10-Q 1 chscp10qq353120.htm 10-Q Document

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

þ
 
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended May 31, 2020.
or
o
 
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission file number: 001-36079
CHS Inc.
(Exact name of Registrant as specified in its charter)
Minnesota
 (State or other jurisdiction of
incorporation or organization)
 
41-0251095
 (I.R.S. Employer
Identification Number)
 
 
 
5500 Cenex Drive Inver Grove Heights, Minnesota 55077
 (Address of principal executive offices,
including zip code)
 
(651) 355-6000
 (Registrant’s telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
8% Cumulative Redeemable Preferred Stock
CHSCP
The Nasdaq Stock Market LLC
Class B Cumulative Redeemable Preferred Stock, Series 1
CHSCO
The Nasdaq Stock Market LLC
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 2
CHSCN
The Nasdaq Stock Market LLC
Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3
CHSCM
The Nasdaq Stock Market LLC
Class B Cumulative Redeemable Preferred Stock, Series 4
CHSCL
The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
YES þ NO o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO þ

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
The Registrant has no common stock outstanding.
 



TABLE OF CONTENTS
 
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 



Unless the context otherwise requires, for purposes of this Quarterly Report on Form 10-Q, the words "CHS," "we," "us" or "our" refer to CHS Inc., a Minnesota cooperative corporation, and its subsidiaries as of May 31, 2020.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains and our other publicly available documents may contain, and our officers, directors and other representatives may from time to time make "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our businesses, financial condition and results of operations, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed or identified in our public filings made with the U.S. Securities and Exchange Commission, including in the "Risk Factors" discussion in Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2019, and Part II, Item 1A of this Quarterly Report on Form 10-Q. Any forward-looking statements made by us in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date on which the statement is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law.

1


PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
May 31,
2020
 
August 31,
2019
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets:
 

 


Cash and cash equivalents
$
408,115

 
$
211,179

Receivables
2,574,207

 
2,731,209

Inventories
2,818,758

 
2,854,288

Other current assets
1,258,553

 
865,919

Total current assets
7,059,633

 
6,662,595

Investments
3,666,959

 
3,683,996

Property, plant and equipment
4,999,082

 
5,088,708

Other assets
1,101,550

 
1,012,195

Total assets
$
16,827,224

 
$
16,447,494

LIABILITIES AND EQUITIES
 
 
 
Current liabilities:
 

 
 

Notes payable
$
2,215,583

 
$
2,156,108

Current portion of long-term debt
28,200

 
39,210

Accounts payable
1,751,354

 
1,931,415

Accrued expenses
566,258

 
555,323

Other current liabilities
1,061,487

 
901,651

Total current liabilities
5,622,882

 
5,583,707

Long-term debt
1,764,367

 
1,749,901

Other liabilities
659,689

 
496,356

Commitments and contingencies (Note 13)


 


Equities:
 

 
 

Preferred stock
2,264,038

 
2,264,038

Equity certificates
4,896,148

 
4,988,877

Accumulated other comprehensive loss
(241,165
)
 
(226,933
)
Capital reserves
1,852,826

 
1,584,158

Total CHS Inc. equities
8,771,847

 
8,610,140

Noncontrolling interests
8,439

 
7,390

Total equities
8,780,286

 
8,617,530

Total liabilities and equities
$
16,827,224

 
$
16,447,494


The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

2


  
CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
 
(Dollars in thousands)
Revenues
$
7,241,031

 
$
8,497,941

 
$
21,460,742

 
$
23,465,769

Cost of goods sold
7,022,672

 
8,274,170

 
20,601,785

 
22,343,944

Gross profit
218,359

 
223,771

 
858,957

 
1,121,825

Marketing, general and administrative expenses
180,439

 
217,527

 
548,340

 
551,438

Operating earnings
37,920

 
6,244

 
310,617

 
570,387

Interest expense
26,661

 
42,773

 
95,043

 
122,950

Other income
(8,076
)
 
(32,938
)
 
(32,926
)
 
(69,835
)
Equity income from investments
(51,114
)
 
(65,170
)
 
(135,174
)
 
(173,394
)
Income before income taxes
70,449

 
61,579

 
383,674

 
690,666

Income tax (benefit) expense
(27,052
)
 
6,866

 
(18,258
)
 
40,534

Net income
97,501

 
54,713

 
401,932

 
650,132

Net (loss) income attributable to noncontrolling interests
(147
)
 
93

 
955

 
(758
)
Net income attributable to CHS Inc. 
$
97,648

 
$
54,620

 
$
400,977

 
$
650,890

    
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).


3



CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
 
(Dollars in thousands)
Net income
$
97,501

 
$
54,713

 
$
401,932

 
$
650,132

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Pension and other postretirement benefits
3,490

 
1,496

 
12,309

 
5,599

Cash flow hedges
6,817

 
(15,817
)
 
(4,867
)
 
(7,155
)
Foreign currency translation adjustment
(12,316
)
 
(7,992
)
 
(21,674
)
 
(5,484
)
Other comprehensive loss, net of tax
(2,009
)
 
(22,313
)
 
(14,232
)
 
(7,040
)
Comprehensive income
95,492

 
32,400

 
387,700

 
643,092

Comprehensive (loss) income attributable to noncontrolling interests
(147
)
 
93

 
955

 
(758
)
Comprehensive income attributable to CHS Inc. 
$
95,639

 
$
32,307

 
$
386,745

 
$
643,850


The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).



