CHS 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 CHS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 65

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65

grow?
2011 CHS ANNUAL REPORT
HOW CAN WE HELP YOU

Table of contents

  • Page 1
    2011 CHS ANNUAL REPORT HOW CAN WE HELP YOU grow?

  • Page 2
    ... CHS ANNUAL REPORT 2 14 16 19 22 24 58 60 62 LEADERSHIP LETTER ENERGY AG BUSINESS CORPORATE AND OTHER FINANCIAL HIGHLIGHTS FINANCIAL OVERVIEW BOARD OF DIRECTORS MANAGEMENT TEAM ACKNOWLEDGEMENTS you: You might raise wheat in Idaho. Perhaps you're a cattle producer in the western reaches of South...

  • Page 3
    LEADERSHIP LETTER Casale, left, and Toelle We begin this annual report with a question: How can we help you grow? While that may seem like a simple query, it sums up how CHS views each day. NET INCOME* / dollars in millions 961.4 502 . 2 381.4 803.0 75 6 . 7 2011 2010 2009 2008 2007 * ...

  • Page 4
    ..., capital, risk management tools and other resources you need to grow. Significant investments are under way, and more are planned, to ensure reliable supplies of inputs, to expand global market MICHAEL TOELLE access, and to create more opportunities to add value to Chairman, Board of Directors the...

  • Page 5
    ... bull and crop operation, supported by the cooperative system. Country Pride Co-op, based at Winner, S.D., is the operation's essential partner. The farm buys Cenex® brand fuel and Payback® feed and markets grain through the cooperative. Jorgensen serves on the cooperative's board. He knows that...

  • Page 6
    2011 CHS 5

  • Page 7
    ... outside, a 52,000-ton crop nutrients plant stands ready to meet crop production needs; and every year the shuttle-loading facility moves nearly 75 trainloads of grain to Pacific Northwest export terminals. West Central Chief Executive Officer Jesse McCollum knows busy producers' ability to grow...

  • Page 8
    2011 CHS 7

  • Page 9
    ...wheat fields of north-central Idaho may be half a world away from growing Asian market demand, but thanks to their cooperative system, the Riggers brothers know they're connected to global opportunity. Nate and Steve Riggers have built their successful small grain, legumes and grass seed production...

  • Page 10
    2011 CHS 9

  • Page 11
    ... RELIABLE ENERGY SUPPLY Watching the endless parade of oil industry-related trucks passing Steven Littlefield's farmyard, there's no mistaking that it's a new world in New Town, N.D. But while the current exploration frenzy has fueled a boom in western North Dakota, agriculture remains the state...

  • Page 12
    2011 CHS 11

  • Page 13
    ... value, continue to gain popularity with food manufacturers. That's critical to Thom as he strives to stay ahead of consumer trends and meet his customers' needs - and grow his business. "What do we get from CHS? Quality, superb customer service and people who deliver excellent value." 12 2011 CHS

  • Page 14
    2011 CHS 13

  • Page 15
    ... ability to manage today's challenges and prepare for tomorrow's market growth opportunities helped CHS achieve excellent financial performance in fiscal 2011, while providing reliable supplies of lubricants, propane, renewable fuels and refined fuels - particularly the highly regarded Cenex Ruby...

  • Page 16
    Horizon Resources of Williston, N.D., counts on a steady fuel supply from CHS to balance demand from its traditional agriculture and consumer customers with demand spurred by the region's oil exploration boom. Cenex Total Protection Planâ„¢ warranty program expanded to include diesel-powered ...

  • Page 17
    ... strong prices. Expanding Chinese fuels, lubricants, propane, crop nutrients, soy oil, soybean soybean demand also helped boost bushels marketed, as meal and other products reliably and on time. China's average income level and desire for higher-quality foods increased. AG BUSINESS Growing global...

  • Page 18
    ..., offices. CHS sources crop nutrients from 19 countries and now trades fertilizer internationally. By integrating crop nutrients and grain marketing throughout the world, CHS can leverage its strength in market development, logistics and customer service, while increasing efficiency and adding value...

  • Page 19
    ... the market area served by its 13 manufacturing facilities. To help control quality and cost, CHS began manufacturing its own line of liquid feeds through a joint venture. CHS Sunï¬,ower achieved record results in fiscal 2011, largely due to its emphasis on hybrid sunï¬,ower seed that meets the...

