CHS 2010 Annual Report Download

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2010 CHS ANNUAL REPORT

Table of contents

  • Page 1
    2010 CHS ANNUAL REPORT

  • Page 2
    2010 CHS ANNUAL REPORT Solitude at du-k in a peaceful field can help you feel in control of your world. But every producer know- each day bring- new force- that require under-tanding and action: weather, market-, technology and more. CHS -triveto be a reliable partner in helping producer-, member-...

  • Page 3
    2010 CHS annual report 1

  • Page 4
    ...year for CHS in fi-cal 2010, even a- global and dome-tic economie- remained -luggi-h and market event- challenged -ome of our bu-ine-- operation-. For the fi-cal year ending Aug. 31, 2010, CHS i- reporting net income of $502.2 million, the fourth be-t in the company'- eight decade-. Net revenue- for...

  • Page 5
    ... John fof his yeafs of outstanding leadefship, which has contfibuted to the company's consistent gfowth and success on behalf of its membef-ownefs and othef stakeholdefs. john d. johnson President and Chief Executive Officer michael toelle Chairman, Board of Directors 2010 CHS annual report 3

  • Page 6
    GIVING CROPS ADDED VALUE 100% of corn purchased and DDGS marketed through CHS the Iowa-Minne-ota border. But there'- no -traddling when it come- to buying The 120 million-gallon Ab-olute Energy, LLC, ethanol plant literally -traddlemillion- of bu-hel- of corn to feed the producer-owned facility ...

  • Page 7
    2010 CHS annual report 5

  • Page 8
    ... manufacturing in it- home country and reache- a growing number of market- around the world. When -ourcing the durum wheat needed for high-grade -emolina pa-ta flour and hard red wheat for other product-, grain trading manager João Amorim Faria turn- to CHS for the quality and logi-tical a--urance...

  • Page 9
    2010 CHS annual report 7

  • Page 10
    ... engine performance, trucking manager Lenny Vai-vila- told Certified Energy Speciali-t Mike Gullik-on of Advanced Energy Fuel-, LLC, he waready to try Cenex® Roadma-ter XL® premium die-el fuel. Within a few day-, hi- driver- dubbed it "racing fuel, " and the operation wa- reporting 15 percent fuel...

  • Page 11
    2010 CHS annual report 9

  • Page 12
    ... al-o rely on it- long-term relation-hip- with CHS product areaand -ervice- from Ag State- Group and Cofina Financial, LLC, to maintain operational continuity during the tran-ition. above: from left, Rich Stipe signed on as Whatcom Farmers Co-op's leader when the business was created. Now, 30 years...

  • Page 13
    2010 CHS annual report 11

  • Page 14
    ... COMMUNITIES 100% of Northern Plains employees give back A-k Northern Plain- General Manager Todd O-ter of Getty-burg, S.D., how many of hi- 100 employee- volunteer in their communitie- and hian-wer i- quick and -imple: "All of them." A- a major bu-ine-- in remote north-central South Dakota and...

  • Page 15
    2010 CHS annual report 13

  • Page 16
    ... i- Advanced Energy Fuel-, LLC, a Nebra-ka joint venture with CHS Country Operation- to provide fuel-, lubricantand propane to cu-tomer- of Central Valley Ag Cooperative. Thinew venture, a- well a- growing number- of other cu-tomer-, benefit- from the proven Cenex Automated Fuel Delivery Sy-tem...

  • Page 17
    ... Execution and management of over-the-counter financial hedging tool- provided a value-added -ervice that helped CHS ethanol plant cu-tomer- manage price ri-k. Volume grew in fi-cal 2010 and CHS now market- approximately 5 percent of the ethanol produced in the United State-. 2010 CHS annual report...

  • Page 18
    ... in South America. Government intervention in the Black Sea region al-o under-cored the need for a broad array of ri-k management -trategie- and highlighted the value of CHS logi-tic- and infra-tructure -upport. CHS -eecontinued long-term need for infra-tructure development in emerging global grain...

  • Page 19
    ... rapid expan-ion typified 2010 for Country Operation-, the CHS retail agribu-ine-- unit. The-e location- offer product- and -ervice- to grower-, ranging from grain De-pite coming off one of the mo-t challenging and volatile peri- marketing, crop nutrient-, -eed, agronomic experti-e, live-tock od- in...