4


CHS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended May 31,
 
2020
 
2019
 
(Dollars in thousands)
Cash flows from operating activities:
 

 
 

Net income
$
401,932

 
$
650,132

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization, including amortization of deferred major maintenance
408,613

 
401,798

Equity income from investments, net of distributions received
1,339

 
(39,674
)
Provision for doubtful accounts
7,692

 
36,874

Deferred taxes
(11,811
)
 
34,786

Other, net
67,625

 
(46,157
)
Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Receivables
25,290

 
(446,846
)
Inventories
(5,602
)
 
(199,339
)
Accounts payable and accrued expenses
(185,503
)
 
174,855

Other, net
(183,732
)
 
(436,518
)
Net cash provided by operating activities
525,843

 
129,911

Cash flows from investing activities:
 

 
 

Acquisition of property, plant and equipment
(316,506
)
 
(278,589
)
Proceeds from disposition of property, plant and equipment
28,257

 
46,414

Expenditures for major maintenance
(10,414
)
 
(210,837
)
Changes in CHS Capital notes receivable, net
219,173

 
(112,608
)
Financing extended to customers
(5,139
)
 
(10,492
)
Payments from customer financing
21,341

 
84,189

Business acquisitions, net of cash acquired

 
(119,421
)
Other investing activities, net
14,755

 
8,854

Net cash used in investing activities
(48,533
)
 
(592,490
)
Cash flows from financing activities:
 

 
 

Proceeds from notes payable and long-term debt
19,841,762

 
20,715,683

Payments on notes payable, long-term debt and capital lease obligations
(19,805,609
)
 
(20,236,780
)
Preferred stock dividends paid
(126,501
)
 
(126,501
)
Redemptions of equities
(86,272
)
 
(76,397
)
Cash patronage dividends paid
(90,112
)
 
(75,669
)
Other financing activities, net
(25,475
)
 
(25,993
)
Net cash (used in) provided by financing activities
(292,207
)
 
174,343

Effect of exchange rate changes on cash and cash equivalents
(786
)
 
(382
)
Increase (decrease) in cash and cash equivalents and restricted cash
184,317

 
(288,618
)
Cash and cash equivalents and restricted cash at beginning of period
299,675

 
543,940

Cash and cash equivalents and restricted cash at end of period
$
483,992

 
$
255,322


The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

5


CHS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1        Basis of Presentation and Significant Accounting Policies

Basis of Presentation

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full fiscal year because of the seasonal nature of our businesses, among other things. Our unaudited condensed consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 2019, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC").

Certain captions within the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows have been combined within other captions as allowed by SEC financial statement reporting requirements under Regulation S-X. Prior year information has been revised to conform with the current presentation.

The recent outbreak and pandemic of the novel coronavirus known as COVID-19 and other factors resulted in substantial reductions in demand and sharp price declines in certain industries in which we operate during the third quarter of fiscal 2020, particularly with respect to the production of renewable fuels and other energy products. Based on these deteriorated macroeconomic and industry conditions, management considered the impacts on each of our businesses and determined that we needed to perform interim impairment assessments of goodwill and asset groups, as of April 30, 2020, for a reporting unit within our Ag segment that operates in the renewable fuels industry. Recent third-party price outlooks, projections of future volumes, expenses and other cash flows and a discount rate reflective of the relative risk of the cash flows were used to estimate fair value. Management believes the assumptions utilized in the assessment are appropriate and reasonable for estimating fair value. The estimated fair value of the reporting unit exceeded the carrying amount by approximately 18%, and thus no impairment was recorded. Management will continue to monitor results and projected cash flows to assess whether any impairment may be necessary in the future.

Significant Accounting Policies

The following significant accounting policy was updated or changed since our Annual Report on Form 10-K for the year ended August 31, 2019.

Leases

As described in the "Recent Accounting Pronouncements" section, we adopted Accounting Standards Update ("ASU") No. 2016-02, Leases, as amended (collectively "Accounting Standards Codification ("ASC") Topic 842"), on September 1, 2019, using the modified retrospective approach. Our accounting policies and additional disclosures with respect to ASC Topic 842 are included in Note 14, Leases.

Recent Accounting Pronouncements

Except for the recent accounting pronouncements described below, other recent accounting pronouncements are not expected to have a material impact on our condensed consolidated financial statements.

Adopted

We adopted ASC Topic 842 as of September 1, 2019, using the modified retrospective approach. In addition, we used the additional optional transition method and package of practical expedients in the period of adoption without retrospective adjustment to previous periods presented, although we elected not to apply the hindsight practical expedient available under the standard. As a result of using the modified retrospective method, prior periods have not been restated, and a $33.7 million cumulative-effect adjustment was recorded to increase the opening balance of capital reserves as of the adoption date related to recognition of previously deferred gains associated with the sale-leaseback of our primary corporate office building located in Inver Grove Heights, Minnesota. Additionally, adoption of ASC Topic 842 resulted in the recognition of operating lease right-

6


of-use assets and associated lease liabilities of $268.4 million and $267.0 million, respectively, as of September 1, 2019. Adoption of ASC Topic 842 did not have a material impact on our Condensed Consolidated Statements of Operations or Condensed Consolidated Statements of Cash Flows. Additional information and further disclosures related to our leases and lease-related financial statement amounts are included within Note 14, Leases.

Not Yet Adopted

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, Financial Instruments - Credit Losses ("ASC Topic 326"): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU introduce a new approach, based on expected losses, to estimate credit losses on certain types of financial instruments. This ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses associated with most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. Entities are required to apply the provisions of this ASU as a cumulative-effect adjustment to capital reserves as of the beginning of the first reporting period in which the guidance is adopted. This ASU is effective for us beginning September 1, 2020, for our fiscal year 2021 and for interim periods within that fiscal year. The impact of adoption will depend on the composition of our portfolio at the adoption date and we are currently finalizing our evaluation of the impact of adoption on our condensed consolidated financial statements through various data-gathering activities, development of a credit loss model and accounting policy election determinations.

