CHS 2013 Annual Report Download

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CHS ANNUAL REPORT

Table of contents

  • Page 1
    CHS ANNUAL REPORT

  • Page 2
    ... Neb., with Aurora Cooperative grain team members Cody Carlson and Lynn Culbertson. The co-op is partnering with CHS on the new high-speed loading facility. CONTENTS Leadership Letter Operations Report Financial Highlights Financial Report Board of Directors Executive Team Acknowledgements 02 08 29...

  • Page 3
    ... owners in the form of patronage, equity redemptions and preferred stock dividends based on fiscal 2012 earnings. That brings to $1.8 billion the amount of cash returned over the past five years and sets a new mark for cooperative businesses. We continue to examine and adjust our equity management...

  • Page 4
    ... with member cooperatives on new grain and fertilizer facilities, energy ventures, and other opportunities to position our system to serve producers and other customers in the years ahead. During the year, several cooperatives also chose to align fully with CHS as part of our Country Operations...

  • Page 5
    ... raising certified wheat seed and small grains for global destinations with best-in-market risk management and energy supply. Says Darren Padget, "Having partners like CHS has been a huge part of our success at the local level." 20 PERCENT increase in renewable fuels marketing contracts 18 MILLION...

  • Page 6
    From left: Darren, Dale and Logan Padget

  • Page 7
    ... operation - currently the National Cooperative Refinery Association - and will become sole owner on Sept. 1, 2015. Investments also continue at the CHS Laurel, Mont., refinery, where a new mild hydrocracker came on line in 2013 to boost high-demand diesel Support from CHS has resulted in refined...

  • Page 8
    ... Renewable Fuels With significant reshaping occurring in North America's propane supply sector, CHS is staying ahead of the game. CHS secured long-term propane rail supply agreements to counter planned pipeline changes that will reduce propane volume moving from Canada to the United States in 2014...

  • Page 9
    ... ethanol segment through a long-term marketing agreement with Canergy, a cellulosic developer. Taking advantage of the broader CHS enterprise, the renewable fuels marketing team connected with CHS grain marketing and crop nutrients presence in several countries to add customer value and improve...

  • Page 10
    ... centers. _ Grain bin rescue training offered by CHS Country Operations and other company grain operations, as well as many member cooperatives. _ Contributions of rescue equipment by CHS and the CHS Foundation to local first-responder teams. _ Responses from more than 4,600 U.S. CHS employees...

  • Page 11
    ... good service." The Krafts count on Town & Country Supply in Laurel, Mont., to meet their agronomy and fuel needs. MILLION dollars investment in preliminary studies for proposed Spiritwood, N.D., nitrogen plant 5.7 LOCATIONS locally controlled CHS retail locations 25 MILLION 500 bushels new...

  • Page 12
    From left: Ed, Rick and Jake Kraft, Laurel, Mont.

  • Page 13
    ...-term value for its owners and customers through strategic expansion of the CHS grain and crop nutrients footprint at home and around the world continued at a brisk pace in fiscal 2013. While focusing on future growth, the CHS Ag segment delivered daily results, successfully managing the business...

  • Page 14
    ..., CHS formed a joint venture to build a facility at the Port of Nantong along the Yangtze River. A new organizational structure with enhanced business management capabilities in the Asia-Pacific region is expected to help CHS expand its presence there as the system continues to develop market access...

  • Page 15
    ... project in CHS history, the plant would take advantage of abundant inexpensive natural gas stores in the robust energy production region to produce a reliable supply of crop nutrients to farmers in the Upper Midwest. Development has entered the FEED (Front-end Engineering and Design) study phase...

  • Page 16
    ..., resulting in incremental volume at higher margins. CHS now sources crop nutrients from 20 countries, manages 70 U.S. terminals and continues to identify ways to secure supply for U.S. customers. Projects completed in 2013 included acquiring sites or facilities in Kentucky, Montana, South Dakota...

  • Page 17
    THOUSAND direct producer-owners through CHS retail locations TOP Minnesota workplace TOP U.S. property-casualty insurance agencies 11 75 HUNDRED member cooperatives PARTNERING IN GROWTH 100 When Andy Gehm envisions his farm's future, he sees growth and increased ownership of acres where he ...

  • Page 18
    Andy Gehm, Granville, Ill.

