|
|
The Company established a long-term credit agreement, which
committed $200.0 million of long-term borrowing capacity to
the Company through May 31, 1999, of which
$164.0 million was drawn before the expiration date of that
commitment. On August 31, 2007, $75.4 million was
outstanding. NCRA term loans of $3.0 million are
collateralized by NCRAs investment in CoBank.
|
|
|
|
(c)
|
|
In June 1998, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of
$225.0 million.
|
|
(d)
|
|
In October 2002, the Company entered into a private placement
with several insurance companies for long-term debt in the
amount of $175.0 million.
|
|
(e)
|
|
In September 2004, the Company entered into a private placement
with several insurance companies for long-term debt in the
amount of $125.0 million.
|
|
(f)
|
|
In January 2001, the Company entered into a note purchase and
private shelf agreement with Prudential Insurance Company. A
long-term note was issued for $25.0 million and a
subsequent note for $55.0 million was issued in March 2001.
|
|
(g)
|
|
In March 2004, the Company entered into a note purchase and
private shelf agreement with Prudential Capital Group. In April
2004, two long-term notes were issued for $15.0 million
each. In April 2007, the agreement was amended with Prudential
Investment Management, Inc. and several other participating
insurance companies to expand the uncommitted facility from
$70.0 million to $150.0 million.
|
|
(h)
|
|
Other notes and contracts payable of $8.3 million are
collateralized by property, plant and equipment, with a cost of
$16.9 million, less accumulated depreciation of
$5.0 million on August 31, 2007.
|
|
(i)
|
|
The debt is unsecured; however restrictive covenants under
various agreements have requirements for maintenance of minimum
working capital levels and other financial ratios.
|
In December 2006, NCRA entered into an agreement with the City
of McPherson, Kansas related to certain of its ultra-low sulfur
fuel assets (cost of approximately $325.0 million). The
City of McPherson issued $325.0 million of Industrial
Revenue Bonds (IRBs) which were transferred to NCRA as
consideration in a financing agreement between the City of
McPherson and NCRA related to the ultra-low sulfur fuel assets.
The term of the financing obligation is ten years, at which time
NCRA has the option of extending the financing obligation or
purchasing the assets for a nominal amount. NCRA has the right
at anytime to offset the financing obligation to the City of
McPherson against the IRBs. No cash was exchanged in the
transaction and none is anticipated to be exchanged in the
future. Due to the structure of the agreement, the financing
obligation and the IRBs are shown net in the Companys
consolidated financial statements. On March 18, 2007,
notification was sent to the bond trustees to pay the IRBs down
by $324.0 million, at which time the financing obligation
to the City of McPherson was offset against the IRBs. The
balance of $1.0 million will remain outstanding until final
maturity in ten years.
The fair value of long-term debt approximates book value as of
August 31, 2007 and 2006.
On October 4, 2007, the Company entered into a private
placement note purchase agreement and received proceeds of
$400.0 million. The unsecured notes have a ten-year term
and an interest rate of 6.18%.
F-17
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The aggregate amount of long-term debt payable as of
August 31, 2007 is as follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
2008
|
|
$
|
98,977
|
|
2009
|
|
|
117,910
|
|
2010
|
|
|
82,634
|
|
2011
|
|
|
111,665
|
|
2012
|
|
|
94,517
|
|
Thereafter
|
|
|
182,618
|
|
|
|
|
|
|
|
|
$
|
688,321
|
|
|
|
|
|
|
Interest, net for the years ended August 31, 2007, 2006 and
2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Interest expense
|
|
$
|
51,811
|
|
|
$
|
50,562
|
|
|
$
|
51,531
|
|
Interest income
|
|
|
20,713
|
|
|
|
9,257
|
|
|
|
10,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
31,098
|
|
|
$
|
41,305
|
|
|
$
|
41,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Income
Taxes
The provision for income taxes for the years ended
August 31, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(10,200
|
)
|
|
$
|
(28,973
|
)
|
|
$
|
4,034
|
|
Deferred
|
|
|
38,000
|
|
|
|
81,100
|
|
|
|
34,200
|
|
Valuation allowance
|
|
|
8,800
|
|
|
|
(2,800
|
)
|
|
|
(7,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes from continuing operations
|
|
|
36,600
|
|
|
|
49,327
|
|
|
|
30,434
|
|
Income taxes from discontinued operations
|
|
|
|
|
|
|
398
|
|
|
|
(10,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
36,600
|
|
|
$
|
49,725
|
|
|
$
|
19,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys current tax provision is significantly
impacted by the utilization of loss carryforwards and tax
benefits passed to the Company from NCRA. The passthrough tax
benefits are associated with refinery upgrades that enable NCRA
to produce
ultra-low
sulfur fuels as mandated by the Environmental Protection Agency.
Deferred taxes are comprised of basis differences related to
investments, accrued liabilities and certain federal and state
tax credits. NCRA files separate tax returns and, as such, these
items must be assessed independent of the Companys
deferred tax assets when determining recoverability.
F-18
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effect of temporary differences of deferred tax assets
and liabilities as of August 31, 2007 and 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses and valuation reserves
|
|
$
|
81,653
|
|
|
$
|
76,582
|
|
Postretirement health care and deferred compensation
|
|
|
65,339
|
|
|
|
49,652
|
|
Tax credits
|
|
|
50,402
|
|
|
|
16,763
|
|
Loss carryforward
|
|
|
6,427
|
|
|
|
25,027
|
|
Other
|
|
|
15,169
|
|
|
|
14,573
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
218,990
|
|
|
|
182,597
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Pension, including minimum liability
|
|
|
55,957
|
|
|
|
52,715
|
|
Equity method investments
|
|
|
84,671
|
|
|
|
55,128
|
|
Property, plant and equipment
|
|
|
191,369
|
|
|
|
159,034
|
|
Other
|
|
|
25,928
|
|
|
|
12,960
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
357,925
|
|
|
|
279,837
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation reserve
|
|
|
(9,375
|
)
|
|
|
(571
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
148,310
|
|
|
$
|
97,811
|
|
|
|
|
|
|
|
|
|
|
During fiscal years ended August 31, 2007 and 2006, the
Company reduced its valuation allowance on a capital loss
carryforward due to capital gains generated during those years.
During the year ended August 31, 2007, NCRA provided a
$9.4 million valuation allowance related to its
carryforward of certain state tax credits. The allowance was
necessary due to the limited amount of taxable income generated
by NCRA on an annual basis. As of August 31, 2007, NCRA has
net operating loss carryforwards of $14.8 million for tax
purposes available to offset future taxable income. If not used,
these carryforwards will expire in fiscal years beginning in
2024 and through 2025.
As of August 31, 2007, net deferred taxes of
$5.5 million and $153.8 million are included in
current assets and other liabilities, respectively
($77.6 million and $175.4 million in current assets
and other liabilities, respectively, as of August 31, 2006).
The reconciliation of the statutory federal income tax rates to
the effective tax rates for continuing operations for the years
ended August 31, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal income tax benefit
|
|
|
3.9
|
|
|
|
3.9
|
|
|
|
3.9
|
|
Patronage earnings
|
|
|
(27.5
|
)
|
|
|
(27.4
|
)
|
|
|
(26.9
|
)
|
Export activities at rates other than the U.S. statutory
rate
|
|
|
(1.6
|
)
|
|
|
(0.8
|
)
|
|
|
(2.4
|
)
|
Valuation allowance
|
|
|
1.1
|
|
|
|
(0.5
|
)
|
|
|
(2.6
|
)
|
Tax credits
|
|
|
(3.6
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
Other
|
|
|
(2.6
|
)
|
|
|
0.8
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
4.7
|
%
|
|
|
9.2
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Equities
In accordance with the by-laws and by action of the 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 patronage distribution is
determined annually by the Board of Directors, with the balance
issued in the form of capital equity certificates.
Annual net savings from sources other than patronage may be
added to the unallocated capital reserve or, upon action by the
Board of Directors, may be allocated to members in the form of
nonpatronage equity certificates. Redemptions are at the
discretion of the Board of Directors.
Redemptions of capital equity certificates approved by the Board
of Directors are divided into two pools, one for non-individuals
(primarily member cooperatives) who may participate in an annual
pro-rata program for equities held by them, and another for
individual members who are eligible for equity redemptions at
age 72 or upon death. Commencing in fiscal 2008, until
further resolution, the Board of Directors has reduced the age
for individuals who are eligible for equity redemptions to
age 70. The amount that each non-individual member receives
under the pro-rata program in any year will be determined by
multiplying the dollars available for pro-rata redemptions, if
any that year, as determined by the Board of Directors, by a
fraction, the numerator of which is the amount of patronage
certificates eligible for redemption held by them, and the
denominator of which is the sum of the patronage certificates
eligible for redemption held by all eligible holders of
patronage certificates that are not individuals. In addition to
the annual pro-rata program, the Board of Directors has
approved additional equity redemptions targeting older capital
equity certificates which were paid in fiscal 2007 and that are
authorized to be paid in fiscal 2008. In accordance with
authorization from the Board of Directors, the Company expects
total redemptions related to the year ended August 31,
2007, that will be distributed in fiscal 2008, to be
approximately $179.4 million. These expected distributions
are classified as a current liability on the August 31,
2007 Consolidated Balance Sheet.
For the years ended August 31, 2007, 2006 and 2005, the
Company redeemed in cash, equities in accordance with
authorization from the Board of Directors, $70.8 million,
$55.9 million and $23.7 million, respectively. An
additional $35.9 million, $23.8 million and
$20.0 million of capital equity certificates were redeemed
in fiscal years 2007, 2006 and 2005, respectively, by issuance
of shares of the Companys 8% Cumulative Redeemable
Preferred Stock (Preferred Stock). The amount of equities
redeemed with each share of Preferred Stock issued was $26.09,
$26.10 and $27.58, which was the closing price per share of the
stock on the NASDAQ Global Select Market on February 8,
2007, January 23, 2006 and January 24, 2005,
respectively.
The Preferred Stock is listed on the NASDAQ Global Select Market
under the symbol CHSCP. On August 31, 2007, the Company had
7,240,221 shares of Preferred Stock outstanding with a
total redemption value of approximately $181.0 million,
excluding accumulated dividends. The Preferred Stock accumulates
dividends at a rate of 8% per year (dividends are payable
quarterly) and is redeemable at the Companys option after
February 1, 2008. At this time, the Company has no
intention of redeeming any Preferred Stock.
11. Benefit
Plans
The Company has various pension and other defined benefit and
defined contribution plans, in which substantially all employees
may participate. The Company also has non-qualified supplemental
executive and board retirement plans.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statement
No. 87, 88, 106 and 132(R). This standard requires
employers to recognize the underfunded or overfunded status of
defined benefit pension and postretirement plans as an asset or
liability in its statement of financial position, and recognize
changes in the funded status in the year in which the changes
occur through accumulated other comprehensive income, which is a
component of stockholders equity. This standard also
eliminates the requirement for Additional Minimum
F-20
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Pension Liability (AML) required under SFAS No. 87. As
of August 31, 2007, NCRAS measurement date was
August 31, 2007 and CHS measurement date was June 30,
2007.
The following table illustrates the adjustments to the balance
sheet to record the funded status as of August 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-SFAS No. 158
|
|
|
SFAS No. 158
|
|
|
|
|
|
|
With AML
|
|
|
Adoption
|
|
|
Post SFAS
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
No. 158
|
|
|
|
(Dollars in thousands)
|
|
|
Prepaid pension
|
|
$
|
131,322
|
|
|
$
|
(95,239
|
)
|
|
$
|
36,083
|
|
Accrued pension liability
|
|
|
(47,663
|
)
|
|
|
(15,057
|
)
|
|
|
(62,720
|
)
|
Intangible asset
|
|
|
291
|
|
|
|
(291
|
)
|
|
|
|
|
Deferred tax asset
|
|
|
189
|
|
|
|
39,699
|
|
|
|
39,888
|
|
Minority interest
|
|
|
|
|
|
|
8,469
|
|
|
|
8,469
|
|
Accumulated other comprehensive income, net of tax
|
|
|
296
|
|
|
|
62,419
|
|
|
|
62,715
|
|
Accumulated other comprehensive income, pre-tax
|
|
|
485
|
|
|
|
102,118
|
|
|
|
102,603
|
|
Financial information on changes in benefit obligation and plan
assets funded and balance sheets status as of August 31,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
328,125
|
|
|
$
|
333,464
|
|
|
$
|
23,381
|
|
|
$
|
27,440
|
|
|
$
|
28,315
|
|
|
$
|
29,845
|
|
Service cost
|
|
|
14,360
|
|
|
|
14,892
|
|
|
|
1,023
|
|
|
|
2,195
|
|
|
|
957
|
|
|
|
1,024
|
|
Interest cost
|
|
|
19,259
|
|
|
|
17,037
|
|
|
|
1,480
|
|
|
|
1,368
|
|
|
|
1,668
|
|
|
|
1,568
|
|
Plan amendments
|
|
|
14,960
|
|
|
|
430
|
|
|
|
727
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,049
|
)
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(852
|
)
|
|
|
(8,813
|
)
|
|
|
9,794
|
|
|
|
(885
|
)
|
|
|
881
|
|
|
|
(552
|
)
|
Special agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
Assumption change
|
|
|
(5,401
|
)
|
|
|
(6,614
|
)
|
|
|
(37
|
)
|
|
|
(1,333
|
)
|
|
|
(1,482
|
)
|
|
|
(1,124
|
)
|
Medicare D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
Benefits paid
|
|
|
(24,132
|
)
|
|
|
(22,271
|
)
|
|
|
(724
|
)
|
|
|
(785
|
)
|
|
|
(2,600
|
)
|
|
|
(2,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of measurement date
|
|
$
|
346,319
|
|
|
$
|
328,125
|
|
|
$
|
35,644
|
|
|
$
|
23,381
|
|
|
$
|
28,001
|
|
|
$
|
28,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
345,860
|
|
|
$
|
335,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income on plan assets
|
|
|
45,826
|
|
|
|
25,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
14,877
|
|
|
|
6,955
|
|
|
$
|
724
|
|
|
$
|
785
|
|
|
$
|
2,600
|
|
|
$
|
2,446
|
|
Benefits paid
|
|
|
(24,132
|
)
|
|
|
(22,271
|
)
|
|
|
(724
|
)
|
|
|
(785
|
)
|
|
|
(2,600
|
)
|
|
|
(2,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of measurement date
|
|
$
|
382,431
|
|
|
$
|
345,860
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plans as of August 31, 2006
|
|
|
|
|
|
$
|
17,401
|
|
|
|
|
|
|
$
|
(23,381
|
)
|
|
|
|
|
|
$
|
(28,315
|
)
|
Employer contributions after measurement date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
205
|
|
Unrecognized actuarial loss (gain)
|
|
|
|
|
|
|
104,665
|
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
(1,181
|
)
|
Unrecognized transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,452
|
|
Unrecognized prior service cost (benefit)
|
|
|
|
|
|
|
5,513
|
|
|
|
|
|
|
|
2,009
|
|
|
|
|
|
|
|
(1,362
|
)
|
Special agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost (accrued)
|
|
|
|
|
|
$
|
127,579
|
|
|
|
|
|
|
$
|
(20,241
|
)
|
|
|
|
|
|
$
|
(24,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
Amounts recognized on balance sheet as of
August 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets (accrued benefit liability)
|
|
|
|
|
|
$
|
127,579
|
|
|
|
|
|
|
$
|
(21,396
|
)
|
|
|
|
|
|
$
|
(24,201
|
)
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
|
|
|
|
$
|
127,579
|
|
|
|
|
|
|
$
|
(20,241
|
)
|
|
|
|
|
|
$
|
(24,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on balance sheet as of
August 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
36,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(1,862
|
)
|
|
|
|
|
|
$
|
(1,911
|
)
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
(33,119
|
)
|
|
|
|
|
|
|
(25,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
36,083
|
|
|
|
|
|
|
$
|
(34,981
|
)
|
|
|
|
|
|
$
|
(27,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
(pre-tax) as of August 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,516
|
|
|
|
|
|
Prior service cost
|
|
$
|
19,608
|
|
|
|
|
|
|
$
|
2,276
|
|
|
|
|
|
|
|
(1,044
|
)
|
|
|
|
|
Net loss (gain)
|
|
|
75,886
|
|
|
|
|
|
|
|
10,434
|
|
|
|
|
|
|
|
(1,603
|
)
|
|
|
|
|
Minority interest
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
88,303
|
|
|
|
|
|
|
$
|
12,657
|
|
|
|
|
|
|
$
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For measurement purposes, an 8.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
the year ended August 31, 2007. The rate was assumed to
decrease gradually to
F-22
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.0% for 2012 and remain at that level thereafter. Components of
net periodic benefit costs for the years ended August 31,
2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
14,360
|
|
|
$
|
14,892
|
|
|
$
|
12,749
|
|
|
$
|
1,023
|
|
|
$
|
2,195
|
|
|
$
|
991
|
|
|
$
|
957
|
|
|
$
|
1,024
|
|
|
$
|
874
|
|
Interest cost
|
|
|
19,259
|
|
|
|
17,037
|
|
|
|
18,039
|
|
|
|
1,479
|
|
|
|
1,368
|
|
|
|
1,175
|
|
|
|
1,668
|
|
|
|
1,568
|
|
|
|
1,776
|
|
Expected return on assets
|
|
|
(29,171
|
)
|
|
|
(28,362
|
)
|
|
|
(27,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost amortization
|
|
|
867
|
|
|
|
855
|
|
|
|
792
|
|
|
|
494
|
|
|
|
516
|
|
|
|
519
|
|
|
|
(319
|
)
|
|
|
(305
|
)
|
|
|
(294
|
)
|
Actuarial loss (gain) amortization
|
|
|
5,766
|
|
|
|
7,513
|
|
|
|
5,759
|
|
|
|
77
|
|
|
|
210
|
|
|
|
124
|
|
|
|
(231
|
)
|
|
|
17
|
|
|
|
43
|
|
Transition amount amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
|
936
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
11,081
|
|
|
$
|
11,935
|
|
|
$
|
9,691
|
|
|
$
|
3,073
|
|
|
$
|
4,289
|
|
|
$
|
2,809
|
|
|
$
|
3,011
|
|
|
$
|
3,240
|
|
|
$
|
3,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25%
|
|
|
|
6.05%
|
|
|
|
5.25%
|
|
|
|
6.25%
|
|
|
|
6.05%
|
|
|
|
5.25%
|
|
|
|
6.25%
|
|
|
|
6.05%
|
|
|
|
5.25%
|
|
Expected return on plan assets
|
|
|
8.75%
|
|
|
|
8.80%
|
|
|
|
9.00%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.80%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.50%
|
|
|
|
4.80%
|
|
The aggregate projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for non-qualified
pension benefits, with accumulated benefit obligations in excess
of plan assets, were as follows as of August 31, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
Pension Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
Projected benefit obligation
|
|
$
|
35,644
|
|
|
$
|
23,381
|
|
Accumulated benefit obligation
|
|
|
22,731
|
|
|
|
21,491
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
The estimated amortization from accumulated other comprehensive
income into net periodic benefit cost in fiscal 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
(Dollars in thousands)
|
|
Amortization of transition asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
202
|
|
Amortization of prior service cost (benefit)
|
|
|
2,164
|
|
|
|
578
|
|
|
|
(319
|
)
|
Amortization of net actuarial loss (gain)
|
|
|
4,398
|
|
|
|
823
|
|
|
|
(258
|
)
|
F-23
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A
one-percentage point change in the assumed health care cost
trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(Dollars in thousands)
|
|
Effect on total of service and interest cost components
|
|
$
|
300
|
|
|
$
|
(267
|
)
|
Effect on postretirement benefit obligation
|
|
|
2,571
|
|
|
|
(2,318
|
)
|
The Company provides defined life insurance and health care
benefits for certain retired employees and Board of
Directors participants. The plan is contributory based on
years of service and family status, with retiree contributions
adjusted annually.
The Company has other contributory defined contribution plans
covering substantially all employees. Total contributions by the
Company to these plans were $10.7 million,
$9.7 million and $9.5 million, for the years ended
August 31, 2007, 2006 and 2005, respectively.
The Company contributed $14.9 million to qualified pension
plans in fiscal year 2007. Because the plans are fully funded,
the Company does not expect to contribute to the pension plans
in fiscal year 2008. The Company expects to pay
$3.7 million to participants of the non-qualified pension
and postretirement benefit plans during fiscal 2008.
The Companys retiree benefit payments which reflect
expected future service are anticipated to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
Part D
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Gross
|
|
|
Reimbursement
|
|
|
|
(Dollars in thousands)
|
|
2008
|
|
$
|
24,317
|
|
|
$
|
1,862
|
|
|
$
|
1,911
|
|
|
$
|
200
|
|
2009
|
|
|
24,999
|
|
|
|
560
|
|
|
|
1,973
|
|
|
|
200
|
|
2010
|
|
|
27,275
|
|
|
|
1,268
|
|
|
|
2,210
|
|
|
|
200
|
|
2011
|
|
|
27,915
|
|
|
|
5,376
|
|
|
|
2,405
|
|
|
|
200
|
|
2012
|
|
|
29,946
|
|
|
|
5,665
|
|
|
|
2,640
|
|
|
|
200
|
|
2013-2017
|
|
|
186,647
|
|
|
|
13,664
|
|
|
|
14,680
|
|
|
|
800
|
|
The Company has trusts that hold the assets for the defined
benefit plans. The Company and NCRA have qualified plan
committees that set investment guidelines with the assistance of
external consultants. Investment objectives for the
Companys plan assets are to:
|
|
|
|
|
optimize the long-term returns on plan assets at an acceptable
level of risk, and
|
|
|
|
maintain broad diversification across asset classes and among
investment managers, and focus on long-term return objectives.
|
Asset allocation targets promote optimal expected return and
volatility characteristics given the long-term time horizon for
fulfilling the obligations of the pension plans. An annual
analysis on the risk versus the return of the investment
portfolio is conducted to justify the expected long-term rate of
return assumption. The Company generally uses long-term
historical return information for the targeted asset mix
identified in asset and liability studies. Adjustments are made
to the expected long-term rate of return assumption, when deemed
necessary, based upon revised expectations of future investment
performance of the overall investment markets.
The discount rate reflects the rate at which the associated
benefits could be effectively settled as of the measurement
date. In estimating this rate, the Company looks at rates of
return on fixed-income investments of similar duration to the
liabilities in the plans that receive high, investment grade
ratings by recognized ratings agencies.
F-24
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The investment portfolio contains a diversified portfolio of
investment categories, including domestic and international
equities, fixed income securities and real estate. Securities
are also diversified in terms of domestic and international
securities, short and long-term securities, growth and value
equities, large and small cap stocks, as well as active and
passive management styles.
The committees believe that with prudent risk tolerance and
asset diversification, the plans should be able to meet pension
obligations in the future.
The Companys pension plans average asset allocations
by asset categories are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash
|
|
|
2.7
|
%
|
|
|
0.0
|
%
|
Debt
|
|
|
29.7
|
|
|
|
31.3
|
|
Equities
|
|
|
62.0
|
|
|
|
63.7
|
|
Real estate
|
|
|
3.9
|
|
|
|
3.8
|
|
Other
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
12. Segment
Reporting
The Company aligned its business segments based on an assessment
of how its businesses operate and the products and services it
sells. As a result of this assessment, the Company has three
chief operating officers to lead its three business segments:
Energy, Ag Business and Processing.
The Energy segment derives its revenues through refining,
wholesaling, marketing and retailing of petroleum products. The
Ag Business segment derives its revenues through the origination
and marketing of grain, including service activities conducted
at export terminals, through the retail sales of petroleum and
agronomy products, processed sunflowers, feed and farm supplies,
and records equity income from investments in the Companys
agronomy joint ventures, grain export joint ventures and other
investments. The Processing segment derives its revenues from
the sales of soybean meal and soybean refined oil, and records
equity income from two wheat milling joint ventures, a vegetable
oil-based food manufacturing and distribution joint venture, and
an ethanol manufacturing company. The Company includes other
business operations in Corporate and Other because of the nature
of their products and services, as well as the relative revenue
size of those businesses. These businesses primarily include the
Companys insurance, hedging and other service activities
related to crop production.
Reconciling Amounts represent the elimination of revenues
between segments. Such transactions are conducted at market
prices to more accurately evaluate the profitability of the
individual business segments.
The Company assigns certain corporate general and administrative
expenses to its business segments based on use of such services
and allocates other services based on factors or considerations
relevant to the costs incurred.
Expenses that are incurred at the corporate level for the
purpose of the general operation of the Company are allocated to
the segments based upon factors which management considers being
non-symmetrical. Due to efficiencies in scale, cost allocations,
and intersegment activity, management does not represent that
these segments, if operated independently, would report the
income before income taxes and other financial information as
presented.
F-25
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Segment information for the years ended August 31, 2007,
2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Reconciling
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Ag Business
|
|
|
Processing
|
|
|
and Other
|
|
|
Amounts
|
|
|
Total
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
For the year ended August 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,105,067
|
|
|
$
|
8,575,389
|
|
|
$
|
754,743
|
|
|
$
|
28,465
|
|
|
$
|
(247,672
|
)
|
|
$
|
17,215,992
|
|
|
|
Cost of goods sold
|
|
|
7,274,638
|
|
|
|
8,388,476
|
|
|
|
726,510
|
|
|
|
(2,261
|
)
|
|
|
(247,672
|
)
|
|
|
16,139,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
830,429
|
|
|
|
186,913
|
|
|
|
28,233
|
|
|
|
30,726
|
|
|
|
|
|
|
|
1,076,301
|
|
|
|
Marketing, general and administrative
|
|
|
94,939
|
|
|
|
97,299
|
|
|
|
23,545
|
|
|
|
29,574
|
|
|
|
|
|
|
|
245,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
735,490
|
|
|
|
89,614
|
|
|
|
4,688
|
|
|
|
1,152
|
|
|
|
|
|
|
|
830,944
|
|
|
|
Gain on investments
|
|
|
|
|
|
|
(5,348
|
)
|
|
|
(15,268
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,616
|
)
|
|
|
Interest, net
|
|
|
(6,106
|
)
|
|
|
28,550
|
|
|
|
14,783
|
|
|
|
(6,129
|
)
|
|
|
|
|
|
|
31,098
|
|
|
|
Equity income from investments
|
|
|
(4,468
|
)
|
|
|
(51,830
|
)
|
|
|
(48,446
|
)
|
|
|
(4,941
|
)
|
|
|
|
|
|
|
(109,685
|
)
|
|
|
Minority interests
|
|
|
143,230
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
602,834
|
|
|
$
|
118,258
|
|
|
$
|
53,619
|
|
|
$
|
12,222
|
|
|
$
|
|
|
|
$
|
786,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(228,930
|
)
|
|
$
|
(18,372
|
)
|
|
$
|
(370
|
)
|
|
|
|
|
|
$
|
247,672
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,654
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
313,246
|
|
|
$
|
44,020
|
|
|
$
|
12,092
|
|
|
$
|
3,942
|
|
|
|
|
|
|
$
|
373,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
86,558
|
|
|
$
|
33,567
|
|
|
$
|
15,116
|
|
|
$
|
5,355
|
|
|
|
|
|
|
$
|
140,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets at August 31, 2007
|
|
$
|
2,737,044
|
|
|
$
|
2,846,950
|
|
|
$
|
681,118
|
|
|
$
|
428,474
|
|
|
|
|
|
|
$
|
6,693,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,414,361
|
|
|
$
|
6,575,165
|
|
|
$
|
614,471
|
|
|
$
|
31,415
|
|
|
$
|
(251,577
|
)
|
|
$
|
14,383,835
|
|
|
|
Cost of goods sold
|
|
|
6,834,676
|
|
|
|
6,401,527
|
|
|
|
588,732
|
|
|
|
(2,851
|
)
|
|
|
(251,577
|
)
|
|
|
13,570,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
579,685
|
|
|
|
173,638
|
|
|
|
25,739
|
|
|
|
34,266
|
|
|
|
|
|
|
|
813,328
|
|
|
|
Marketing, general and administrative
|
|
|
82,867
|
|
|
|
99,777
|
|
|
|
21,645
|
|
|
|
26,949
|
|
|
|
|
|
|
|
231,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
496,818
|
|
|
|
73,861
|
|
|
|
4,094
|
|
|
|
7,317
|
|
|
|
|
|
|
|
582,090
|
|
|
|
Interest, net
|
|
|
6,534
|
|
|
|
23,559
|
|
|
|
11,096
|
|
|
|
116
|
|
|
|
|
|
|
|
41,305
|
|
|
|
Equity income from investments
|
|
|
(3,840
|
)
|
|
|
(40,902
|
)
|
|
|
(35,504
|
)
|
|
|
(3,942
|
)
|
|
|
|
|
|
|
(84,188
|
)
|
|
|
Minority interests
|
|
|
86,483
|
|
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
407,641
|
|
|
$
|
91,713
|
|
|
$
|
28,502
|
|
|
$
|
11,143
|
|
|
$
|
|
|
|
$
|
538,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(242,430
|
)
|
|
$
|
(8,779
|
)
|
|
$
|
(368
|
)
|
|
|
|
|
|
$
|
251,577
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,654
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
175,231
|
|
|
$
|
44,542
|
|
|
$
|
13,313
|
|
|
$
|
1,906
|
|
|
|
|
|
|
$
|
234,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
75,581
|
|
|
$
|
31,471
|
|
|
$
|
14,049
|
|
|
$
|
5,676
|
|
|
|
|
|
|
$
|
126,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets at August 31, 2006
|
|
$
|
2,164,217
|
|
|
$
|
1,806,243
|
|
|
$
|
518,186
|
|
|
$
|
453,937
|
|
|
|
|
|
|
$
|
4,942,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Reconciling
|
|
|
|
|
|
|
|
|
Energy
|
|
|
Ag Business
|
|
|
Processing
|
|
|
and Other
|
|
|
Amounts
|
|
|
Total
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
For the year ended August 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,794,266
|
|
|
$
|
5,670,644
|
|
|
$
|
613,766
|
|
|
$
|
29,070
|
|
|
$
|
(180,784
|
)
|
|
$
|
11,926,962
|
|
|
|
Cost of goods sold
|
|
|
5,487,813
|
|
|
|
5,541,282
|
|
|
|
604,198
|
|
|
|
(2,651
|
)
|
|
|
(180,784
|
)
|
|
|
11,449,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
306,453
|
|
|
|
129,362
|
|
|
|
9,568
|
|
|
|
31,721
|
|
|
|
|
|
|
|
477,104
|
|
|
|
Marketing, general and administrative
|
|
|
69,951
|
|
|
|
83,600
|
|
|
|
20,750
|
|
|
|
25,053
|
|
|
|
|
|
|
|
199,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses)
|
|
|
236,502
|
|
|
|
45,762
|
|
|
|
(11,182
|
)
|
|
|
6,668
|
|
|
|
|
|
|
|
277,750
|
|
|
|
Gain on investments
|
|
|
(862
|
)
|
|
|
(11,358
|
)
|
|
|
(457
|
)
|
|
|
(336
|
)
|
|
|
|
|
|
|
(13,013
|
)
|
|
|
Interest, net
|
|
|
8,918
|
|
|
|
20,535
|
|
|
|
12,287
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
41,509
|
|
|
|
Equity income from investments
|
|
|
(3,478
|
)
|
|
|
(55,473
|
)
|
|
|
(36,202
|
)
|
|
|
(589
|
)
|
|
|
|
|
|
|
(95,742
|
)
|
|
|
Minority interests
|
|
|
46,741
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
47,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
185,183
|
|
|
$
|
92,099
|
|
|
$
|
13,190
|
|
|
$
|
6,788
|
|
|
$
|
|
|
|
$
|
297,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$
|
(170,642
|
)
|
|
$
|
(9,640
|
)
|
|
$
|
(502
|
)
|
|
|
|
|
|
$
|
180,784
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
205,484
|
|
|
$
|
27,600
|
|
|
$
|
4,751
|
|
|
$
|
19,635
|
|
|
|
|
|
|
$
|
257,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
59,847
|
|
|
$
|
30,748
|
|
|
$
|
13,868
|
|
|
$
|
5,869
|
|
|
|
|
|
|
$
|
110,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Commitments
and Contingencies
Environmental
The Company is required to comply with various environmental
laws and regulations incidental to its normal business
operations. In order to meet its compliance requirements, the
Company establishes reserves for the probable future costs of
remediation of identified issues, which are included in cost of
goods sold and marketing, general and administrative expenses in
the Consolidated Statements of Operations. The resolution of any
such matters may affect consolidated net income for any fiscal
period; however, management believes any resulting liabilities,
individually or in the aggregate, will not have a material
effect on the consolidated financial position, results of
operations or cash flows of the Company during any fiscal year.