  • Page 20
    ...requirements and limited working capital, welcomed new risk management opportunities. Country Hedging also added crop nutrients risk management to its consulting portfolio, extending its integrated services range. Producer Bob Klementson, right, takes advantage of West Central Ag Services' one-stop...

  • Page 21
    REVIEW OF OPERATIONS Captive insurance, introduced in fiscal 2011, allows companies to increase risk management control and earn potential rewards when they reduce costs. In 2011, Ag States Group was again listed in Insurance Journal's Top 100 listing of leading U.S. privately owned property/ ...

  • Page 22
    ...-school youth program. Employee volunteer programs continued to contribute to rural vitality. The CHS Harvest for Hunger program, developed and executed by CHS Country Operations, provided the equivalent of 2 million meals to hungry families. across the CHS trade area, all while meeting regulations...

  • Page 23
    ...10 15 20 25 30 35 40 owner return on equity CASH RETURN* / dollars in millions 2 27. 3 2 3 7. 0 3 47. 2 339.5 352 .8 2011 2010 2009 2008 2007 * includes preferred stock and dividends 0 Cash Return 50 100 150 200 250 300 350 NET REVENUE / dollars in billions 36.9 25.3 25.7 32 . 2 17...

  • Page 24
    ... of its investment in Multigrain AG, a Brazil-based joint venture. CHS reports results for its business services operations, as well as two food processing-related joint ventures, under Corporate and Other. CHS-owned insurance, risk management and financing businesses reported increased earnings...

  • Page 25
    ... Preferred Stock. The Company provides a full range of agricultural inputs such as refined fuels, propane, farm supplies, animal nutrition and agronomy products, as well as services, which include hedging, financing and insurance. CHS owns and operates petroleum refineries and pipelines and markets...

  • Page 26
    ... and the results of their operations and their cash ï¬,ows for each of the three years in the period ended August 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our...

  • Page 27
    ... equivalents Receivables Inventories Derivative assets Margin deposits Other current assets Total current assets Investments Property, plant and equipment Other assets Total assets LIABILITIES AND EQUITIES Current liabilities: Notes payable Current portion of long-term debt Customer margin deposits...

  • Page 28
    ...E D AUG U ST 31 (D O L L ARS IN T H OU SA N DS ) 2011 2010 2009 Revenues Cost of goods sold Gross profit Marketing, general and administrative Operating earnings (Gain) loss on investments Interest, net Equity income from investments Income before income taxes Income taxes Net income Net income...

  • Page 29
    ... Patronage distribution Equities retired Capital equity certificates exchanged for preferred stock Equities issued Preferred stock dividends Distributions to noncontrolling interests Changes in dividends and equities payable Adoption of retirement plan measurement date change Other, net...

  • Page 30
    PREFERRED STOCK ACCUMULATED OTHER COMPREHENSIVE LOSS CAPITAL RESERVES NONCONTROLLING INTERESTS TOTAL EQUITIES $ 232,775 $ (68,042) $ 754,032 3,016 3,101 (130) (20,024) $ 205,732 49,944 (21,139...(18,184) (2,787) (786) 1,061,028 32,176 1,093,204 (400,216) $ 349,728 $ 4,265,320 2011 CHS 29

  • Page 31
    ...costs Income from equity investments Distributions from equity investments Noncash patronage dividends received Gain on sale of property, plant and equipment (Gain) loss on investments Deferred taxes Other, net Changes in operating assets and liabilities, net of acquisitions: Receivables Inventories...

  • Page 32
    ... operate and the products and market values. All other inventories are stated at the services it sells. Durinv the Company's second quarter lower of cost or market. Costs for inventories produced of fiscal 2011, there were several chanves in the Company's senior leadership team which resulted...

  • Page 33
    ... of August 31, 2011 and 2010, the Company had the products at the Company's points of sale. )he costs of following outstanding purchase and sales contracts: NOTE 1 Summary of Significant Accounting Policies, continued certain energy inventories (wholesale refined products, crude oil and asphalt...

  • Page 34
    ... from operations is primarily derived from margins on prices increase. products sold and grain merchandised, not from hedging The Company's commodity contracts primarily relate to transactions. At any one time, inventory and purchase grain, oilseed, energy and fertilizer commodities. The contracts...

  • Page 35
    ... rate on fixed rate debt outstanding on August 31, 2011, was approximately 5.3%. Foreign Exchange Contracts: The Company conducts essentially all of its business in U.S. dollars, except for grain marketing operations primarily in South America and Europe, and purchases of products from Canada...