Note 2        Revenues

The following table presents revenues recognized under ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), disaggregated by reportable segment, as well as the amount of revenues recognized under ASC Topic 815, Derivatives and Hedging ("ASC Topic 815"), and other applicable accounting guidance for the three and nine months ended May 31, 2020, and 2019. Other applicable accounting guidance primarily includes revenues recognized under ASC Topic 842, Leases, and ASC Topic 470, Debt, that fall outside the scope of ASC Topic 606.
 
 
ASC Topic 606
 
ASC Topic 815
 
Other Guidance
 
Total Revenues
Three Months Ended May 31, 2020
 
(Dollars in thousands)
Energy
 
$
762,053

 
$
128,866

 
$

 
$
890,919

Ag
 
2,026,588

 
4,290,627

 
20,686

 
6,337,901

Corporate and Other
 
6,027

 

 
6,184

 
12,211

Total revenues
 
$
2,794,668

 
$
4,419,493

 
$
26,870

 
$
7,241,031

 
 
 
 
 
 
 
 
 
Three Months Ended May 31, 2019
 
 
 
 
 
 
 
 
Energy
 
$
1,544,533

 
$
193,512

 
$

 
$
1,738,045

Ag
 
2,234,378

 
4,485,089

 
25,648

 
6,745,115

Corporate and Other
 
4,841

 

 
9,940

 
14,781

Total revenues
 
$
3,783,752

 
$
4,678,601

 
$
35,588

 
$
8,497,941

 
 
 
 
 
 
 
 
 
Nine Months Ended May 31, 2020
 
 
 
 
 
 
 
 
Energy
 
$
3,831,806

 
$
415,586

 
$

 
$
4,247,392

Ag
 
4,446,097

 
12,681,108

 
46,753

 
17,173,958

Corporate and Other
 
16,910

 

 
22,482

 
39,392

Total revenues
 
$
8,294,813

 
$
13,096,694

 
$
69,235

 
$
21,460,742

 
 
 
 
 
 
 
 
 
Nine Months Ended May 31, 2019
 
 
 
 
 
 
 
 
Energy
 
$
4,826,762

 
$
547,348

 
$

 
$
5,374,110

Ag
 
4,574,203

 
13,375,276

 
95,578

 
18,045,057

Corporate and Other
 
14,818

 

 
31,784

 
46,602

Total revenues
 
$
9,415,783

 
$
13,922,624

 
$
127,362

 
$
23,465,769



7


Less than 1% of revenues accounted for under ASC Topic 606 included within the table above are recorded over time; these revenues are primarily related to service contracts.

Contract Assets and Contract Liabilities

Contract assets relate to unbilled amounts arising from goods that have already been transferred to the customer where the right to payment is not conditional upon the passage of time. This results in recognition of an asset, as the amount of revenue recognized at a certain point in time exceeds the amount billed to the customer. Contract assets are recorded in receivables within our Condensed Consolidated Balance Sheets and were not material as of May 31, 2020, and August 31, 2019.

Contract liabilities relate to advance payments from customers for goods and services that we have yet to provide. Contract liabilities of $204.7 million and $207.5 million as of May 31, 2020, and August 31, 2019, respectively, are recorded within other current liabilities on our Condensed Consolidated Balance Sheets. For the three months ended May 31, 2020, and 2019, we recognized revenues of $50.5 million and $67.9 million, respectively. For the nine months ended May 31, 2020, and 2019, we recognized revenues of $182.0 million and $148.9 million, respectively. These amounts were included in the other current liabilities balance at the beginning of the respective periods.

Note 3        Receivables
 
May 31,
2020
 
August 31,
2019
 
(Dollars in thousands)
Trade accounts receivable
$
1,766,166

 
$
1,803,284

CHS Capital short-term notes receivable
474,425

 
592,909

Other
524,975

 
511,821

Gross receivables
2,765,566

 
2,908,014

Less: allowances and reserves
191,359

 
176,805

Total receivables
$
2,574,207

 
$
2,731,209

    
Receivables are composed of trade accounts receivable, short-term notes receivable in our wholly-owned subsidiary, CHS Capital, LLC ("CHS Capital"), and other receivables, less an allowance for doubtful accounts.

Notes receivable from commercial borrowers are collateralized by various combinations of mortgages, personal property, accounts and notes receivable, inventories and assignments of capital stock from certain regional cooperatives. These loans are originated in various states, primarily in the Upper Midwest region of the United States, the most significant of which include North Dakota, Minnesota and Montana. CHS Capital also has loans receivable from producer borrowers that are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable, personal property and supplemental mortgages and are originated in the same states as the commercial notes.

In addition to the short-term balances included in the table above, CHS Capital had long-term notes receivable, with durations of generally not more than 10 years, totaling $93.6 million and $180.0 million as of May 31, 2020, and August 31, 2019, respectively. Long-term notes receivable are included in other assets on our Condensed Consolidated Balance Sheets. As of May 31, 2020, and August 31, 2019, the commercial notes represented 45% and 41%, respectively, and the producer notes represented 55% and 59%, respectively, of total CHS Capital notes receivable.

CHS Capital has commitments to extend credit to customers if there are no violations of contractually established conditions. As of May 31, 2020, CHS Capital customers had additional available credit of $762.2 million. No significant troubled debt restructuring activity occurred and no third-party customer or borrower accounted for more than 10% of the total receivables balance as of May 31, 2020, or August 31, 2019.