  • Page 19
    ... effectively managing risk and investing in human capital. The combined capabilities of the CHS Business Solutions suite of businesses - CHS Capital, LLC; CHS Hedging Inc.; and CHS Insurance (formerly Ag States Group); along with CHS Aligned Solutions - provide those services to member cooperatives...

  • Page 20
    ... of both agribusiness and the cooperative system, the skilled CHS Aligned Solutions team helped dozens of cooperatives refine their business plans; develop strategies for CEO succession; and improve employee recruitment, retention and training. The CHS Center for Cooperative Growth, launched late in...

  • Page 21
    ...covering ag business and farm business management at universities and organizations throughout the United States. Graduate-level cooperative education programs; soil, water and environmental studies; and technology-based learning programs will benefit from the initiative. In 2013, the CHS Foundation...

  • Page 22
    ... 14 11 12 01 Matt Krieser, Mendota, Ill. 02 Ed Kraft and Wes Burley, Laurel, Mont. 13 03 Jim, Margaret and Mark Jones, Mendota, Ill. 04 Brenda, Darren,...Dahm families, Standard, Alberta, Canada Bill and Scott Schuster, Phillips, Neb. Brian and Susie Harris, Lake Winnibigoshish, Minn. CHS 2013 27

  • Page 23
    ... millions* OWNER RETURN ON CHS EQUITY percent *Includes preferred stock and dividends 1,260.6 961.4 25.7 2009 25.3 2010 36.9 2011 40.6 2012 44.5 2013 381.4 2009 2010 2011 2012 992.4 502.2 2013 NET REVENUE dollars in billions NET INCOME dollars in millions* *Attributable to CHS 28 CHS 2013

  • Page 24
    ... the CHS Ag segment. The CHS wholesale crop nutrients business also reported lower earnings compared to fiscal 2012, primarily due to lower product margins and costs associated with a feasibility study under way on a proposed nitrogen fertilizer manufacturing plant. CHS Country Operations business...

  • Page 25
    ...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 Current portion of mandatorily redeemable noncontrolling interests Customer margin deposits and credit...

  • Page 26
    ... 31 (DOLLARS IN THOUSANDS) 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 attributable to noncontrolling interests...

  • Page 27
    ..., 2011 Dividends and equity retirement determination Patronage distribution Equities retired Equities issued Preferred stock dividends Distributions to noncontrolling interests Changes in dividends and equities payable Purchase of noncontrolling interests Other, net Comprehensive income: Net income...

  • Page 28
    ...DAT E D F I N A N C I A L S TAT E M E N T S PREFERRED STOCK ACCUMULATED OTHER COMPREHENSIVE LOSS CAPITAL RESERVES NONCONTROLLING INTERESTS TOTAL EQUITIES $ 319,368 $ (205,267) $ 820,049 4,091 (5,871) $ 268,787 $ 3,604,451 ...) 855 996,328 75,720 1,072,048 (390,153) $ 5,152,747 CHS 2013 33

  • Page 29
    ... major repair 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 Loss on crack spread contingent liability Deferred taxes Other, net Changes in operating assets and...

  • Page 30
    ...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...

  • Page 31
    ... of loss on fixed or partially fixed price sales contracts in the event market prices increase. Our commodity contracts primarily relate to grain, oilseed, energy (crude, refined products and propane) and fertilizer commodities. Our freight contracts primarily relate to rail, barge and ocean freight...

  • Page 32
    ...management and the Board of Directors. We monitor current market conditions and may expand or reduce our net position limits or procedures in response to changes in conditions. In addition, all purchase and sales contracts are subject to credit approvals and appropriate terms and conditions. Hedging...

  • Page 33
    ... expiring during fiscal 2014. None of CHS Capital's interest rate swaps qualify for hedge accounting and as a result, changes in fair value are recorded in earnings within interest, net in our Consolidated Statements of Operations. Long-term debt used to finance non-current assets carries various...

  • Page 34
    ... 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. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or...

  • Page 35
    ... of unrecognized tax benefits that will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist...

  • Page 36
    ... of mortgages, personal property, accounts and notes receivable, inventories and assignments of certain regional cooperative's capital stock. These loans are primarily originated in the states of Minnesota, Wisconsin and North Dakota. CHS Capital also has loans receivable from producer borrowers...