  • Page 36
    ...operations. Expenditures for maintenance and minor repairs and renewals are expensed, while costs of major repairs and betterments are capitalized and amortized on a straight-line basis over the period of time estimated to lapse until the next major repair occurs. The Company reviews property, plant...

  • Page 37
    ... classifying the cash oxtï¬,ows as operating activities. changes in law or technology occxr. Environmental expenditxres are capitalized when sxch costs provide fxtxre economic benefits. IN COME TAX E S The Company is a nonexempt agricxltxral cooperative and files a consolidated federal income tax...

  • Page 38
    ... postretirement benefit plans. The additional quantitative and qualitative disclosures will provide users with more detailed information about an employer's involvement in multiemployer pension plans. This guidance is effective for annual periods for fiscal years ending after December 15, 2011, and...

  • Page 39
    ... states of Minnesota, Wisconsin and North Dakota. CHS Capital also has loans receivable from producer borrowers which are collateralized by various combinations of growing crops, livestock, inventories, accounts receivable, personal property and supplemental mortgages. In addition to the short-term...

  • Page 40
    ...$1,232,818 $ 983,846 ended August 31, 2009, the Company made capital Energy 732,609 515,930 contributions to Ventura Foods of $35.0 million. The Crop nutrients 389,741 135,526 Company accounts for Ventura Foods as an equity Feed and farm supplies 346,572 242,482 Processed grain and oilseed 55,231 74...

  • Page 41
    ... businesses and to individual producers of agricultural During the year ended August 31, 2011, the Company products. Through August 31, 2008, the Company dissolved its United Harvest, LLC (United Harvest) joint accounted for its 49% ownership interest in CHS Capital, venture which operated two grain...

  • Page 42
    NOTE 5 During the years ended August 31, 2011 and 2010, the Company had acquisitions in its Ag Business segment which resulted in $3.4 million and $6.8 million of goodA summary of property, plant and equipment as of will, respectively, reflecting the purchase price allocations. There were no ...

  • Page 43
    ... AT AUGUST 31, 2011 2011 2010 Notes payable(a)(k) CHS Capital notes payable(l) Long-term debt) Revolving term loans from cooperative and other banks, payable in equal installments beginning in 2013 through 2018(b)(k) Private placement, payable in equal installments beginning in 2014 through 2018...

  • Page 44
    ... years ended August 31u 2011u 2010 and 2009 is as follows: ( DO L L A RS I N TH OU S AN D S) Notes payable CHS Capital notes payable Long-term debt 2.37% 1.86% 5.25% 2.24% 1.75% 5.92% Based on quoted market prices of similar debtu the carrying value of the Company's long-term debt approximated...

  • Page 45
    ... of offsetting capital gains generated as a result of the sale of the Company's interest in Multigrain. During the year ended August 31, 2011, the valuation allowance for NCRA increased by $29.8 million due to a change in the amount of credits that are estimated to be utilized. NCRA's valuation...

  • Page 46
    ... the fiscal 2008 wholesale crop nutrients and CF Industries Holdings, Inc. patronage through the cancellation of capital equity certificates in fiscal 2010. The Preferred Stock is listed on the NASDAQ Global Select Market under the symbol CHSCP. On August 31, 2011, the Company had 12,272,003...

  • Page 47
    ...all employees may participate. The Company also has non-qualified supplemental executive and board retirement plans. Financial information on changes in benefit obligation and plan assets funded and balance sheets status as of August 31, 2011 and 2010 is as follows: QUALIFIED PENSION BENEFITS (D OL...

  • Page 48
    ... retired employees and Board of Directors' participants. The plan is contribuAssumed health care cost trend rates have a significant tory based on years of service and family status, with effect on the amounts reported for the health care plans. retiree contributions adjusted annually. 2011 CHS...

  • Page 49
    ..., short and long-term securities, NONgrowth and value equities, large and small cap stocks, as QUALIFIED QUALIFIED OTHER BENEFITS PENSION (D OL L A RS I N PENSION well as active and passive management styles. TH OU S AN D S) BENEFITS BENEFITS GROSS MEDICARE D 2012 2013 2014 2015 2016 2017-2021...

