ST. PAUL, Minn. - A portion of the equity of eligible CHS members is being redeemed as preferred stock this month. The company's goal is to provide its member-owners with a flexible return on their investment, while maintaining the capital base that keeps CHS financially strong and able to invest in the company's current and future business operations.
The conversion of equity to preferred stock is part of an overall return of $52.6 million to CHS member owners based on fiscal 2003 net income of $123.8 million. The overall distribution consists of $27 million in patronage refunds, $12.6 million in cash equity redemptions and $13 million in preferred stock to eligible members.
This is the first year CHS will convert equity for eligible members to CHS preferred stock, providing a flexible financial tool with options of retaining the stock and earning an 8 percent annual dividend, selling or transferring ownership as best meets individual co-op or producer financial needs. Because preferred stock is permanent equity in CHS, not debt, CHS was able to more than double the amount that would have been distributed using cash to those eligible members.
Recipients will have three options. They may keep all or part of their preferred stock and receive an 8 percent annual dividend on $25 par value of stock. Using their own broker, they may sell all or some into the public market at the prevailing rate. Finally, working through Wells Fargo, they may transfer ownership of all or part of their shares to others. Some member co-ops may use this as a means of redeeming their own members' equity.
This year's returns to CHS members represent 42 percent of the company's fiscal 2003 net income, down from the board's 50 percent goal. This reflects the need to retain cash during the 2003-2005 period to fund the CHS share of more than $400 million in government-mandated sulfur reduction upgrades at its Laurel, Mont., refinery and the National Cooperative Refinery Association at McPherson, Kan., of which we own nearly 75 percent. This major investment is essential to CHS long-term ability to provide customers with dependable supplies of quality gasoline and diesel fuel.