In connection with certain refinery upgrades and enhancements
now complete, in order to comply with existing environmental
regulations, the Company incurred capital expenditures from
fiscal years 2003 through 2006 totaling $88.1 million for
the Companys Laurel, Montana refinery and
$328.7 million for NCRAs McPherson, Kansas refinery.
Other
Litigation and Claims
The Company is involved as a defendant in various lawsuits,
claims and disputes, which are in the normal course of the
Companys business. The resolution of any such matters may
affect consolidated net income for any fiscal period; however,
management believes any resulting liabilities, individually or
in the aggregate, will not have a material effect on the
consolidated financial position, results of operations or cash
flows of the Company during any fiscal year.
F-27
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Grain
Storage
As of August 31, 2007 and 2006, the Company stored grain
and processed grain products for third parties totaling
$184.1 million and $199.2 million, respectively. Such
stored commodities and products are not the property of the
Company and therefore are not included in the Companys
inventories.
Guarantees
The Company is a guarantor for lines of credit for related
companies. The Companys bank covenants allow maximum
guarantees of $150.0 million, of which $33.2 million
was outstanding as of August 31, 2007. In addition, the
Companys bank covenants allow for guarantees dedicated
solely for NCRA in the amount of $125.0 million, for which
there are no outstanding guarantees.
Certain agricultural seasonal and term loans to member
cooperatives and individuals are made by Cofina Financial, LLC
and guaranteed by the Company, at the Companys discretion.
In addition, the Company also guarantees certain debt and
obligations under contracts for its subsidiaries and members.
F-28
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Companys obligations pursuant to its guarantees as of
August 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee/
|
|
|
Exposure on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
August 31,
|
|
|
Nature of
|
|
|
|
Triggering
|
|
Recourse
|
|
Assets Held
|
Entities
|
|
Exposure
|
|
|
2007
|
|
|
Guarantee
|
|
Expiration Date
|
|
Event
|
|
Provisions
|
|
as Collateral
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Mountain Country, LLC
|
|
$
|
150
|
|
|
$
|
3
|
|
|
Obligations by Mountain Country, LLC under credit agreement
|
|
None stated, but may be terminated upon 90 days prior
notice in regard to future obligations
|
|
Credit agreement default
|
|
Subrogation against borrower
|
|
Some or all assets of borrower are held as collateral and
should be sufficient to cover guarantee exposure
|
Provista Renewable Fuels Marketing, LLC
|
|
$
|
20,000
|
|
|
|
2,000
|
|
|
Obligations by Provista under credit agreement
|
|
None stated
|
|
Credit agreement default
|
|
Subrogation against Provista
|
|
None
|
Horizon Milling, LLC
|
|
$
|
5,000
|
|
|
|
|
|
|
Indemnification and reimbursement of 24% of damages related to
Horizon Milling, LLCs performance under a flour sales
agreement
|
|
None stated, but may be terminated by any party upon
90 days prior notice in regard to future obligations
|
|
Nonperformance under flour sale agreement
|
|
Subrogation against Horizon Milling, LLC
|
|
None
|
TEMCO, LLC
|
|
$
|
25,000
|
|
|
|
|
|
|
Obligations by TEMCO under credit agreement
|
|
None stated
|
|
Credit agreement default
|
|
Subrogation against TEMCO, LLC
|
|
None
|
TEMCO, LLC
|
|
$
|
1,000
|
|
|
|
66
|
|
|
Obligations by TEMCO under counterparty agreement
|
|
None stated, but may be terminated upon 5 days prior notice
in regard to future obligations
|
|
Nonpayment
|
|
Subrogation against TEMCO, LLC
|
|
None
|
Third parties
|
|
|
*
|
|
|
|
1,000
|
|
|
Surety for, or indemnification of surety for sales contracts
between affiliates and sellers of grain under deferred payment
contracts
|
|
Annual renewal on December 1 in regard to surety for one third
party, otherwise none stated and may be terminated by the
Company at any time in regard to future obligations
|
|
Nonpayment
|
|
Subrogation against affiliates
|
|
Some or all assets of borrower are held as collateral but might
not be sufficient to cover guarantee exposure
|
Cofina Financial, LLC
|
|
$
|
18,839
|
|
|
|
15,706
|
|
|
Loans to our customers that are originated by Cofina and then
sold to ProPartners, which is an affiliate of CoBank
|
|
None stated
|
|
Credit agreement default
|
|
Subrogation against borrower
|
|
Some or all assets of borrower are held as collateral but might
not be sufficient to cover guarantee exposure
|
Cofina Financial, LLC
|
|
$
|
10,700
|
|
|
|
8,785
|
|
|
Loans made by Cofina to our customers
|
|
None stated
|
|
Credit agreement default
|
|
Subrogation against borrower
|
|
Some or all assets of borrower are held as collateral but might
not be sufficient to cover guarantee exposure
|
Agriliance LLC
|
|
$
|
5,674
|
|
|
|
5,674
|
|
|
Outstanding letter of credit from CoBank to Agriliance LLC
|
|
None stated
|
|
Default under letter of credit reimbursement agreement
|
|
Subrogation against borrower
|
|
None
|
Ag Business
segment subsidiaries
|
|
$
|
1,473
|
|
|
|
|
|
|
Contribution obligations as a participating employer in the
Co-op
Retirement Plan
|
|
None stated
|
|
Nonpayment
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$33,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The Companys bank covenants allow for guarantees of up to
$150.0 million, but the Company is under no obligation to
extend these guarantees. The maximum exposure on any given date
is equal to the actual guarantees extended as of that date.
|
F-29
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Lease
Commitments
The Company leases approximately 2,000 rail cars with remaining
lease terms of one to ten years. In addition, the Company has
commitments under other operating leases for various refinery,
manufacturing and transportation equipment, vehicles and office
space. Some leases include purchase options at not less than
fair market value at the end of the leases term.
Total rental expense for all operating leases, net of rail car
mileage credits received from railroad and sublease income, was
$44.3 million, $38.5 million and $31.0 million
for the years ended August 31, 2007, 2006 and 2005,
respectively. Mileage credits and sublease income totaled
$3.9 million, $3.2 million and $8.6 million for
the years ended August 31, 2007, 2006 and 2005,
respectively.
Minimum future lease payments, required under noncancellable
operating leases as of August 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail
|
|
|
|
|
|
Equipment
|
|
|
|
|
|
|
Cars
|
|
|
Vehicles
|
|
|
and Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
2008
|
|
$
|
11,463
|
|
|
$
|
18,101
|
|
|
$
|
3,313
|
|
|
$
|
32,877
|
|
2009
|
|
|
7,507
|
|
|
|
14,184
|
|
|
|
2,921
|
|
|
|
24,612
|
|
2010
|
|
|
6,188
|
|
|
|
11,409
|
|
|
|
2,545
|
|
|
|
20,142
|
|
2011
|
|
|
5,166
|
|
|
|
5,436
|
|
|
|
2,348
|
|
|
|
12,950
|
|
2012
|
|
|
3,708
|
|
|
|
3,114
|
|
|
|
1,891
|
|
|
|
8,713
|
|
Thereafter
|
|
|
5,328
|
|
|
|
449
|
|
|
|
2,405
|
|
|
|
8,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum future lease payments
|
|
$
|
39,360
|
|
|
$
|
52,693
|
|
|
$
|
15,423
|
|
|
$
|
107,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Supplemental
Cash Flow and Other Information
|
Additional information concerning supplemental disclosures of
cash flow activities for the years ended August 31, 2007,
2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash paid (received) during the period for:
|
Interest
|
|
$
|
52,323
|
|
|
$
|
54,228
|
|
|
$
|
57,569
|
|
Income taxes
|
|
|
(20,274
|
)
|
|
|
(23,724
|
)
|
|
|
(8,804
|
)
|
Other significant noncash investing and financing transactions:
|
Capital equity certificates exchanged for preferred stock
|
|
|
35,899
|
|
|
|
23,824
|
|
|
|
19,996
|
|
Capital equity certificates issued in exchange for elevator
properties
|
|
|
10,132
|
|
|
|
11,064
|
|
|
|
1,375
|
|
Accrual of dividends and equities payable
|
|
|
(374,294
|
)
|
|
|
(249,774
|
)
|
|
|
(132,406
|
)
|
|
|
15.
|
Related
Party Transactions
|
Related party transactions with equity investees as of
August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Sales
|
|
$
|
1,639,689
|
|
|
$
|
1,475,478
|
|
Purchases
|
|
|
1,176,462
|
|
|
|
468,286
|
|
Receivables
|
|
|
50,733
|
|
|
|
27,208
|
|
Payables
|
|
|
111,195
|
|
|
|
50,105
|
|
F-30
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The related party transactions were primarily with TEMCO, LLC,
Agriliance LLC, Horizon Milling, LLC, United Harvest, LLC, US
BioEnergy Corporation and Ventura Foods, LLC.
The components of comprehensive income, net of taxes, for the
years ended August 31, 2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net income
|
|
$
|
750,333
|
|
|
$
|
490,297
|
|
|
$
|
250,016
|
|
Additional minimum pension liability, net of tax (benefit)
expense of ($759), $282 and $1,854 in 2007, 2006 and 2005,
respectively
|
|
|
(1,193
|
)
|
|
|
444
|
|
|
|
2,822
|
|
Unrealized net gains on available for sale investments, net of
tax expense of $41,722, $1,138 and $5,147 in 2007, 2006 and
2005, respectively
|
|
|
65,533
|
|
|
|
1,787
|
|
|
|
8,085
|
|
Interest rate hedges, net of tax (benefit) expense of ($65),
$826 and $279 in 2007, 2006 and 2005, respectively
|
|
|
(102
|
)
|
|
|
1,298
|
|
|
|
439
|
|
Energy derivative instruments qualified for hedge accounting,
net of tax (benefit) expense of ($1,787) and $1,787 in 2007 and
2006, respectively
|
|
|
(2,806
|
)
|
|
|
2,806
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax expense of
$588, $1,142 and $484 in 2007, 2006 and 2005, respectively
|
|
|
921
|
|
|
|
1,796
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
812,686
|
|
|
$
|
498,428
|
|
|
$
|
262,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of
taxes, as of August 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Pension liability adjustment, net of tax benefit of $40,881 and
$423 in 2007 and 2006, respectively
|
|
$
|
(64,276
|
)
|
|
$
|
(664
|
)
|
Unrealized net gains on available for sale investments, net of
tax expense of $48,347 and $6,625 in 2007 and 2006, respectively
|
|
|
75,939
|
|
|
|
10,406
|
|
Interest rate hedges, net of tax benefit of $1,397 and $1,332 in
2007 and 2006, respectively
|
|
|
(2,194
|
)
|
|
|
(2,092
|
)
|
Energy derivative instruments qualified for hedge accounting,
net of tax expense of $1,787 in 2006
|
|
|
|
|
|
|
2,806
|
|
Foreign currency translation adjustment, net of tax expense of
$2,271 and $1,683 in 2007 and 2006, respectively
|
|
|
3,567
|
|
|
|
2,646
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
13,036
|
|
|
$
|
13,102
|
|
|
|
|
|
|
|
|
|
|
F-31
Shares
CHS Inc.
8% Cumulative Redeemable
Preferred Stock
PROSPECTUS
, 2008
PART II.
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution
|
|
|
|
|
|
SEC Registration Fee
|
|
$
|
1,398.66
|
|
Accounting Fees and Expenses
|
|
$
|
13,000.00
|
|
Legal Fees and Expenses
|
|
$
|
45,000.00
|
|
Printing Fees
|
|
$
|
50,000.00
|
|
Miscellaneous
|
|
$
|
5,000.00
|
|
Total
|
|
$
|
114,398.66
|
|
All fees and expenses other than the SEC registration fee are
estimated. The expenses listed above will be paid by CHS.
|
|
Item 14.
|
Indemnification
of Officers and Directors
|
Section 308A.325 of the Minnesota cooperative law provides
that a cooperative may eliminate or limit the personal liability
of a director of a cooperative for breach of fiduciary duty as a
director in the cooperatives articles of incorporation,
provided, however, that the articles may not limit the liability
of a director for:
|
|
|
|
|
breach of the directors duty of loyalty to the cooperative
or its members;
|
|
|
|
acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of law;
|
|
|
|
a transaction from which the director derived an improper
personal benefit; or
|
|
|
|
an act or omission occurring before the date when the provision
in the articles eliminating or limiting liability becomes
effective.
|
Article IX of our Articles of Incorporation, as amended to
date, eliminates or limits the personal liability of our
directors to the greatest extent permissible under Minnesota law.
Article VI of our Bylaws provides that we shall indemnify
each person who is or was a director, officer, manager,
employee, or agent of this cooperative, and any person serving
at the request of this cooperative as a director, officer,
manager, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorneys fees, judgments, fines, and amounts
paid in settlement actually and reasonably incurred to the
fullest extent to which such directors, officers, managers,
employees or agents of a cooperative may be indemnified under
Minnesota law, as amended from time to time.
We maintain directors and officers liability
insurance which covers certain liabilities and expenses of our
directors and officers and cover us for reimbursement of
payments to our directors and officers in respect of such
liabilities and expenses.
I-1
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
(a)
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Incorporation of CHS Inc., as amended. (Incorporated
by reference to our Form 10-Q for the quarterly period ended
November 30, 2006, filed on January 11, 2007).
|
|
3
|
.2
|
|
Bylaws of CHS Inc. (Incorporated by reference to our Form 10-Q
for the quarterly period ended November 30, 2005, filed on
January 11, 2006).
|
|
4
|
.1
|
|
Resolution Creating a Series of Preferred Equity to be
Designated 8% Cumulative Redeemable Preferred Stock.
(Incorporated by reference to Amendment No. 1 to our
Registration Statement on Form S-2 (File No. 333-101916), dated
January 13, 2003).
|
|
4
|
.2
|
|
Form of Certificate Representing 8% Cumulative Redeemable
Preferred Stock. (Incorporated by reference to Amendment No. 2
to our Registration Statement on Form S-2 (File No. 333-101916),
dated January 23, 2003).
|
|
4
|
.3
|
|
Unanimous Written Consent Resolution of the Board of Directors
Amending the Amended and Restated Resolution Creating a Series
of Preferred Equity to be Designated 8% Cumulative Redeemable
Preferred Stock. (Incorporated by reference to Amendment No. 2
to our Registration Statement on Form S-2 (File No. 333-101916),
dated January 23, 2003).
|
|
4
|
.4
|
|
Unanimous Written consent Resolution of the Board of Directors
Amending the Amended and Restated Resolution Creating a Series
of Preferred Equity to be Designated 8% Cumulative Redeemable
Preferred Stock to change the record date for dividends.
(Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2003, filed July 2, 2003).
|
|
5
|
.1
|
|
Form of Opinion of Dorsey & Whitney LLP Regarding Legality
of Securities Being Registered (including consent). (**) (Signed
opinion to be filed by amendment)
|
|
8
|
.1
|
|
Form of Opinion of Dorsey & Whitney LLP Regarding Tax
Matters (including consent). (**) (Signed opinion to be filed by
amendment)
|
|
10
|
.1
|
|
Lease between the Port of Kalama and North Pacific Grain
Growers, Inc., dated November 22, 1960. (Incorporated by
reference to our Registration Statement on Form S-1 (File No.
333-17865), filed December 13, 1996).
|
|
10
|
.2
|
|
Limited Liability Company Agreement for the Wilsey-Holsum Foods,
LLC dated July 24, 1996. (Incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-17865), filed
December 13, 1996).
|
|
10
|
.3
|
|
Long Term Supply Agreement between Wilsey-Holsum Foods, LLC and
Harvest States Cooperatives dated August 30, 1996. (Incorporated
by reference to our Registration Statement on Form S-1/A (File
No. 333-17865), filed January 24, 1997).(*)
|
|
10
|
.4
|
|
TEMCO, LLC Limited Liability Company Agreement between Cargill,
Incorporated and Cenex Harvest States Cooperatives dated as of
August 26, 2002. (Incorporated by reference to our Form 10-K for
the year ended August 31, 2002, filed November 25, 2002).
|
|
10
|
.5
|
|
Cenex Harvest States Cooperatives Supplemental Savings Plan.
(Incorporated by reference to our Form 10-K for the year ended
August 31, 2000, filed November 22, 2000).
|
|
10
|
.5A
|
|
Amendment No. 3 to the CHS Inc. Supplemental Savings Plan.
(Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2006, filed July 12, 2006).
|
|
10
|
.6
|
|
Cenex Harvest States Cooperatives Supplemental Executive
Retirement Plan. (Incorporated by reference to our Form 10-K for
the year ended August 31, 2000, filed November 22, 2000).
|
|
10
|
.6A
|
|
Amendment No. 4 to the CHS Inc. Supplemental Executive
Retirement Plan. (Incorporated by reference to our Form 10-Q for
the quarterly period ended May 31, 2006, filed July 12, 2006).
|
|
10
|
.7
|
|
Cenex Harvest States Cooperatives Senior Management Compensation
Plan. (Incorporated by reference to our Form 10-K for the year
ended August 31, 2000, filed November 22, 2000).
|
|
10
|
.8
|
|
Cenex Harvest States Cooperatives Executive Long-Term Variable
Compensation Plan. (Incorporated by reference to our Form 10-K
for the year ended August 31, 2000, filed November 22, 2000).
|
|
10
|
.9
|
|
Cenex Harvest States Cooperatives Share Option Plan.
(Incorporated by reference to our Form 10-K for the year ended
August 31, 2004, filed November 18, 2004).
|
I-2
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.9A
|
|
Amendment to Cenex Harvest States Share Option Plan, dated June
28, 2001. (Incorporated by reference to our Registration
Statement on Form S-2 (File No. 333-65364), filed July 18, 2001).
|
|
10
|
.9B
|
|
Amendment No. 2 to Cenex Harvest States Share Option Plan, dated
May 2, 2001. (Incorporated by reference to our Form 10-K for the
year ended August 31, 2004, filed November 18, 2004).
|
|
10
|
.9C
|
|
Amendment No. 3 to Cenex Harvest States Share Option Plan, dated
June 4, 2002. (Incorporated by reference to our Form 10-K for
the year ended August 31, 2004, filed November 18, 2004).
|
|
10
|
.9D
|
|
Amendment No. 4 to Cenex Harvest States Share Option Plan, dated
April 6, 2004. (Incorporated by reference to our Form 10-K for
the year ended August 31, 2004, filed November 18, 2004).
|
|
10
|
.10
|
|
CHS Inc. Share Option Plan Option Agreement. (Incorporated by
reference to our Form 10-K for the year ended August 31, 2004,
filed November 18, 2004).
|
|
10
|
.11
|
|
CHS Inc. Share Option Plan Trust Agreement. (Incorporated by
reference to our Form 10-K for the year ended August 31, 2004,
filed November 18, 2004).
|
|
10
|
.11A
|
|
Amendment No. 1 to the Trust Agreement. (Incorporated by
reference to our Form 10-K for the year ended August 31, 2004,
filed November 18, 2004).
|
|
10
|
.12
|
|
$225,000,000 Note Agreement (Private Placement Agreement) dated
as of June 19, 1998 among Cenex Harvest States Cooperatives and
each of the Purchasers of the Notes. (Incorporated by Reference
to our Form 10-Q Transition Report for the period June 1, 1998
to August 31, 1998, filed October 14, 1998).
|
|
10
|
.12A
|
|
First Amendment to Note Agreement ($225,000,000 Private
Placement), effective September 10, 2003, among CHS Inc. and
each of the Purchasers of the notes. (Incorporated by reference
to our Form 10-K for the year ended August 31, 2003, filed
November 21, 2003).
|
|
10
|
.13
|
|
2006 Amended and Restated Credit Agreement (Revolving Loan) by
and between CHS Inc. and the Syndication Parties dated as of May
18, 2006. (Incorporated by reference to our Form 10-Q for the
quarterly period ended May 31, 2006, filed July 12, 2006).
|
|
10
|
.13A
|
|
First Amendment to 2006 Amended and Restated Credit Agreement by
and among CHS Inc., CoBank, ACB and the Syndication Parties,
dated May 8, 2007 (Incorporated by reference to our Current
Report on Form 8-K filed May 11, 2007).
|
|
10
|
.14
|
|
$200 Million Term Loan Credit Agreement dated as of June 1, 1998
among Cenex Harvest States Cooperatives, CoBank, ACB, and St.
Paul Bank for Cooperatives, including Exhibit 2.4 (form of $200
Million Promissory Note). (Incorporated by Reference to our Form
10-Q Transition Report for the period June 1, 1998 to August 31,
1998, filed October 14, 1998).
|
|
10
|
.14A
|
|
First Amendment to Credit Agreement (Term Loan), effective as of
May 31, 1999 among Cenex Harvest States Cooperatives, CoBank,
ACB, and St. Paul Bank for Cooperatives. (Incorporated by
reference to our Form 10-Q for the quarterly period ended May
31, 1999, filed July 13, 1999).
|
|
10
|
.14B
|
|
Second Amendment to Credit Agreement (Term Loan) dated May 23,
2000 by and among Cenex Harvest States Cooperatives, CoBank,
ACB, St. Paul Bank for Cooperatives and the Syndication Parties.
(Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2000, filed July 10, 2000).
|
|
10
|
.14C
|
|
Third Amendment to Credit Agreement (Term Loan) dated May 23,
2001 among Cenex Harvest States Cooperatives, CoBank, ACB, and
the Syndication Parties. (Incorporated by reference to our Form
10-Q for the quarterly period ended May 31, 2001, filed July 3,
2001).
|
|
10
|
.14D
|
|
Fourth Amendment to Credit Agreement (Term Loan) dated May 22,
2002 among Cenex Harvest States Cooperatives, CoBank, ACB and
the Syndication Parties. (Incorporated by reference to our Form
10-Q for the quarterly period ended May 31, 2002, filed July 3,
2002).
|
|
10
|
.14E
|
|
Fifth Amendment to Credit Agreement (Term Loan) dated May 21,
2003 by and among Cenex Harvest States Cooperatives, CoBank, ACB
and the Syndication Parties. (Incorporated by reference to our
Form 10-K for the year ended August 31, 2004, filed November 18,
2004).
|
|
10
|
.14F
|
|
Sixth Amendment to Credit Agreement (Term Loan) dated as of May
20, 2004 by and among CHS Inc., CoBank, ACB, and the Syndication
Parties. (Incorporated by reference to our Form 10-Q for the
quarterly period ended May 31, 2004, filed July 12, 2004).
|
|
10
|
.14G
|
|
Seventh Amendment to Credit Agreement (Term Loan) dated as of
May 19, 2005 by and among CHS Inc., CoBank, ACB, and the
Syndication Parties. (Incorporated by reference to our form 10-K
for the year ended August 31, 2005, filed on November 18, 2005).
|
I-3
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.14H
|
|
Eighth Amendment to Credit Agreement (Term Loan) dated as of
November 18, 2005 by and among CHS Inc., CoBank, ACB, and the
Syndication Parties. (Incorporated by reference to our form 10-K
for the year ended August 31, 2005, filed on November 18, 2005).
|
|
10
|
.14I
|
|
Ninth Amendment to Credit Agreement (Term Loan) dated as of May
18, 2006 by and among CHS Inc., CoBank, ACB and the Syndication
Parties. (Incorporated by reference to our Form 10-Q for the
quarterly period ended May 31, 2006).
|
|
10
|
.14J
|
|
Tenth Amendment to Credit Agreement (Term Loan) dated as of May
8, 2007 by and among CHS Inc. and CoBank, ACB (Incorporated by
reference to our Current Report on Form 8-K filed May 11, 2007).
|
|
10
|
.15
|
|
Limited Liability Agreement of United Harvest, LLC dated
November 9, 1998 between United Grain Corporation and Cenex
Harvest States Cooperatives. (Incorporated by reference to our
Form 10-Q for the quarterly period ended November 30, 1998,
filed January 13, 1999).
|
|
10
|
.16
|
|
Joint Venture Agreement for Agriliance LLC, dated as of January
1, 2000 among Farmland Industries, Inc., Cenex Harvest States
Cooperatives, United Country Brands, LLC and Land O Lakes,
Inc. (Incorporated by reference to our Form 10-Q for the
quarterly period ended February 29, 2000, filed April 11, 2000).
|
|
10
|
.17
|
|
Employment Agreement dated November 6, 2003 by and between John
D. Johnson and CHS Inc. (Incorporated by reference to our Form
10-K for the year ended August 31, 2003, filed November 21,
2003).
|
|
10
|
.17A
|
|
Amended and Restated Employment Agreement between John D.
Johnson and CHS Inc., effective as of August 1, 2007
(Incorporated by reference to our Current Report on Form 8-K
filed August 10, 2007).
|
|
10
|
.18
|
|
CHS Inc. Special Supplemental Executive Retirement Plan.
(Incorporated by reference to our Form 10-K for the year ended
August 31, 2003, filed November 21, 2003).
|
|
10
|
.19
|
|
Note purchase and Private Shelf Agreement dated as of January
10, 2001 between Cenex Harvest States Cooperatives and The
Prudential Insurance Company of America. (Incorporated by
reference to our Form 10-Q for the quarterly period ended
February 28, 2001, filed April 10, 2001).
|
|
10
|
.19A
|
|
Amendment No. 1 to Note Purchase and Private Shelf Agreement,
dated as of March 2, 2001. (Incorporated by reference to our
Form 10-Q for the quarterly period ended February 28, 2001,
filed April 10, 2001).
|
|
10
|
.20
|
|
Note Purchase Agreement and Series D & E Senior Notes dated
October 18, 2002. (Incorporated by reference to our Form 10-K
for the year ended August 31, 2002, filed November 25, 2002).
|
|
10
|
.21
|
|
2003 Amended and Restated Credit Agreement ($15 million,
2 Year Facility) dated December 16, 2003 between CoBank,
ACB, U.S. AgBank, FCB and the National Cooperative Refinery
Association, Inc. (Incorporated by reference to our Form 10-Q
for the quarterly period ended February 29, 2004, filed April 7,
2004).
|
|
10
|
.21A
|
|
First Amendment to the 2003 Amended and Restated Credit
Agreement between the National Cooperative Refinery Association
and the Syndication Parties. (Incorporated by reference to our
Current Report on Form 8-K filed December 20, 2005).
|
|
10
|
.21B
|
|
Third Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties (Incorporated by reference to our Current
Report on Form 8-K filed December 18, 2006).
|
|
10
|
.21C
|
|
Fifth Amendment to 2003 Amended and Restated Credit Agreement
between National Cooperative Refinery Association and the
Syndication Parties. (**)
|
|
10
|
.22
|
|
Note Purchase and Private Shelf Agreement between CHS Inc. and
Prudential Capital Group dated as of April 13, 2004.
(Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2004, filed July 12, 2004).
|
|
10
|
.22A
|
|
Amendment No. 1 to Note Purchase and Private Shelf Agreement
dated April 9, 2007, among CHS Inc., Prudential Investment
Management, Inc. and the Prudential Affiliate parties
(Incorporated by reference to our Form 10-Q for the quarterly
period ended February 28, 2007 filed April 9, 2007).
|
|
10
|
.23
|
|
Note Purchase Agreement for Series H Senior Notes dated
September 21, 2004. (Incorporated by reference to our Current
Report on Form 8-K filed September 22, 2004).
|
|
10
|
.24
|
|
Deferred Compensation Plan. (Incorporated by reference to our
Registration Statement on Form S-8 (File No. 333-121161), filed
December 10, 2004).
|
I-4
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.24A
|
|
First Amendment to CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our Registration Statement on Form
S-8 (File No. 333-129464), filed November 4, 2005).
|
|
10
|
.24B
|
|
Second Amendment to the CHS Inc. Deferred Compensation Plan.
(Incorporated by reference to our Form 10-Q for the quarterly
period ended May 31, 2006, filed July 12, 2006).
|
|
10
|
.25
|
|
New Plan Participants 2005 Plan Agreement and Election Form for
the CHS Inc. Deferred Compensation Plan. (Incorporated by
reference to our Registration Statement on Form S-8 (File No.
333-121161), filed December 10, 2004).
|
|
10
|
.26
|
|
Beneficiary Designation Form for the CHS Inc. Deferred
Compensation Plan. (Incorporated by reference to our
Registration Statement on Form S-8 (File No. 333-121161), filed
December 10, 2004).
|
|
10
|
.27
|
|
Share Option Plan Participants 2005 Plan Agreement and Election
Form. (Incorporated by reference to our Registration Statement
on Form S-8 (File No. 333-129464), filed November 4, 2005).
|
|
10
|
.28
|
|
Amended and Restated Loan and Security Agreement dated August
31, 2006, by and between Provista Renewable Fuels Marketing, LLC
and LaSalle Bank National Association (Incorporated by reference
to our Form 10-K for the year ended August 31, 2006, filed
November 22, 2006).
|
|
10
|
.28A
|
|
First Amendment to Amended and Restated Loan and Security
Agreement by and among Provista Renewable Fuels Marketing, LLC
and LaSalle Bank National Association dated January 30, 2007
(Incorporated by reference to our Current Report on Form 8-K
filed January 31, 2007).
|
|
10
|
.28B
|
|
Second Amendment to Amended and Restated Loan and Security
Agreement by and among Provista Renewable Fuels Marketing, LLC
and LaSalle Bank National Association dated November 2, 2007
(Incorporated by reference to our Current Report on Form 8-K
filed November 6, 2007).
|
|
10
|
.29
|
|
City of McPherson, Kansas Taxable Industrial Revenue Bond Series
2006 registered to National Cooperative Refinery Association in
the amount of $325 million (Incorporated by reference to our
Current Report on Form 8-K filed December 18, 2006).
|
|
10
|
.30
|
|
Bond Purchase Agreement between National Cooperative Refinery
Association, as purchaser, and City of McPherson, Kansas, as
issuer, dated as of December 18, 2006 (Incorporated by reference
to our Current Report on Form 8-K filed December 18, 2006).
|
|
10
|
.31
|
|
Trust Indenture between City of McPherson, Kansas, as issuer,
and Security Bank of Kansas City, Kansas City, Kansas, as
trustee, dated as of December 18, 2006 (Incorporated by
reference to our Current Report on Form 8-K filed December 18,
2006).
|
|
10
|
.32
|
|
Lease agreement between City of McPherson, Kansas, as issuer,
and National Cooperative Refinery Association, as tenant, dated
as of December 18, 2006 (Incorporated by reference to our
Current Report on Form 8-K filed December 18, 2006).
|
|
10
|
.33
|
|
Commercial Paper Placement Agreement by and between CHS Inc. and
Marshall & Ilsley Bank dated October 30, 2006 (Incorporated
by reference to our Form 10-Q for the quarterly period ended
November 30, 2006, filed January 11, 2007).
|
|
10
|
.34
|
|
Commercial Paper Dealer Agreement by and between CHS Inc. and
SunTrust Capital Markets, Inc. dated October 6, 2006
(Incorporated by reference to our Form 10-Q for the quarterly
period ended November 30, 2006, filed January 11, 2007).
|
|
10
|
.35
|
|
Note Purchase Agreement and Series I Senior Notes dated as of
October 4, 2007 (Incorporated by reference to our Current Report
on Form 8-K filed October 4, 2007).
|
|
10
|
.36
|
|
Agreement Regarding Distribution of Assets, by and among CHS
Inc., United Country Brands, LLC, Land OLakes, Inc. and
Winfield Solutions, LLC, made as of September 4, 2007
(Incorporated by reference to our Form 10-K for the year ended
August 31, 2007, filed November 20, 2007).
|
|
10
|
.37
|
|
$150 Million Term Loan Credit Agreement by and between CHS
Inc., CoBank, ACB and the Syndication Parties dated as of
December 12, 2007. (**)
|
|
12
|
.1
|
|
Statement of Computation of Ratios. (**)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant (Incorporated by reference to our
Form 10-K for the year ended August 31, 2007, filed November 20,
2007).
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm. (**)
|
|
24
|
.1
|
|
Power of Attorney. (**)
|
I-5
|
|
|
(*)
|
|
Pursuant to Rule 406 of the Securities Act of 1933, as
amended, confidential portions of Exhibit 10.3 have been
deleted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
|
|
(**)
|
|
Filed herewith.
|
I-6
(b)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions:
|
|
|
Additions:
|
|
|
Deductions:
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Charged to Costs
|
|
|
Charged to
|
|
|
Write-offs, net
|
|
|
End
|
|
|
|
of Year
|
|
|
and Expenses
|
|
|
Other Accounts
|
|
|
of Recoveries
|
|
|
of Year
|
|
|
|
(Dollars in thousands)
|
|
|
Allowances for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
53,898
|
|
|
$
|
12,358
|
|
|
|
|
|
|
$
|
(3,296
|
)
|
|
$
|
62,960
|
|
2006
|
|
|
60,041
|
|
|
|
11,414
|
|
|
|
|
|
|
|
(17,557
|
)
|
|
|
53,898
|
|
2005
|
|
|
55,809
|
|
|
|
12,962
|
|
|
|
|
|
|
|
(8,730
|
)
|
|
|
60,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions:
|
|
|
Additions:
|
|
|
Deductions:
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Charged to Costs
|
|
|
Charged to
|
|
|
Expenditures
|
|
|
End
|
|
|
|
of Year
|
|
|
and Expenses
|
|
|
Other Accounts
|
|
|
for Maintenance
|
|
|
of Year
|
|
|
|
(Dollars in thousands)
|
|
|
Accrued Turnaround(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
19,390
|
|
|
$
|
35,412
|
|
|
|
|
|
|
$
|
(34,158
|
)
|
|
$
|
20,644
|
|
2006
|
|
|
19,035
|
|
|
|
43,234
|
|
|
|
|
|
|
|
(42,879
|
)
|
|
|
19,390
|
|
2005
|
|
|
12,949
|
|
|
|
21,558
|
|
|
|
|
|
|
|
(15,472
|
)
|
|
|
19,035
|
|
|
|
|
(1)
|
|
Accruals for planned major maintenance activities at our energy
refineries.
|
I-7
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Members and Patrons of CHS Inc.:
Our audits of the consolidated financial statements referred to
in our report dated November 2, 2007 appearing on
page F-1
of this Registration Statement on
Form S-1
of CHS Inc. and subsidiaries also included an audit of the
financial statement schedule included in Item 16(b) of this
Registration Statement on
Form S-1.
In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
Minneapolis, Minnesota
November 2, 2007
I-8
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrants annual report pursuant to
Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
I-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing this
Form S-1
and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of Inver Grove Heights, State of Minnesota, on
December 14, 2007.
CHS Inc.
David Kastelic
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the date indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
/s/ JOHN
D. JOHNSON
John
D. Johnson
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
December 14, 2007
|
|
|
|
|
|
/s/ JOHN
SCHMITZ
John
Schmitz
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
December 14, 2007
|
|
|
|
|
|
/s/ JODELL
M. HELLER
Jodell
M. Heller
|
|
Vice President and Controller (Principal Accounting Officer)
|
|
December 14, 2007
|
|
|
|
|
|
*
Michael
Toelle
|
|
Director and Chairman of the Board
|
|
December 14, 2007
|
|
|
|
|
|
*
Bruce
Anderson
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Donald
Anthony
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Robert
Bass
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Dennis
Carlson
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Curt
Eischens
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Steve
Fritel
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Robert
Grabarski
|
|
Director
|
|
December 14, 2007
|
I-10
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
*
Jerry
Hasnedl
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
David
Kayser
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
James
Kile
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Randy
Knecht
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Michael
Mulcahey
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Richard
Owen
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Steve
Riegel
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Dan
Schurr
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
*
Duane
Stenzel
|
|
Director
|
|
December 14, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ DAVID
KASTELIC
David
Kastelic
Attorney in Fact
|
|
|
|
|
|
|
|
*
|
|
Executed pursuant to a power of attorney filed with this
Registration Statement
|
I-11
Exhibit
10.37
CREDIT AGREEMENT
(10 Year Term Loan)
by and between
CoBank, ACB,
as Administrative Agent and as a Syndication Party,
the other Syndication Parties signatory hereto
and
CHS INC
dated as of December 12, 2007
CREDIT AGREEMENT
(10 Year Term Loan)
THIS AGREEMENT (
Credit Agreement
) is entered into as of the 12th day of December 2007, by
and between COBANK, ACB (
CoBank
) for its own benefit as a Syndication Party, and as the
Administrative Agent for the benefit of the present and future Syndication Parties (in that
capacity
Administrative Agent
), the Syndication Parties identified on
Schedule 1
hereto,
and CHS INC, a cooperative corporation formed under the laws of the State of Minnesota, whose
address is 5500 Cenex Drive, Inver Grove Heights, Minnesota 55077 (
Borrower
).
ARTICLE 1. DEFINED TERMS
As used in this Credit Agreement, the following terms shall have the meanings set forth below
(and such meaning shall be equally applicable to both the singular and plural form of the terms
defined, as the context may require):
1.1
Additional Costs
: shall have the meaning set forth in Section 14.12.
1.2
Adjusted Consolidated Funded Debt
: All Consolidated Funded Debt of Borrower and
its Consolidated Subsidiaries, plus the net present value of operating leases of Borrower and its
Consolidated Subsidiaries as discounted by a rate of 8.0% per annum.
1.3
Administrative Agent
: shall initially mean CoBank, ACB.
1.4
Administrative Agent Office
: shall mean the address set forth at Subsection
14.4.2, as it may change from time to time by notice to all parties to this Credit Agreement.
1.5
Advance
: an advance of funds under the Term Loan.
1.6
Advance Date
: a day (which shall be a Banking Day) on which an Advance is made.
1.7
Advance Payment
: shall have the meaning set forth in Section 13.1.
1.8
Affiliate
: with respect to any Person means (a) a Subsidiary of such Person, (b)
any Person in which such Person, directly or indirectly, owns more than five percent (5.0%) of the
outstanding equity thereof, and (c) any Person which, directly or indirectly, (i) owns more than
five percent (5.0%) of the outstanding equity of such Person, or (ii) has the power under ordinary
circumstances to control the management of such Person.
1.9
Aggregate Term Loan Commitment
: shall be $150,000,000.
1.10
Amortization
: the total amortization of Borrower and its Consolidated
Subsidiaries as measured in accordance with GAAP.
1.11
Annual Operating Budget
: means the annual operating budget for Borrower and its
Subsidiaries in substantially the form of, and containing substantially the same or similar
information as set forth in, the Annual Operating Budget (Business Plan) for Borrower and its
Subsidiaries included in the booklet delivered to the Administrative Agent on March 29, 2006.
1.12
Anti-Terrorism Laws
: shall have the meaning set forth in Subsection 7.24.1.
1.13
Applicable Lending Office
: means, for each Syndication Party and for each type
of Advance, the lending office of such Syndication Party designated as such for such type of
Advance on its signature page hereof or in the applicable Syndication Acquisition Agreement or such
other office of such Syndication Party as such Syndication Party may from time to time specify to
the Administrative Agent and Borrower as the office by which its Advances of such type are to be
made and maintained.
1.14
Authorized Officer
: shall have the meaning set forth in Subsection 8.1.4.
1.15
Bank Debt
: all amounts owing under the Note, fees, Borrowers obligations to
purchase Bank Equity Interests, Funding Losses and all interest, expenses, charges and other
amounts payable by Borrower pursuant to the Loan Documents.
1.16
Banking Day
: any day other than a Saturday or a Sunday, and other than a Federal
legal holiday or a legal holiday for banks in the States of Colorado, Minnesota, or New York.
1.17
Bank Equity Interests
: shall have the meaning set forth in Article 5 hereof.
1.18
Base Rate
: a rate of interest per annum equal to the prime rate as published
from time to time in the Eastern Edition of the
Wall Street Journal
as the average prime lending
rate for seventy-five percent (75%) of the United States thirty (30) largest commercial banks, or
if the
Wall Street Journal
shall cease publication or cease publishing the prime rate on a
regular basis, such other regularly published average prime rate applicable to such commercial
banks as is acceptable to the Administrative Agent in its reasonable discretion, with the consent
of Borrower, which consent will not be unreasonably withheld (provided that Borrowers consent
shall not be required at any time there has occurred and is continuing a Potential Default or an
Event of Default).
1.19
Borrowers Account
: shall mean Borrowers account #44070 at Wells Fargo Bank,
N.A., Minneapolis, Minnesota (ABA #091000019).
1.20
Borrower Benefit Plan
: means (a) any employee benefit plan, as such term is
defined in Section 3(3) of ERISA (including any multiemployer plan as defined in Section 3(37) of
ERISA); (b) any multiple employer plan within the meaning of Section 413 of the Code; (c) any
multiple employer welfare arrangement within the meaning of Section 3(40) of ERISA; (d) a
voluntary employees beneficiary association within the meaning of Section 501(a)(9) of the
3
Code; (e) a welfare benefit fund within the meaning of Section 419 of the Code; or (f) any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA for the benefit of
retired or former employees, which is maintained by Borrower or in which Borrower participates or
to which Borrower is obligated to contribute.
1.21
Borrowing Notice
: shall have the meaning set forth in Section 2.2.
1.22
Borrower Pension Plan
: means each Borrower Benefit Plan that is an employee
pension benefit plan as defined in Section 3(2) of ERISA that is intended to satisfy the
requirements of Section 401(a) of the Code.
1.23
Capital Leases
: means any lease of property (whether real, personal or mixed) by
a Person which has been or should be , in accordance with GAAP, reflected on the balance sheet of
such Person as a capital lease.
1.24
Closing Date
: the date (a) the Administrative Agent, the Syndication Parties and
Borrower have executed all Loan Documents, and (b) the conditions set forth in Section 8.1 of this
Credit Agreement have been met, which must occur on or before December 15, 2008.
1.25
Code
: means the Internal Revenue Code of 1986.
1.26
Committed Term Loan Advance
: the principal amount of the Term Loan Advance which
any Syndication Party is obligated to make as a result of such Syndication Party having received a
Term Loan Advance funding notice pursuant to Section 2.2 hereof, but which has not been funded.
1.27
Compliance Certificate
: a certificate of the chief financial officer of Borrower
acceptable to the Administrative Agent and in the form attached hereto as
Exhibit 1.27
.
1.28
Communications
: shall have the meaning set forth in Subsection 14.16.1.
1.29
Consolidated Cash Flow
: for any period, the sum of (a) earnings before income
taxes of Borrower and its Consolidated Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP; plus (b) amounts that have been deducted in the determination of
such earnings before income taxes for such period for (i) Consolidated Interest Expense for such
period, (ii) Depreciation for such period, (iii) Amortization for such period, and (iv)
extraordinary and/or one-time non-cash losses for such period; minus (c) the amounts that have been
included in the determination of such earnings before income taxes for such period for (i)
extraordinary gains, (ii) extraordinary and/or one-time income, (iii) non-cash patronage income,
and (iv) non-cash equity earnings in joint ventures.
1.30
Consolidated Current Assets
: the total current assets of Borrower and its
Consolidated Subsidiaries as measured in accordance with GAAP.
1.31
Consolidated Current Liabilities
: the total current liabilities of Borrower and
its Consolidated Subsidiaries as measured in accordance with GAAP.
1.32
Consolidated Funded Debt
: all indebtedness for borrowed money of the Borrower
and its Subsidiaries, that is classified as long term debt in accordance with GAAP, and shall
4
include Debt of such maturity created or assumed by the Borrower or any Consolidated Subsidiary
either directly or indirectly, including obligations of such maturity secured by liens upon
property of the Borrower or its Consolidated Subsidiaries and upon which such entity customarily
pays the interest, and all rental payments under capitalized leases of such maturity.
1.33
Consolidated Interest Expense
: for any period, all interest expense of Borrower
and its Consolidated Subsidiaries, as determined in accordance with GAAP.
1.34
Consolidated Members and Patrons Equity
: the amount of equity accounts plus
(or minus in the case of a deficit) the amount of surplus and retained earnings accounts of
Borrower and its Consolidated Subsidiaries and the minority interest in Subsidiaries, provided that
the total amount of intangible assets of Borrower and its Consolidated Subsidiaries (including,
without limitation, unamortized debt discount and expense, deferred charges and goodwill) included
therein shall not exceed $30,000,000 (and to the extent such intangible assets exceed
$30,000,000.00, they will not be included in the calculation of Consolidated Members and Patrons
Equity); all as determined in accordance with GAAP consistently applied.
1.35
Consolidated Subsidiary
: any Subsidiary whose accounts are consolidated with
those of Borrower in accordance with GAAP.
1.36
Contributing Syndication Parties
: shall have the meaning set forth in Section
13.3.
1.37
Debt
: means as to any Person: (a) indebtedness or liability of such Person for
borrowed money, or for the deferred purchase price of property or services (including trade
obligations); (b) obligations of such Person as lessee under capital leases; (c) obligations of
such Person arising under bankers or trade acceptance facilities; (d) all guarantees, endorsements
(other than for collection or deposit in the ordinary course of business), and other contingent
obligations of such Person to purchase any of the items included in this definition, to provide
funds for payment, to supply funds to invest in any other Person, or otherwise to assure a creditor
of another Person against loss (without duplication); (e) all obligations secured by a lien on
property owned by such Person, whether or not the obligations have been assumed; and (f) all
obligations of such Person under any agreement providing for an interest rate swap, cap, cap and
floor, contingent participation or other hedging mechanisms with respect to interest payable on any
of the items described in this definition.
1.38
Default Interest Rate
: a rate of interest equal to 200 basis points in excess of
the interest rate which would otherwise be applicable on the Loan.
1.39
Delinquency Interest
: shall have the meaning set forth in Section 13.3.
1.40
Delinquent Amount
: shall have the meaning set forth in Section 13.3.
1.41
Delinquent Syndication Party
: shall have the meaning set forth in Section 13.3.
1.42
Depreciation
: the total depreciation of Borrower and its Consolidated
Subsidiaries as measured in accordance with GAAP.
1.43
Embargoed Person
: shall have the meaning set forth in Section 9.15.
5
1.44
Environmental Laws
: means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
1.45
ERISA
: shall have the meaning set forth in Section 7.10.
1.46
ERISA Affiliate
: means any corporation or trade or business which is a member of
the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as
Borrower or is under common control (within the meaning of Section 414(c) of the Code) with
Borrower, provided, however, that for purposes of provisions herein concerning minimum funding
obligations (imposed under Section 412 of the Code or Section 302 of ERISA), the term ERISA
Affiliate shall also include any entity required to be aggregated with Borrower under Section
414(m) or 414(o) of the Code.
1.47
Event of Default
: shall have the meaning set forth in Section 12.1.
1.48
Event of Syndication Default
: shall have the meaning set forth in Subsection
13.28.1.
1.49
Executive Order
: shall have the meaning set forth in Subsection 7.24.1.
1.50
Farm Credit System Institution
: shall mean any Farm Credit Bank, any Federal
land bank association, any production credit association, the banks for cooperatives, and such
other institutions as may be a part of the Farm Credit System and chartered by and subject to
regulation by the Farm Credit Administration.
1.51
Fiscal Quarter
: each three (3) month period beginning on the first day of each
of the following months: September, December, March and June.
1.52
Fiscal Year
: a year commencing on September 1 and ending on August 31.
1.53
Funded Debt
: means, with respect to any Person, at any time, all Debt of such
Person in each case maturing by its terms more than one year after the date of creation thereof, or
which is renewable or extendible at the option of such Person for a period ending more than one (1)
year after the date of creation thereof, and shall include Debt of such maturity created or assumed
by such Person either directly or indirectly, including obligations of such maturity secured by
liens upon property of such Person and upon which such Person customarily pays the interest, and
all obligations of such Person under Capital Leases of such maturity, and the net present value of
obligations under Operating Leases as discounted by a rate of 8.0% per annum, and all obligations
of reimbursement with respect to all letters of credit which support long-term debt, with
expiration dates in excess of one year from the date of issuance thereof.
1.54
Funding Losses
: shall have the meaning set forth in Section 4.5.
1.55
Funding Loss Notice
: shall have the meaning set forth in Section 4.5.
6
1.56
Funding Share
: shall mean the amount of any Term Loan Advance which each
Syndication Party is required to fund; which shall be equal to the Term Loan Advance multiplied by
such Syndication Partys Individual Term Loan Pro Rata Share.
1.57
GAAP
: generally accepted accounting principles in the United States of America,
as in effect from time to time.
1.58
Good Faith Contest
: means the contest of an item if (a) the item is diligently
contested in good faith by appropriate proceedings timely instituted, (b) either the item is (i)
bonded or (ii) adequate reserves are established with respect to the contested item if and to the
extent required in accordance with GAAP, (c) during the period of such contest, the enforcement of
any contested item is effectively stayed, and (d) the failure to pay or comply with the contested
item could not reasonably be expected to result in a Material Adverse Effect.
1.59
Governmental Authority
: means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
1.60
Hazardous Substances
; means any and all pollutants, toxic or hazardous wastes or
any other substances that might pose a hazard to health or safety, the removal of which may be
required or the generation, manufacture, refining, production, processing, treatment, storage,
handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or
filtration of which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated
biphenyls).
1.61
Holdout Lender
: shall have the meaning set forth in Section 13.30.
1.62
Indemnified Agency Parties
: shall have the meaning set forth in Section 13.17.
1.63
Indemnified Parties
: shall have the meaning set forth in Section 11.1.
1.64
Individual Term Loan Commitment
: means with respect to any Syndication Party,
the amount shown as its Individual Term Loan Commitment on
Schedule 1
hereto, subject to
adjustment in the event of the sale of all or a portion of a Syndication Interest in accordance
with Section 13.25 hereof.
1.65
Individual Outstanding Term Loan Obligation
: means with respect to any
Syndication Party, the sum of (a) the aggregate outstanding principal amount of the Term Loan
Advance made by such Syndication Party, or (b) such Syndication Partys Committed Term Loan
Advance.
1.66
Individual Term Loan Pro Rata Share
: means with respect to any Syndication Party
a fraction, determined from time to time, expressed as a percentage (rounded to 9 decimal points),
where the numerator is such Syndication Partys Individual Term Loan Commitment and the denominator
is the Aggregate Term Loan Commitment.
1.67
Intellectual Property
: shall have the meaning set forth in Section 7.18.
7
1.68
Investment
: means, with respect to any Person, (a) any loan or advance by such
Person to any other Person, (b) the purchase or other acquisition by such Person of any capital
stock, obligations or securities of, or any capital contribution to, or investment in, or the
acquisition by such Person of all or substantially all of the assets of, or any interest in, any
other Person, (c) any performance or standby letter of credit where (i) that Person has the
reimbursement obligation to the issuer, and (ii) the proceeds of such letter of credit are to be
used for the benefit of any other Person, (d) the agreement by such Person to make funds available
for the benefit of another Person to either cover cost overruns incurred in connection with the
construction of a project or facility, or to fund a debt service reserve account, (e) the agreement
by such Person to assume, guarantee, endorse or otherwise be or become directly or contingently
responsible or liable for the obligations or debts of any other Person (other than by endorsement
for collection in the ordinary course of business), (f) an agreement to purchase any obligations,
stocks, assets, goods or services but excluding an agreement to purchase any assets, goods or
services entered into in the ordinary course of business, (g) an agreement to supply or advance any
assets, goods or services not in the ordinary course of business, or (h) an agreement to maintain
or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the
creditors of any Person against loss.
1.69
Licensing Laws
: shall have the meaning set forth in Section 7.4.
1.70
Lien
: means with respect to any asset any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment for security purposes, encumbrance, lien (statutory or
other), or other security agreement or charge, or encumbrance of any kind or nature whatsoever
(including, without limitation, any conditional sale, Capital Lease or other title retention
agreement related to such asset).
1.71
Loans
: shall mean all Quoted Rate Loans outstanding at any time.
1.72
Loan Documents
: this Credit Agreement and the Notes.
1.73
Material Adverse Effect
: means a material adverse effect on (a) the financial
condition, results of operation, business or property of Borrower; or (b) on the ability of
Borrower to perform its obligations under this Credit Agreement and the other Loan Documents; or
(c) on the ability of the Administrative Agent or the Syndication Parties to enforce their rights
and remedies against Borrower under the Loan Documents.
1.74
Material Agreements
: all agreements of Borrower, the termination or breach of
which, based upon Borrowers knowledge as of the date of making any representation with respect
thereto, would have a Material Adverse Effect.
1.75
Multiemployer Plan
: means a Plan meeting the definition of a multiemployer
plan in Section 3(37) of ERISA.
1.76
Not Used
.
1.77
Non-US Lender
: shall have the meaning set forth in Section 13.29.
8
1.78
Note or Notes
: the Term Loan Notes and all amendments, renewals, substitutions
and extensions thereof.
1.79
OFAC
: shall have the meaning set forth in Section 9.15.
1.80
Operating Lease
: means any lease of property (whether real, personal or mixed)
by a Person under which such Person is lessee, other than a Capital Lease.
1.81
Organization Documents
: in the case of a corporation, its articles or
certificate of incorporation and bylaws; in the case of a partnership, its partnership agreement
and certificate of limited partnership, if applicable; in the case of a limited liability company,
its articles of organization and its operating agreement.
1.82
Other List
: shall have the meaning set forth in Section 9.15.
1.83
Payment Account
: shall have the meaning set forth in Section 13.9.
1.84
Payment Distribution
: shall have the meaning set forth in Section 13.9.
1.85
PBGC
: shall have the meaning set forth in Section 7.10.
1.86
Permitted Encumbrance
: shall have the meaning set forth in Section 10.3.
1.87
Person
: any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, cooperative
association, institution, government or governmental agency (whether national, federal, state,
provincial, country, city, municipal or otherwise, including without limitation, and
instrumentality, division, agency, body or department thereof), or other entity.
1.88
Plan
: means any plan, agreement, arrangement or commitment which is an employee
benefit plan, as defined in Section 3(3) of ERISA, maintained by Borrower or any Subsidiary or any
ERISA Affiliate or with respect to which Borrower or any Subsidiary or any ERISA Affiliate at any
relevant time has any liability or obligation to contribute.
1.89
Platform
: shall have the meaning set forth in Subsection 14.16.2.
1.90
Potential Default
: any event, other than an event described in Section 12.1(a)
hereof, which with the giving of notice or lapse of time, or both, would become an Event of
Default.
1.91
Prohibited Transaction
: means any transaction prohibited under Section 406 of
ERISA or Section 4975 of the Code.
1.92
Quoted Rate
: means a fixed rate of interest determined and quoted by the
Administrative Agent in its sole and absolute discretion from time to time at the request of
Borrower, which may not necessarily be the lowest rate at which the Administrative Agent or any of
the Syndication Parties loans funds at that time.
1.93
Quoted Rate Loan
: shall have the meaning set forth in Subsection 3.1.1.
9
1.94
Quoted Rate Period
: shall have the meaning set forth in Subsection 3.1.1.
1.95
Not Used
1.96
Regulatory Change
: shall have the meaning set forth in Section 14.12.
1.97
Replacement Lender
: shall have the meaning set forth in Section 13.30.
1.98
Reportable Event
: means any of the events set forth in Section 4043(b) of ERISA
or in the regulations thereunder.
1.99
Required Lenders
: shall mean Syndication Parties (including Voting Participants)
whose aggregate Individual Term Loan Commitments constitute fifty-one percent (51.0%) or more of
the Aggregate Term Loan Commitment;
provided however
, if fewer than three Syndication
Parties (including Voting Participants) hold fifty-one percent (51.0%) or more of the Aggregate
Term Loan Commitment, then the number of Syndication Parties (including Voting Participants) which
shall constitute the Required Lenders shall be not less than (i) all of the Syndication Parties
(including Voting Participants) if there are only one or two Syndication Parties (including Voting
Participants),
or
(ii) three of the Syndication Parties (including Voting Participants) if
there are three or more Syndication Parties (including Voting Participants) and two of them
together hold fifty-one percent (51.0%) or more of the Aggregate Term Loan Commitment. Pursuant to
Section 13.26 hereof, Voting Participants shall, under the circumstances set forth therein, be
entitled to voting rights and to be included in determining whether certain action is being taken
by the Required Lenders.
1.100
Required License
: shall have the meaning set forth in Section 7.9.
1.101
Restricted Subsidiary
: shall mean those Subsidiaries identified on
Exhibit
1.101
hereto, as it may be amended from time to time with the prior written consent of
Borrower, the Administrative Agent and the Required Lenders.
1.102
Revolving Loan Credit Agreement
: shall mean that certain Credit Agreement
(Revolving Loan) dated as of May 18, 2006 by and between Borrower and CoBank, as administrative
agent for all syndication parties thereunder, and as a syndication party thereunder, and the other
syndication parties set forth on the signature pages thereto, as amended from time to time.
1.103
SDN List
: shall have the meaning set forth in Section 9.15.
1.104
Subsidiary
: means with respect to any Person: (a) any corporation in which
such Person, directly or indirectly, (i) owns more than fifty percent (50%) of the outstanding
stock thereof, or (ii) has the power under ordinary circumstances to elect at least a majority of
the directors thereof, or (b) any partnership, association, joint venture, limited liability
company, or other unincorporated organization or entity, with respect to which such Person, (i)
directly or indirectly owns more than fifty percent (50%) of the equity interest thereof, or (ii)
directly or indirectly owns an equity interest in an amount sufficient to control the management
thereof. All of Borrowers Subsidiaries owned as of the Closing Date are set forth on
Exhibit
1.104
hereto.
10
1.105
Successor Agent
: such Person as may be appointed as successor to the rights and
duties of the Administrative Agent as provided in Section 13.20 of this Credit Agreement.
1.106
Syndication Acquisition Agreement
: shall have the meaning set forth in Section
13.25.
1.107
Syndication Interest
: shall have the meaning set forth in Section 13.1.
1.108
Syndication Parties
: shall mean those entities listed on
Schedule 1
hereto as having an Individual Term Loan Commitment, and such Persons as shall from time to time
execute a Syndication Acquisition Agreement substantially in the form of
Exhibit 13.25
hereto signifying their election to purchase all or a portion of the Syndication Interest of any
Syndication Party, in accordance with Section 13.25 hereof, and to become a Syndication Party
hereunder.
1.109
Syndication Party Advance Date
: shall have the meaning set forth in Section
13.2.
1.110
Term Loan Note(s)
: shall have the meaning set forth in Section 2.3.
1.111
Term Loan Advance
: shall have the meaning set forth in Section 2.1.
1.112
Term Loan
: means the loan made pursuant to Article 2 of this Credit Agreement.
1.113
Term Loan Maturity Date
: means December 15, 2017.
1.114
Transfer
: shall have the meaning set forth in Section 13.25.
1.115
USA Patriot Act
: shall have the meaning set forth in Section 7.24.1.
