CHS 2011 Annual Report Download - page 51

50 2011 CHS
NOTE 11
Segment Reporting, continued
retailer of crop inputs. Corporate and Other primarily
represents the non-consolidated wheat milling and
packaged food joint ventures, as well as the business
solutions operations, which consists of commodities
hedging, insurance and financial services related to
crop production.
Corporate administrative expenses 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 the Company’s business activities are highly
seasonal and operating results will vary throughout the
year. Historically, the Company’s income is generally
lowest during the second fiscal quarter and highest
during the third fiscal quarter. For example, in the Ag
Business segment, agronomy and country operations
businesses experience higher volumes and income dur-
ing the spring planting season and in the fall, which
corresponds to harvest. Also in the Ag Business seg-
ment, the grain marketing operations are subject to
fluctuations in volumes and earnings based on producer
harvests, world grain prices and demand. The Compa-
ny’s Energy segment generally experiences higher vol-
umes 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 prod-
ucts, such as propane, may experience higher volumes
and profitability during the winter heating and crop
drying seasons.
The Company’s revenues, assets and cash flows can be
significantly affected by global market prices for com-
modities such as petroleum products, natural gas,
grains, oilseeds, crop nutrients and flour. Changes in
market prices for commodities that the Company pur-
chases without a corresponding change in the selling
prices of those products can affect revenues and oper-
ating earnings. Commodity prices are affected by a wide
range of factors beyond the Company’s control, includ-
ing the weather, crop damage due to disease or insects,
drought, the availability and adequacy of supply, gov-
ernment regulations and policies, world events, and
general political and economic conditions.
While the Company’s revenues and operating results
are derived from businesses and operations which are
wholly-owned and majority-owned, a portion of the
Company’s business operations are conducted through
companies in which it holds ownership interests of 50%
or less and does not control the operations. The Com-
pany accounts for these investments primarily using the
equity method of accounting, wherein the Company
records its proportionate share of income or loss
reported by the entity as equity income from invest-
ments, without consolidating the revenues and
expenses of the entity in its Consolidated Statements
of Operations. In the Ag Business segment, this prin-
cipally includes the Company’s 50% ownership in
TEMCO, LLC (TEMCO). In Corporate and Other, these
investments principally include the Company’s 50%
ownership in Ventura Foods and its 24% ownership in
Horizon Milling and Horizon Milling G.P.
Reconciling Amounts represent the elimination of reve-
nues between segments. Such transactions are executed
at market prices to more accurately evaluate the profit-
ability of the individual business segments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS