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2015 CHS Annual Report

Table of contents

  • Page 1
    2015 CHS Annual Report

  • Page 2
    ... Leadership Letter Operations Report Financial Highlights Financial Report Board of Directors Executive Team Acknowledgements 02 08 24 26 68 71 72 Mike and Abby Cullinane, spown witp tpeir cpildren Meg and Maddox, rely on tpe cooperative system's commitment as tpey pelp out on tpe family farm...

  • Page 3
    ... in company pistory. Our revenues of $34.6 billion also declined, reï¬,ecting tpe market price-driven nature of our predominantly commodity businesses. • We returned $533.8 million to our owners in casp patronage, equity redemptions and dividends on preferred stock based on fiscal 2014 results...

  • Page 4
    ... of local energy, fertilizer and grain projects underway and in planning, many in partnerspip witp member cooperatives. In late summer, we also announced significant ownerspip and supply agreements witp CF Industries Nitrogen, LLC. • We built tpe strongest balance speet in CHS pistory, enabling...

  • Page 5
    ... to Energy NEARLY 1,500 CENEX® RETAIL SITES in 19 states "Growers know we provide a valuable energy supply and can come tprougp wpen tpe need is tpere." Scott Haller energy manager Country Partners Cooperative Cedar Rapids, Neb. 70+ CENEX LOCATIONS added in 2015 includes Cenex Zip Trip...

  • Page 6
    ..., the CHS commitment to provide farmers with reliable supplies of energy products and lubricants means expanding the Cenex® brand to serve more rural communities. Beyond high-quality diesel, gasoline, propane and lubricants, many Cenex retailers are the hub of their communities, where food quality...

  • Page 7
    ... YieldPoint in fiscal 2015 1,200% INCREASE in CHS XLR-rate® liquid starter fertilizer sales since 2013 Maria Abbott, CHS product manager, above, and Tim Swanson, upper rigpt, agronomy specialist, provide field-specific soil testing, precise input and crop protection recommendations, continual...

  • Page 8
    ... time cut costs. We need to get tpe most out of every input dollar." Darin Moen grower Alvarado, Minn. Steven Moen, rigpt, and son Darin of Alvarado, Minn., know tpe CHS commitment to tecpnology, plus traditional products and services, can pelp tpem succeed, particularly in softer commodity markets...

  • Page 9
    ... and global market opportunity and value for CHS farmer-owners "Tpe etpanol plant pas benefited us very mucp because it's so close and pas reduced our grain transportation costs." Lance Noggle corn grower Rocpelle, Ill. Etpanol represented OF U.S. CORN CROP of U.S. corn crop in 2015 IN 2015 Corn...

  • Page 10
    ...., ethanol plant and building Peru, Ill., terminal facilities will add significant value for all CHS owners, from meeting increased need for crop inputs and providing better access to grain markets to producing value-added fuel and high-quality feed ingredients. These enterprise value investments...

  • Page 11
    ...2.4m POUNDS OF FOOD distributed to needy families At tpe University of Idapo, Ekaterina Vorotnikova, Pp.D., rigpt, instructs Mai Nguyen, left, Brett Wilder and otper students on pow to maximize value for commodities bougpt and sold in tpe world marketplace. CHS supports tpe university's College of...

  • Page 12
    ... the crops to feed the increasingly hungry global population. It also rests on those who will emerge to lead our cooperative business structure,...working pis land near Pomeroy, Wasp., Brian Scoggin commits pis time to pis wife Alia and son Gabe and to pis community as a 4-H leader. He even manages ...

  • Page 13
    ... harvest and spring planting. Fiscal 2015 marked the highest volume of Cenex Ruby Fieldmaster® and Cenex Roadmaster XL® premium diesel fuel sales in company history, aided by increased refined fuel and other energy product sales through the CHS Country Operations retail network and a growing team...

  • Page 14
    ...leasing program through CHS Capital helped farms and other rural businesses add on-site storage to better manage supply and price risk. New offerings in autogas and anhydrous ammonia equipment assisted in demand growth and the development of new markets. Record lubricants earnings in 2015 resulted...

  • Page 15
    ... support and helped CHS owners augment services to customers. In 2015, AFD volume grew by more than 5 percent over the previous year. $450,000 IN FREE FUEL awarded since 2012 "We're building tpe Cenex brand wpile we build our capacity to deliver reliable supplies of fuel and lubricants to meet...

  • Page 16
    ... DAY 2019 (projected) Increased refining capacity and improved blending means more reliable supplies of quality lubricants, says Mark Goral, assistant farm manager at Stan's Inc., Alpena, S.D. CHS tecpnical conferences, training and information also pelp improve farmer knowledge and productivity...

  • Page 17
    ... and growth areas for CHS agriculture businesses in fiscal 2015. With ever-increasing grain yields amid a period of moderate commodity prices, CHS focused on providing quality crop inputs and finding high-value opportunities for marketing grain, including ethanol production. One example of that...

  • Page 18
    ...., facility, purchased in 2014, the two plants have the combined capacity to produce more than 250 million gallons of ethanol annually for "Partnering witp CHS on a barge loading facility gives our members access to global grain markets and fertilizer supply." Eric Anderson general manager Nortpern...

  • Page 19
    ... with CHS to provide long-term value to their members. CHS also invested in limited liability companies to serve owners affiliated with Illinois and Minnesota cooperatives. More than $344 million in capital has been committed to improve CHS Country Operations locations and support rural communities...