1.116
Voting Participant
: shall have the meaning set forth in Section 13.26.
1.117
Wire Instructions
: shall have the meaning set forth in Section 13.27.
ARTICLE 2. TERM LOAN
2.1
Term Loan
. On the terms and conditions set forth in this Credit Agreement, each
of the Syndication Parties severally agrees to advance funds hereunder to Borrower on or about the
Closing Date in an aggregate principal amount of $150,000,000 (
Term Loan Advance
), and Borrower
agrees that its execution of this Credit Agreement shall constitute its request for the Term Loan
Advance.
2.2
Borrowing Notice
. With respect to the Term Loan Advance (which the Syndication
Parties shall provide automatically on or about the Closing Date), Borrower shall confirm that the
Quoted Rate Period shall be ten (10) years. The Administrative Agent will make such Term Loan
Advance available to Borrower, in immediately available funds, and will transmit such funds by wire
transfer to Borrowers Account.
2.3
Promissory Note
. Borrowers obligations to each Syndication Party under the Term
Loan, including Borrowers payment obligations with respect to all Term Loan Advances made by each
Syndication Party shall be evidenced by, and repaid with interest in accordance with, a
11
promissory note of Borrower in substantially the form of
Exhibit 2.3
hereto duly
completed, in the stated maximum principal amount equal to such Syndication Partys Individual Term
Loan Commitment, payable to such Syndication Party for the account of its Applicable Lending
Office, and maturing as to principal on the Term Loan Maturity Date (each a
Term Loan Note
and
collectively, the
Term Loan Notes
).
2.4
Syndication Party Records
. Each Syndication Party shall record on its books and
records the amount of the Term Loan Advance which it funds, the rate and interest period applicable
thereto, all payments of principal and interest, and the principal balance from time to time
outstanding. The Syndication Partys record thereof shall be prima facie evidence as to all such
amounts and shall be binding on Borrower absent manifest error. Notwithstanding the foregoing,
Borrower will never be required to pay as principal more than the principal amount of the Term Loan
Advance made by the Syndication Parties.
2.5
Use of Proceeds
. The proceeds of the Term Loan Advance will be used by Borrower
to fund working capital requirements and for general corporate purposes, and Borrower agrees not to
request or use such proceeds for any other purpose. Borrower will not, directly or indirectly, use
any part of such proceeds for the purpose of purchasing or carrying any margin stock within the
meaning of Regulation U of the Board of Governors or to extend credit to any Person for the purpose
of purchasing or carrying any such margin stock.
2.6
Syndication Party Funding Failure
. The failure of any Syndication Party to fund
its Funding Share of the Term Loan Advance to be made by it on the date specified for such Advance
shall not relieve any other Syndication Party of its obligation (if any) to fund its Funding Share
of any Advance on such date, but no Syndication Party shall be responsible for the failure of any
other Syndication Party to make any Advance to be made by such other Syndication Party.
ARTICLE 3. INTEREST
3.1
Interest
. Interest on all Loans shall be calculated as follows:
3.1.1
Quoted Rate
. At the request of Borrower in a Borrowing Notice all of the
outstanding principal balance under the Term Loan Notes shall bear interest at the initial Quoted
Rate (a
Quoted Rate Loan
). The Borrowing Notice must confirm that the entire principal amount of
the Term Loan is to bear interest at the Quoted Rate for a period of ten (10) years (
Quoted Rate
Period
).
3.2
Default Interest Rate
. All past due payments on the Notes or of any other Bank
Debt (whether as a result of nonpayment by Borrower when due, at maturity, or upon acceleration)
shall bear interest at the Default Interest Rate from and after the due date for the payment, or on
the date of maturity or acceleration, as the case may be.
3.3
Interest Calculation
. Interest shall be calculated on the actual number of days
that the principal owing thereunder is outstanding with the daily rate calculated on the basis of a
year consisting of 360 days. In calculating interest, the Advance Date shall be included and the
date each payment is received shall be excluded.
12
ARTICLE 4. PAYMENTS; FUNDING LOSSES
4.1
Principal Payments
. Principal shall be payable under the Term Loan in equal
semiannual installments of Fifteen Million Dollars ($15,000,000) on June 15 and December 15 of each
year or the next succeeding Banking Day commencing on June 15, 2013, and in any event all principal
payable under the Term Loan shall be paid on or before the Term Loan Maturity Date, provided that
prepayments may be made only as provided in Section 4.5 hereof.
4.2
Interest Payments
. Interest owing under the Term Loan (a) shall be payable
semiannually in arrears on December 15 and June 15 of each year or the next succeeding Banking Day;
and (b) any interest then accrued and unpaid shall be payable on the Term Loan Maturity Date.
4.3
Application of Principal Payments
. Principal prepayments under the Term Loan
shall be applied to the most remote installment of principal due and unpaid. Upon the occurrence
and during the continuance of an Event of Default or Potential Default, all payments shall be
applied, first to fees, second to interest, third to principal, and last to any other Bank Debt.
4.4
Manner of Payment
. All payments, including prepayments, that Borrower is required
or permitted to make under the terms of this Credit Agreement shall be made to the Administrative
Agent (a) in immediately available federal funds, to be received no later than 1:00 P.M. Central
time of the Banking Day on which such payment is due (or the following Banking Day if such date is
not a Banking Day) by wire transfer through Federal Reserve Bank, Kansas City, as provided in the
Wire Instructions (or to such other account as the Administrative Agent may designate by notice).
4.4.1
Payments to Be Free and Clear
. All sums payable by Borrower under this Credit
Agreement and the other Loan Documents shall be paid without setoff or counterclaim and free and
clear of, and without any deduction or withholding on account of, any tax imposed, levied,
collected, withheld or assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other jurisdiction from or to which a
payment is made by or on behalf of Borrower or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time of payment (excluding
taxes imposed on or measured by the net income or net profits of the recipient of such payment, and
franchise taxes imposed in lieu thereof).
4.4.2
Grossing-up of Payments
. If Borrower or any other Person is required by law to
make any deduction or withholding on account of any such tax from any sum paid or payable by
Borrower to the Administrative Agent or any Syndication Party under any of the Loan Documents:
(a) Borrower shall notify the Administrative Agent of any such requirement or any change in
any such requirement as soon as Borrower becomes aware of it;
(b) Borrower shall pay any such tax when such tax is due, such payment to be made (if the
liability to pay is imposed on Borrower) for its own account or (if that liability
13
is imposed on the Administrative Agent or such Syndication Party, as the case may be) on
behalf of and in the name of the Administrative Agent or such Syndication Party;
(c) the sum payable by Borrower in respect of which the relevant deduction, withholding or
payment is required shall be increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, the Administrative Agent or such Syndication Party, as the
case may be, receives on the due date a net sum equal to what it would have received had no such
deduction, withholding or payment been required or made; and
(d) within thirty (30) days after paying any sum from which it is required by law to make any
deduction or withholding, and within thirty (30) days after the due date of payment of any tax
which it is required by clause (b) above to pay, Borrower shall deliver to the Administrative Agent
evidence satisfactory to the other affected parties of such deduction, withholding or payment and
of the remittance thereof to the relevant taxing or other authority;
provided
that no such additional amount shall be required to be paid to any Syndication
Party under clause (c) above except to the extent that any change after the date on which such
Syndication Party became a Syndication Party in any such requirement for a deduction, withholding
or payment as is mentioned therein shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date on which such Syndication Party became a
Syndication Party, in respect of payments to such Syndication Party
4.5
Voluntary Prepayments
. Borrower shall have the right to prepay all or any part of
the outstanding principal balance under the Loans at any time, provided that partial pre-payments
shall be in a minimum amount of $5,000,000 and in integral multiples of $1,000,000 on any Banking
Day; provided that (a) Borrower must provide three (3) Banking Days notice to the Administrative
Agent prior to making such prepayment, (b) Borrower must, at the time of making such prepayment,
pay all accrued but unpaid interest and all Funding Losses applicable to such prepayment, and (c)
Borrower must, at the time of making such prepayment, pay all accrued but unpaid interest and all
Funding Losses applicable to such prepayment.
In the event of any payment of any Loans before the expiration of the applicable Quoted Rate
Period, whether voluntary or mandatory, and including on account of acceleration, Borrower must, at
the time of making such payment, pay all accrued but unpaid interest and all Funding Losses
applicable to such payment.
Funding Losses
shall be determined on an individual Syndication
Party basis as the amount which would result in such Syndication Party being made whole (on a
present value basis) for the actual or imputed funding losses (including, without limitation, any
loss, cost or expense incurred by reason of obtaining, liquidating or employing deposits or other
funds acquired by such Syndication Party to fund or maintain such Loan incurred by such Syndication
Party as a result of such payment (regardless of whether the Syndication Party actually funded with
such deposits); provided that such amount shall in no event be less than $300.00 with respect to
any Syndication Party. In the event of any such payment, each Syndication Party which had funded
the Loan being paid shall, promptly after being notified of such payment, send written notice
(
Funding Loss Notice
) to the Administrative Agent by facsimile setting forth the amount of
attributable Funding Losses and the method of calculating the same. The Administrative Agent shall
notify Borrower orally or in writing of the amount of such Funding Losses. A determination by a
Syndication Party as to the amounts payable pursuant to this Section shall be conclusive absent
manifest error.
14
The term
Make-Whole Amount
means, with respect to any Loan, an amount equal to the excess,
if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Prepaid
Principal of such Loan over the amount of such Prepaid Principal,
provided
that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
Prepaid Principal
means, with respect to any Loan, the principal of such Loan that is
to be prepaid voluntarily or has become or is declared to be immediately due and payable.
Discounted Value
means, with respect to the Prepaid Principal of any Loan, the amount
obtained by discounting all Remaining Scheduled Payments with respect to such Prepaid
Principal from their respective scheduled due dates to the Settlement Date with respect to
such Prepaid Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on the Loans is
payable) equal to the Reinvestment Yield with respect to such Prepaid Principal.
Reinvestment Yield
means, with respect to the Prepaid Principal of any Loan, 0.50%
plus the yield to maturity calculated by using (i) the yields reported, as of 10:00 A.M.
(New York City time) on the second Business Day preceding the Settlement Date on screen PX
1 on the Bloomberg Financial Market Service (or such other display on the Bloomberg
Financial Market Service as may be agreed upon by the Company and the Required Holders
having the same information if PX-1 is replaced by Bloomberg Financial Market Service) for
the most recently issued, actively traded, on-the-run benchmark U.S. Treasury securities,
having a maturity equal to the Remaining Average Life of such Prepaid Principal as of such
Settlement Date or (ii) if such yields are not reported as of such time or the yields
reported as of such time are not ascertainable, (including by way of interpolation), the
Treasury Constant Maturity Series Yields reported, for the latest day for which such yields
have been so reported as of the second Business Day preceding the Settlement Date, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the Remaining
Average Life of such Prepaid Principal as of such Settlement Date. In either case, the
yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to
bond equivalent yields in accordance with accepted financial practice and (b) interpolating
linearly on a straight line basis between (1) the applicable U.S. Treasury security with the
maturity closest to and greater than the Remaining Average Life and (2) the applicable U.S.
Treasury security with the maturity closest to and less than the Remaining Average Life.
The Reinvestment Yield shall be rounded to the number of decimal places as appears in the
interest rate of the applicable Loan.
Remaining Average Life
means, with respect to any Prepaid Principal, the number of
years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Prepaid
Principal into (b) the sum of the products obtained by multiplying (i) the principal
component of each Remaining Scheduled Payment with respect to such Prepaid Principal by (ii)
the number of years (calculated to the nearest one-twelfth year) that will elapse between
the Settlement Date with respect to such Prepaid Principal and the scheduled due date of
such Remaining Scheduled Payment.
15
Remaining Scheduled Payments
means, with respect to the Prepaid Principal of any
Loan, all payments of such Prepaid Principal and interest thereon that would be due after
the Settlement Date with respect to such Prepaid Principal if no payment of such Prepaid
Principal were made prior to its scheduled due date,
provided
that if such Settlement Date
is not a date on which interest payments are due to be made under the terms of the Loans,
then the amount of the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and required to be paid on such
Settlement Date.
Settlement Date
means, with respect to the Prepaid Principal of any Loan, the date on
which such Prepaid Principal is to be prepaid pursuant or has become or is declared to be
immediately due and payable.
4.6
Distribution of Principal and Interest Payments
. The Administrative Agent shall
distribute payments of principal and interest payments on the Term Loan Advance among the
Syndication Parties in accordance with their Individual Term Loan Pro Rata Share.
ARTICLE 5. BANK EQUITY INTERESTS
Borrower agrees to purchase such equity interests in CoBank (
Bank Equity Interests
) as
CoBank may from time to time require in accordance with its bylaws and capital plans as applicable
to cooperative borrowers generally. In connection with the foregoing, Borrower hereby acknowledges
receipt, prior to the execution of this Credit Agreement, of the following with respect to CoBank
(a) the bylaws, (b) a written description of the terms and conditions under which the Bank Equity
Interests are issued, (c) the most recent annual report, and if more recent than the latest annual
report, the latest quarterly report. CoBank reserves the right to sell participations under the
provisions of Section 13.25 on a non-patronage basis.
ARTICLE 6. SECURITY
The obligations of Borrower under this Credit Agreement shall be unsecured, except the
statutory lien in favor of CoBank, but not any other Syndication Parties, in the Bank Equity
Interests.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES
To induce the Syndication Parties to make the Loans and recognizing that the Syndication
Parties and the Administrative Agent are relying thereon, Borrower represents and warrants as
follows:
7.1
Organization, Good Standing, Etc
.
Borrower: (a) is duly organized, validly
existing, and in good standing under the laws of its state of incorporation; (b) qualifies as a
cooperative association under the laws of its state of incorporation; (c) is duly qualified to do
business and is in good standing in each jurisdiction in which the transaction of its business
makes such qualification necessary, except to the extent that the failure to so qualify has not
resulted in, and could not reasonably be expected to cause, a Material Adverse Effect; and (d) has
all authority and all requisite corporate and legal power to own and operate its assets and to
carry on its business, and to enter into and perform the Loan Documents to which it is a party.
Each
16
Subsidiary: (a) is duly organized, validly existing, and in good standing under the laws of
its state of incorporation; (b) is duly qualified to do business and is in good standing in each
jurisdiction in which the transaction of its business makes such qualification necessary, except to
the extent that the failure to so qualify has not resulted in, and could not reasonably be expected
to cause, a Material Adverse Effect; and (c) has all authority and all requisite corporate and
legal power to own and operate its assets and to carry on its business.
7.2
Corporate Authority, Due Authorization; Consents
. Borrower has taken all
corporate action necessary to execute, deliver and perform its obligations under the Loan Documents
to which it is a party and to pay off all amounts owing under the Existing Credit Agreement. All
consents or approvals of any Person which are necessary for, or are required as a condition of
Borrowers execution, delivery and performance of and under the Loan Documents, have been obtained.
7.3
Litigation
. Except as described on
Exhibit 7.3
hereto, there are no
pending legal or governmental actions, proceedings or investigations to which Borrower or any
Subsidiary is a party or to which any property of Borrower or any Subsidiary is subject which might
reasonably be expected to result in any Material Adverse Effect and, to Borrowers knowledge, no
such actions or proceedings are threatened or contemplated by any federal, state, county, or city
(or similar unit) governmental agency or any other Person.
7.4
No Violations
. The execution, delivery and performance of its obligations under
the Loan Documents will not: (a) violate any provision of Borrowers articles of incorporation or
bylaws, or any law, rule, regulation (including, without limitation, Regulations T, U, and X of the
Board of Governors of the Federal Reserve System), or any judgment, order or ruling of any court or
governmental agency; (b) violate, require consent under (except such consent as has been obtained),
conflict with, result in a breach of, constitute a default under, or with the giving of notice or
the expiration of time or both, constitute a default under, any existing real estate mortgage,
indenture, lease, security agreement, contract, note, instrument or any other agreements or
documents binding on Borrower or affecting its property; or (c) violate, conflict with, result in a
breach of, constitute a default under, or result in the loss of, or restriction of rights under,
any Required License or any order, law, rule, or regulation under or pursuant to which any Required
License was issued or is maintained (
Licensing Laws
).
7.5
Binding Agreement
. Each of the Loan Documents to which Borrower is a party is, or
when executed and delivered, will be, the legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms, subject only to limitations on enforceability imposed by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors
rights generally and by general principles of equity.
7.6
Compliance with Laws
. Borrower and each Subsidiary are in compliance with all
federal, state, and local laws, rules, regulations, ordinances, codes and orders, including without
limitation all Environmental Laws and all Licensing Laws, with respect to which noncompliance could
reasonably be expected to result in a Material Adverse Effect.
7.7
Principal Place of Business; Place of Organization
. Borrowers place of business,
or chief executive office if it has more than one place of business, and the place where the
records required by Section 9.1 hereof are kept, is located at 5500 Cenex Drive, Inver Grove
Heights,
17
Minnesota 55077. Borrower is a cooperative corporation formed under the laws of the State of
Minnesota.
7.8
Payment of Taxes
. Except as shown on
Exhibit 7.8
hereto, Borrower and
each Subsidiary have filed all required federal, state and local tax returns and have paid all
taxes as shown on such returns as they have become due, and have paid when due all other taxes,
assessments or impositions levied or assessed against Borrower or any Subsidiary, or their business
or properties, except where the failure to make such filing or payment could not reasonably be
expected to result in a Material Adverse Effect.
Exhibit 7.8
specifically indicates all
such taxes, if any, which are subject to a Good Faith Contest.
7.9
Licenses and Approvals
. Borrower and each Subsidiary have ownership of, or
license to use, or have been issued, all trademarks, patents, copyrights, franchises, certificates,
approvals, permits, authorities, agreements, and licenses which are used or necessary to permit it
to own its properties and to conduct the business as presently being conducted as to which the
termination or revocation thereof could reasonably be expected to have a Material Adverse Effect
(
Required Licenses
). Each Required License is in full force and effect, and there is no
outstanding notice of cancellation or termination or, to Borrowers knowledge, any threatened
cancellation or termination in connection therewith, nor has an event occurred with respect to any
Required License which, with the giving of notice or passage of time or both, could result in the
revocation or termination thereof or otherwise in any impairment of Borrowers rights with respect
thereto, which impairment could reasonably be expected to have a Material Adverse Effect. No
consent, permission, authorization, order, or license of any governmental authority, is necessary
in connection with the execution, delivery, performance, or enforcement of and under the Loan
Documents to which Borrower is a party except such as have been obtained and are in full force and
effect.
7.10
Employee Benefit Plans
.
Exhibit 7.10
sets forth as of the Closing Date a
true and complete list of each Borrower Benefit Plan that is maintained by Borrower or any of its
Subsidiaries or in which Borrower or any of its Subsidiaries participates or to which Borrower or
any of its Subsidiaries is obligated to contribute, in each case as of the Closing Date. Borrower
and its Subsidiaries are in compliance in all material respects with the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder (
ERISA
), to the extent
applicable to them, and have not received any notice to the contrary from the Pension Benefit
Guaranty Corporation (
PBGC
).
7.11
Equity Investments
. Borrower does not now own any stock or other voting or
equity interest, directly or indirectly, in any Person valued at the greater of book value or
market value at $5,000,000 or more, other than: (a) the Bank Equity Interests, and (b) as set
forth on
Exhibit 7.11
.
7.12
Title to Real and Personal Property
. Borrower and each Subsidiary have good and
marketable title to, or valid leasehold interests in, all of their material properties and assets,
real and personal, including the properties and assets and leasehold interests reflected in the
financial statements of the Borrower and its Subsidiaries referred to in Section 7.13 hereof,
except (a) any properties or assets disposed of in the ordinary course of business, and (b) for
defects in title and encumbrances which could not reasonably be expected to result in a Material
Adverse Effect; and none of the properties of Borrower or any Consolidated Subsidiary are subject
to any Lien, except
18
as permitted by Section 10.3 hereof. All such property is in good operating condition and
repair, reasonable wear and tear excepted, and suitable in all material respects for the purposes
for which it is being utilized except where their failure to be in good operating condition could
not reasonably be expected to result in a Material Adverse Effect. All of the leases of Borrower
and each Subsidiary which constitute Material Agreements are in full force and effect and afford
Borrower or such Subsidiary peaceful and undisturbed possession of the subject matter thereof.
7.13
Financial Statements
. The consolidated balance sheets of Borrower and its
Subsidiaries as of August 31, 2007, and the related consolidated statements of operations, cash
flows and consolidated statements of capital shares and equities for the Fiscal Year then ended,
and the accompanying footnotes, together with the unqualified opinion thereon of
PricewaterhouseCoopers LLP, independent certified public accountants, copies of which have been
furnished to the Administration Agent and the Syndication Parties, fairly present in all material
respects the consolidated financial condition of Borrower and its Subsidiaries as at such dates and
the results of the consolidated operations of Borrower and its Subsidiaries for the periods covered
by such statements, all in accordance with GAAP consistently applied. Since August 31, 2007, there
has been no material adverse change in the financial condition, results of operations, business or
prospects of Borrower or any of its Subsidiaries. As of the Closing Date, there are no liabilities
of Borrower or any of its Subsidiaries, fixed or contingent, which are material but are not
reflected in the financial statements of Borrower and its Subsidiaries referred to above or
referred to in the notes thereto, other than liabilities arising in the ordinary course of business
since August 31, 2007. No information, exhibit, or report furnished by Borrower or any of its
Subsidiaries to the Administration Agent or the Syndication Parties in connection with the
negotiation of this Credit Agreement contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the statements contained therein not materially
misleading in light of the circumstances in which they were made and taken together with the other
information, exhibits and reports furnished to the Administration Agent and/or the Syndication
Parties.
7.14
Environmental Compliance
. Except as set forth on
Exhibit 7.14
hereto,
Borrower and each Subsidiary have obtained all permits, licenses and other authorizations which are
required under all applicable Environmental Laws, except to the extent failure to have any such
permit, license or authorization could not reasonably be expected to result in a Material Adverse
Effect. Except as set forth on
Exhibit 7.14
hereto, Borrower and each Subsidiary are in
compliance with all Environmental Laws and the terms and conditions of the required permits,
licenses and authorizations, and are also in compliance with all other limitations, restrictions,
obligations, schedules and timetables contained in those Laws or contained in any plan, order,
decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent, in each case, failure to comply has not resulted in, and could
not reasonably be expected to result in, a Material Adverse Effect.
7.15
Fiscal Year
. Each fiscal year of Borrower begins on September 1 of each calendar
year and ends on August 31 of the following calendar year.
7.16
Material Agreements
. Neither Borrower nor, to Borrowers knowledge, any other
party to any Material Agreement, is in default thereunder, and no facts exist which with the giving
of notice or the passage of time, or both, would constitute such a default.
19
7.17
Regulations U and X
. No portion of any Advance will be used for the purpose of
purchasing, carrying, or making loans to finance the purchase of, any margin security or margin
stock as such terms are used in Regulations U or X of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Parts 221 and 224.
7.18
Trademarks, Tradenames, etc
.
Borrower owns or licenses all patents, trademarks,
trade names, service marks and copyrights (collectively,
Intellectual Property
) that it utilizes
in its business as presently being conducted and as anticipated to be conducted, except where the
failure to do so could not reasonably be expected to result in a Material Adverse Effect on
Borrower. Borrower is not a licensee under any written license for any patent, trademark,
tradename, service mark or copyright other than shrinkwrap licenses for off-the-shelf software
used by Borrower in the conduct of its business. The Intellectual Property is in full force and
effect, and Borrower has taken or caused to be taken all action, necessary to maintain the
Intellectual Property in full force and effect and has not taken or failed to take or cause to be
taken any action which, with the giving of notice, or the expiration of time, or both, could result
in any such Intellectual Property being revoked, invalidated, modified, or limited.
7.19
No Default on Outstanding Judgments or Orders
. Borrower and each Subsidiary have
satisfied all judgments and Borrower and each Subsidiary are not in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state,
municipal or other Governmental Authority, commission, board, bureau, agency or instrumentality,
domestic or foreign, except to the extent such failure to satisfy any or all such judgments or to
be in such a default has not resulted in, and could not reasonably be expected to result in, a
Material Adverse Effect.
7.20
No Default in Other Agreements
. Neither Borrower nor any Subsidiary is a party
to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject
to any certificate of incorporation or corporate restriction which has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect. Neither Borrower nor any
Subsidiary is in default in any respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument where such failure to
perform, observe or fulfill has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect.
7.21
Acts of God
. Neither the business nor the properties of Borrower or any
Subsidiary are currently affected by any fire, explosion, accident, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by
insurance) which has resulted in, or could reasonably be expected to result in, a Material Adverse
Effect.
7.22
Governmental Regulation
. Neither Borrower nor any Subsidiary is subject to
regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of
1940, the Interstate Commerce Act, the Federal Power Act or any statute or regulation, in each
case, limiting its ability to incur indebtedness for money borrowed as contemplated hereby.
7.23
Labor Matters and Labor Agreements
. Except as set forth in
Exhibit 7.23
hereto: (a) As of the Closing Date, there are no collective bargaining agreements or other labor
agreements covering any employees of Borrower or any Subsidiary the termination, cessation, or
breach of which could reasonably be expected to result in a Material Adverse Effect, and a true
20
and correct copy of each such agreement will be furnished to the Administrative Agent upon its
written request from time to time. (b) There is no organizing activity involving Borrower pending
or, to Borrowers knowledge, threatened by any labor union or group of employees. (c) There are,
to Borrowers knowledge, no representation proceedings pending or threatened with the National
Labor Relations Board, and no labor organization or group of employees of Borrower has made a
pending demand for recognition. (d) There are no complaints or charges against Borrower pending
or, to Borrowers knowledge threatened to be filed with any federal, state, local or foreign court,
governmental agency or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment by Borrower of any individual. (e) There
are no strikes or other labor disputes against Borrower that are pending or, to Borrowers
knowledge, threatened. (f) Hours worked by and payment made to employees of Borrower or any
Subsidiary have not been in violation of the Fair Labor Standards Act (29 U.S.C. § 201 et seq.) or
any other applicable law dealing with such matters. The representations made in clauses (b)
through (f) of this Section are made with respect to those occurrences described which could,
considered in the aggregate, reasonably be expected to have a Material Adverse Effect.
7.24
Anti-Terrorism Laws
.
7.24.1
Violation of Law
. Neither the Borrower nor, to the knowledge of Borrower, any
of its Subsidiaries, is in violation of any laws relating to terrorism or money laundering
(
Anti-Terrorism Laws
), including Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001 (
Executive Order
), and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (
USA
Patriot Act
).
7.24.2
Classification
. Neither Borrower nor, to the knowledge of Borrower, any of its
Subsidiaries, or their respective brokers or other agents acting or benefiting in any capacity in
connection with the Loans, is any of the following:
(a) a Person or entity that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order;
(b) a Person or entity owned or controlled by, or acting for or on behalf of, any Person or
entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive
Order;
(c) a Person or entity with which any Syndication Party is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law;
(d) a Person or entity that commits, threatens or conspires to commit or supports terrorism
as defined in the Executive Order; or
(e) a Person or entity that is named as a specially designated national and blocked person
on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control
at its official website or any replacement website or other replacement official publication of
such list.
21
7.24.3
Conduct of Business
. Neither Borrower nor to the knowledge of Borrower, any of
its brokers or other agents acting in any capacity in connection with the Loans (a) conducts any
business or engages in making or receiving any contribution of funds, goods or services to or for
the benefit of any Person described in clause (b) of Subsection 7.24.2 above, (b) deals in, or
otherwise engages in any transaction relating to, any property or interests in property blocked
pursuant to the Executive Order, or (c) engages in or conspires to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.
7.25
Disclosure
. The representations and warranties contained in this Article 10 and
in the other Loan Documents or in any financial statements provided to the Administrative Agent do
not contain any untrue statement of a material fact or omit to state a material fact necessary to
make such representations or warranties not misleading; and all projections provided to the
Administrative Agent were prepared in good faith based on reasonable assumptions.
ARTICLE 8.
CONDITIONS TO ADVANCES
8.1
Conditions to Closing
. The obligation of the Syndication Parties to make Loans
hereunder are subject to satisfaction, in the sole discretion of the Administrative Agent and the
Syndication Parties (except that satisfaction of Subsection 8.1.6 shall be determined in the
reasonable discretion of the Administrative Agent and the Syndication Parties), of each of the
following conditions precedent:
8.1.1
Loan Documents
. The Administrative Agent shall have received duly executed
originals of the Loan Documents.
8.1.2
Approvals
. The Administrative Agent shall have received evidence satisfactory
to it that all consents and approvals of governmental authorities and third parties which are with
respect to Borrower, necessary for, or required as a condition of the validity and enforceability
of the Loan Documents to which it is a party.
8.1.3
Organizational Documents
. The Administrative Agent shall have received: (a)
good standing certificate, dated no more than thirty (30) days prior to the Closing Date, for
Borrower for its state of incorporation; (b) a copy of the articles of incorporation of Borrower
certified by the Secretary of State of its state of organization; and (c) a copy of the bylaws of
Borrower, certified as true and complete by the Secretary or Assistant Secretary of Borrower.
8.1.4
Evidence of Corporate Action
. The Administrative Agent shall have received in
form and substance satisfactory to the Administrative Agent: (a) documents evidencing all
corporate action taken by Borrower to authorize (including the specific names and titles of the
persons authorized to so act (each an
Authorized Officer
)) the execution, delivery and
performance of the Loan Documents to which it is a party, certified to be true and correct by the
Secretary or Assistant Secretary of Borrower; and (b) a certificate of the Secretary or Assistant
Secretary of Borrower, dated the Closing Date, certifying the names and true signatures of the
Authorized Officers.
8.1.5
Evidence of Insurance
. Borrower shall have provided the Administrative Agent
with insurance certificates and such other evidence, in form and substance satisfactory to
22
the Administrative Agent, of all insurance required to be maintained by it under the Loan
Documents.
8.1.6
Appointment of Agent for Service
. The Administrative Agent shall have received
evidence satisfactory to the Administrative Agent that Borrower has appointed The Corporation
Company to serve as its agent for service of process at their Denver, Colorado office (presently at
1675 Broadway), and that The Corporation Company has accepted such appointment by Borrower.
8.1.7
No Material Change
. No change shall have occurred in the condition or
operations of Borrower since August 31, 2007 which could reasonably be expected to result in a
Material Adverse Effect.