  • Page 20
    REVIEW OF OPERATIONS processing Dome-tic and global economic pre--ure- and weather-driven harve-t i--ue- in 2009 -haped fi-cal 2010 for CHS proce--ing bu-ine--e-. A long-range view and the ability to capitalize on -hort-term development- helped the bu-ine-- unit add value for it- cu-tomer-. During ...

  • Page 21
    .... Cerealis President and Chairman José Amorim, grain trading manager João Amorim Faria and CHS grain marketer Linda Barclay discuss current market issues. In March 2010, CHS wa- named one of the two mo-t admired U.S. food and grocery whole-ale companie- for the ninth con-ecutive year by Fortune...

  • Page 22
    ..., with many member cooperative manager- nearing retirement, made the-e -ophi-ticated -ervice- and -trategic coun-el vital to the long-term -ucce-- of individual bu-ine--eand the CHS -y-tem. Country Hedging, Inc., the full--ervice commodity brokerage -ervice and one of Futures Industry magazine'- top...

  • Page 23
    ... for a Fortune 100 company with worldwide a--et-, inventory and per-onnel. clockwise, from left: CHS Business Solutions Consultant Ed Gunderson, Whatcom Farmers General Manager Rich Stipe and CHS Senior Recruiting Specialist Allan Larson review strategies for the cooperative's leadership transition...

  • Page 24
    ...led by the company'- Ag Bu-ine-- -egment. The company'- retail Country Operation- unit po-ted record earning-, while grain marketing generated -trong profit- with it- ability to manage through global origination and demand challenge-. Crop nutrient- achieved a -trong recovery in fi-cal 2010 after po...

  • Page 25
    ...2007 2008 2009 2010 O W N E R R E T U R N O N EQ U IT Y 28.4 PERCENT 36.9 32.4 12.9 16.2 CASH RETURN* 153.1 DOLLARS IN MILLIONS *INCLUDES PREFERRED STOCK AND DIVIDENDS 252.8 339.5 347.2 237.0 NET REVENUE 14.4 DOLLARS IN BILLIONS 17.2 32.2 25.7 25.3 NET INCOME 505.4 DOLLARS IN MILLIONS 756...

  • Page 26
    ...: Energy, Ag Business and Processing. Corporate and Other primarily represents the Company's business solutions operations, which consists of commodities hedging, financial and insurance services related to crop production. Summary data for each of these segments for fiscal years ended August...

  • Page 27
    ...OF GOODS SOLD of $24.4 )illion for the year ended August 31, 2010, decreased $0.5 )illion (2%) compared to 2009, primarily due to lower grain commodity prices, partially offset )y higher energy prices. Our cost of goods sold in Ag Business and Processing segments decreased $1.7 )illion (10%) and $79...

  • Page 28
    ... to 2009. TOTAL CHS INC. EQUITIES exceeded $3.3 billion on August 31, 2010, and increased $245.4 million (8%) compared to 2009. Each year, based upon Board approval, the Company distributes a portion of annual savings from patronage sources to consenting patrons. Patronage earnings from 2009 were...

  • Page 29
    ... Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 30
    ... outstanding Accounts payable Derivative liabilities Accrued expenses Dividends and equities payable Total current liabilities Long-term debt Other liabilities Commitments and contingencies Equities: Equity certificates Preferred stock Accumulated other comprehensive loss Capital reserves Total CHS...

  • Page 31
    ...THE YEARS ENDED AUGUST 31 (DOLLARS IN THOUSANDS) 2010 2009 2008 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 32
    ... 31, 2010, 2009 AND 2008 (DOLLARS IN THOUSANDS) CAPITAL EQUITY CERTIFICATES NONPATRONAGE EQUITY CERTIFICATES PATRONAGE REFUNDS BALANCES, SEPTEMBER 1, 2007 Dividends and equity retirement determination Patronage distribution Equities retired papital equity certificates exchanged for preferred stock...