8


Note 4        Inventories        
 
May 31,
2020
 
August 31,
2019
 
(Dollars in thousands)
Grain and oilseed
$
1,021,535

 
$
1,024,645

Energy
681,364

 
717,378

Agronomy
967,451

 
954,037

Processed grain and oilseed
108,115

 
109,900

Other
40,293

 
48,328

Total inventories
$
2,818,758

 
$
2,854,288


As of May 31, 2020, and August 31, 2019, we valued approximately 16% of inventories, primarily crude oil and refined fuels within our Energy segment, using the lower of cost, determined on the LIFO method, or net realizable value. If the FIFO method of accounting had been used, inventories would have been lower than the reported amount by $79.0 million and higher than the reported amount by $215.0 million as of May 31, 2020, and August 31, 2019, respectively. Actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Interim LIFO calculations are based on management's estimates of expected year-end inventory levels and values and are subject to the final year-end LIFO inventory valuation. During the third quarter of fiscal 2020, we experienced price declines in our energy inventories associated with the novel corona virus COVID-19 pandemic. As a result, we recorded a noncash, lower of cost or market charge of $42.0 million in cost of goods sold to reduce the carrying value of our energy inventories to their market value at the end of the period. This charge may increase or decrease in the fourth quarter of fiscal 2020, based upon market prices observed at our fiscal year-end. Any adjustments that exist as of our fiscal year-end would be incorporated into the LIFO carrying value of the inventories.

Note 5        Investments
 
May 31,
2020
 
August 31,
2019
 
(Dollars in thousands)
Equity method investments:
 
 
 
CF Industries Nitrogen, LLC
$
2,724,668

 
$
2,708,942

Ventura Foods, LLC
364,726

 
374,516

Ardent Mills, LLC
206,476

 
209,027

Other equity method investments
247,778

 
267,247

Other investments
123,311

 
124,264

Total investments
$
3,666,959

 
$
3,683,996


Equity Method Investments

Joint ventures and other investments, in which we have significant ownership and influence but not control, are accounted for in our condensed consolidated financial statements using the equity method of accounting. Our primary equity method investments are described below. In addition to recognition of our share of income from equity method investments, our equity method investments are evaluated for indicators of other-than-temporary impairment on an ongoing basis in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Other investments consist primarily of investments in cooperatives without readily determinable fair values and are generally measured at cost, unless an impairment or other observable market price change occurs, requiring an adjustment.

CF Nitrogen

We have a $2.7 billion investment in CF Industries Nitrogen, LLC ("CF Nitrogen"), a strategic venture with CF Industries Holdings, Inc. ("CF Industries"). The investment consists of an approximate 10% membership interest (based on product tons) in CF Nitrogen. We account for this investment using the hypothetical liquidation at book value method, recognizing our share of the earnings and losses of CF Nitrogen based upon our contractual claims on the entity's net assets pursuant to the liquidation provisions of the CF Nitrogen Limited Liability Company Agreement, adjusted for the semi-annual cash distributions we receive as a result of our membership interest in CF Nitrogen. For the three months ended May 31, 2020,

9


and 2019, equity earnings were $41.3 million and $42.0 million, respectively. For the nine months ended May 31, 2020, and 2019, equity earnings were $104.0 million and $118.4 million, respectively. These amounts are included as equity income from investments in our Nitrogen Production segment.

The following table provides summarized unaudited financial information for our equity method investment in CF Nitrogen for the nine months ended May 31, 2020, and 2019:
 
Nine Months Ended May 31,
 
2020
 
2019
 
 
 
 
Net sales
$
1,954,660

 
$
2,219,267

Gross profit
481,711

 
560,631

Net earnings
452,859

 
536,409

Earnings attributable to CHS Inc.
104,021

 
118,415


Ventura Foods and Ardent Mills
    
We have a 50% interest in Ventura Foods, LLC ("Ventura Foods"), which is a joint venture with Wilsey Foods, Inc., a majority-owned subsidiary of MK USA Holdings, Inc., that produces and distributes primarily vegetable-oil-based products. Additionally, we have a 12% interest in Ardent Mills, LLC ("Ardent Mills"), which is a joint venture with Cargill Incorporated and Conagra Brands, Inc., and combines the North American flour milling operations of the three parent companies. We account for Ventura Foods and Ardent Mills as equity method investments, and our share of the results of these equity methods investments are included in Corporate and Other.

The following table provides aggregate summarized unaudited financial information for our equity method investments in Ventura Foods and Ardent Mills for the nine months ended May 31, 2020, and 2019:
 
Nine Months Ended May 31,
 
2020
 
2019
 
 
 
 
Net sales
$
4,101,502

 
$
4,427,127

Gross profit
686,045

 
391,338

Net earnings
134,774

 
152,315

Earnings attributable to CHS Inc.
29,770

 
50,415

    
Our investments in other equity method investees are not significant in relation to our condensed consolidated financial statements, either individually or in the aggregate.

Note 6        Notes Payable and Long-Term Debt

Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with our debt covenants as of May 31, 2020. The table below summarizes our notes payable as of May 31, 2020, and August 31, 2019.

May 31,
2020
 
August 31,
2019

(Dollars in thousands)
Notes payable
$
1,573,594


$
1,330,550

CHS Capital notes payable
641,989


825,558

Total notes payable
$
2,215,583


$
2,156,108

    
As of May 31, 2020, our primary line of credit was a five-year unsecured revolving credit facility with a syndicate of domestic and international banks. The credit facility provides a committed amount of $2.75 billion that expires on July 16, 2024. As of May 31, 2020, and August 31, 2019, the outstanding balance on this facility was $800.0 million and $335.0 million, respectively. Additionally, on September 30, 2019, CHS Capital entered into a credit agreement with a revolving note. Under this agreement, CHS Capital has available capacity of $100.0 million, of which no amount was outstanding as of May 31, 2020.