8.1.8
Fees and Expenses
. Borrower shall have paid the Administrative Agent, by wire
transfer of immediately available federal funds the fees as set forth in the Fee Letter dated
November 7, 2007 from CoBank and acknowledged by Borrower, and all expenses owing pursuant to
Section 14.1 hereof.
8.1.9
Bank Equity Interest Purchase Obligation
. Borrower shall have purchased such
Bank Equity Interests as CoBank may require pursuant to Article 5 hereof.
8.1.10
Opinion of Counsel
. Borrower shall have provided a favorable opinion of its
counsel addressed to the Administrative Agent and each of the present and future Syndication
Parties, covering such matters as the Administrative Agent may reasonably require.
8.1.11
Further Assurances; No Default
. Borrower shall have provided and/or executed
and delivered to the Administrative Agent such further assignments, documents or financing
statements, in form and substance satisfactory to the Administrative Agent that Borrower is to
execute and/or deliver pursuant to the terms of the Loan Documents or as the Administrative Agent
may reasonably request. No Event of Default or Potential Default shall have occurred and be
continuing, and the disbursing of the amount of the Advance requested shall not result in an Event
of Default or Potential Default, and without limitation, the representations and warranties of
Borrower herein shall be true and correct in all material respects on and as of the date on which
the Advance is to be made.
ARTICLE 9.
AFFIRMATIVE COVENANTS
From and after the date of this Credit Agreement and until the Bank Debt is indefeasibly paid
in full and the Syndication Parties have no obligation to make any Advance hereunder, Borrower
agrees that it will observe and comply with the following covenants for the benefit of the
Administrative Agent and the Syndication Parties:
9.1
Books and Records
. Borrower shall at all times keep, and cause each Subsidiary to
keep, proper books of record and account, in which correct and complete entries shall be made of
all its dealings, in accordance with GAAP.
9.2
Reports and Notices
. Borrower shall provide to the Administrative Agent the
following reports, information and notices:
23
9.2.1
Annual Financial Statements
. As soon as available, but in no event later than
one hundred and twenty (120) days after the end of any Fiscal Year of Borrower occurring during the
term hereof one copy of the audit report for such year and accompanying consolidated financial
statements (including all footnotes thereto), including a consolidated balance sheet, a
consolidated statement of earnings, a consolidated statement of capital, and a consolidated
statement of cash flow for the Borrower and its Subsidiaries, showing in comparative form the
figures for the previous Fiscal Year, all in reasonable detail, prepared in conformance with GAAP
consistently applied and certified without qualification by PricewaterhouseCoopers, or other
independent public accountants of nationally recognized standing selected by the Borrower and
satisfactory to the Administrative Agent. Delivery to the Administrative Agent within the time
period specified above of copies of Borrowers Annual Report on Form 10-K as prepared and filed in
accordance with the requirements of the Securities Exchange Commission shall be deemed to satisfy
the requirements of this Subsection if accompanied by the required unqualified accountants
certification. Such annual financial statements or Form 10-Ks required pursuant to this
Subsection shall be accompanied by a Compliance Certificate signed by Borrowers Chief Financial
Officer or other officer of Borrower acceptable to the Administrative Agent.
9.2.2
Quarterly Financial Statements
. As soon as available but in no event more than
forty-five (45) days after the end of each Fiscal Quarter (except the last Fiscal Quarter of
Borrowers Fiscal Year) the following financial statements or other information concerning the
operations of Borrower and its Subsidiaries for such Fiscal Quarter, the Fiscal Year to date, and
for the corresponding periods of the preceding Fiscal Year, all prepared in accordance with GAAP
consistently applied: (a) a consolidated balance sheet, (b) a consolidated summary of earnings,
(c) a consolidated statement of cash flows, and (d) such other statements as the Administrative
Agent may reasonably request. Delivery to the Administrative Agent within the time period
specified above of copies of Borrowers Quarterly Report on Form 10-Q as prepared and filed in
accordance with the requirements of the Securities Exchange Commission shall be deemed to satisfy
the requirements of this Subsection other than clause (d) hereof. Such quarterly financial
statements or Form 10-Qs required pursuant to this Subsection shall be accompanied by a Compliance
Certificate signed by Borrowers Chief Financial Officer or other officer of Borrower acceptable to
the Administrative Agent (subject to normal year end adjustments).
9.2.3
Notice of Default
. As soon as the existence of any Event of Default or
Potential Default becomes known to any officer of Borrower, prompt written notice of such Event of
Default or Potential Default, the nature and status thereof, and the action being taken or proposed
to be taken with respect thereto.
9.2.4
ERISA Reports
. As soon as possible and in any event within twenty (20) days
after Borrower knows or has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or Borrower or any Subsidiary has instituted or
will institute proceedings under Title IV of ERISA to terminate any Plan, or that Borrower, any
Subsidiary or any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan,
or that a Plan which is a Multiemployer Plan is in reorganization (within the meaning of Section
4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is terminating, a
certificate of Borrowers Chief Financial Officer setting forth details as to such Reportable Event
or Prohibited Transaction or Plan termination or withdrawal or reorganization or insolvency and the
action Borrower or such Subsidiary proposes to take with respect thereto,
24
provided, however, that notwithstanding the foregoing, no reporting is required under this
subsection (6) unless the matter(s), individually or in the aggregate, result, or could be
reasonably expected to result, in aggregate obligations or liabilities of Borrower and/or the
Subsidiaries in excess of ten million dollars ($10,000,000).
9.2.5
Notice of Litigation
. Promptly after the commencement thereof, notice of all
actions, suits, arbitration and any other proceedings before any Governmental Authority, affecting
Borrower or any Subsidiary which, if determined adversely to Borrower or any Subsidiary, could
reasonably be expected to require Borrower or any Subsidiary to have to pay or deliver assets
having a value of ten million dollars ($10,000,000) or more (whether or not the claim is covered by
insurance) or could reasonably be expected to result in a Material Adverse Effect.
9.2.6
Notice of Material Adverse Effect
. Promptly after Borrower obtains knowledge
thereof, notice of any matter which, alone or when considered together with other matters, has
resulted or could reasonably be expected to result in, a Material Adverse Effect.
9.2.7
Notice of Environmental Proceedings
. Without limiting the provisions of
Subsection 9.2.5 hereof, promptly after Borrowers receipt thereof, notice of the receipt of all
pleadings, orders, complaints, indictments, or other communication alleging a condition that may
require Borrower or any Subsidiary to undertake or to contribute to a cleanup or other response
under Environmental Laws, or which seeks penalties, damages, injunctive relief, or criminal
sanctions related to alleged violations of such laws, or which claims personal injury or property
damage to any person as a result of environmental factors or conditions or which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
9.2.8
Regulatory and Other Notices
. Promptly after Borrowers receipt thereof, copies
of any notices or other communications received from any Governmental Authority with respect to any
matter or proceeding the effect of which could reasonably be expected to have a Material Adverse
Effect.
9.2.9
Adverse Action Regarding Required Licenses
. As soon as Borrower learns that any
petition, action, investigation, notice of violation or apparent liability, notice of forfeiture,
order to show cause, complaint or proceeding is pending, or, to the best of Borrowers knowledge,
threatened, to seek to revoke, cancel, suspend, modify, or limit any of the Required Licenses,
prompt written notice thereof and Borrower shall contest any such action in a Good Faith Contest.
9.2.10
Budget
. Promptly upon becoming available and in any event within thirty (30)
days after the beginning of each Fiscal Year, a copy of the Annual Operating Budget for the next
succeeding Fiscal Year and for each of the following two Fiscal Years approved by Borrowers board
of directors, together with the assumptions and projections on which such budget is based and a
copy of forecasts of operations and capital expenditures (including investments) for each Fiscal
Year. In addition, if any material changes are made to such budget or projections or forecasts
during the year, then Borrower will furnish copies to the Administrative Agent of any such changes
promptly after such changes have been approved.
9.2.11
Additional Information
. With reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of Borrower or any
25
Subsidiary as the Administrative Agent or any Syndication Party may from time to time
reasonably request.
9.3
Maintenance of Existence and Qualification
. Borrower shall, and shall cause each
Subsidiary to, maintain its corporate existence in good standing under the laws of its state of
organization. Borrower shall, and shall cause each Subsidiary to, qualify and remain qualified as
a foreign corporation in each jurisdiction in which such qualification is necessary in view of its
business, operations and properties except where the failure to so qualify has not and could not
reasonably be expected to result in a Material Adverse Effect.
9.4
Compliance with Legal Requirements and Agreements
. Borrower shall, and shall
cause each Subsidiary to: (a) comply with all laws, rules, regulations and orders applicable to
Borrower (or such Subsidiary, as applicable) or its business unless such failure to comply is the
subject of a Good Faith Contest; and (b) comply with all agreements, indentures, mortgages, and
other instruments to which it (or any Subsidiary, as applicable) is a party or by which it or any
of its (or any Subsidiary, or any of such Subsidiarys, as applicable) property is bound; provided,
however, that the failure of Borrower to comply with this sentence in any instance not directly
involving the Administrative Agent or a Syndication Party shall not constitute an Event of Default
unless such failure could reasonably be expected to have a Material Adverse Effect.
9.5
Compliance with Environmental Laws
. Without limiting the provisions of Section
9.4 of this Credit Agreement, Borrower shall, and shall cause Subsidiary to, comply in all material
respects with, and take all reasonable steps necessary to cause all persons occupying or present on
any properties owned or leased by Borrower (or any Subsidiary, as applicable) to comply with, all
Environmental Laws, the failure to comply with which would have a Material Adverse Effect or unless
such failure to comply is the subject of a Good Faith Contest.
9.6
Taxes
. Borrower shall pay or cause to be paid, and shall cause each Subsidiary to
pay, when due all taxes, assessments, and other governmental charges upon it, its income, its
sales, its properties (or upon Subsidiary and its income, sales, and properties, as applicable),
and federal and state taxes withheld from its (or Subsidiarys, as applicable) employees earnings,
unless (a) the failure to pay such taxes, assessments, or other governmental charges could not
reasonably be expected to result in a Material Adverse Effect, or (b) such taxes, assessments, or
other governmental charges are the subject of a Good Faith Contest and Borrower has established
adequate reserves therefor in accordance with GAAP.
9.7
Insurance
. Borrower shall maintain, and cause each Subsidiary to maintain,
insurance with one or more financially sound and reputable insurance carrier or carriers reasonably
acceptable to the Administrative Agent, in such amounts (including deductibles) and covering such
risks (including fidelity coverage) as are usually carried by companies engaged in the same or a
similar business and similarly situated, provided, however, that Borrower may, to the extent
permitted by Law, provide for appropriate self-insurance with respect to workers compensation. At
the request of Administrative Agent, copies of all policies (or such other proof of compliance with
this Section as may be reasonably satisfactory) shall be delivered to the Administrative Agent.
All such insurance policies shall contain a provision requiring at least ten (10) days notice to
Borrower prior to any cancellation for non-payment of premiums and at least forty-five (45) days
notice to Borrower of cancellation for any other reason or of non-renewal. With respect to all
such insurance policies, Borrower shall provide the Administrative Agent with
26
(a) within ten (10) days after obtaining such knowledge, written notice of any material
modification of which it has knowledge; and (b) one or more certificates of insurance which shall
include the agreement of the broker/insuror representative providing such certificates to provide
to the Administrative Agent at least ten (10) days notice prior to any cancellation of any such
insurance policies for non-payment of premiums and at least forty-five (45) days notice prior to
cancellation of any such insurance policies for any other reason, and of non-renewal or material
modification of any such insurance policies. No later than forty (40) days prior to expiration,
Borrower shall give the Administrative Agent (x) satisfactory written evidence of renewal of all
such policies with premiums paid, or (y) a written report as to the steps being taken by Borrower
to renew or replace all such policies, provided that notwithstanding the receipt of such written
report, the Administrative Agent may at any time thereafter give Borrower written notice to provide
the Administrative Agent with such evidence as described in clause (x), in which case Borrower must
do so within ten (10) days of such notice. Borrower agrees to pay all premiums on such insurance
as they become due (including grace periods), and will not permit any condition to exist which
would wholly or partially invalidate any insurance thereon.
9.8
Maintenance of Properties
. Borrower shall maintain, keep and preserve, and cause
each Subsidiary to maintain, keep and preserve, all of its material properties (tangible and
intangible) necessary or used in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and shall cause to be made all repairs, renewals,
replacements, betterments and improvements thereof, all as in the sole judgment of Borrower may be
reasonably necessary so that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
9.9
Payment of Liabilities
. Borrower shall pay, and shall cause its Subsidiaries to
pay, all liabilities (including, without limitation: (a) any indebtedness for borrowed money or
for the deferred purchase price of property or services; (b) any obligations under leases which
have or should have been characterized as Capital Leases; and (c) any contingent liabilities, such
as guaranties, for the obligations of others relating to indebtedness for borrowed money or for the
deferred purchase price of property or services or relating to obligations under leases which have
or should have been characterized as Capital Leases) as they become due beyond any period of grace
under the instrument creating such liabilities, unless (with the exception of the Bank Debt) (a)
the failure to pay such liabilities within such time period could not reasonably be expected to
result in a Material Adverse Effect, or (b) they are contested in good faith by appropriate actions
or legal proceedings, Borrower establishes adequate reserves therefor in accordance with GAAP, and
such contesting will not result in a Material Adverse Effect.
9.10
Inspection
. Borrower shall permit, and cause its Subsidiaries to permit, the
Administrative Agent or any Syndication Party or their agents, during normal business hours or at
such other times as the parties may agree, to inspect the assets and operations of Borrower and its
Subsidiaries and to examine, and make copies of or abstracts from, Borrowers properties, books,
and records, and to discuss the affairs, finances, operations, and accounts of Borrower and its
Subsidiaries with their respective officers, directors, employees, and independent certified public
accountants (and by this provision Borrower authorizes said accountants to discuss with the
Administrative Agent or any Syndication Party or their agents the finances and affairs of
Borrower); provided, that, in the case of each meeting with the independent accountants Borrower is
given an opportunity to have a representative present at such meeting.
27
9.11
Required Licenses; Permits; Intellectual Property; Etc.
Borrower shall duly and
lawfully obtain and maintain in full force and effect, and shall cause its Subsidiaries to obtain
and maintain in full force and effect, all Required Licenses and Intellectual Property as
appropriate for the business being conducted and properties owned by Borrower or such Subsidiaries
at any given time.
9.12
ERISA
. Borrower shall make or cause to be made, and cause each Subsidiary to
make or cause to be made, all payments or contributions to all Borrower Pension Plans covered by
Title IV of ERISA, which are necessary to enable those Borrower Pension Plans to continuously meet
all minimum funding standards or requirements.
9.13
Maintenance of Commodity Position
. Borrower shall protect its commodity
inventory holdings or commitments to buy or sell commodities against adverse price movements,
including the taking of equal and opposite positions in the cash and futures markets, to minimize
losses and protect margins in commodity production, storage, processing and marketing as is
recognized as financially sound and reputable by prudent business persons in the commodity
business.
9.14
Financial Covenants
. Borrower shall maintain the following financial covenants:
9.14.1
Consolidated Funded Debt to Consolidated Cash Flow
. Borrower shall have at all
times and measured as of the end of each Fiscal Quarter, a ratio of Consolidated Funded Debt
divided by Consolidated Cash Flow of no greater than 3.00 to 1.00 as measured on the previous
consecutive four Fiscal Quarters.
9.14.2
Adjusted Consolidated Funded Debt to Consolidated Members and Patrons Equity
.
Borrower shall not permit the ratio of Adjusted Consolidated Funded Debt to Consolidated Members
and Patrons Equity to exceed at any time .80 to 1.00.
9.15
Embargoed Person
. At all times throughout the term of the Loans, (a) none of the
funds or assets of Borrower that are used to repay the Loans shall constitute property of, or shall
be beneficially owned directly or, to the knowledge of Borrower, indirectly by, any Person subject
to sanctions or trade restrictions under United States law (
Embargoed Person
or
Embargoed
Persons
) that is identified on (1) the List of Specially Designated Nationals and Blocked
Persons (the
SDN List
) maintained by the Office of Foreign Assets Control (
OFAC
), U.S.
Department of the Treasury, and/or to the knowledge of Borrower, as of the date thereof, based upon
reasonable inquiry by Borrower, on any other similar list (
Other List
) maintained by OFAC
pursuant to any authorizing statute including, but not limited to, the International Emergency
Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1
et seq.
, and any Executive Order or regulation promulgated thereunder, with the result that
the investment in Borrower (whether directly or indirectly), is prohibited by law, or the Loans
made by the Syndication Parties would be in violation of law, or (2) the Executive Order, any
related enabling legislation or any other similar Executive Orders, and (b) no Embargoed Person
shall have any direct interest, and to the knowledge of Borrower, as of the date hereof, based upon
reasonable inquiry by Borrower, indirect interest, of any nature whatsoever in Borrower, with the
result that the investment in Borrower (whether directly or indirectly), is prohibited by law or
the Loans are in violation of law.
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9.16
Anti-Money Laundering
. At all times throughout the term of the Loans, to the
knowledge of Borrower, as of the date hereof, based upon reasonable inquiry by Borrower, none of
the funds of Borrower, that are used to repay the Loans shall be derived from any unlawful
activity, with the result that the investment in Borrower (whether directly or indirectly), is
prohibited by law or the Loans would be in violation of law.
ARTICLE 10.
NEGATIVE COVENANTS
From and after the date of this Credit Agreement until the Bank Debt is indefeasibly paid in
full and the Syndication Parties have no obligation to make any Advance hereunder, Borrower agrees
that it will observe and comply with the following covenants:
10.1
Borrowing
. Borrower covenants that it will not, and will not permit any of its
Consolidated Subsidiaries to, directly or indirectly, create, issue, incur or assume any Priority
Debt if after giving effect thereto the aggregate outstanding principal amount of all Priority Debt
would exceed 20% of Consolidated Net Worth at the time of such creation, issuance, incurrence or
assumption.
Priority Debt
means, at any time, without duplication, the sum of (a) all then
outstanding Debt of Borrower or any Consolidated Subsidiary secured by any Lien on any property of
Borrower or any Consolidated Subsidiary (other than Debt secured only by Liens permitted under
paragraphs (a) through (i) of Section 10.3),
plus
(b) all Funded Debt of Consolidated Subsidiaries
of Borrower.
Consolidated Net Worth
means as of any date, total equity of Borrower and its
Consolidated Subsidiaries as of such date, determined on a consolidated basis in accordance with
GAAP.
10.2
No Other Businesses
. Borrower shall not engage in any material respects in any
business activity or operations other than operations or activities (a) in the agriculture
industry, (b) in the food industry, or (c) which are not substantially different from or are
related to its present business activities or operations.
10.3
Liens
. Borrower shall not (nor shall it permit any of its Consolidated
Subsidiaries to) create, incur, assume or suffer to exist any mortgage, pledge, lien, charge or
other encumbrance on, or any security interest in, any of its real or personal properties
(including, without limitation, leasehold interests, leasehold improvements and any other interest
in real property or fixtures), now owned or hereafter acquired, except the following Liens
(
Permitted Encumbrances
):
(a) Liens for taxes, assessments or other governmental charges or levies securing obligations
not overdue, or if overdue, being actively contested in good faith by appropriate proceedings that
will prevent the forfeiture or sale of any property, provided that adequate reserves are
established in accordance on the books of Borrower or a Consolidated Subsidiary of Borrower in
accordance with GAAP;
(b) attachment, judgment and other similar Liens arising in connection with court proceedings,
provided the execution or other enforcement of such Lien(s) is effectively stayed and the claims
secured thereby are being actively contested in good faith in such manner that the property subject
to such Lien(s) is not subject to forfeiture or sale, and further provided that adequate reserves
are established on the books of Borrower or a Consolidated Subsidiary of Borrower in accordance
with GAAP;
29
(c) Liens incidental to the normal conduct of the business of Borrower or a Consolidated
Subsidiary of Borrower or to the ownership by Borrower or a Consolidated Subsidiary of its property
which were not incurred in connection with the borrowing of money or the obtaining of credit or
advances and which do not in the aggregate materially detract from the value of the property of
Borrower or any Consolidated Subsidiary of Borrower for the purpose of such business or materially
impair the use thereof in the operation of the business of Borrower or any Consolidated Subsidiary
of Borrower, including, without limitation, Liens
(i) in connection with workers compensation, unemployment insurance, social security
and other like laws,
(ii) to secure (or to obtain letters of credit that secure) the performance of tenders,
statutory obligations, surety and performance bonds (of a type other than set forth in
Section 10.3(b)), bids, leases (other than Capital Leases), purchase, construction or sales
contracts and other similar obligations, in each case not incurred or made in connection
with the borrowing of money, the obtaining of advances or credit or the payment of the
deferred purchase price of property,
(iii) to secure the claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, repairmen, landlords, lessors and other like Persons, arising in the
ordinary course of business, and
(iv) in the nature of reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real property;
provided
that any amounts secured by such Liens are not yet due and payable.
(d) Liens existing as of the date of this Agreement;
(e) any Lien renewing, extending or refunding any Lien permitted by clause (d) of this Section
10.3, provided that (a) the principal amount of the Debt secured by such Lien immediately prior to
such extension, renewal or refunding is not increased or the maturity thereof reduced, (b) such
Lien is not extended to any other property, and (c) immediately after such extension, renewal or
refunding no Event of Default would exist;
(f) Liens on property of Borrower or any of its Consolidated Subsidiaries securing Debt owing
to Borrower or to any of its Consolidated Subsidiaries;
(g) any Lien created to secure all or any part of the purchase price or cost of construction,
or to secure Debt incurred or assumed to pay all or a part of the purchase price or cost of
construction, of any property (or any improvement thereon) acquired or constructed by Borrower or a
Consolidated Subsidiary of Borrower after the date of this Credit Agreement,
provided
that
(i) no such Lien shall extend to or cover any property other than the property (or
improvement thereon) being acquired or constructed or rights relating solely to such item or
items of property (or improvement thereon),
30
(ii) the principal amount of Debt secured by any such Lien shall at no time exceed an
amount equal to the lesser of (A) the cost to Borrower or such Consolidated Subsidiary of
the property (or improvement thereon) being acquired or constructed or (B) the
Fair Market
Value
(defined as , the sale value of such property that would be realized in an
arms-length sale at such time between an informed and willing buyer and an informed and
willing seller (neither being under a compulsion to buy or sell, respectively) (as
determined in good faith by Borrower) of such property, determined at the time of such
acquisition or at the time of substantial completion of such construction, and
(iii) such Lien shall be created contemporaneously with, or within 180 days after, the
acquisition or completion of construction of such property (or improvement thereon);
(h) any Lien existing on property acquired by Borrower or any Consolidated Subsidiary of
Borrower at the time such property is so acquired (whether or not the Debt secured thereby is
assumed by Borrower or such Consolidated Subsidiary) or any Lien existing on property of a Person
immediately prior to the time such Person is merged into or consolidated with Borrower or any
Consolidated Subsidiary of Borrower,
provided
that
(i) no such Lien shall have been created or assumed in contemplation of such
acquisition of property or such consolidation or merger,
(ii) such Lien shall extend only to the property acquired or the property of such
Person merged into or consolidated with Borrower or Consolidated Subsidiary which was
subject to such Lien as of the time of such consolidation or merger, and
(iii) the principal amount of the Debt secured by any such Lien shall at no time exceed
an amount equal to 100% of the Fair Market Value (as defined above) (as determined in good
faith by the board of directors of Borrower or such Consolidated Subsidiary) of the property
subject thereto at the time of the acquisition thereof or at the time of such merger or
consolidation;
(i) Liens to CoBank and other cooperatives with respect to equity held by Borrower in such
banks or other cooperatives securing Debt, provided that the aggregate Fair Market Value (as
defined above) of such equity securing Debt shall not exceed $50,000,000 at any one time; and
(j) other Liens not otherwise permitted under clause (a) through (i) of this Section 10.3
securing Debt, provided that the existence, creation, issuance, incurrence or assumption of such
Debt is permitted under Sections 10.1, 9.14.1 and 9.14.2 hereof.
If, notwithstanding the prohibition contained herein, Borrower shall, or shall permit any of its
Consolidated Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any
Lien, other than those Liens permitted by the provisions of paragraphs (a) through (j) of this
Section 10.3 (but including any Liens in respect of the Revolving Loan Credit Agreement whether or
not permitted by paragraphs (a) (j) of this Section 10.3), it will make or cause to be made
effective provision whereby the Notes will be secured equally and ratably with any and all other
obligations thereby secured, such security to be pursuant to agreements reasonably satisfactory to
the Required Lenders (including intercreditor arrangements providing for the pari passu treatment
of the Notes and all such secured Debt) and, in any such case, the Notes shall have the benefit, to
31
the fullest extent that, and with such priority as, the holders of the Notes may be entitled under
applicable law, of an equitable Lien on such property. For the avoidance of doubt, Borrower
acknowledges that it will not, and will not permit any Consolidated Subsidiary to, secure or grant
any Liens in respect of the Revolving Loan Credit Agreement, unless an equal and ratable Lien is
granted in respect of the Notes.
10.4
Sale of Assets
. Borrower shall not (nor shall it permit any of its Consolidated
Subsidiaries to) sell, convey, assign, lease or otherwise transfer or dispose of, voluntarily, by
operation of law or otherwise, any material part of its now owned or hereafter acquired assets
during any twelve (12) month period commencing September 1, 2007 and each September 1 thereafter,
except: (a) the sale of inventory, equipment and fixtures disposed of in the ordinary course of
business, (b) the sale or other disposition of assets no longer necessary or useful for the conduct
of its business, and (c) leases of assets to an entity in which Borrower has at least a
fifty-percent (50%) interest in ownership, profits, and governance. For purposes of this Section,
material part shall mean ten percent (10%) or more of the lesser of the book value or the market
value of the assets of Borrower or such Consolidated Subsidiary as shown on the balance sheets
thereof as of the August 31 immediately preceding each such twelve (12) month measurement period.
10.5
Merger; Acquisitions; Business Form; Etc
.
Borrower shall not (nor shall it
permit any of its Consolidated Subsidiaries to) merge or consolidate with any entity, or acquire
all or substantially all of the assets of any person or entity, or form or create any new
Subsidiary, change its business form from a cooperative corporation, or commence operations under
any other name, organization, or entity, including any joint venture; provided, however,
(a) The foregoing shall not prevent any consolidation, acquisition, or merger if after giving
effect thereto:
(i) Borrower and its Consolidated Subsidiaries are permitted to incur at least $1.00 of
additional Priority Debt under the provisions of Section 10.1;
(ii) Borrower is the surviving entity; and
(iii) No Event of Default or Potential Default shall have occurred and be continuing.
(b) The foregoing shall not prevent Borrower from forming or creating any new Subsidiary
provided such Subsidiary shall not acquire all or substantially all of the assets of any Person
except through an acquisition, consolidation, or merger satisfying the requirements of clause (a)
of this Section.
10.6
Transactions With Related Parties
. Borrower shall not purchase, acquire,
provide, or sell any equipment, other personal property, real property or services from or to any
Subsidiary (other than a Restricted Subsidiary), except in the ordinary course and pursuant to the
reasonable requirements of Borrowers business and upon fair and reasonable terms no less favorable
than would be obtained by Borrower in a comparable arms-length transaction with an unrelated
Person.
32
10.7
Change in Fiscal Year
. Borrower shall not change its Fiscal Year from a year
ending on August 31 unless required to do so by the Internal Revenue Service, in which case
Borrower agrees to such amendment of the terms Fiscal Quarter and Fiscal Year, as used herein, as
the Administrative Agent reasonably deems necessary.
10.8
ERISA
. Borrower shall not: (a) engage in or permit any transaction which could
result in a prohibited transaction (as such term is defined in Section 406 of ERISA) or in the
imposition of an excise tax pursuant to Section 4975 of the Code with respect to any Borrower
Benefit Plan; (b) engage in or permit any transaction or other event which could result in a
reportable event"( as such term is defined in Section 4043 of ERISA) for any Borrower Pension
Plan; (c) fail to make full payment when due of all amounts which, under the provisions of any
Borrower Benefit Plan, Borrower is required to pay as contributions thereto; (d) permit to exist
any accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the
end of any Fiscal Year, in excess of five percent (5.0%) of the net worth (determined in accordance
with GAAP) of Borrower and its Consolidated Subsidiaries, whether or not waived, with respect to
any Borrower Pension Plan; (e) fail to make any payments to any Multiemployer Plan that Borrower
may be required to make under any agreement relating to such Multiemployer Plan or any law
pertaining thereto; or (f) terminate any Borrower Pension Plan in a manner which could result in
the imposition of a lien on any property of Borrower pursuant to Section 4068 of ERISA. Borrower
shall not terminate any Borrower Pension Plan so as to result in any liability to the PBGC.
10.9
Anti-Terrorism Law
. Borrower shall not (a) conduct any business or engage in
making or receiving any contribution of funds, goods or services to or for the benefit of any
Person described in Subsection 7.24.2 above, (b) deal in, or otherwise engage in any transaction
relating to, any property or interests in property blocked pursuant to the Executive Order or any
other Anti-Terrorism Law, or (c) engage in or conspire to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in any Anti-Terrorism Law (and Borrower shall deliver to the Administrative Agent any
certification or other evidence requested from time to time by the Administrative Agent in its
reasonable discretion, confirming Borrower compliance with this Section).
ARTICLE 11. INDEMNIFICATION
11.1
General; Stamp Taxes; Intangibles Tax
. Borrower agrees to indemnify and hold the
Administrative Agent and each Syndication Party and their directors, officers, employees, agents,
professional advisers and representatives (
Indemnified Parties
) harmless from and against any and
all claims, damages, losses, liabilities, costs or expenses whatsoever which the Administrative
Agent or any other Indemnified Party may incur (or which may be claimed against any such
Indemnified Party by any Person), including attorneys fees incurred by any Indemnified Party,
arising out of or resulting from: (a) the material inaccuracy of any representation or warranty of
or with respect to Borrower in this Credit Agreement or the other Loan Documents; (b) the material
failure of Borrower to perform or comply with any covenant or obligation of Borrower under this
Credit Agreement or the other Loan Documents; or (c) the exercise by the Administrative Agent of
any right or remedy set forth in this Credit Agreement or the other Loan Documents; provided that
Borrower shall have no obligation to indemnify any Indemnified Party against claims, damages,
losses, liabilities, costs or expenses to the extent that a court of competent jurisdiction renders
a final non-appealable determination that the foregoing are solely
33
the result of the willful misconduct or gross negligence of such Indemnified Party. In
addition, Borrower agrees to indemnify and hold the Indemnified Parties harmless from and against
any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the
Administrative Agent or any other Indemnified Party may incur (or which may be claimed against any
such Indemnified Party by any Person), including attorneys fees incurred by any Indemnified Party,
arising out of or resulting from the imposition or nonpayment by Borrower of any stamp tax,
intangibles tax, or similar tax imposed by any state, including any amounts owing by virtue of the
assertion that the property valuation used to calculate any such tax was understated. Borrower
shall have the right to assume the defense of any claim as would give rise to Borrowers
indemnification obligation under this Section with counsel of Borrowers choosing so long as such
defense is being diligently and properly conducted and Borrower shall establish to the Indemnified
Partys satisfaction that the amount of such claims are not, and will not be, material in
comparison to the liquid and unrestricted assets of Borrower available to respond to any award
which may be granted on account of such claim. So long as the conditions of the preceding sentence
are met, Indemnified Party shall have no further right to reimbursement of attorneys fees incurred
thereafter. The obligation to indemnify set forth in this Section shall survive the termination of
this Credit Agreement and other covenants.