  • Page 37
    ...oilseed Energy Crop nutrients Feed and farm supplies Processed grain and oilseed Other $ 1,133,555 $ 1,625,865 742,194 293,370 407,023 79,706 8,887 701,348 401,655 384,178 76,892 14,034 As of August 31, 2013, we valued approximately 16% of inventories, primarily crude oil and refined fuels within...

  • Page 38
    ... combined financial information for our major equity investments, excluding Ventura Foods, for balance sheets as of August 31, 2013 and 2012, and statements of operations for the twelve months ended August 31, 2013, 2012 and 2011: (DOLLARS IN THOUSANDS) Current assets Non-current assets Current...

  • Page 39
    ... of our wheat milling facilities and related equipment to Horizon Milling under an operating lease agreement. The net book value of the leased milling assets at August 31, 2013 was $46.9 million. As a result of the pending Ardent Mills transaction described in Note 4, Investments, these assets...

  • Page 40
    ..., LLC (Cofina Funding), a wholly-owned subsidiary of CHS Capital, has available credit totaling $300.0 million as of August 31, 2013, under note purchase agreements with various purchasers, through the issuance of short-term notes payable. CHS Capital sells eligible commercial loans receivable it...

  • Page 41
    ...-year $250.0 million committed revolving credit facility for CHS Agronegocio to provide financing for its working capital needs arising from its purchases and sales of grains, fertilizers and other agricultural products. Long-Term Debt Long-term debt as of August 31, 2013 and 2012 consisted of the...

  • Page 42
    ... and state tax credits. NCRA files separate tax returns and, as such, these items must be assessed independent of our deferred tax assets when determining recoverability. Major maintenance Property, plant and equipment Other Total deferred tax liabilities Net deferred tax liabilities CHS 2013 47

  • Page 43
    ... federal income tax rate State and local income taxes, net of federal income tax benefit Patronage earnings Domestic production activities deduction Export activities at rates other than the U.S. statutory rate Valuation allowance Tax credits Non-controlling interests Other Effective tax rate 35...

  • Page 44
    ..., may be allocated to members in the form of nonpatronage equity certificates. The Board of Directors authorized, in accordance with our bylaws, that 10% of the earnings from patronage business for fiscal years 2013, 2012, and 2011 be added to our capital reserves. Redemptions are at the discretion...

  • Page 45
    ... all employees may participate. We also have 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, 2013 and 2012 is as follows: QUALIFIED PENSION BENEFITS (DOLLARS...

  • Page 46
    ... fiscal 2014 from accumulated other comprehensive loss into net periodic benefit cost is as follows: NONQUALIFIED QUALIFIED PENSION PENSION OTHER BENEFITS BENEFITS BENEFITS 2013. The rate was assumed to decrease gradually to 5.0% by 2022 and remain at that level thereafter. Assumed health care cost...

  • Page 47
    ...n s , co n t i n u e d We provide 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. We have other contributory defined...

  • Page 48
    ... is classified within Level 3 of the fair value hierarchy. Hedge funds: Valued at estimated fair value based on prices quoted by various national markets and publications and/or independent financial analysts. These investments are classified within Level 3 of the fair value hierarchy. CHS 2013 53

  • Page 49
    ... at the reporting date. The following tables set forth a summary of changes in the fair value of the plan's Level 3 assets for the years ended August 31, 2013 and 2012: 2013 (DOLLARS IN THOUSANDS) PARTNERSHIP AND JOINT REAL MUTUAL FUNDS VENTURE INTERESTS ESTATE FUNDS HEDGE FUNDS TOTAL Balances...

  • Page 50
    ... of the actuarial valuation of the plan and may change as a result of plan experience. In addition to the contributions to the Co-op Plan listed above, total contributions to individually insignificant multi-employer pension plans were immaterial in fiscal years 2013, 2012 and 2011. CHS 2013 55

  • Page 51
    ... as a wholesaler and retailer of crop inputs. Corporate and Other primarily represents our non-consolidated wheat milling and packaged food joint ventures, as well as our business solutions operations, which consists of commodities hedging, insurance and financial services related to crop production...

  • Page 52
    ...) ENERGY AG CORPORATE RECONCILING AND OTHER AMOUNTS TOTAL For the year ended August 31, 2013: Revenues Cost of goods sold Gross profit Marketing, general and administrative Operating earnings Gain on investments Interest, net Equity income from investments Income before income taxes Intersegment...