10



We have a receivables and loans securitization facility ("Securitization Facility") with certain unaffiliated financial institutions ("Purchasers"). Under the Securitization Facility, we and certain of our subsidiaries ("Originators") sell trade accounts and notes receivable ("Receivables") to Cofina Funding, LLC ("Cofina"), a wholly-owned bankruptcy-remote indirect subsidiary of CHS. Cofina in turn transfers the Receivables to the Purchasers, and this arrangement is accounted for as a secured borrowing. We use the proceeds from the sale of Receivables under the Securitization Facility for general corporate purposes and settlements are made on a monthly basis. The Securitization Facility was amended on June 26, 2020, to extend its termination date to September 24, 2020, which may be further extended.

On June 26, 2020, we also amended our repurchase facility ("Repurchase Facility") related to the Securitization Facility. Under the Repurchase Facility, we can borrow up to $150.0 million, collateralized by a subordinated note issued by Cofina in favor of the Originators and representing a portion of the outstanding balance of the Receivables sold by the Originators to Cofina under the Securitization Facility. As of May 31, 2020, and August 31, 2019, the outstanding balance under the Repurchase Facility was $150.0 million.

Interest expense for the three months ended May 31, 2020, and 2019, was $26.7 million and $42.8 million, respectively, net of capitalized interest of $2.7 million and $2.5 million, respectively. Interest expense for the nine months ended May 31, 2020, and 2019, was $95.0 million and $123.0 million, respectively, net of capitalized interest of $8.9 million and $7.1 million, respectively.


11


Note 7        Equities

Changes in Equities

Changes in equities for the nine months ended May 31, 2020, and 2019, are as follows:
 
Equity Certificates
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Capital
Equity
Certificates
 
Nonpatronage
Equity
Certificates
 
Nonqualified Equity Certificates
 
Preferred
Stock
 
 
Capital
Reserves
 
Noncontrolling
Interests
 
Total
Equities
 
(Dollars in thousands)
Balances, August 31, 2019
$
3,753,493

 
$
29,074

 
$
1,206,310

 
$
2,264,038

 
$
(226,933
)
 
$
1,584,158

 
$
7,390

 
$
8,617,530

Reversal of prior year redemption estimates
5,447

 

 

 

 

 

 

 
5,447

Redemptions of equities
(4,721
)
 
(54
)
 
(672
)
 

 

 

 

 
(5,447
)
Preferred stock dividends

 

 

 

 

 
(84,334
)
 

 
(84,334
)
ASC Topic 842 cumulative-effect adjustment

 

 

 

 

 
33,707

 

 
33,707

Other, net
(8
)
 

 
(39
)
 

 

 
(1,312
)
 
410

 
(949
)
Net income

 

 

 

 

 
177,882

 
855

 
178,737

Other comprehensive loss, net of tax

 

 

 

 
(1,638
)
 

 

 
(1,638
)
Estimated 2020 cash patronage refunds

 

 

 

 

 
(28,504
)
 

 
(28,504
)
Estimated 2020 equity redemptions
(91,633
)
 

 

 

 

 

 

 
(91,633
)
Balances, November 30, 2019
$
3,662,578

 
$
29,020

 
$
1,205,599

 
$
2,264,038

 
$
(228,571
)
 
$
1,681,597

 
$
8,655

 
$
8,622,916

Reversal of prior year patronage and redemption estimates
3,387

 

 
(472,398
)
 

 

 
562,398

 

 
93,387

Distribution of 2019 patronage refunds

 

 
474,066

 

 

 
(564,096
)
 

 
(90,030
)
Redemptions of equities
(2,998
)
 
(20
)
 
(369
)
 

 

 

 

 
(3,387
)
Preferred stock dividends

 

 

 

 

 
(42,167
)
 

 
(42,167
)
Other, net
(201
)
 

 
3

 

 

 
10

 
(324
)
 
(512
)
Net income

 

 

 

 

 
125,447

 
247

 
125,694

Other comprehensive loss, net of tax

 

 

 

 
(10,585
)
 

 

 
(10,585
)
Estimated 2020 cash patronage refunds

 

 

 

 

 
(22,206
)
 

 
(22,206
)
Estimated 2020 equity redemptions
(49,154
)
 

 

 

 

 

 

 
(49,154
)
Balances, February 29, 2020
$
3,613,612

 
$
29,000

 
$
1,206,901

 
$
2,264,038

 
$
(239,156
)
 
$
1,740,983

 
$
8,578

 
$
8,623,956

Reversal of prior year redemption estimates
67,438

 

 
10,000

 

 

 

 

 
77,438

Distribution of 2019 patronage refunds

 

 
327

 

 

 
(409
)
 

 
(82
)
Redemptions of equities
(64,273
)
 
(91
)
 
(13,074
)
 

 

 

 

 
(77,438
)
Other, net
(1,544
)
 
(7
)
 
(116
)
 

 

 
1,053

 
8

 
(606
)
Net income (loss)

 

 

 

 

 
97,648

 
(147
)
 
97,501

Other comprehensive loss, net of tax

 

 

 

 
(2,009
)
 

 

 
(2,009
)
Estimated 2020 cash patronage refunds

 

 

 

 

 
13,551

 

 
13,551

Estimated 2020 equity redemptions
47,975

 

 

 

 

 

 

 
47,975

Balances, May 31, 2020
$
3,663,208

 
$
28,902

 
$
1,204,038

 
$
2,264,038

 
$
(241,165
)
 