11.2
Indemnification Relating to Hazardous Substances
. Borrower shall not locate,
produce, treat, transport, incorporate, discharge, emit, release, deposit or dispose of any
Hazardous Substance in, upon, under, over or from any property owned or held by Borrower, except in
accordance with all Environmental Laws; Borrower shall not permit any Hazardous Substance to be
located, produced, treated, transported, incorporated, discharged, emitted, released, deposited,
disposed of or to escape in, upon, under, over or from any property owned or held by Borrower,
except in accordance with Environmental Laws; and Borrower shall comply with all Environmental Laws
which are applicable to such property. Borrower shall indemnify the Indemnified Parties against,
and shall reimburse the Indemnified Parties for, any and all claims, demands, judgments, penalties,
liabilities, costs, damages and expenses, including court costs and attorneys fees incurred by the
Indemnified Parties (prior to trial, at trial and on appeal) in any action against or involving the
Indemnified Parties, resulting from any breach of the foregoing covenants in this Section or the
covenants in Section 9.5 hereof, or from the discovery of any Hazardous Substance in, upon, under
or over, or emanating from, such property, it being the intent of Borrower and the Indemnified
Parties that the Indemnified Parties shall have no liability or responsibility for damage or injury
to human health, the environmental or natural resources caused by, for abatement and/or clean-up
of, or otherwise with respect to, Hazardous Substances as the result of the Administrative Agent or
any Syndication Party exercising any of its rights or remedies with respect thereto, including but
not limited to becoming the owner thereof by foreclosure or conveyance in lieu of foreclosure of a
judgment lien;
provided
that such indemnification as it applies to the exercise by the
Administrative Agent or any Syndication Party of its rights or remedies with respect to the Loan
Documents shall not apply to claims arising solely with respect to Hazardous Substances brought
onto such property by the Administrative Agent or such Syndication Party while engaged in
activities other than operations substantially the same as the operations previously conducted on
such property by Borrower. The foregoing covenants of this Section shall be deemed continuing
covenants for the benefit of the Indemnified Parties, and any successors and assigns of the
Indemnified Parties, including but not limited to, any transferee of the title of the
Administrative Agent or any Syndication Party or any subsequent owner of the property, and shall
survive the satisfaction or release of any lien, any foreclosure of
34
any lien and/or any acquisition of title to the property or any part thereof by the
Administrative Agent or any Syndication Party, or anyone claiming by, through or under the
Administrative Agent or any Syndication Party or Borrower by deed in lieu of foreclosure or
otherwise. Any amounts covered by the foregoing indemnification shall bear interest from the date
incurred at the Default Interest Rate, shall be payable on demand, and shall be secured by the
Security Documents. The indemnification and covenants of this Section shall survive the
termination of this Credit Agreement and other covenants.
ARTICLE 12. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
12.1
Events of Default
. The occurrence of any of the following events (each an
Event
of Default
) shall, at the option of the Administrative Agent, make the entire Bank Debt
immediately due and payable (provided, that in the case of an Event of Default under Subsection
12.1(f) all amounts owing under the Notes and the other Loan Documents shall automatically and
immediately become due and payable without any action by or on behalf of the Administrative Agent),
and the Administrative Agent may exercise all rights and remedies for the collection of any amounts
outstanding hereunder and take whatever action it deems necessary to secure itself, all without
notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character:
(a) Failure of Borrower to pay (i) when due, whether by acceleration or otherwise, any
principal in accordance with this Credit Agreement or the other Loan Documents, or (ii) within five
(5) days of the date when due, whether by acceleration or otherwise, any interest or amounts other
than principal in accordance with this Credit Agreement or the other Loan Documents.
(b) Any representation or warranty set forth in any Loan Document, any Borrowing Notice, any
financial statements or reports or projections or forecasts, or in connection with any transaction
contemplated by any such document, shall prove in any material respect to have been false or
misleading when made or furnished by Borrower.
(c) Any default by Borrower in the performance or compliance with the covenants, promises,
conditions or provisions of Sections 9.7 (only if such default is with respect to the last sentence
of such Section), 9.10, 9.14, 9.15, 9.16, 10.1, 10.4, 10.5 or 10.9 of this Credit Agreement.
(d) Any default by Borrower in the performance or compliance with the covenants, promises,
conditions or provisions of Sections 9.2, 9.4, 9.5, 9.6, 9.7 (except as provided in clause (c) of
this Section), 9.8, 9.9, (except as provided in Section 12.1(e)), 9.11, 9.12, 9.13, 10.3, 10.6 or
10.7 of this Credit Agreement, and such failure continues for fifteen (15) days after Borrower
learns of such failure to comply, whether by Borrowers own discovery or through notice from the
Administrative Agent.
(e) The failure of Borrower to pay when due, or failure to perform or observe any other
obligation or condition with respect to any of the following obligations to any Person, beyond any
period of grace under the instrument creating such obligation: (i) any indebtedness for borrowed
money or for the deferred purchase price of property or services, (ii) any obligations under leases
which have or should have been characterized as Capital Leases,
35
or (iii) any contingent liabilities, such as guaranties, for the obligations of others relating
to indebtedness for borrowed money or for the deferred purchase price of property or services or
relating to obligations under leases which have or should have been characterized as Capital
Leases; provided that no such failure will be deemed to be an Event of Default hereunder unless and
until the aggregate amount owing under obligations with respect to which such failures have
occurred and are continuing is at least $10,000,000.00.
(f) Borrower applies for or consents to the appointment of a trustee or receiver for any part
of its properties; any bankruptcy, reorganization, debt arrangement, dissolution or liquidation
proceeding is commenced or consented to by Borrower; or any application for appointment of a
receiver or a trustee, or any proceeding for bankruptcy, reorganization, debt management or
liquidation is filed for or commenced against Borrower, and is not withdrawn or dismissed within
sixty (60) days thereafter.
(g) Failure of Borrower to comply with any other provision of this Credit Agreement or the
other Loan Documents not constituting an Event of Default under any of the preceding subparagraphs
of this Section 12.1, and such failure continues for thirty (30) days after Borrower learns of such
failure to comply, whether by Borrowers own discovery or through notice from the Administrative
Agent.
(h) The entry of one or more judgments in an aggregate amount in excess of $5,000,000.00
against Borrower not stayed, discharged or paid within thirty (30) days after entry.
(i) The occurrence of an Event of Default under the Revolving Loan Credit Agreement.
12.2
No Advance
. The Syndication Parties shall have no obligation to make any Advance
if a Potential Default or an Event of Default shall occur and be continuing.
12.3
Rights and Remedies
. In addition to the remedies set forth in Section 12.1 and
12.2 hereof, upon the occurrence of an Event of Default, the Administrative Agent shall be entitled
to exercise, subject to the provisions of Section 13.7 hereof, all the rights and remedies provided
in the Loan Documents and by any applicable law. Each and every right or remedy granted to the
Administrative Agent pursuant to this Credit Agreement and the other Loan Documents, or allowed the
Administrative Agent by law or equity, shall be cumulative. Failure or delay on the part of the
Administrative Agent to exercise any such right or remedy shall not operate as a waiver thereof.
Any single or partial exercise by the Administrative Agent of any such right or remedy shall not
preclude any future exercise thereof or the exercise of any other right or remedy.
ARTICLE 13. AGENCY AGREEMENT
13.1
Funding of Syndication Interest
. Each Syndication Party, severally but not
jointly, hereby irrevocably agrees to fund its Funding Share of the Term Loan Advance (
Advance
Payment
) as determined pursuant to the terms and conditions contained herein. Each Syndication
Partys interest (
Syndication Interest
) in the Term Loan Advance hereunder shall be without
recourse to the Administrative Agent or any other Syndication Party and shall not be
36
construed as a loan from any Syndication Party to the Administrative Agent or any other
Syndication Party.
13.2
Syndication Parties Obligations to Remit Funds
. Each Syndication Party agrees
to remit its Funding Share of the Term Loan Advance to the Administrative Agent as, and within the
time deadlines (
Syndication Party Advance Date
), required in this Credit Agreement. Unless the
Administrative Agent shall have received notice from a Syndication Party prior to the date on which
such Syndication Party is to provide funds to the Administrative Agent for an Advance to be made by
such Syndication Party that such Syndication Party will not make available to the Administrative
Agent such funds, the Administrative Agent may assume that such Syndication Party has made such
funds available to the Administrative Agent on the date of such Advance in accordance with the
terms of this Credit Agreement and the Administrative Agent in its sole discretion may, but shall
not be obligated to, in reliance upon such assumption, make available to Borrower on such date a
corresponding amount. If and to the extent such Syndication Party shall not have made such funds
available to the Administrative Agent by 2:00 P.M. (Central time) on the Banking Day due, such
Syndication Party agrees to repay the Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is made available to
Borrower until the Banking Day such amount is repaid to the Administrative Agent (assuming payment
is received by the Administrative Agent at or prior to 2:00 P.M. (Central time), and until the next
Banking Day if payment is not received until after 2:00 P.M.), at the customary rate set by the
Administrative Agent for the correction of errors among banks for three (3) Banking Days and
thereafter at the Base Rate. If such Syndication Party shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Syndication Partys Advance
for purposes of this Credit Agreement. If such Syndication Party does not pay such corresponding
amount forthwith upon the Administrative Agents demand therefor, the Administrative Agent shall
promptly notify Borrower, and Borrower shall immediately pay such corresponding amount to the
Administrative Agent with the interest thereon, for each day from the date such amount is made
available to Borrower until the date such amount is repaid to the Administrative Agent, at the rate
of interest applicable at the time to such Advance at the time.
13.3
Syndication Partys Failure to Remit Funds
. If a Syndication Party (
Delinquent
Syndication Party
) fails to remit its Funding Share, in full by the date and time required (the
unpaid amount of any such payment being hereinafter referred to as the
Delinquent Amount
), in
addition to any other remedies available hereunder, any other Syndication Party or Syndication
Parties may, but shall not be obligated to, advance the Delinquent Amount (the Syndication Party or
Syndication Parties which advance such Delinquent Amount are referred to as the
Contributing
Syndication Parties
), in which case (a) the Delinquent Amount which any Contributing Syndication
Party advances shall be treated as a loan to the Delinquent Syndication Party and shall not be
counted in determining the Individual Term Loan Obligations of any Contributing Syndication Party,
and (b) the Delinquent Syndication Party shall be obligated to pay to the Administrative Agent, for
the account of the Contributing Syndication Parties, interest on the Delinquent Amount at a rate of
interest equal to the rate of interest which Borrower is obligated to pay on the Delinquent Amount
plus 200 basis points (
Delinquency Interest
) until the Delinquent Syndication Party remits the
full Delinquent Amount and remits all Delinquency Interest to the Administrative Agent, which will
distribute such payments to the Contributing Syndication Parties (pro rata based on the amount of
the Delinquent Amount which each of them
37
(if more than one) advanced) on the same Banking Day as such payments are received by the
Administrative Agent if received no later than 2:00 P.M. (Central time) or the next Banking Day if
received by the Administrative Agent thereafter. In addition, the Contributing Syndication Parties
shall be entitled to share, on the same pro rata basis, and the Administrative Agent shall pay over
to them, for application against Delinquency Interest and the Delinquent Amount, the Delinquent
Syndication Partys Payment Distribution and any fee distributions or distributions made under
Section 13.9 hereof until the Delinquent Amount and all Delinquency Interest have been paid in
full. For voting purposes the Administrative Agent shall readjust the Individual Commitments of
such Delinquent Syndication Party and the Contributing Syndication Parties from time to time first
to reflect the advance of the Delinquent Amount by the Contributing Syndication Parties, and then
to reflect the full or partial reimbursement to the Contributing Syndication Parties of such
Delinquent Amount. As between the Delinquent Syndication Party and the Contributing Syndication
Parties, the Delinquent Syndication Partys interest in its Notes shall be deemed to have been
partially assigned to the Contributing Syndication Parties in the amount of the Delinquent Amount
and Delinquency Interest owing to the Contributing Syndication Parties from time to time. For the
purposes of calculating interest owed by a Delinquent Syndication Party, payments received on other
than a Banking Day shall be deemed to have been received on the next Banking Day, and payments
received after 2:00 P.M. (Central time) shall be deemed to have been received on the next Banking
Day.
13.4
Agency Appointment
. Each of the Syndication Parties hereby designates and
appoints the Administrative Agent to act as agent to service and collect the Loans and its
respective Notes and to take such action on behalf of such Syndication Party with respect to the
Loans and such Notes, and to execute such powers and to perform such duties, as specifically
delegated or required herein, as well as to exercise such powers and to perform such duties as are
reasonably incident thereto, and to receive and benefit from such fees and indemnifications as are
provided for or set forth herein, until such time as a successor is appointed and qualified to act
as the Administrative Agent.
13.5
Power and Authority of the Administrative Agent
. Without limiting the generality
of the power and authority vested in the Administrative Agent pursuant to Section 13.4 hereof, the
power and authority vested in the Administrative Agent includes, but is not limited to, the
following:
13.5.1
Advice
. To solicit the advice and assistance of each of the Syndication
Parties and Voting Participants concerning the administration of the Loans and the exercise by the
Administrative Agent of its various rights, remedies, powers, and discretions with respect thereto.
As to any matters not expressly provided for by this Credit Agreement or any other Loan Document,
the Administrative Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder in accordance with instructions signed by all of the Syndication Parties or the
Required Lenders, as the case may be (and including in each such case, Voting Participants), and
any action taken or failure to act pursuant thereto shall be binding on all of the Syndication
Parties, Voting Participants, and the Administrative Agent.
13.5.2
Documents
. To execute, seal, acknowledge, and deliver as the Administrative
Agent, all such instruments as may be appropriate in connection with the administration of the
Loans and the exercise by the Administrative Agent of its various rights with respect thereto.
38
13.5.3
Proceedings
. To initiate, prosecute, defend, and to participate in, actions
and proceedings in its name as the Administrative Agent for the ratable benefit of the Syndication
Parties.
13.5.4
Retain Professionals
. To retain attorneys, accountants, and other
professionals to provide advice and professional services to the Administrative Agent, with their
fees and expenses reimbursable to the Administrative Agent by Syndication Parties pursuant to
Section 13.16 hereof.
13.5.5
Incidental Powers
. To exercise powers reasonably incident to the
Administrative Agents discharge of its duties enumerated in Section 13.6 hereof.
13.6
Duties of the Administrative Agent
. The duties of the Administrative Agent
hereunder shall consist of the following:
13.6.1
Possession of Documents
. To safekeep one original of each of the Loan
Documents other than the Notes (which will be in the possession of the Syndication Party named as
payee therein).
13.6.2
Distribute Payments
. To receive and distribute to the Syndication Parties
payments made by Borrower pursuant to the Loan Documents, as provided in Article 4 hereof. Unless
the Administrative Agent shall have received notice from Borrower prior to the date on which any
payment is due to any Syndication Party hereunder that Borrower will not make such payment in full,
the Administrative Agent may assume that Borrower has made such payment in full to the
Administrative Agent on such date and the Administrative Agent in its sole discretion may, but
shall not be obligated to, in reliance upon such assumption, cause to be distributed to each
Syndication Party on such due date an amount equal to the amount then due such Syndication Party.
If and to the extent Borrower shall not have so made such payment in full to the Administrative
Agent, each Syndication Party shall repay to the Administrative Agent forthwith on demand such
amount distributed to such Syndication Party together with interest thereon, for each day from the
date such amount is distributed to such Syndication Party until the date such Syndication Party
repays such amount to the Administrative Agent at the customary rate set by the Administrative
Agent for the correction of errors among banks for three (3) Banking Days and thereafter at the
Base Rate.
13.6.3
Loan Administration
. Subject to the provisions of Section 13.8 hereof, to, on
behalf of and for the ratable benefit of all Syndication Parties, in accordance with customary
banking practices, exercise all rights, powers, privileges, and discretion to which the
Administrative Agent is entitled to administer the Loans, including, without limitation: (a)
monitor all borrowing activity, Individual Term Loan Commitment balances, and maturity dates of all
Quoted Rate Loans; (b) monitor and report Credit Agreement and covenant compliance, and coordinate
required credit actions by the Syndication Parties (including Voting Participants where
applicable); (c) manage the process for future waivers and amendments if modifications to the
Credit Agreement are required; and (d) administer, record, and process all assignments to be made
for the current and future Syndication Parties (including the preparation of a revised
Schedule
1
to replace the previous
Schedule 1
).
39
13.6.4
Forwarding of Information
. The Administrative Agent shall, within a reasonable
time after receipt thereof, forward to the Syndication Parties and Voting Participants notices and
reports provided to the Administrative Agent by Borrower pursuant to Section 9.2 hereof.
13.7
Action Upon Default
. Each Syndication Party agrees that upon its learning of any
facts which would constitute a Potential Default or Event of Default, it shall promptly notify the
Administrative Agent by a writing designated as a notice of default specifying in detail the nature
of such facts and default, and the Administrative Agent shall promptly send a copy of such notice
to all other Syndication Parties. The Administrative Agent shall be entitled to assume that no
Event of Default or Potential Default has occurred or is continuing unless an officer thereof
primarily responsible for the Administrative Agents duties as such with respect to the Loans or
primarily responsible for the credit relationship between the Administrative Agent and Borrower has
actual knowledge of facts which would result in or constitute a Potential Default or Event of
Default, or has received written notice from Borrower of such fact, or has received written notice
of default from a Syndication Party. In the event the Administrative Agent has obtained actual
knowledge (in the manner described above) or received written notice of the occurrence of a
Potential Default or Event of Default as provided in the preceding sentences, the Administrative
Agent may, but is not required to exercise or refrain from exercising any rights which may be
available under the Loan Documents or at law on account of such occurrence and shall be entitled to
use its discretion with respect to exercising or refraining from exercising any such rights, unless
and until the Administrative Agent has received specific written instruction from the Required
Lenders to refrain from exercising such rights or to take specific designated action, in which case
it shall follow such instruction; provided that the Administrative Agent shall not be required to
take any action which will subject it to personal liability, or which is or may be contrary to any
provision of the Loan Documents or applicable law. The Administrative Agent shall not be subject
to any liability by reason of its acting or refraining from acting pursuant to any such
instruction.
13.7.1
Indemnification as Condition to Action
. Except for action expressly required
of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall have received further assurances
(which may include cash collateral) of the indemnification obligations of the Syndication Parties
under Section 13.17 hereof in respect of any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
13.8
Consent Required for Certain Actions
. Notwithstanding the fact that this Credit
Agreement may otherwise provide that the Administrative Agent may act at its discretion, the
Administrative Agent may not take any of the following actions (nor may the Syndication Parties
take the action described in Subsection 13.8.1(a)) with respect to, or under, the Loan Documents
without the prior written consent, given after notification by the Administrative Agent of its
intention to take any such action (or notification by such Syndication Parties as are proposing the
action described in Subsection 13.8.1(a) of their intention to do so), of:
13.8.1
Unanimous
. Each of the Syndication Parties and Voting Participants before:
(a) Amending the definition of Required Lenders as set forth herein or this Subsection 13.8.1;
40
(b) Amending Section 4.6 hereof;
(c) Agreeing to an increase in the Term Loan Commitment, or any Syndication Partys share
thereof, or an extension of the Term Loan Maturity Date;
(d) Agreeing to a reduction in the amount, or to a delay in the due date, of any payment by
Borrower of interest, principal, or fees with respect to the Term Loan; provided, however, this
restriction shall not apply to a delay in payment granted by the Administrative Agent in the
ordinary course of administration of the Loans and the exercise of reasonable judgment, so long as
such payment delay does not exceed five (5) days.
13.8.2
Required Lenders
. The Required Lenders before:
(a) Consenting to any action, amendment, or granting any waiver not covered in Subsections
13.8.1 or 13.8.3; or
(b) Agreeing to amend Article 13 of this Credit Agreement (other than Subsections 13.8.1 or
13.8.2).
13.8.3
Action Without Vote
. Notwithstanding any other provisions of this Section, the
Administrative Agent may take the following actions without obtaining the consent of the
Syndication Parties or the Voting Participants:
(a) Determining whether the conditions to a Term Loan Advance have been met.
13.8.4
Voting Participants
. Under the circumstances set forth in Section 13.26
hereof, each Voting Participant shall be accorded voting rights as though such Person was a
Syndication Party, and in such case the voting rights of the Syndication Party from which such
Voting Participant acquired its participation interest shall be reduced accordingly.
If no written consent or denial is received from a Syndication Party or a Voting Participant within
five (5) Banking Days after written notice of any proposed action as described in this Section is
delivered to such Syndication Party or Voting Participant by the Administrative Agent, such
Syndication Party or Voting Participant shall be conclusively deemed to have consented thereto for
the purposes of this Section.
13.9
Distribution of Principal and Interest
. The Administrative Agent will receive
and accept all payments (including prepayments) of principal and interest made by Borrower on the
Loans and the Notes and will hold all such payments in trust for the benefit of all appropriate
present and future Syndication Parties, and, if requested in writing by the Required Lenders, in an
account segregated from the Administrative Agents other funds and accounts (
Payment Account
).
After the receipt by the Administrative Agent of any payment representing interest or principal on
the Loans, the Administrative Agent shall remit to the appropriate Syndication Party its share of
such payment as provided in Article 4 hereof, (
Payment Distribution
) no later than 3:00 P.M.
(Central time) on the same Banking Day as such payment is received by the Administrative Agent if
received no later than 1:00 P.M. (Central time) or the next Banking Day if received by the
Administrative Agent thereafter. Any Syndication Partys rights to its Payment
41
Distribution shall be subject to the rights of any Contributing Syndication Parties to such
amounts as set forth in Section 13.3 hereof.
13.10
Distribution of Certain Amounts
. The Administrative Agent shall (a) receive and
hold in trust for the benefit of all present and future Syndication Parties, in the Payment Account
and, if requested in writing by the Required Lenders, segregated from the Administrative Agents
other funds and accounts and (b) shall remit to the Syndication Parties, as indicated, the amounts
described below:
13.10.1
Funding Losses
. To each Syndication Party the amount of any Funding Losses
paid by Borrower to the Administrative Agent in connection with a prepayment of any portion of a
Quoted Rate Loan, in accordance with the Funding Loss Notice such Syndication Party provided to the
Administrative Agent, no later than 3:00 P.M. (Central time) on the same Banking Day that payment
of such Funding Losses is received by the Administrative Agent, if received no later than 1:00 P.M.
(Central time), or the next Banking Day if received by the Administrative Agent thereafter.
13.11
Collateral Application
. The Syndication Parties shall have no interest in any
other loans made to Borrower by any other Syndication Party other than the Loans, or in any
property taken as security for any other loan or loans made to Borrower by any other Syndication
Party, or in any property now or hereinafter in the possession or control of any other Syndication
Party, which may be or become security for the Loans solely by reason of the provisions of a
security instrument that would cause such security instrument and the property covered thereby to
secure generally all indebtedness owing by Borrower to such other Syndication Party.
Notwithstanding the foregoing, to the extent such other Syndication Party applies such funds or the
proceeds of such property to reduction of one or more of the Loans, such other Syndication Party
shall share such funds or proceeds with all Syndication Parties according to their respective
Individual term Loan Commitments. In the event that any Syndication Party shall obtain payment,
whether partial or full, from any source in respect of one or more of the Loans, including without
limitation payment by reason of the exercise of a right of offset, bankers lien, general lien, or
counterclaim, such Syndication Party shall promptly make such adjustments (which may include
payment in cash or the purchase of further Syndication Interests or participations in the Loans) to
the end that such excess payment shall be shared with all other Syndication Parties in accordance
with their respective Individual Term Loan Commitments. Notwithstanding any of the foregoing
provisions of this Section or Article 6 hereof, no Syndication Party other than CoBank shall have
any right to, or to the proceeds of, or any right to the application to any amount owing to such
Syndication Party hereunder of any the proceeds of, any Bank Equity Interests issued to Borrower by
CoBank or on account of any statutory lien held by CoBank on such Bank Equity Interests.
13.12
Amounts Required to be Returned
. If the Administrative Agent makes any payment
to a Syndication Party in anticipation of the receipt of final funds from Borrower, and such funds
are not received from Borrower, or if excess funds are paid by the Administrative Agent to any
Syndication Party as the result of a miscalculation by the Administrative Agent, then such
Syndication Party shall, on demand of the Administrative Agent, forthwith return to the
Administrative Agent any such amounts, plus interest thereon (from the day such amounts were
transferred by the Administrative Agent to the Syndication Party to, but not including, the day
such amounts are returned by Syndication Party) at a rate per annum equal to the customary rate set
by the Administrative Agent for the correction of errors among banks for three (3) Banking
42
Days and thereafter at the Base Rate. If the Administrative Agent is required at any time to
return to Borrower or a trustee, receiver, liquidator, custodian, or similar official any portion
of the payments made by Borrower to the Administrative Agent, whether pursuant to any bankruptcy or
insolvency law or otherwise, then each Syndication Party shall, on demand of the Administrative
Agent, forthwith return to the Administrative Agent any such payments transferred to such
Syndication Party by the Administrative Agent but without interest or penalty (unless the
Administrative Agent is required to pay interest or penalty on such amounts to the person
recovering such payments).
13.13
Reports and Information to Syndication Parties
. The Administrative Agent shall
use reasonable efforts to provide to the Syndication Parties, as soon as practicable after actual
knowledge thereof is acquired by an officer thereof primarily responsible for the Administrative
Agents duties as such with respect to the Loans or primarily responsible for the credit
relationship between the Administrative Agent and Borrower, any material factual information which
has a material adverse effect on the creditworthiness of Borrower, and Borrower hereby authorizes
such disclosure by the Administrative Agent to the Syndication Parties (and by the Syndication
Parties to any of their participants). Failure of the Administrative Agent to provide the
information referred to in this Section or in Subsection 13.6.4 hereof shall not result in any
liability upon, or right to make a claim against, the Administrative Agent except where a court of
competent jurisdiction renders a final non-appealable determination that such failure is a result
of the willful misconduct or gross negligence of the Administrative Agent. Syndication Parties
acknowledge and agree that all information and reports received pursuant to this Credit Agreement
will be received in confidence in connection with their Syndication Interest, and that such
information and reports constitute confidential information and shall not, without the prior
written consent of the Administrative Agent or Borrower (which consent will not be unreasonably
withheld, provided that Borrower shall have no consent rights upon the occurrence and during the
continuance of an Event of Default), be (a) disclosed to any third party (other than the
Administrative Agent, another Syndication Party or potential Syndication Party, or a participant or
potential participant in the interest of a Syndication Party, which disclosure is hereby approved
by Borrower), except pursuant to appropriate legal or regulatory process, or (b) used by the
Syndication Party except in connection with the Loans and its Syndication Interest.
13.14
Standard of Care
. The Administrative Agent shall not be liable to Syndication
Parties for any error in judgment or for any action taken or not taken by the Administrative Agent
or its agents, except to the extent that a court of competent jurisdiction renders a final
non-appealable determination that any of the foregoing resulted from the gross negligence or
willful misconduct of the Administrative Agent. Subject to the preceding sentence, the
Administrative Agent will exercise the same care in administering the Loans and the Loan Documents
as it exercises for similar loans which it holds for its own account and risk, and the
Administrative Agent shall not have any further responsibility to the Syndication Parties. Without
limiting the foregoing, the Administrative Agent may rely on the advice of counsel concerning legal
matters and on any written document it believes to be genuine and correct and to have been signed
or sent by the proper Person or Persons.
13.15
No Trust Relationship
. Neither the execution of this Credit Agreement, nor the
sharing in the Loans, nor the holding of the Loan Documents in its name by the Administrative
Agent, nor the management and administration of the Loans and Loan Documents by the
43
Administrative Agent (including the obligation to hold certain payments and proceeds in the
Payment Account in trust for the Syndication Parties), nor any other right, duty or obligation of
the Administrative Agent under or pursuant to this Credit Agreement is intended to be or create,
and none of the foregoing shall be construed to be or create, any express, implied or constructive
trust relationship between the Administrative Agent and any Syndication Party. Each Syndication
Party hereby agrees and stipulates that the Administrative Agent is not acting as trustee for such
Syndication Party with respect to the Loans, this Credit Agreement, or any aspect of either, or in
any other respect.
13.16
Sharing of Costs and Expenses
. To the extent not paid by Borrower, each
Syndication Party will promptly upon demand reimburse the Administrative Agent (based on its
Individual Term Loan Pro Rata Share), for all reasonable costs, disbursements, and expenses
incurred by the Administrative Agent on or after the date of this Credit Agreement for legal,
accounting, consulting, and other services rendered to the Administrative Agent in its role as the
Administrative Agent in the administration of the Loans, interpreting the Loan Documents, and
protecting, enforcing, or otherwise exercising any rights, both before and after default by
Borrower under the Loan Documents, and including, without limitation, all costs and expenses
incurred in connection with any bankruptcy proceedings and the exercise of any remedies with
respect to the Cash Collateral Account or otherwise; provided, however, that the costs and expenses
to be shared in accordance with this Section shall not include any costs or expenses incurred by
the Administrative Agent solely as a Syndication Party in connection with the Loans, nor to the
Administrative Agents internal costs and expenses.
13.17
Syndication Parties Indemnification of the Administrative Agent and Bid Agent
.