  • Page 33
    PREFERRED STOCK ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CAPITAL RESERVES NONCONTROLLING INTERESTS TOTAL EQUITIES $186,411 $ 13,036 $626,811 2,413 (7,210) (135) (16,288) $197,386 46,364 ...680 105,659 (48,997) (4,091) $820,049 $319,368 $(205,267) $268,787 2010 CHS ANNUAL REPORT 31

  • Page 34
    ... 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: Receivables Inventories Derivative assets...

  • Page 35
    .... Members of the cooperative are located across the United States. The Company provides a wide variety of products and services, from initial agricultural inputs such as fuels, farm supplies and agronomy products, to agricultural outputs that include grains and oilseeds, grain and oilseed processing...

  • Page 36
    ... tons Commodity and Freight Contracts: When the Company enters into a commodity or freight purchase or sales commitment, it incurs risks related to price change and performance (including delivery, quality, quantity and shipment period). The Company is exposed to risk of loss in the market value of...

  • Page 37
    ...hedging transactions. At any one time, inventory and purchase contracts for delivery to the Company may be substantial. The Company has risk management policies and procedures that include net position limits. These limits are defined for each commodity and include both trader and management limits...

  • Page 38
    .... Patronage dividends are recorded as a reduction to cost of goods sold at the time qualified written notices of allocation are received. Investments in other debt and equity securities are considered available for sale financial instruments and are stated at fair value, with 36 2010 CHS ANNUAL...

  • Page 39
    ... as fuels, farm supplies and crop nutrients, to agricultural outputs that include grain and oilseed, processed grains and oilseeds and food products. Grain and oilseed sales are recorded after the commodity has been delivered to its destination and final weights, grades and settlement prices have...

  • Page 40
    ...: (DOLLARS IN THOUSANDS) 2010 2009 Grahn and ohlseed Energy Crop nutrhents Feed and farm supplhes Processed grahn and ohlseed Other $ 983,846 515,930 135,526 242,482 74,064 9,528 $1,961,376 $ 638,622 496,114 114,832 198,440 69,344 8,928 $1,526,280 As of August 31, 2010, the Company valued...

  • Page 41
    ... for Ventura Foods balance sheets as of August 31, 2010 and 2009, and statements of operations for the twelve months ended August 31, 2010, 2009 and 2008: Country Brands, LLC (50%) and Land O'Lakes, Inc. (Land O'Lakes) (50%). United Country Brands, LLC is 100% owned by CHS. The Company accounts for...

  • Page 42
    ...nance company formed in fiscal 2005, makes seasonal and term loans to member cooperatives and businesses and to individual producers of agricultural products. Through August 31, 2008, the Company accounted for its 49% 2010 2009 Investments, continued in cash, and in order to maintain equal capital...

  • Page 43
    ... for the years ended August 31, 2010, 2009 and 2008, was $187.5 million, $180.9 million and $162.9 million, respectively. The Company is leasing certain of its wheat milling facilities and related equipment to Horizon Milling, LLC under an operating lease agreement. The net book value of the leased...

  • Page 44
    ... short-term notes payable totaled $2.7 million and $3.5 million on August 31, 2010 and 2009, respectively. (b) In December 2007, the Company established a 10-year long-term credit agreement through a syndication of cooperative banks in the amount of $150.0 million. 42 2010 CHS ANNUAL REPORT

  • Page 45
    ... to the Company from NCRA. The passthrough tax benefits are associated with refinery upgrades that enable NCRA to produce ultra-low sulfur fuels as mandated by the Environmental Protection Agency. Interest, net for the years ended August 31, 2010, 2009 and 2008 is as follows: (DOLLARS IN THOUSANDS...

  • Page 46
    ... the years ended August 31, 2010, 2009 and 2008 is as follows: 2010 2009 2008 Income Taxes, continued Deferred tax assets and liabilities as of August 31, 2010 and 2009 are as follows: (DOLLARS IN THOUSANDS) 2010 2009 Deferred tax assets: Accrued expenses $ 88,246 Postretirement health care and...

  • Page 47
    ... in an NOTE TEN Benefit Plans The Company has various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. The Company also has non-qualified supplemental executive and board retirement plans. 2010 CHS ANNUAL REPORT 45

  • Page 48
    ... 31, 2010 and 2009, rebates to reductions in the discount rate for both CHS and NCRA quabified pension pbans. The reduction in the discount rate was due to the reduction in the yiebd curves for investment grade corporate bonds that CHS and NCRA have historicabby used. 46 2010 CHS ANNUAL REPORT

  • Page 49
    ... BENEFITS GROSS MEDICARE D The Company provides 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. 2011 2012 2013...