$
1,852,826

 
$
8,439

 
$
8,780,286


12


 
Equity Certificates
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
 
Capital
Equity
Certificates
 
Nonpatronage
Equity
Certificates
 
Nonqualified Equity Certificates
 
Preferred
Stock
 
 
Capital
Reserves
 
Noncontrolling
Interests
 
Total
Equities
 
(Dollars in thousands)
Balances, August 31, 2018
$
3,837,580

 
$
29,498

 
$
742,378

 
$
2,264,038

 
$
(199,915
)
 
$
1,482,003

 
$
9,446

 
$
8,165,028

Reversal of prior year redemption estimates
24,072

 

 

 

 

 

 

 
24,072

Redemptions of equities
(22,004
)
 
(183
)
 
(1,885
)
 

 

 

 

 
(24,072
)
Preferred stock dividends

 

 

 

 

 
(84,334
)
 

 
(84,334
)
Reclassification of unrealized (gain) loss on investments

 

 

 

 
(4,706
)
 
4,706

 

 

Other, net
(409
)
 

 
(26
)
 

 

 
3,436

 
318

 
3,319

Net income (loss)

 

 

 

 

 
347,504

 
(389
)
 
347,115

Other comprehensive income, net of tax

 

 

 

 
389

 

 

 
389

Estimated 2019 cash patronage refunds

 

 

 

 

 
(89,344
)
 

 
(89,344
)
Estimated 2019 equity redemptions
(50,081
)
 

 

 

 

 

 

 
(50,081
)
Balances, November 30, 2018
$
3,789,158

 
$
29,315

 
$
740,467

 
$
2,264,038

 
$
(204,232
)
 
$
1,663,971

 
$
9,375

 
$
8,292,092

Reversal of prior year patronage and redemption estimates
6,681

 

 
(345,330
)
 

 

 
420,330

 

 
81,681

Distribution of 2018 patronage refunds

 

 
349,353

 

 

 
(424,333
)
 

 
(74,980
)
Redemptions of equities
(5,988
)
 
(74
)
 
(619
)
 

 

 

 

 
(6,681
)
Preferred stock dividends

 

 

 

 

 
(42,167
)
 

 
(42,167
)
Other, net
(774
)
 

 
2,589

 

 

 
(2,888
)
 
(581
)
 
(1,654
)
Net income (loss)

 

 

 

 

 
248,766

 
(462
)
 
248,304

Other comprehensive income, net of tax

 

 

 

 
14,884

 

 

 
14,884

Estimated 2019 cash patronage refunds

 

 

 

 

 
(69,400
)
 

 
(69,400
)
Estimated 2019 equity redemptions
(39,850
)
 

 

 

 

 

 

 
(39,850
)
Balances, February 28, 2019
$
3,749,227

 
$
29,241

 
$
746,460

 
$
2,264,038

 
$
(189,348
)
 
$
1,794,279

 
$
8,332

 
$
8,402,229

Reversal of prior year redemption estimates
45,815

 

 

 

 

 

 

 
45,815

Distribution of 2018 patronage refunds

 

 
3,212

 

 

 
(3,901
)
 

 
(689
)
Redemptions of equities
(34,798
)
 
(34
)
 
(10,812
)
 

 

 

 

 
(45,644
)
Other, net
(1,285
)
 

 
(3,722
)
 

 

 
4,526

 
11

 
(470
)
Net income (loss)

 

 

 

 

 
54,620

 
93

 
54,713

Other comprehensive loss, net of tax

 

 

 

 
(22,313
)
 

 

 
(22,313
)
Estimated 2019 cash patronage refunds

 

 

 

 

 
(15,494
)
 

 
(15,494
)
Estimated 2019 equity redemptions
(6,438
)
 

 

 

 

 

 

 
(6,438
)
Balances, May 31, 2019
$
3,752,521

 
$
29,207

 
$
735,138

 
$
2,264,038

 
$
(211,661
)
 
$
1,834,030

 
$
8,436

 
$
8,411,709


Preferred Stock Dividends

The following is a summary of dividends per share by series of preferred stock for the nine months ended May 31, 2020, and 2019. Note that due to the timing of dividend declarations during the fiscal year, no declarations were made during the third quarter of fiscal 2020 or fiscal 2019.
 
 
 
Nine Months Ended May 31,
 
Nasdaq symbol
 
2020
 
2019
Series of preferred stock:
 
(Dollars per share)
8% Cumulative Redeemable
CHSCP
 
$
1.50

 
$
1.50

Class B Cumulative Redeemable, Series 1
CHSCO
 
1.48

 
1.48

Class B Reset Rate Cumulative Redeemable, Series 2
CHSCN
 
1.33

 
1.33

Class B Reset Rate Cumulative Redeemable, Series 3
CHSCM
 
1.27

 
1.27

Class B Cumulative Redeemable, Series 4
CHSCL
 
1.41

 
1.41


13


Accumulated Other Comprehensive Income (Loss)        

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows for the nine months ended May 31, 2020, and 2019:
 
Pension and Other Postretirement Benefits
 
Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Total
 
(Dollars in thousands)
Balance as of August 31, 2019, net of tax
$
(172,478
)
 
$
15,297

 
$
(69,752
)
 
$
(226,933
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Amounts before reclassifications
(85
)
 
(3,331
)
 
(2,411
)
 
(5,827
)
Amounts reclassified
4,977

 
(4,473
)
 

 
504

Total other comprehensive income (loss), before tax
4,892

 
(7,804
)
 
(2,411
)
 
(5,323
)
Tax effect
181

 
1,932

 
1,572

 
3,685

Other comprehensive income (loss), net of tax
5,073

 
(5,872
)
 
(839
)
 
(1,638
)
Balance as of November 30, 2019, net of tax
$
(167,405
)
 