Each of the Syndication Parties agree to indemnify the Administrative Agent, including any
Successor Agent, and their respective directors, officers, employees, agents, professional advisers
and representatives (
Indemnified Agency Parties
), (to the extent not reimbursed by Borrower, and
without in any way limiting the obligation of Borrower to do so), ratably (based on its Individual
Term Loan Pro Rata Share), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the payment of the Loans
and/or the expiration or termination of this Credit Agreement) be imposed on, incurred by or
asserted against the Administrative Agent (or any of the Indemnified Agency Parties while acting
for the Administrative Agent or for any Successor Agent) in any way relating to or arising out of
this Credit Agreement or the Loan Documents, or the performance of the duties of the Administrative
Agent hereunder or thereunder or any action taken or omitted while acting in the capacity of the
Administrative Agent under or in connection with any of the foregoing; provided that the
Syndication Parties shall not be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of an Indemnified Agency Party to the extent that a court of competent jurisdiction
renders a final non-appealable determination that the foregoing are the result of the willful
misconduct or gross negligence of such Indemnified Agency Party. The agreements and obligations in
this Section shall survive the payment of the Loans and the expiration or termination of this
Credit Agreement.
13.18
Books and Records
. The Administrative Agent shall maintain such books of
account and records relating to the Loans as it maintains with respect to other loans of similar
type
44
and amount, and which shall clearly and accurately reflect the Syndication Interest of each
Syndication Party. The Syndication Parties, or their agents, may inspect such books of account and
records at all reasonable times during the Administrative Agents regular business hours.
13.19
Administrative Agent Fee
. The Administrative Agent and any Successor Agent
shall be entitled to such fee as agreed upon between Borrower and the Administrative Agent for
acting as the Administrative Agent.
13.20
The Administrative Agents Resignation or Removal
. The Administrative Agent may
resign at any time by giving at least sixty (60) days prior written notice of its intention to do
so to each of the Syndication Parties and Borrower. After the receipt of such notice, the Required
Lenders shall appoint a successor (
Successor Agent
). If (a) no Successor Agent shall have been
so appointed which is either (i) a Syndication Party, or (ii) if not a Syndication Party, which is
a Person approved by Borrower, such approval not to be unreasonably withheld (provided that
Borrower shall have no approval rights upon the occurrence and during the continuance of an Event
of Default), or (b) if such Successor Agent has not accepted such appointment, in either case
within forty-five (45) days after the retiring Administrative Agents giving of such notice of
resignation, then the retiring Administrative Agent may, after consulting with, but without
obtaining the approval of, Borrower, appoint a Successor Agent which shall be a bank or a trust
company organized under the laws of the United States of America or any state thereof and having a
combined capital, surplus and undivided profit of at least $250,000,000. Any Administrative Agent
may be removed upon the written demand of the Required Lenders, which demand shall also appoint a
Successor Agent. Upon the appointment of a Successor Agent hereunder, (a) the term Administrative
Agent shall for all purposes of this Credit Agreement thereafter mean such Successor Agent, and
(b) the Successor Agent shall notify Borrower of its identity and of the information called for in
Subsection 14.4.2 hereof. After any retiring Administrative Agents resignation hereunder as the
Administrative Agent, or the removal hereunder of any Administrative Agent, the provisions of this
Credit Agreement shall continue to inure to the benefit of such Administrative Agent as to any
actions taken or omitted to be taken by it while it was the Administrative Agent under this Credit
Agreement.
13.21
Representations and Warranties of All Parties
. The Administrative Agent, the
Bid Agent, and each Syndication Party represents and warrants that: (a) the execution and delivery
of, and performance of its obligations under, this Credit Agreement is within its power and has
been duly authorized by all necessary corporate and other action by it; (b) this Credit Agreement
is in compliance with all applicable laws and regulations promulgated under such laws and does not
conflict with nor constitute a breach of its charter or by-laws nor any agreements by which it is
bound, and does not violate any judgment, decree or governmental or administrative order, rule or
regulation applicable to it; (c) no approval, authorization or other action by, or declaration to
or filing with, any governmental or administrative authority or any other Person is required to be
obtained or made by it in connection with the execution and delivery of, and performance of its
obligations under, this Credit Agreement; and (d) this Credit Agreement has been duly executed by
it, and constitutes the legal, valid, and binding obligation of such Person, enforceable in
accordance with its terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors
generally and general equitable principles (regardless of whether such enforceability is considered
in a proceeding at law or in equity). Each Syndication Party that is a state or national bank
45
represents and warrants that the act of entering into and performing its obligations under this
Credit Agreement has been approved by its board of directors or its loan committee and such action
was duly noted in the written minutes of the meeting of such board or committee, and that it will,
upon the Administrative Agents written request, furnish the Administrative Agent with a certified
copy of such minutes or an excerpt therefrom reflecting such approval.
13.22
Representations and Warranties of CoBank
. Except as expressly set forth in
Section 13.21 hereof, CoBank, in its role as a Syndication Party and as the Administrative Agent,
makes no express or implied representation or warranty and assumes no responsibilities with respect
to the due authorization, execution, or delivery of the Loan Documents; the accuracy of any
information, statements, or certificates provided by Borrower, the legality, validity, or
enforceability of the Loan Documents; the filing or recording of any document; the collectibility
of the Loans; the performance by Borrower of any of its obligations under the Loan Documents; or
the financial condition or solvency of Borrower or any other party obligated with respect to the
Loans or the Loan Documents.
13.23
Syndication Parties Independent Credit Analysis
. Each Syndication Party
acknowledges receipt of true and correct copies of all Loan Documents (other than any Note payable
to another Syndication Party) from the Administrative Agent. Each Syndication Party agrees and
represents that it has relied upon its independent review (a) of the Loan Documents, and (b) any
information independently acquired by such Syndication Party from Borrower or otherwise in making
its decision to acquire an interest in the Loans independently and without reliance on the
Administrative Agent. Each Syndication Party represents and warrants that it has obtained such
information as it deems necessary (including any information such Syndication Party
independently obtained from Borrower or others) prior to making its decision to acquire an
interest in the Loans. Each Syndication Party further agrees and represents that it has made its
own independent analysis and appraisal of and investigation into each Borrowers authority,
business, operations, financial and other condition, creditworthiness, and ability to perform its
obligations under the Loan Documents and has relied on such review in making its decision to
acquire an interest in the Loans. Each Syndication Party agrees that it will continue to rely
solely upon its independent review of the facts and circumstances related to Borrower, and without
reliance upon the Administrative Agent, in making future decisions with respect to all matters
under or in connection with the Loan Documents and the Loans. The Administrative Agent assumes no
responsibility for the financial condition of Borrower or for the performance of Borrowers
obligations under the Loan Documents. Except as otherwise expressly provided herein, no
Syndication Party shall have any duty or responsibility to furnish to any other Syndication Parties
any credit or other information concerning Borrower which may come into its possession.
13.24
No Joint Venture or Partnership
. Neither the execution of this Credit
Agreement, the sharing in the Loans, nor any agreement to share in payments or losses arising as a
result of this transaction is intended to be or to create, and the foregoing shall not be construed
to be, any partnership, joint venture or other joint enterprise between the Administrative Agent
and any Syndication Party, nor between or among any of the Syndication Parties.
13.25
Purchase for Own Account; Restrictions on Transfer; Participations
. Each
Syndication Party represents that it has acquired and is retaining its interest in the Loans for
its own account in the ordinary course of its banking or financing business and not with a view
46
toward the sale, distribution, further participation, or transfer thereof. Each Syndication Party
other than CoBank agrees that it will not sell, assign, convey or otherwise dispose of (
Transfer
)
to any Person, or create or permit to exist any lien or security interest on all or any part of its
interest in the Loans, without the prior written consent of the Administrative Agent and Borrower
(which consent will not be unreasonably withheld, provided that Borrower shall have no approval
rights upon the occurrence and during the continuance of an Event of Default); provided that: (a)
any such Transfer (except a Transfer to another Syndication Party or a Transfer by CoBank) must be
in a minimum amount of $5,000,000.00; (b) each Syndication Party must maintain an Individual Term
Loan Commitment of no less than $5,000,000.00, unless it Transfers its entire Syndication Interest;
(c) the transferee must execute an agreement substantially in the form of
Exhibit 13.25
hereto (
Syndication Acquisition Agreement
) and assume all of the transferors obligations
hereunder and execute such documents as the Administrative Agent may reasonably require; and (d)
the Syndication Party making such Transfer must pay, or cause the transferee to pay, the
Administrative Agent an assignment fee of $3,500.00. Any Syndication Party may participate any
part of its interest in the Loans to any Person with the prior written consent of the
Administrative Agent and Borrower (which consent will not be unreasonably withheld, provided that
Borrower shall have no approval rights upon the occurrence and during the continuance of an Event
of Default), provided that no such consent shall be required where the participant is a Person at
least fifty percent (50%) the equity interest in which is owned by such Syndication Party or which
owns at least fifty percent (50%) of the equity interest in such Syndication Party or at least
fifty percent (50%) of the equity interest of which is owned by the same Person which owns
at least fifty percent (50%) of the equity interest of such Syndication Party, and each
Syndication Party understands and agrees that in the event of any such participation: (x) its
obligations hereunder will not change on account of such participation; (y) the participant will
have no rights under this Credit Agreement, including, without limitation, voting rights (except as
provided in Section 13.26 hereof with respect to Voting Participants) or the right to receive
payments or distributions; and (z) the Administrative Agent shall continue to deal directly with
the Syndication Party with respect to the Loans (including with respect to voting rights, except as
provided in Section 13.26 hereof with respect to Voting Participants) as though no participation
had been granted and will not be obligated to deal directly with any participant (except as
provided in Section 13.26 hereof with respect to Voting Participants). Notwithstanding any
provision contained herein to the contrary, any Syndication Party may at any time pledge or assign
all or any portion of its interest in the Loans to any Federal Reserve Bank or the Federal Farm
Credit Bank in accordance with applicable law. CoBank reserves the right to sell participations on
a non-patronage basis.
13.26
Certain Participants Voting Rights
. Any Farm Credit System Institution which
(a) has acquired and, at any time of determination maintains, a participation interest in the
minimum aggregate amount of $10,000,000 in a particular Syndication Partys Syndication Interest;
and (b) has been designated in writing by such Syndication Party to the Administrative Agent as
having such entitlement (such designation to include for such participant, its name, contact
information, and dollar participation amount) (each a
Voting Participant
), shall be entitled to
vote (and such Syndication Partys voting rights shall be correspondingly reduced), on a dollar
basis, as if such Voting Participant were a Syndication Party, on any matter requiring or allowing
a Syndication Party, to provide or withhold its consent, or to otherwise vote on any proposed
action. The voting rights of any Syndication Party so designating a Voting Participant shall be
reduced by an equivalent dollar amount.
47
13.27
Method of Making Payments
. Payment and transfer of all amounts owing or to be
paid or remitted hereunder, including, without limitation, payment of the Advance Payment by
Syndication Parties, and distribution of principal or interest payments or fees or other amounts by
the Administrative Agent, shall be by wire transfer in accordance with the instructions contained
on
Exhibit 13.27
hereto (
Wire Instructions
).
13.28
Events of Syndication Default/Remedies
.
13.28.1
Syndication Party Default
. Any of the following occurrences, failures or
acts, with respect to any of the Syndication Parties shall constitute an
Event of Syndication
Default
hereunder by such party: (a) if any representation or warranty made by such party in this
Credit Agreement shall be found to have been untrue in any material respect; (b) if such party
fails to make any distributions or payments required under this Credit Agreement within five (5)
days of the date required; (c) if such party breaches any other covenant, agreement, or provision
of this Credit Agreement which breach shall have continued uncured for a period of thirty (30)
consecutive days after such breach first occurs, unless a shorter period is required to avoid
prejudicing the rights and position of the other Syndication Parties; (d) if any agency having
supervisory authority over such party, or any creditors thereof, shall file a petition to
reorganize or liquidate such party pursuant to any applicable federal or state law or regulation and such petition shall not be discharged or
denied within fifteen (15) days after the date on which it is filed; (e) if by the order of a court
of competent jurisdiction or by any appropriate supervisory agency, a receiver, trustee or
liquidator shall be appointed for such party or for all or any material part of its property or if
such party shall be declared insolvent; or (f) if such party shall be dissolved, or shall make an
assignment for the benefit of its creditors, or shall file a petition seeking to take advantage of
any debtors act, including the bankruptcy act, or shall admit in writing its inability to pay its
debts generally as they become due, or shall consent to the appointment of a receiver or liquidator
of all or any material part of its property.
13.28.2
Remedies
. Upon the occurrence of an Event of Syndication Default, the
non-defaulting Syndication Parties, acting by, or through the direction of, a simple majority
(determined based on their Individual Term Loan Pro Rata Shares) of the non-defaulting Syndication
Parties, may, in addition to any other remedy specifically set forth in this Credit Agreement, have
and exercise any and all remedies available generally at law or equity, including the right to
damages and to specific performance.
13.29
Withholding Taxes
. Each Syndication Party represents that under the applicable
law in effect as of the date it becomes a Syndication Party, it is entitled to receive any payments
to be made to it hereunder without the withholding of any tax and will furnish to the
Administrative Agent and to Borrower such forms, certifications, statements and other documents as
the Administrative Agent or Borrower may request from time to time to evidence such Syndication
Partys exemption from the withholding of any tax imposed by any jurisdiction or to enable the
Administrative Agent or Borrower, as the case may be, to comply with any applicable laws or
regulations relating thereto. Without limiting the effect of the foregoing, each Syndication Party
that was not created or organized under the laws of the United States of America or any state or
other political subdivision thereof (
Non-US Lender
), shall, on the Closing Date, or upon its
becoming a Syndication Party (for Persons that were not Syndication Parties on the Closing Date),
furnish to the Administrative Agent and Borrower two original copies of IRS Form W-8BEN, W-8ECI,
4224, or Form 1001, as appropriate, (or any successor forms), or such other forms,
48
certifications, statements of exemption, or documents as may be required by the IRS or by the Administrative Agent
or Borrower, in their reasonable discretion, duly executed and completed by such Syndication Party,
to establish, and as evidence of, such Syndication Partys exemption from the withholding of United
States tax with respect to any payments to such Syndication Party of interest or fees payable under
any of the Loan documents. Further, each Non-US Lender hereby agrees, from time to time after the
initial delivery by such Syndication Party of such forms, whenever a lapse in time or change in
circumstances renders such forms, certificates or other evidence so delivered obsolete or
inaccurate in any material respect, that such Syndication Party shall promptly (a) deliver to the
Administrative Agent and to Borrower two original copies of renewals, amendments or additional or
successor forms, properly completed and duly executed by such Syndication Party, together with any
other certificate or statement of exemption required in order to confirm or establish that such
Syndication Party is not subject to United States withholding tax with respect to payments to such
Syndication Party under the Loan Documents or (b) notify the Administrative Agent and Borrower of
its inability to deliver any such forms, certificates or other evidence. Notwithstanding anything
herein to the contrary, Borrower shall not be obligated to make any payments hereunder to such
Syndication Party until such Syndication Party shall have furnished to the Administrative Agent and Borrower each
requested form, certification, statement or document.
13.30
Replacement of Holdout Lender
. If any action to be taken by the Syndication
Parties or the Administrative Agent hereunder requires the unanimous consent, authorization, or
agreement of all Syndication Parties, and a Syndication Party (
Holdout Lender
) fails to give its
consent, authorization, or agreement, then the Administrative Agent, upon at least five (5) Banking
Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender
with one or more substitute Syndication Parties (each, a
Replacement Lender
), and the Holdout
Lender shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout
Lender shall specify an effective date for such replacement, which date shall not be later than
fifteen (15) Banking Days after the date such notice is given. Prior to the effective date of such
replacement, the Holdout Lender and each Replacement Lender shall execute and deliver a Syndication
Acquisition Agreement, subject only to the Holdout Lender being repaid its full share of the
outstanding Bank Debt without any premium, discount, or penalty of any kind whatsoever. If the
Holdout Lender shall refuse or fail to execute and deliver any such Syndication Acquisition
Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to
have executed and delivered such Syndication Acquisition Agreement. The replacement of any Holdout
Lender shall be made in accordance with the terms of Section 13.25 hereof. Until such time as the
Replacement Lenders shall have acquired all of the Syndication Interest of the Holdout Lender
hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to provide
the Holdout Lenders Funding Share of Advances.
13.31
Amendments Concerning Agency Function
. Neither the Administrative Agent nor the
Bid Agent shall be bound by any waiver, amendment, supplement or modification of this Credit
Agreement or any other Loan Document which affects its duties hereunder or thereunder unless it
shall have given its prior written consent thereto.
49
13.32
Further Assurances
. The Administrative Agent and each Syndication Party agree
to take whatever steps and execute such documents as may be reasonable and necessary to implement
this Article 13 and to carry out fully the intent thereof.
ARTICLE 14.
MISCELLANEOUS
14.1
Costs and Expenses
. To the extent permitted by law, Borrower agrees to pay to
the Administrative Agent and the Syndication Parties, on demand, all out-of-pocket costs and
expenses (a) incurred by the Administrative Agent (including, without limitation, the reasonable
fees and expenses of counsel retained by the Administrative Agent, and including fees and expenses
incurred for consulting, appraisal, engineering, inspection, and environmental assessment services)
in connection with the preparation, negotiation, and execution of the Loan Documents and the
transactions contemplated thereby, and processing the Borrowing Notices; and (b) incurred by the
Administrative Agent or any Syndication Party (including, without limitation, the reasonable fees
and expenses of counsel retained by the Administrative Agent and the Syndication Parties) in
connection with the enforcement or protection of the Syndication Parties rights under the Loan Documents upon the
occurrence of an Event of Default or upon the commencement of an action by Borrower against the
Administrative Agent or any Syndication Party, including without limitation collection of the Loan
(regardless of whether such enforcement or collection is by court action or otherwise). Borrower
shall not be obligated to pay the costs or expenses of any Person whose only interest in the Loan
is as a holder of a participation interest.
14.2
Service of Process and Consent to Jurisdiction
. Borrower and each Syndication
Party hereby agrees that any litigation with respect to this Credit Agreement or to enforce any
judgment obtained against such Person for breach of this Credit Agreement or under the Notes or
other Loan Documents may be brought in the courts of the State of Colorado and in the United States
District Court for the District of Colorado (if applicable subject matter jurisdictional
requirements are present), as the Administrative Agent may elect; and, by execution and delivery of
this Credit Agreement, Borrower and each Syndication Party irrevocably submits to such
jurisdiction. With respect to litigation concerning this Credit Agreement or under the Notes or
other Loan Documents within the jurisdiction of the courts of the State of Colorado or the United
States District Court for the District of Colorado, Borrower and each Syndication Party hereby
irrevocably appoints, until six (6) months after the expiration of the Term Loan Maturity Date (as
it may be extended at anytime), The Corporation Company, or such other Person as it may designate
to the Administrative Agent, in each case with offices in Denver, Colorado and otherwise reasonably
acceptable to the Administrative Agent to serve as the agent of Borrower or such Syndication Party
to receive for and on its behalf at such agents Denver, Colorado office, service of process, which
service may be made by mailing a copy of any summons or other legal process to such Person in care
of such agent. Borrower and each Syndication Party agrees that it shall maintain a duly appointed
agent in Colorado for service of summons and other legal process as long as it remains obligated
under this Credit Agreement and shall keep the Administrative Agent advised in writing of the
identity and location of such agent. The receipt by such agent and/or by Borrower or such
Syndication Party, as applicable, of such summons or other legal process in any such litigation
shall be deemed personal service and acceptance by Borrower or such Syndication Party, as
applicable, for all purposes of such litigation.
14.3
Jury Waiver
. IT IS MUTUALLY AGREED BY AND BETWEEN THE ADMINISTRATIVE AGENT, THE
BID AGENT, EACH SYNDICATION PARTY, AND
50
BORROWER
THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS CREDIT AGREEMENT, THE NOTES, OR THE OTHER LOAN
DOCUMENTS.
14.4
Notices
. All notices, requests and demands required or permitted under the terms
of this Credit Agreement shall be in writing and (a) shall be addressed as set forth below or at
such other address as either party shall designate in writing, (b) shall be deemed to have been
given or made: (i) if delivered personally, immediately upon delivery, (ii) if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of receipt, (iii) if by
nationally recognized overnight courier service with instructions to deliver the
next Banking Day, one (1) Banking Day after sending, and (iv) if by United States Mail,
certified mail, return receipt requested, five (5) days after mailing.
14.4.1
Borrower
:
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
FAX: (651) 355-4554
Attention: Executive Vice President and Chief Financial Officer
e-mail address: john.schmitz@chsinc.com
with a copy to:
Cenex Harvest States Cooperatives
5500 Cenex Drive
Inver Grove Heights, Minnesota 55077
FAX: (651) 355-4554
Attention: Sr. Vice President and General Counsel
e-mail address: david.kastelic@chsinc.com
14.4.2
Administrative Agent
:
CoBank, ACB
5500 South Quebec Street
Greenwood Village, Colorado 80111
FAX: (303) 740-4100
Attention: Administrative Agent
e-mail address: abahr@cobank.com
14.4.3
Syndication Parties
:
See signature pages hereto.
14.5
Liability of Administrative Agent
. The Administrative Agent shall not have any
liabilities or responsibilities to Borrower or any Subsidiary on account of the failure of any
51
Syndication Party to perform its obligations hereunder or to any Syndication Party on account of
the failure of Borrower or any Subsidiary to perform their respective obligations hereunder or
under any other Loan Document.
14.6
Successors and Assigns
. This Credit Agreement shall be binding upon and inure to
the benefit of Borrower, the Administrative Agent and the Syndication Parties, and their respective
successors and assigns, except that Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of all of the Syndication Parties.
14.7
Severability
. The invalidity or unenforceability of any provision of this Credit
Agreement or the other Loan Documents shall not affect the remaining portions of such documents or
instruments; in case of such invalidity or unenforceability, such documents or instruments shall be
construed as if such invalid or unenforceable provisions had not been included therein.
14.8
Entire Agreement
. This Credit Agreement (together with all exhibits hereto,
which are incorporated herein by this reference) and the other Loan Documents represent the entire
understanding of the Administrative Agent, each Syndication Party and Borrower with respect to the
subject matter hereof and shall replace and supersede any previous agreements of the parties with
respect to the subject matter hereof.
14.9
Applicable Law
. To the extent not governed by federal law, this Credit Agreement
and the other Loan Documents, and the rights and obligations of the parties hereto and thereto
shall be governed by and interpreted in accordance with the internal laws of the State of Colorado,
without giving effect to any otherwise applicable rules concerning conflicts of law.
14.10
Captions
. The captions or headings in this Credit Agreement and any table of
contents hereof are for convenience only and in no way define, limit or describe the scope or
intent of any provision of this Credit Agreement.
14.11
Complete Agreement; Amendments
. THIS CREDIT AGREEMENT, THE NOTES, AND THE OTHER
LOAN DOCUMENTS ARE INTENDED BY THE PARTIES HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR
AGREEMENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT.
THE ADMINISTRATIVE AGENT, THE BID AGENT, EACH SYNDICATION PARTY, AND BORROWER ACKNOWLEDGE AND AGREE
THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN THEM WITH RESPECT TO THE SUBJECT MATTER OF THIS
AGREEMENT. This Credit Agreement may not be modified or amended unless such modification or
amendment is in writing and is signed by Borrower, the Administrative Agent, and all Syndication
Parties (and each Syndication Party hereby agrees to execute any such amendment approved pursuant
to Section 13.8 hereof). Borrower agrees that it shall reimburse the Administrative Agent for all
fees and expenses incurred by the Administrative Agent in retaining outside legal counsel in
connection with any amendment or modification to this Credit Agreement requested by Borrower.
14.12
Additional Costs of Maintaining Loan
. Borrower shall pay to the Administrative
Agent from time to time such amounts as the Administrative Agent may determine to be necessary to
compensate any Syndication Party for any increase in costs to such Syndication Party which the
52
Administrative Agent determines, based on information presented to it by such Syndication Party, are
attributable to such Syndication Partys making or maintaining an Advance hereunder or its
obligation to make such Advance, or any reduction in any amount receivable by such Syndication
Party under this Credit Agreement or the Notes payable to it in respect to such Advance or such
obligation (such increases in costs and reductions in amounts receivable being herein called
"
Additional Costs
), resulting from any change after the date of this Credit Agreement in United
States federal, state, municipal, or foreign laws or regulations (including Regulation D of the
Federal Reserve Board), or the adoption or making after such date of any interpretations,
directives, or requirements applying to a class of banks including such Syndication Party of or
under any United States federal, state, municipal, or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof (
Regulatory Change
), which: (a) changes the basis of
taxation of any amounts payable to such Syndication Party under this Credit Agreement or the Notes
payable to such Syndication Party in respect of such Advance (other than taxes imposed on the
overall net income of such Syndication Party); or (b) imposes or modifies any reserve, special
deposit, or similar requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Syndication Party; or (c) imposes any other condition
affecting this Credit Agreement or the Notes payable to such Syndication Party (or any of such
extensions of credit or liabilities). The Administrative Agent will notify Borrower of any event
occurring after the date of this Credit Agreement which will entitle such Syndication Party to
compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. The Administrative Agent shall include with such
notice, a certificate from such Syndication Party setting forth in reasonable detail the
calculation of the amount of such compensation. Determinations by the Administrative Agent for
purposes of this Section of the effect of any Regulatory Change on the costs of such Syndication
Party of making or maintaining an Advance or on amounts receivable by such Syndication Party in
respect of Advances, and of the additional amounts required to compensate such Syndication Party in
respect of any Additional Costs, shall be conclusive absent manifest error, provided that such
determinations are made on a reasonable basis.
14.13
Capital Requirements
. In the event that the introduction of or any change in:
(a) any law or regulation; or (b) the judicial, administrative, or other governmental
interpretation of any law or regulation; or (c) compliance by any Syndication Party or any
corporation controlling any such Syndication Party with any guideline or request from any
governmental authority (whether or not having the force of law) has the effect of requiring an
increase in the amount of capital required or expected to be maintained by such Syndication Party
or any corporation controlling such Syndication Party, and such Syndication Party certifies that
such increase is based in any part upon such Syndication Partys Individual Outstanding Term Loan
Obligations, Borrower shall pay to such Syndication Party such additional amount as shall be
certified by such Syndication Party to the Administrative Agent and to Borrower to be the net
present value (discounted at the Base Rate) of (a) the amount by which such increase in capital
reduces the rate of return on capital which such Syndication Party could have achieved over the
period remaining until the Term Loan Maturity Date, but for such introduction or change, (b)
multiplied by such Syndication Partys Individual Outstanding Term Loan Obligations. The
Administrative Agent will notify Borrower of any event occurring after the date of this Credit
Agreement that will entitle any such Syndication Party to compensation pursuant to this Section as
promptly as practicable after it obtains knowledge thereof and of such Syndication Partys determination to request such
53
compensation. The Administrative Agent shall include with such notice, a certificate from such Syndication Party setting forth in
reasonable detail the calculation of the amount of such compensation. Determinations by any
Syndication Party for purposes of this Section of the effect of any increase in the amount of
capital required to be maintained by any such Syndication Party and of the amount of compensation
owed to any such Syndication Party under this Section shall be conclusive absent manifest error,
provided that such determinations are made on a reasonable basis.
14.14
Replacement Notes
. Upon receipt by Borrower of evidence satisfactory to it of:
(a) the loss, theft, destruction or mutilation of any Note, and (in case of loss, theft or
destruction) of the agreement of the Syndication Party to which the Note was payable to indemnify
Borrower, and upon surrender and cancellation of such Note, if mutilated; or (b) the assignment by
any Syndication Party of its interest hereunder and the Notes relating thereto, or any portion
thereof, pursuant to this Credit Agreement, then Borrower will pay any unpaid principal and
interest (and Funding Losses, if applicable) then or previously due and payable on such Notes and
will (upon delivery of such Notes for cancellation, unless covered by subparagraph (a) of this
Section) deliver in lieu of each such Note a new Note or, in the case of an assignment of a portion
of any such Syndication Partys Syndication Interest, new Notes, for any remaining balance.
14.15
Patronage Payments
. Borrower acknowledges and agrees that: (a) only that
portion of the Loan represented by CoBanks Individual Term Loan Pro Rata Share which is retained
by CoBank for its own account is entitled to patronage distributions in accordance with CoBanks
bylaws and its practices and procedures related to patronage distribution; and (b) any patronage,
or similar, payments to which Borrower is entitled on account its ownership of Bank Equity
Interests or otherwise will not be based on any portion of CoBanks interest in the Loans in which
CoBank has at any time granted a participation interest.
14.16
Direct Website Communications; Electronic Mail Communications
14.16.1
Delivery
.
(a) Borrower hereby agrees that it will provide to the Administrative Agent all information,
documents and other materials that it is obligated to furnish to the Administrative Agent pursuant
to this Credit Agreement and any other Loan Document, including, without limitation, all notices,
requests, financial statements, financial and other reports, certificates and other information
materials, but, subject to the provisions of Subsection 14.16.3 hereof, excluding any such
communication that (i) relates to a request for a new, or a conversion of an existing, borrowing or
other extension of credit (including any election of an interest rate or interest period relating
thereto), (ii) relates to the payment of any principal or other amount due under this Credit
Agreement prior to the scheduled date therefor, (iii) provides notice of any Potential Default or
Event of Default under this Credit Agreement or (iv) is required to be delivered to satisfy any
condition precedent to the effectiveness of this Credit Agreement or other extension of credit
hereunder (all such non-excluded communications collectively, the
Communications
), by
transmitting the Communications in an electronic/soft medium and in a format acceptable to the
Administrative Agent as follows (A) all financial statements to
closing@cobank.com
and (B) all other Communications to
mtousignant@cobank.com
.
In addition, Borrower agrees to continue to provide the Communications to the Administrative Agent
in the manner specified in this Credit Agreement but only to the extent requested by the
54
Administrative Agent. Receipt of the Communications by the Administrative Agent at the appropriate
e-mail address as set forth above shall constitute effective delivery of the Communications to the
Administrative Agent for purposes of this Credit Agreement and any other Loan Documents. Nothing
in this Section 14.16 shall prejudice the right of the Administrative Agent or any Syndication
Party to give any notice or other communication pursuant to this Credit Agreement or any other Loan
Document in any other manner specified in this Credit Agreement or any other Loan Document.
(b) Each Syndication Party agrees that receipt of e-mail notification that such Communications
have been posted pursuant to Subsection 14.16.2 below at the e-mail address(es) set forth beneath
such Syndication Partys name on its signature page hereto or pursuant to the notice provisions of
any Syndication Acquisition Agreement shall constitute effective delivery of the Communications to
such Syndication Party for purposes of this Credit Agreement and any other Loan Document. Each
Syndication Party further agrees to notify the Administrative Agent in writing (including by
electronic communication) promptly of any change in its e-mail address or any extended disruption
in its internet delivery services.