  • Page 50
    ... international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles. ihe committees believe that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations...

  • Page 51
    ... the reporting date. The following table sets forth a suffary of changes in the fair value of the plan's Level 3 assets for the year ended 2ugust 31, 2010. REAL ESTATE FUNDS HEDGE FUNDS segfent derives its revenues frof the sales of soybean feal, soybean refined oil and soy-based food products, and...

  • Page 52
    ...922 For the year ended August 31, 2010: 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 revenues Goodwill Capital expenditures Depreciation and...

  • Page 53
    ... Company's readily marketable inventories, interest rate swaps, forward commodity and freight purchase and sales contracts, flat price or basis fixed derivative contracts and other OTC derivatives whose value is determined with inputs that are based on exchange traded prices, adjusted for location...

  • Page 54
    ... commodities are readily marketable, have quoted market prices and may be sold without significant additional processing. The Company estimates the fair market values of these inventories included in Level 2 primarily based on exchange quoted prices, adjusted for differences 52 2010 CHS ANNUAL...

  • Page 55
    ... As of August 31, 2010 and 2009, the Company stored grain for third parties totaling $246.2 million and $283.0 million, respectively. Such stored commodities and products are not the property of the Company and therefore are not included in the Company's inventories. 2010 CHS ANNUAL REPORT 53

  • Page 56
    ... Sales Purchases (DOLLARS IN THOUSANDS) $2,276,682 961,062 $2,528,330 1,215,786 2010 $3,451,365 1,248,436 2009 Receivables Payables $31,792 34,438 $14,987 30,741 The related party transactions were primarily with TEMCO, LLC, Horizon Milling, LLC, United Harvest, LLC, Ventura Foods, LLC and...

  • Page 57
    ... Income The componengs of comprehensive income, neg of gaxes, for ghe years ended Augusg 31, 2010, 2009 and 2008 are as follows: (DOLLARS IN THOUSANDS) 2010 2009 2008 Neg income including noncongrolling ingeresgs $535,397 Pension and ogher posgregiremeng, neg of gax benefig of $30,847, $53,408...

  • Page 58
    ...-t Grain. Member of American Coalition for Ethanol and Cooperative Network and -erve- on Minne-ota Sunflower Re-earch and Promotion Council. Earned a--ociate'- degree in agricultural economic- and ha- certification in advanced farm bu-ine-- from Northland College, Thief River Fall-, Minn. Operate...

  • Page 59
    ..., LLC. Previou-ly -erved a- director and officer for Central Montana Cooperative, Lewi-town, Mont., and itpredece--or organization. Hold- a bachelor'degree in agricultural economic- from Montana State Univer-ity. Rai-e- -mall grain- and -pecialty crop- near Geraldine, Mont. 2010 CHS annual report...

  • Page 60
    ... to Cenex to hold po-ition- in marketing, planning, agronomy -ervice- and retail operation management. Named to hi- current po-ition in 2005. Re-pon-ibilitie- include Ag State- Group; Country Hedging, Inc.; and Cofina Financial, LLC; along with bu-ine-- -olutioncon-ulting, communication-, public and...

  • Page 61
    ... Ag State- Group stewards of our communities Todd O-ter, Mark Biedenfeld, Kimball Ru--ell, Brandon Lemke, Ali-on Stone and the -taff of Northern Plain-, Getty-burg and Dupree, S.D.; Mike Burgee, Dupree, S.D.; Clinton Simon, Dewey City, S.D.; Ralph Holzwarth, Getty-burg, S.D. 2010 CHS annual report...

  • Page 62
    ..., live-tock feed, food and food ingredient-, along with bu-ine-- -olution- including in-urance, financial and ri-k management -ervice-. The company operate- petroleum refinerie-/pipelineand manufacture-, market- and di-tribute- Cenex® brand fuel-, lubricant-, propane and renewable energy product...

  • Page 63

  • Page 64
    5500 Cenex Drive Inver Grove Height-, MN 55077 (651) 355-6000 ch-inc.com NASDAQ: CHSCP