$
9,425

 
$
(70,591
)
 
$
(228,571
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Amounts before reclassifications

 
(5,975
)
 
(8,540
)
 
(14,515
)
Amounts reclassified
4,977

 
(1,747
)
 

 
3,230

Total other comprehensive income (loss), before tax
4,977

 
(7,722
)
 
(8,540
)
 
(11,285
)
Tax effect
(1,231
)
 
1,910

 
21

 
700

Other comprehensive income (loss), net of tax
3,746

 
(5,812
)
 
(8,519
)
 
(10,585
)
Balance as of February 29, 2020, net of tax
$
(163,659
)
 
$
3,613

 
$
(79,110
)
 
$
(239,156
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Amounts before reclassifications
(340
)
 
7,795

 
(12,515
)
 
(5,060
)
Amounts reclassified
4,977

 
1,263

 

 
6,240

Total other comprehensive income (loss), before tax
4,637

 
9,058

 
(12,515
)
 
1,180

Tax effect
(1,147
)
 
(2,241
)
 
199

 
(3,189
)
Other comprehensive income (loss), net of tax
3,490

 
6,817

 
(12,316
)
 
(2,009
)
Balance as of May 31, 2020, net of tax
$
(160,169
)
 
$
10,430

 
$
(91,426
)
 
$
(241,165
)

14


 
Pension and Other Postretirement Benefits
 
Unrealized Net Gain on Available for Sale Investments
 
Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Total
 
(Dollars in thousands)
Balance as of August 31, 2018, net of tax
$
(140,335
)
 
$
8,861

 
$
(5,882
)
 
$
(62,559
)
 
$
(199,915
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Amounts before reclassifications
175

 

 
(317
)
 
(25
)
 
(167
)
Amounts reclassified
2,565

 

 
(1,475
)
 

 
1,090

Total other comprehensive income (loss), before tax
2,740

 

 
(1,792
)
 
(25
)
 
923

Tax effect
(639
)
 

 
485

 
(380
)
 
(534
)
Other comprehensive income (loss), net of tax
2,101

 

 
(1,307
)
 
(405
)
 
389

Reclassifications
416

 
(8,861
)
 
983

 
2,756

 
(4,706
)
Balance as of November 30, 2018, net of tax
$
(137,818
)
 
$

 
$
(6,206
)
 
$
(60,208
)
 
$
(204,232
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Amounts before reclassifications
102

 

 
18,954

 
3,176

 
22,232

Amounts reclassified
2,564

 

 
(5,677
)
 

 
(3,113
)
Total other comprehensive income (loss), before tax
2,666

 

 
13,277

 
3,176

 
19,119

Tax effect
(664
)
 

 
(3,308
)
 
(263
)
 
(4,235
)
Other comprehensive income, net of tax
2,002

 

 
9,969

 
2,913

 
14,884

Balance as of February 28, 2019, net of tax
$
(135,816
)
 
$

 
$
3,763

 
$
(57,295
)
 
$
(189,348
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Amounts before reclassifications
(164
)
 

 
(19,680
)
 
(7,725
)
 
(27,569
)
Amounts reclassified
2,564

 

 
(1,385
)
 

 
1,179

Total other comprehensive income (loss), before tax
2,400

 

 
(21,065
)
 
(7,725
)
 
(26,390
)
Tax effect
(904
)
 

 
5,248

 
(267
)
 
4,077

Other comprehensive income (loss), net of tax
1,496

 

 
(15,817
)
 
(7,992
)
 
(22,313
)
Balance as of May 31, 2019, net of tax
$
(134,320
)
 
$

 
$
(12,054
)
 
$
(65,287
)
 
$
(211,661
)

Amounts reclassified from accumulated other comprehensive income (loss) were related to pension and other postretirement benefits, cash flow hedges, available-for-sale investments and foreign currency translation adjustments. Pension and other postretirement reclassifications include amortization of net actuarial loss, prior service credit and transition amounts and are recorded as cost of goods sold, marketing, general and administrative expenses, and other income (see Note 8, Benefit Plans, for further information). Gains or losses associated with cash flow hedges are recorded as cost of goods sold (see Note 11, Derivative Financial Instruments and Hedging Activities, for further information). Gains or losses on the sale of available-for-sale investments and foreign currency translation reclassifications related to sales of businesses are recorded as other income.

Note 8        Benefit Plans

We have various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. We also have nonqualified supplemental executive and Board retirement plans.


15


Components of net periodic benefit costs for the three and nine months ended May 31, 2020, and 2019, are as follows:
 
Three Months Ended May 31,
 
Qualified
Pension Benefits
 
Nonqualified
Pension Benefits
 
Other Benefits
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit costs:
 (Dollars in thousands)
Service cost
$
10,538

 
$
9,648

 
$
101

 
$
78

 
$
262

 
$
263

Interest cost
5,431

 
7,099

 
107

 
186

 
187

 
274

Expected return on assets
(11,671
)
 
(11,242
)
 

 

 

 

Prior service cost (credit) amortization
45

 
42

 
(28
)
 
(19
)
 
(111
)
 
(139
)
Actuarial loss (gain) amortization
5,396

 
3,087

 
25

 
1

 
(348
)
 
(407
)
Net periodic benefit cost
$
9,739

 
$
8,634

 
$
205

 
$
246

 
$
(10
)
 
$
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended May 31,
 
Qualified
Pension Benefits
 
Nonqualified
Pension Benefits
 
Other Benefits
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit costs:
 (Dollars in thousands)
Service cost
$
31,613

 
$
28,944

 
$
304

 
$
233

 
$
787

 
$
790

Interest cost
16,292

 
21,297

 
322

 
560

 
560

 
821

Expected return on assets
(35,013
)
 
(33,726
)
 

 

 

 

Prior service cost (credit) amortization
134

 
127

 
(85
)
 
(56
)
 
(334
)
 
(417
)
Actuarial loss (gain) amortization
16,187

 
9,261

 
74

 
2

 
(1,044
)
 
(1,221
)
Settlement loss

 
169

 

 

 

 

Net periodic benefit cost
$
29,213

 
$
26,072

 
$
615

 
$
739

 
$
(31
)
 
$
(27
)

The service cost component of defined benefit net periodic benefit cost is recorded in cost of goods sold and marketing, general and administrative expenses. The other components of net periodic benefit cost are recorded in other income.