14.16.2
Posting
. Borrower further agrees that the Administrative Agent may make the
Communications available to the Syndication Parties by posting the Communications on Synd-Trak
(
Platform
). The Platform is secured with a dual firewall and a User ID/Password Authorization
System and through a single user per deal authorization method whereby each user may access the
Platform only on a deal-by-deal basis. Borrower acknowledges that the distribution of
Communications through an electronic medium is not necessarily secure and that there are
confidentiality and other risks associated with such distribution.
14.16.3
Additional Communications
. The Administrative Agent reserves the right and
Borrower and each Syndication Party consents and agrees thereto, to, upon written notice to
Borrower and all Syndication Parties, implement and require use of a secure system whereby any
notices or other communications required or permitted by this Credit Agreement, but which are not
specifically covered by Subsection 14.16.1 hereof, and including, without limitation, Borrowing
Notices, Quoted Rate Requests and any communication described in clauses (i) through (iv) of
Subsection 14.16.1(a) hereof, shall be sent and received via electronic mail to the e-mail
addresses described in Subsection 14.16.1(b) hereof.
14.16.4
Disclaimer
. The Communications transmitted pursuant to this Section 14.16 and
the Platform are provided as is and as available. CoBank does not warrant the accuracy,
adequacy or completeness of the Communications or the Platform and CoBank expressly disclaims
liability for errors or omissions in the Communications or the Platform. No warranty of any kind,
express, implied or statutory, including without limitation, any warranty of merchantability,
fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or
other code defects, is made by CoBank in connection with the Communications or the Platform.
14.16.5
Termination
. The provisions of this Section 14.16 shall automatically
terminate on the date that CoBank, ACB ceases to be the Administrative Agent under this Credit
Agreement.
55
14.17
Mutual Release
. Upon full indefeasible payment and satisfaction of the Bank
Debt and Notes and the other obligations contained in this Credit Agreement, the parties, including
Borrower, the Administrative Agent and each Syndication Party shall thereupon automatically each be
fully, finally, and forever released and discharged from any further claim, liability, or
obligation in connection with the Bank Debt.
14.18
Liberal Construction
. This Credit Agreement constitutes a fully negotiated
agreement between commercially sophisticated parties, each assisted by legal counsel, and shall not
be construed and interpreted for or against any party hereto.
14.19
Counterparts
. This Credit Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together signed by all of
the parties hereto. Copies of documents or signature pages bearing original signatures, and
executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail
transmission of an Adobe
®
file format document (also known as a PDF file) shall, in each such
instance, be deemed to be, and shall constitute and be treated as, an original signed document or
counterpart, as applicable. Any party delivering an executed counterpart of this Credit Agreement
by telefax, facsimile, or e-mail transmission of an Adobe
®
file format document also shall deliver
an original executed counterpart of this Credit Agreement, but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding effect of this
Credit Agreement.
14.20
Confidentiality
. Each Syndication Party shall maintain the confidential nature
of, and shall not use or disclose, any of Borrowers financial information, confidential
information or trade secrets without first obtaining Borrowers written consent. Nothing in this
Section shall require any Syndication Party to obtain such consent after there is an Event of
Default. The obligations of the Syndication Parties shall in no event apply to: (a) providing
information about Borrower to any financial institution contemplated or described in Sections 13.6,
13.13, and 13.25 hereof or to such Syndication Partys parent holding company or any of such
Syndication Partys Affiliates; (b) any situation in which any Syndication Party is required by Law
or required by any Governmental Authority to disclose information; (c) providing information to
counsel to any Syndication Party in connection with the transactions contemplated by the Loan
Documents; (d) providing information to independent auditors retained by the such Syndication
Party; (e) any information that is in or becomes part of the public domain otherwise than through a
wrongful act of such Syndication Party or any of its employees or agents thereof; (f) any
information that is in the possession of any Syndication Party prior to receipt thereof from
Borrower or any other Person known to such Syndication Party to be acting on behalf of Borrower;
(g) any information that is independently developed by any Syndication Party; and (h) any
information that is disclosed to any Syndication Party by a third party that has no obligation of
confidentiality with respect to the information disclosed. A Syndication Partys confidentiality
requirements continue after it is no longer a Syndication Party under this Credit Agreement.
Notwithstanding any provision to the contrary in this Credit Agreement, the Administrative
Agent and each Syndication Party (and each employee, representative, or other agent thereof) may
disclose to any and all Persons, without limitations of any kind, the tax treatment and tax
structure of the transaction described in this Credit Agreement and all materials of any kind
(including opinions or other tax analyses), if any,
56
that are provided to the Administrative Agent or such Syndication Party relating to such tax treatment and tax structure. Nothing in the
preceding sentence shall be taken as an indication that such transaction would, but for such
sentence, be deemed to be a reportable transaction as defined in Treasury Regulation Section
1.6011-4.
14.21
USA Patriot Act Notice
. Each Syndication Party that is subject to the USA
Patriot Act and the Administrative Agent (for itself and not on behalf of any Syndication Party)
hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act, it is required
to obtain, verify and record information that identifies Borrower, which information includes the
name and address of Borrower and other information that will allow such Syndication Party or
Administrative Agent, as applicable, to identify Borrower in accordance with the USA Patriot Act.
14.22
Waiver of Borrowers Rights Under Farm Credit Act
. Borrower, having been
represented by legal counsel in connection with this Credit Agreement and, in particular, in
connection with the waiver contained in this Section 14.22, does hereby voluntarily and knowingly
waive, relinquish, and agree not to assert at any time, any and all rights that Borrower may have
or be afforded under the sections of the Agricultural Credit Act of 1987 designated as 12 U.S.C.
Sections 2199 through 2202e and the implementing Farm Credit Administration regulations as set
forth in 12 C.F.R. Sections 617.7000 through 617.7630, including those provisions which afford
Borrower certain rights, and/or impose on any lender to Borrower certain duties, with respect to
the collection of any amounts owing hereunder or the foreclosure of any liens securing any such
amounts, or which require the Administrative Agent or any present or future Syndication Party to
disclose to Borrower the nature of any such rights or duties. This waiver is given by Borrower
pursuant to the provisions of 12 C.F.R. Section 617.7010(c) to induce the Syndication Parties to
fund and extend to Borrower the credit facilities described herein and to induce those Syndication
Parties which are Farm Credit System Institutions to agree to provide such credit facilities
commensurate with their Individual 5-Year Commitments as they may exist from time to time.
[SIGNATURE PAGES FOLLOW]
57
IN WITNESS WHEREOF, the parties have executed this Credit Agreement as of the date first above
written.
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BORROWER:
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CHS INC, a cooperative corporation formed under the
laws of the State of Minnesota
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By:
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/s/ John Schmitz
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Name:
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John Schmitz
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Title:
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Executive Vice President Finance and
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Administration, and Chief Financial Officer
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ADMINISTRATIVE AGENT:
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COBANK, ACB
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By:
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/s/ Michael Tousignant
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Name:
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Michael Tousignant
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Title:
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Vice President
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58
SYNDICATION PARTIES:
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CoBank, ACB
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By:
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/s/ Michael Tousignant
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Name: Michael Tousignant
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Title: Vice President
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Contact Name: Michael Tousignant
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Title: Vice President
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Address: 5500 South Quebec Street
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Greenwood Village, CO 80111
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Phone No.: 303/694-5838
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Fax No.: 303/694-5830
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E-mail: mtousignant@cobank.com
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Individual Term Loan Commitment: $150,000,000
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59
SCHEDULE 1
To Credit Agreement
SYNDICATION PARTIES AND INDIVIDUAL COMMITMENTS
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Individual
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Syndication Party
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Term Loan
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Name / Address
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Commitment
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CoBank, ACB
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$
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150,000,000
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5500 South Quebec St.
Greenwood Village,
Colorado 80111
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60
TABLE OF CONTENTS
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ARTICLE 1. DEFINED TERMS
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2
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1.1 Additional Costs
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2
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1.2 Adjusted Consolidated Funded Debt
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2
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1.3 Administrative Agent
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2
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1.4 Administrative Agent Office
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2
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1.5 Advance
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2
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1.6 Advance Date
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2
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1.7 Advance Payment
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2
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1.8 Affiliate
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2
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1.9 Aggregate Term Loan Commitment
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3
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1.10 Amortization
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3
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1.11 Annual Operating Budget
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3
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1.12 Anti-Terrorism Laws
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3
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1.13 Applicable Lending Office
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3
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1.14 Authorized Officer
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3
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1.15 Bank Debt
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3
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1.16 Banking Day
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3
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1.17 Bank Equity Interests
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3
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1.18 Base Rate
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3
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1.19 Borrowers Account
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3
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1.20 Borrower Benefit Plan
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3
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1.21 Borrowing Notice
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4
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1.22 Borrower Pension Plan
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4
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1.23 Capital Leases
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4
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i
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1.24 Closing Date
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4
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1.25 Code
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4
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1.26 Committed Term Loan Advance
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4
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1.27 Compliance Certificate
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4
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1.28 Communications
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4
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1.29 Consolidated Cash Flow
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4
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1.30 Consolidated Current Assets
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4
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1.31 Consolidated Current Liabilities
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4
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1.32 Consolidated Funded Debt
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4
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1.33 Consolidated Interest Expense
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5
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1.34 Consolidated Members and Patrons Equity
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5
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1.35 Consolidated Subsidiary
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5
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1.36 Contributing Syndication Parties
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5
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1.37 Debt
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5
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1.38 Default Interest Rate
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5
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1.39 Delinquency Interest
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5
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1.40 Delinquent Amount
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5
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1.41 Delinquent Syndication Party
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5
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1.42 Depreciation
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5
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1.43 Embargoed Person
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5
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1.44 Environmental Laws
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6
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1.45 ERISA
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6
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1.46 ERISA Affiliate
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6
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1.47 Event of Default
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6
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1.48 Event of Syndication Default
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6
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ii
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1.49 Executive Order
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6
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1.50 Farm Credit System Institution
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6
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1.51 Fiscal Quarter
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6
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1.52 Fiscal Year
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6
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1.53 Funded Debt
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6
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1.54 Funding Losses
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6
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1.55 Funding Loss Notice
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6
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1.56 Funding Share
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7
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1.57 GAAP
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7
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1.58 Good Faith Contest
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7
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1.59 Governmental Authority
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7
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1.60 Hazardous Substances
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7
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1.61 Holdout Lender
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7
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1.62 Indemnified Agency Parties
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7
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1.63 Indemnified Parties
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7
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1.64 Individual Term Loan Commitment
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7
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1.65 Individual Outstanding Term Loan Obligation
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7
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1.66 Individual Term Loan Pro Rata Share
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7
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1.67 Intellectual Property
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7
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1.68 Investment
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8
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1.69 Licensing Laws
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8
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1.70 Lien
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8
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1.71 Loans
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8
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1.72 Loan Documents
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8
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1.73 Material Adverse Effect
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8
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iii
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1.74 Material Agreements
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8
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1.75 Multiemployer Plan
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8
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1.76 Not Used
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8
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1.77 Non-US Lender
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8
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1.78 Note or Notes
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9
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1.79 OFAC
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9
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1.80 Operating Lease
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9
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1.81 Organization Documents
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9
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1.82 Other List
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9
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1.83 Payment Account
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9
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1.84 Payment Distribution
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9
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1.85 PBGC
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9
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1.86 Permitted Encumbrance
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9
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1.87 Person
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9
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1.88 Plan
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9
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1.89 Platform
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9
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1.90 Potential Default
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9
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1.91 Prohibited Transaction
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9
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1.92 Quoted Rate
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9
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1.93 Quoted Rate Loan
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9
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1.94 Quoted Rate Period
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10
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1.95 Not Used
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10
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1.96 Regulatory Change
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10
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1.97 Replacement Lender
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10
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1.98 Reportable Event
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10
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iv
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1.99 Required Lenders
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10
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1.100 Required License
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10
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1.101 Restricted Subsidiary
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10
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1.102 Revolving Loan Credit Agreement
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10
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1.103 SDN List
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10
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1.104 Subsidiary
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10
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1.105 Successor Agent
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11
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1.106 Syndication Acquisition Agreement
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11
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1.107 Syndication Interest
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11
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1.108 Syndication Parties
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11
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1.109 Syndication Party Advance Date
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11
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1.110 364-Term Loan Note(s)
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11
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1.111 Term Loan Advance
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11
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1.112 Term Loan
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11
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1.113 Term Loan Maturity Date
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11
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1.114 Transfer
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11
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1.115 USA Patriot Act
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11
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1.116 Voting Participant
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11
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1.117 Wire Instructions
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11
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ARTICLE 2. TERM LOAN
|
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11
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2.1 Term Loan
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11
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2.2 Borrowing Notice
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11
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2.3 Promissory Note
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11
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2.4 Syndication Party Records
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12
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2.5 Use of Proceeds
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12
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v
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2.6 Syndication Party Funding Failure
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12
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ARTICLE 3. INTEREST
|
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12
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3.1 Interest
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12
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|
|
|
|
|
|
3.1.1 Quoted Rate
|
|
|
12
|
|
|
|
|
|
|
3.2 Default Interest Rate
|
|
|
12
|
|
|
|
|
|
|
3.3 Interest Calculation
|
|
|
12
|
|
|
|
|
|
|
ARTICLE 4. PAYMENTS; FUNDING LOSSES
|
|
|
13
|
|
|
|
|
|
|
4.1 Principal Payments
|
|
|
13
|
|
|
|
|
|
|
4.2 Interest Payments
|
|
|
13
|
|
|
|
|
|
|
4.3 Application of Principal Payments
|
|
|
13
|
|
|
|
|
|
|
4.4 Manner of Payment
|
|
|
13
|
|
|
|
|
|
|
4.4.1 Payments to Be Free and Clear
|
|
|
13
|
|
|
|
|
|
|
4.4.2 Grossing-up of Payments
|
|
|
13
|
|
|
|
|
|
|
4.5 Voluntary Prepayments
|
|
|
14
|
|
|
|
|
|
|
4.6 Distribution of Principal and Interest Payments
|
|
|
16
|
|
|
|
|
|
|
ARTICLE 5. BANK EQUITY INTERESTS
|
|
|
16
|
|
|
|
|
|
|
ARTICLE 6. SECURITY
|
|
|
16
|
|
|
|
|
|
|
ARTICLE 7. REPRESENTATIONS AND WARRANTIES
|
|
|
16
|
|
|
|
|
|
|
7.1 Organization, Good Standing, Etc.
|
|
|
16
|
|
|
|
|
|
|
7.2 Corporate Authority, Due Authorization; Consents
|
|
|
17
|
|
|
|
|
|
|
7.3 Litigation
|
|
|
17
|
|
|
|
|
|
|
7.4 No Violations
|
|
|
17
|
|
|
|
|
|
|
7.5 Binding Agreement
|
|
|
17
|
|
|
|
|
|
|
7.6 Compliance with Laws
|
|
|
17
|
|
|
|
|
|
|
7.7 Principal Place of Business; Place of Organization
|
|
|
17
|
|
vi
|
|
|
|
|
|
|
|
|
|
7.8 Payment of Taxes
|
|
|
18
|
|
|
|
|
|
|
7.9 Licenses and Approvals
|
|
|
18
|
|
|
|
|
|
|
7.10 Employee Benefit Plans
|
|
|
18
|
|
|
|
|
|
|
7.11 Equity Investments
|
|
|
18
|
|
|
|
|
|
|
7.12 Title to Real and Personal Property
|
|
|
18
|
|
|
|
|
|
|
7.13 Financial Statements
|
|
|
19
|
|
|
|
|
|
|
7.14 Environmental Compliance
|
|
|
19
|
|
|
|
|
|
|
7.15 Fiscal Year
|
|
|
19
|
|
|
|
|
|
|
7.16 Material Agreements
|
|
|
19
|
|
|
|
|
|
|
7.17 Regulations U and X
|
|
|
20
|
|
|
|
|
|
|
7.18 Trademarks, Tradenames, etc.
|
|
|
20
|
|
|
|
|
|
|
7.19 No Default on Outstanding Judgments or Orders
|
|
|
20
|
|
|
|
|
|
|
7.20 No Default in Other Agreements
|
|
|
20
|
|
|
|
|
|
|
7.21 Acts of God
|
|
|
20
|
|
|
|
|
|
|
7.22 Governmental Regulation
|
|
|
20
|
|
|
|
|
|
|
7.23 Labor Matters and Labor Agreements
|
|
|
20
|
|
|
|
|
|
|
7.24 Anti-Terrorism Laws
|
|
|
21
|
|
|
|
|
|
|
7.24.1 Violation of Law
|
|
|
21
|
|
|
|
|
|
|
7.24.2 Classification
|
|
|
21
|
|
|
|
|
|
|
7.24.3 Conduct of Business
|
|
|
22
|
|
|
|
|
|
|
7.25 Disclosure
|
|
|
22
|
|
|
|
|
|
|
ARTICLE 8. CONDITIONS TO ADVANCES
|
|
|
22
|
|
|
|
|
|
|
8.1 Conditions to Closing
|
|
|
22
|
|
|
|
|
|
|
8.1.1 Loan Documents
|
|
|
22
|
|
|
|
|
|
|
8.1.2 Approvals
|
|
|
22
|
|
vii
|
|
|
|
|
|
|
|
|
|
8.1.3 Organizational Documents
|
|
|
22
|
|
|
|
|
|
|
8.1.4 Evidence of Corporate Action
|
|
|
22
|
|
|
|
|
|
|
8.1.5 Evidence of Insurance
|
|
|
22
|
|
|
|
|
|
|
8.1.6 Appointment of Agent for Service
|
|
|
23
|
|
|
|
|
|
|
8.1.7 No Material Change
|
|
|
23
|
|
|
|
|
|
|
8.1.8 Fees and Expenses
|
|
|
23
|
|
|
|
|
|
|
8.1.9 Bank Equity Interest Purchase Obligation
|
|
|
23
|
|
|
|
|
|
|
8.1.10 Opinion of Counsel
|
|
|
23
|
|
|
|
|
|
|
8.1.11 Further Assurances; No Default
|
|
|
23
|
|
|
|
|
|
|
ARTICLE 9. AFFIRMATIVE COVENANTS
|
|
|
23
|
|
|
|
|
|
|
9.1 Books and Records
|
|
|
23
|
|
|
|
|
|
|
9.2 Reports and Notices
|
|
|
23
|
|
|
|
|
|
|
9.2.1 Annual Financial Statements
|
|
|
24
|
|
|
|
|
|
|
9.2.2 Quarterly Financial Statements
|
|
|
24
|
|
|
|
|
|
|
9.2.3 Notice of Default
|
|
|
24
|
|
|
|
|
|
|
9.2.4 ERISA Reports
|
|
|
24
|
|
|
|
|
|
|
9.2.5 Notice of Litigation
|
|
|
25
|
|
|
|
|
|
|
9.2.6 Notice of Material Adverse Effect
|
|
|
25
|
|
|
|
|
|
|
9.2.7 Notice of Environmental Proceedings
|
|
|
25
|
|
|
|
|
|
|
9.2.8 Regulatory and Other Notices
|
|
|
25
|
|
|
|
|
|
|
9.2.9 Adverse Action Regarding Required Licenses
|
|
|
25
|
|
|
|
|
|
|
9.2.10 Budget
|
|
|
25
|
|
|
|
|
|
|
9.2.11 Additional Information
|
|
|
25
|
|
|
|
|
|
|
9.3 Maintenance of Existence and Qualification
|
|
|
26
|
|
|
|
|
|
|
9.4 Compliance with Legal Requirements and Agreements
|
|
|
26
|
|
viii
|
|
|
|
|
9.5 Compliance with Environmental Laws
|
|
|
26
|
|
|
|
|
|
|
9.6 Taxes
|
|
|
26
|
|
|
|
|
|
|
9.7 Insurance
|
|
|
26
|
|
|
|
|
|
|
9.8 Maintenance of Properties
|
|
|
27
|
|
|
|
|
|
|
9.9 Payment of Liabilities
|
|
|
27
|
|
|
|
|
|
|
9.10 Inspection
|
|
|
27
|
|
|
|
|
|
|
9.11 Required Licenses; Permits; Intellectual Property; Etc.
|
|
|
28
|
|
|
|
|
|
|
9.12 ERISA
|
|
|
28
|
|
|
|
|
|
|
9.13 Maintenance of Commodity Position
|
|
|
28
|
|
|
|
|
|
|
9.14 Financial Covenants
|
|
|
28
|
|
|
|
|
|
|
9.14.1 Consolidated Funded Debt to Consolidated Cash Flow
|
|
|
28
|
|
|
|
|
|
|
9.14.2 Adjusted Consolidated Funded Debt to Consolidated
Members and Patrons Equity
|
|
|
28
|
|
|
|
|
|
|
9.15 Embargoed Person
|
|
|
28
|
|
|
|
|
|
|
9.16 Anti-Money Laundering
|
|
|
29
|
|
|
|
|
|
|
ARTICLE 10. NEGATIVE COVENANTS
|
|
|
29
|
|
|
|
|
|
|
10.1 Borrowing
|
|
|
29
|
|
|
|
|
|
|
10.2 No Other Businesses
|
|
|
29
|
|
|
|
|
|
|
10.3 Liens
|
|
|
29
|
|
|
|
|
|
|
10.4 Sale of Assets
|
|
|
32
|
|
|
|
|
|
|
10.5 Merger; Acquisitions; Business Form; Etc.
|
|
|
32
|
|
|
|
|
|
|
10.6 Transactions With Related Parties
|
|
|
32
|
|
|
|
|
|
|
10.7 Change in Fiscal Year
|
|
|
33
|
|
|
|
|
|
|
10.8 ERISA
|
|
|
33
|
|
|
|
|
|
|
10.9 Anti-Terrorism Law
|
|
|
33
|
|
ix
|
|
|
|
|
ARTICLE 11. INDEMNIFICATION
|
|
|
33
|
|
|
|
|
|
|
11.1
General; Stamp Taxes; Intangibles Tax
|
|
|
33
|
|
|
|
|
|
|
11.2 Indemnification Relating to Hazardous Substances
|
|
|
34
|
|
|
|
|
|
|
ARTICLE 12. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
|
|
|
35
|
|
|
|
|
|
|
12.1 Events of Default
|
|
|
35
|
|
|
|
|
|
|
12.2 No Advance
|
|
|
36
|
|
|
|
|
|
|
12.3 Rights and Remedies
|
|
|
36
|
|
|
|
|
|
|
ARTICLE 13. AGENCY AGREEMENT
|
|
|
36
|
|
|
|
|
|
|
13.1 Funding of Syndication Interest
|
|
|
36
|
|
|
|
|
|
|
13.2 Syndication Parties Obligations to Remit Funds
|
|
|
37
|
|
|
|
|
|
|
13.4 Syndication Partys Failure to Remit Funds
|
|
|
37
|
|
|
|
|
|
|
13.4 Agency Appointment
|
|
|
38
|
|
|
|
|
|
|
13.5 Power and Authority of the Administrative Agent
|
|
|
38
|
|
|
|
|
|
|
13.5.1 Advice
|
|
|
38
|
|
|
|
|
|
|
13.5.2 Documents
|
|
|
38
|
|
|
|
|
|
|
13.5.3 Proceedings
|
|
|
39
|
|
|
|
|
|
|
13.5.4 Retain Professionals
|
|
|
39
|
|
|
|
|
|
|
13.5.5 Incidental Powers
|
|
|
39
|
|
|
|
|
|
|
13.6 Duties of the Administrative Agent
|
|
|
39
|
|
|
|
|
|
|
13.6.1 Possession of Documents
|
|
|
39
|
|
|
|
|
|
|
13.6.2 Distribute Payments
|
|
|
39
|
|
|
|
|
|
|
13.6.3 Loan Administration
|
|
|
39
|
|
|
|
|
|
|
13.6.4 Forwarding of Information
|
|
|
40
|
|
|
|
|
|
|
13.7 Action Upon Default
|
|
|
40
|
|
|
|
|
|
|
13.7.1 Indemnification as Condition to Action
|
|
|
40
|
|
x
|
|
|
|
|
13.8 Consent Required for Certain Actions
|
|
|
40
|
|
|
|
|
|
|
13.8.1 Unanimous
|
|
|
40
|
|
|
|
|
|
|
13.8.3 Required Lenders
|
|
|
41
|
|
|
|
|
|
|
13.8.4 Action Without Vote
|
|
|
41
|
|
|
|
|
|
|
13.8.4 Voting Participants
|
|
|
41
|
|
|
|
|
|
|
13.9 Distribution of Principal and Interest
|
|
|
41
|
|
|
|
|
|
|
13.10 Distribution of Certain Amounts
|
|
|
42
|
|
|
|
|
|
|
13.10.1 Funding Losses
|
|
|
42
|
|
|
|
|
|
|
13.11 Collateral Application
|
|
|
42
|
|
|
|
|
|
|
13.12 Amounts Required to be Returned
|
|
|
42
|
|
|
|
|
|
|
13.13 Reports and Information to Syndication Parties
|
|
|
43
|
|
|
|
|
|
|
13.14 Standard of Care
|
|
|
43
|
|
|
|
|
|
|
13.15 No Trust Relationship
|
|
|
43
|
|
|
|
|
|
|
13.16 Sharing of Costs and Expenses
|
|
|
44
|
|
|
|
|
|
|
13.17 Syndication Parties Indemnification of the Administrative Agent and Bid
Agent
|
|
|
44
|
|
|
|
|
|
|
13.18 Books and Records
|
|
|
44
|
|
|
|
|
|
|
13.19 Administrative Agent Fee
|
|
|
45
|
|
|
|
|
|
|
13.20 The Administrative Agents Resignation or Removal
|
|
|
45
|
|
|
|
|
|
|
13.21 Representations and Warranties of All Parties
|
|
|
45
|
|
|
|
|
|
|
13.22 Representations and Warranties of CoBank
|
|
|
46
|
|
|
|
|
|
|
13.23 Syndication Parties Independent Credit Analysis
|
|
|
46
|
|
|
|
|
|
|
13.24 No Joint Venture or Partnership
|
|
|
46
|
|
|
|
|
|
|
13.25 Purchase for Own Account; Restrictions on Transfer; Participations
|
|
|
46
|
|
|
|
|
|
|
13.26 Certain Participants Voting Rights
|
|
|
47
|
|
xi
|
|
|
|
|
13.27 Method of Making Payments
|
|
|
48
|
|
|
|
|
|
|
13.28 Events of Syndication Default/Remedies
|
|
|
48
|
|
|
|
|
|
|
13.28.1 Syndication Party Default
|
|
|
48
|
|
|
|
|
|
|
13.28.2 Remedies
|
|
|
48
|
|
|
|
|
|
|
13.29 Withholding Taxes
|
|
|
48
|
|
|
|
|
|
|
13.30 Replacement of Holdout Lender
|
|
|
49
|
|
|
|
|
|
|
13.31 Amendments Concerning Agency Function
|
|
|
49
|
|
|
|
|
|
|
13.32 Further Assurances
|
|
|
50
|
|
|
|
|
|
|
ARTICLE 14. MISCELLANEOUS
|
|
|
50
|
|
|
|
|
|
|
14.1 Costs and Expenses
|
|
|
50
|
|
|
|
|
|
|
14.2 Service of Process and Consent to Jurisdiction
|
|
|
50
|
|
|
|
|
|
|
14.3 Jury Waiver
|
|
|
50
|
|
|
|
|
|
|
14.4 Notices
|
|
|
51
|
|
|
|
|
|
|
14.5 Liability of Administrative Agent and Bid Agent
|
|
|
51
|
|
|
|
|
|
|
14.6 Successors and Assigns
|
|
|
52
|
|
|
|
|
|
|
14.7 Severability
|
|
|
52
|
|
|
|
|
|
|
14.8 Entire Agreement
|
|
|
52
|
|
|
|
|
|
|
14.9 Applicable Law
|
|
|
52
|
|
|
|
|
|
|
14.10 Captions
|
|
|
52
|
|
|
|
|
|
|
14.11 Complete Agreement; Amendments
|
|
|
52
|
|
|
|
|
|
|
14.12 Additional Costs of Maintaining Loan
|
|
|
52
|
|
|
|
|
|
|
14.13 Capital Requirements
|
|
|
53
|
|
|
|
|
|
|
14.14 Replacement Notes
|
|
|
54
|
|
|
|
|
|
|
14.15 Patronage Payments
|
|
|
54
|
|
|
|
|
|
|
14.16 Direct Website Communications; Electronic Mail Communications
|
|
|
54
|
|
xii
|
|
|
|
|
14.16.1 Delivery
|
|
|
54
|
|
|
|
|
|
|
14.16.2 Posting
|
|
|
55
|
|
|
|
|
|
|
14.16.3 Additional Communications
|
|
|
55
|
|
|
|
|
|
|
14.16.4 Disclaimer
|
|
|
55
|
|
|
|
|
|
|
14.16.5 Termination
|
|
|
55
|
|
|
|
|
|
|
14.17 Mutual Release
|
|
|
56
|
|
|
|
|
|
|
14.18 Liberal Construction
|
|
|
56
|
|
|
|
|
|
|
14.19 Counterparts
|
|
|
56
|
|
|
|
|
|
|
14.20 Confidentiality
|
|
|
56
|
|
|
|
|
|
|
14.21 USA Patriot Act Notice
|
|
|
57
|
|
|
|
|
|
|
14.22 Waiver of Borrowers Rights Under Farm Credit Act
|
|
|
57
|
|
|
|
|
|
|
xiii
EXHIBITS
|
|
|
Exhibit 1.27
|
|
Compliance Certificaten
|
|
|
|
Exhibit 1.101
|
|
List of Restricted Subsidiaries
|
|
|
|
Exhibit 1.104
|
|
List of Subsidiaries
|
|
|
|
Exhibit 2.3
|
|
Term Note Form
|
|
|
|
Exhibit 7.3
|
|
Litigation
|
|
|
|
Exhibit 7.8
|
|
Payment of Taxes
|
|
|
|
Exhibit 7.10
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Employee Benefit Plans
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Exhibit 7.11
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Equity Investments
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Exhibit 7.14
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Environmental Compliance
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Exhibit 7.23
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Labor Matters and Agreements
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Exhibit 13.25
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Syndication Acquisition Agreement
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Exhibit 13.27
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Wire Instructions
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Schedule 1
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Syndication Parties and Individual Term Loan Commitments
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xiv