  • Page 53
    ... by observable market data for substantially 58 CHS 2013 the full term of the assets or liabilities. These assets and liabilities include marketable inventories, interest rate swaps, forward commodity and freight purchase and sales contracts, flat price or basis fixed derivative contracts and other...

  • Page 54
    ... and 2012 are as follows: 2013 QUOTED PRICES IN SIGNIFICANT ACTIVE MARKETS FOR SIGNIFICANT OTHER UNOBSERVABLE IDENTICAL ASSETS OBSERVABLE INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) (DOLLARS IN THOUSANDS) TOTAL Assets: Readily marketable inventories Commodity and freight derivatives Interest rate...

  • Page 55
    ... either the listed or OTC markets. Changes in the fair values of these contracts are recognized in our Consolidated Statements of Operations as a component of cost of goods sold. Other assets-Our available-for-sale investments in common stock of other companies, deferred compensation investments and...

  • Page 56
    ...our Level 3 financial instruments. Option pricing methods are utilized, as indicated above. Inputs used in the option pricing models are based on quotes obtained from third-party vendors as well as management estimates for periods in which quotes cannot be obtained. Each reporting period, management...

  • Page 57
    ... of certain soy protein products produced at our Ashdod, Israel facility following one customer's report to us of a positive test result for salmonella in product purchased from us. We notified applicable food safety regulators, including the Israel Ministry of Health and the U.S. Food and Drug...

  • Page 58
    ...follows: (DOLLARS IN THOUSANDS) 2013 2012 2011 Net cash paid during the period for: Interest Income taxes Other significant noncash investing and financing transactions: Capital equity certificates issued in exchange for Ag acquisitions Accrual of dividends and equities payable 18,211 390,153 29...

  • Page 59
    ... 2012 Receivables Payables $ 25,159 $ 31,485 51,716 60,659 The related party transactions were primarily with TEMCO, Horizon Milling, United Harvest and Ventura Foods. 8NOV201319002886 Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, net of taxes, as...

  • Page 60
    ... representing approximately 18.616% of NCRA's outstanding capital stock in four separate closings held or to be held on September 1, 2012, September 1, 2013, September 1, 2014 and September 1, 2015, for an aggregate base purchase price of $255.5 million (approximately $48.0 million of which has or...

  • Page 61
    ... results of operations. Purchase accounting has been finalized and fair values assigned to the net assets acquired were as follows: (DOLLARS IN THOUSANDS) Current assets Investments Property, plant and equipment Goodwill Definite-lived intangible assets Current liabilities Long-term debt...

  • Page 62
    ..., and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2013, 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 63
    ...and Government Relations committees. Served on the board of Rugby Farmers Union Elevator and four years on the former Harvest States Wheat Milling Defined Member Board. Currently a director of Envision. Past board member of North Central Experiment Station Board of Visitors and North Dakota Farm and...

  • Page 64
    ... of Capital and Government Relations committees. Previously served as a member of the Governance Committee, and as director and chairman for Enerbase of Minot, N.D., an energy and agricultural supply cooperative. Past director on the North Dakota Farmers Union (NDFU) board, the NDFU Mutual Insurance...

  • Page 65
    ... Professionalism course and received its Certificate of Director Education and Board Leadership Fellow status. David Johnsrud (2012): Member of the Government Relations and Corporate Responsibility committees. Director for AgCountry Farm Credit Services since 2001 and currently serves as chairman...

  • Page 66
    ... degree in business administration from Washington University, St. Louis, Mo. Jay Debertin , executive vice president and chief operating officer, Energy and Foods. Named in 2011 to his current position leading CHS energy operations, which includes refineries, pipelines and terminals; refined fuels...

  • Page 67
    ... range of CHS agricultural inputs and marketing areas, retail businesses, and grain-based food and food ingredients operations. Named executive vice president and chief operating officer for Ag Business in 2005. Serves as director for Horizon Milling, LLC. Is a longstanding member of the Minneapolis...

  • Page 68
    ...The financial section of this annual report was printed on paper certified by the Forest Stewardship Council (FSC), Sustainable Forestry Initiative (SFI) and Rainforest Alliance. Producers Bryan and Jessica Kleinheksel, Holland, Mich., count on CHS, Hamilton, Mich., for crop and energy inputs, feed...

  • Page 69
    5500 Cenex Drive Inver Grove Heights, MN 55077 651-355-6000 chsinc.com NASDAQ: CHSCP & CHSCO © 2013 CHS Inc.