  • Page 50
    ... petroleum products mnd trmnsportmtion of those products. The Ag Business segment purchmses mnd further processes or resells grmins mnd oilseeds originmted by the country opermtions business, by the Compmny's member coopermtives mnd by third pmrties, mnd mlso serves ms m wholesmler mnd 2011 CHS 49

  • Page 51
    ...those products can affect revenues and operatmng earnmngs. Commodmty prmces are affected by a wmde range of factors beyond the Company's control, mncludmng the weather, crop damage due to dmsease or mnsects, drought, the avamlabmlmty and adequacy of supply, government regulatmons and polmcmes, world...

  • Page 52
    ...AN D S ) ENERGY AG BUSINESS CORPORATE AND OTHER RECONCILING AMOUNTS TOTAL For the year ended August 31, 2011: Revenues Cost of goods sold Gross profit Marketing, general and administrative Operating earnings Loss (gain) on investments Interest, net Equity income from investments Income before...

  • Page 53
    ...the years ended August 21, 2011, 2010 and 2009 are as follows: ( D OL L A R S I N M IL L I ON S) traded derivative contracts, Rabbi Trust investments and available-for-sale investments. Level 2: Values are based on quoted brices for similar assets or liabilities in active markets, quoted brices for...

  • Page 54
    ... The Company's forward commodity purchase and sales contracts, flat price or basis fixed derivative contracts, ocean freight contracts and other OTC derivatives are determined using inputs that are generally based on exchange traded prices and/or recent market bids and offers, adjusted for location...

  • Page 55
    ... the Ag meet the new regulated levels. The combined capital Business segment. Agri Point and its subsidiaries oper- expenditures for benzene removal for the Company's ate in the countries of Romania, Hungary, Bulgaria and Laurel, Montana refinery and the NCRA refinery in Serbia, with a deep water...

  • Page 56
    ... course of the Company's business. The resolution of any leases include purchase options at not less than fair such matters may affect consolidated net income for market value at the end of the lease terms. any fiscal period; however, management believes any resulting liabilities, individually or...

  • Page 57
    ... investing and financing transactions: Capital equity certificates exchanged for Preferred Stock Capital equity certificates cancelled for fiscal 2009 patronage losses in wholesale crop nutrients Capital equity certificates issued in exchange for Ag Business acquisitions Accrual of dividends...

  • Page 58
    ... gain on available for sale investments, net of tax expense of $659 and $204 in 2011 and 2010, respectively Treasury locks and swaps, net of tax benefit of $2,796 and $616 in 2011 and 2010, respectively Energy derivative instruments qualified for hedge accounting, net of tax benefit of $1,540 in...

  • Page 59
    ... predecessor companies. Operates a family grain and hog farm near Browns Valley, Minn. Holds a bachelor's of science degree in industrial technology from Minnesota State University-Moorhead. ROBERT BASS , first vice chairman (1994): Member of Audit Committee. Served on boards of Cooperative Network...

  • Page 60
    ... and board chairman for South Central Federated Feeds, and is a member of Crystal Valley Co-op and Central Valley Co-op. Farms in a family partnership near Waseca, Minn., raising corn and soybeans, finishing beef cattle, and offering custom farming and harvesting services. Attended Minnesota State...

  • Page 61
    ... Ventura Foods, LLC. Assumed current position in January 2011. Joined CHS in 1984 and held positions in energy operations, including leadership for raw material supply, refining, pipelines and terminals, trading and risk management, and transportation. Served as executive vice president and chief...

  • Page 62
    ... board member for the Co-op 401(k) Committee and trustee of the Member Cooperative Pension Plan. Serves on the boards of Ag States Group, CHS Capital and Country Hedging. Earned a bachelor's degree in agricultural economics from North Dakota State University. DAVID KASTELIC, executive vice president...

  • Page 63
    ...Crystal Anderson and the staff of All American Foods, Mankato, Minn. Pam Schubbe, CHS Oilseed Processing, Mankato, Minn. The staff of Ventura Foods, Chambersburg, Pa. 20% Design: Colle+McVoy, Minneapolis, Minn. Printing: GLS Companies Inc., St. Paul, Minn. Photography: David Lundquist 62 2011 CHS

  • Page 64
    ...foods business and a Fortune 100 company, CHS is committed to providing the essential resources that enrich lives around the world. CHS supplies energy, crop nutrients, grain, livestock feed, food and food ingredients, along with business solutions, including insurance, financial and risk management...

  • Page 65
    5500 Cenex Drive Inver Grove Heights, MN 55077 651-355-6000 chsinc.com NASDAQ: CHSCP