Employer Contributions

Any contributions made during fiscal 2020 will depend primarily on market returns on the pension plan assets and minimum funding level requirements. No contributions were made to the pension plans during the nine months ended May 31, 2020, and we do not currently anticipate being required to make contributions for our pension plans in fiscal 2020.

Note 9        Income Taxes

Our effective tax rate for the three months ended May 31, 2020, was (38.4)%, compared to 11.1% for the three months ended May 31, 2019. Our effective tax rate for the nine months ended May 31, 2020, was (4.8)%, compared to 5.9% for the nine months ended May 31, 2019. The decreased effective tax rate reflects a tax benefit for the settlement of a U.S. federal audit resulting in additional tax credit carryovers, as well as the equity management assumptions used in fiscal 2020 and the associated impact on income taxes.

It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months. We have ongoing federal, state and international income tax audits in various jurisdictions and are evaluating uncertain tax positions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances, including progression of tax audits, developments in case law and closing of statutes of limitation. The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of May 31, 2020, and August 31, 2019, are $111.1 million and $93.3 million, respectively.




16


Note 10        Segment Reporting

We are an integrated agricultural enterprise, providing grain, foods and energy resources to businesses and consumers on a global basis. We provide a wide variety of products and services, from initial agricultural inputs such as fuels, farm supplies, crop nutrient and crop protection products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing and food products, and the production and marketing of ethanol. We define our operating segments in accordance with ASC Topic 280, Segment Reporting, to reflect the manner in which our chief operating decision-maker, our Chief Executive Officer, evaluates performance and allocates resources in managing our businesses. We have aggregated those operating segments into three reportable segments: Energy, Ag and Nitrogen Production.

Our Energy segment produces and provides primarily for the wholesale distribution of petroleum products and transportation of those products. Our Ag segment purchases and further processes or resells grains and oilseeds originated by our country operations business, by our member cooperatives and by third parties; serves as a wholesaler and retailer of crop inputs; and produces and markets ethanol. Our Nitrogen Production segment consists solely of our equity method investment in CF Nitrogen, which entitles us, pursuant to a supply agreement that we entered into with CF Nitrogen, to purchase up to a specified quantity of granular urea and urea ammonium nitrate ("UAN") annually from CF Nitrogen. Corporate and Other represents our financing and hedging businesses, which primarily consist of commodities hedging and financial services related to crop production. Our nonconsolidated investments in Ventura Foods and Ardent Mills are also included in Corporate and Other.
    
Corporate administrative expenses and interest are allocated to each business segment and Corporate and Other, based on 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 vary throughout the year. For example, in our Ag segment, our country operations business generally experiences higher volumes and income during the spring planting season and the fall harvest season, and our agronomy business generally experiences higher volumes and income during the spring planting season. Our global grain marketing operations are subject to fluctuations in volume and 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, assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds, crop nutrients 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 weather, crop damage due to plant disease or insects, drought, 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 primarily from businesses and operations that are wholly-owned or subsidiaries and limited liability companies in which we have a controlling interest, a portion of our business operations are conducted through companies in which we hold ownership interests of 50% or less or do not control the operations. See Note 5, Investments, for more information on these entities.

Reconciling amounts primarily represent the elimination of revenues between segments. Such transactions are executed at market prices to more accurately evaluate the profitability of individual business segments.
        











17


Segment information for the three and nine months ended May 31, 2020, and 2019, is presented in the tables below. Our Ag segment information includes results associated with our acquisition of the remaining 75% ownership interest in West Central Distribution, LLC ("WCD") that we did not previously own prior to March 1, 2019. Results are comparable for the three months ended May 31, 2020, and 2019; however, results for the nine months ended May 31, 2020, and 2019, are not comparable as the results of WCD were not included during the first six months of fiscal 2019. Refer to further details related to our acquisition of the remaining 75% ownership interest in WCD that we did not previously own in Note 15, Acquisitions.

Energy
 
Ag
 
Nitrogen Production
 
Corporate
and Other
 
Reconciling
Amounts
 
Total
Three Months Ended May 31, 2020
(Dollars in thousands)
Revenues, including intersegment revenues
$
960,352


$
6,340,386


$

 
$
13,515


$
(73,222
)

$
7,241,031

Intersegment revenues
(69,433
)
 
(2,485
)
 

 
(1,304
)
 
73,222

 

Revenues, net of intersegment revenues
$
890,919

 
$
6,337,901

 
$

 
$
12,211

 
$

 
$
7,241,031

Operating earnings (loss)
(56,792
)

95,328


(7,936
)
 
7,320




37,920

Interest expense
(145
)

16,261


10,176

 
1,810


(1,441
)

26,661

Other income
(614
)
 
(8,294
)
 
(355
)
 
(254
)
 
1,441

 
(8,076
)
Equity income from investments
(1,269
)

(7,999
)

(41,264
)
 
(582
)



(51,114
)
Income (loss) before income taxes
$
(54,764
)

$
95,360


$