  • Page 20
    ... member- and farmer-owners by improving and acquiring assets, plus establisping joint ventures tpat will pelp ensure reliable supplies of inputs and access to global markets. Tpe CHS joint partnerspip witp CF Nitrogen, for example, creates supply sourcing efficiency and patronage-eligible fertilizer...

  • Page 21
    ... Hedging, CHS Capital, CHS Insurance and CHS Aligned Solutions worked individually and together in fiscal 2015 to provide creative risk-management strategies that supported cooperatives, farms and other rural businesses. These CHS businesses delivered innovative solutions and programs to help build...

  • Page 22
    ... enterprise resource planning and business process transformation, will enhance controls, compliance and risk management performance, while helping CHS deliver more efficient, higher-value service to customers in all its business areas. CHS Aligned Solutions continued to help recruit new CEOs and...

  • Page 23
    ... of operations, the Ardent Mills joint venture created new opportunities to add value for CHS wheat producers. Together, the CHS Foundation and CHS contributed more than $15 million in fiscal 2015 to develop future agricultural leaders, improve ag safety and build more vibrant rural communities...

  • Page 24
    ... new baseball park in St. Paul, Minn., has raised regional awareness of CHS and its value as a community partner and career option. Opened in May 2015, the facility proudly displays the CHS logo and is a welcome mat for potential customers, along with communities and future employees. The CHS Farm...

  • Page 25
    2011 2012 2013 2014 2015 OWNER RETURN ON EQUITY (percent) 28.8 32.2 22.3 21.1 12.1 NET SALES ($ in billions) 36.9 40.6 44.5 42.7 34.6 CASH RETURNM ($ in millions) 227.3 430.9 598.9 637.2 533.8 *Includes preferred stock and dividends NET INCOME ($ in millions) 961.4 1,260.6...

  • Page 26
    ...company's two Illinois ethanol plants. CHS Processing and Food Ingredients earnings in fiscal 2015 increased when compared with earnings in fiscal 2014; fiscal 2014 earnings included an impairment related to CHS Israel assets. CHS reports results for its Business Solutions operations and two food...

  • Page 27
    ... advance payments 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 Current portion of mandatorily redeemable noncontrolling interest Customer...

  • Page 28
    ... Statements of Operations FOR THE YEARS ENDED AUGUST 31 (DOLLARS IN THOUSANDS) Revenues Cost of goods sold Gross profit Marketing, general and administrative Operating earnings (Gain) loss on investments Interest expense, net Equity (income) loss from investments Income before income taxes...

  • Page 29
    ... of 2013 patronage refunds Redemptions of equities Equities issued Capital equity certificates exchanged for preferred stock Preferred stock dividends Other, net Net income Other comprehensive income (loss), net of tax Estimated 2014 patronage refunds Estimated 2014 equity redemptions BALANCES...

  • Page 30
    CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013 PREFERRED STOCK ACCUMULATED OTHER COMPREHENSIVE LOSS CAPITAL RESERVES NONCONTROLLING INTERESTS TOTAL EQUITIES $ 319,368 $ (232...) $ 2,167,540 $ (214,207) $ 1,604,670 $ 11,526 $ 7,669,411 CHS 2015 29

  • Page 31
    ...-term assets Customer margin deposits and credit balances Customer advance payments Accounts payable and accrued expenses Derivative liabilities Other liabilities Net cash provided by (used in) operating activities Cash flows from investing activities: Acquisition of property, plant and equipment...

  • Page 32
    ... series of preferred stock which are each listed on the Global Select Market of the NASDAQ Stock Market LLC (''NASDAQ''). See Note 9, Equities for more detailed information. We buy commodities from and provide products and services to patrons (including member and other nonmember customers), both...

  • Page 33
    ... financial statements using the equity method of accounting. Investments in other cooperatives are stated at cost, plus patronage dividends received in the form of capital stock and other equities. Patronage dividends are recorded as a reduction to cost of goods sold at the time qualified...

  • Page 34
    ... August 31, 2015, which were accounted for using the acquisition method of accounting. Operating results of the acquisitions were included in our consolidated financial statements beginning on the respective acquisition dates. The respective purchase prices were preliminarily allocated to the assets...

  • Page 35
    ... We provide a wide variety of products and services, from 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, and ethanol production and marketing. We recognize revenue when...

  • Page 36
    ... 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 which are collateralized by various combinations of growing crops, livestock, inventories, accounts...

  • Page 37
    ..., we formed Ardent Mills LLC (''Ardent Mills''), a joint venture with Cargill and ConAgra Foods, Inc., which combines the North American flour milling operations of the three parent companies, including the Horizon Milling assets and CHS-owned mills, with CHS holding a 12% interest in Ardent Mills...

  • Page 38
    ... tables provide aggregate summarized audited financial information for Ardent Mills (previously Horizon Milling), Ventura Foods and TEMCO including balance sheets as of August 31, 2015 and 2014, and statements of operations for the twelve months ended August 31, 2015, 2014 and 2013: (DOLLARS IN...

  • Page 39
    ...respectively. Six Other Assets Other assets as of August 31, 2015 and 2014 are as follows: (DOLLARS IN THOUSANDS) 2015 2014 Goodwill Customer lists, trademarks and other intangible assets Notes receivable Long-term receivable Prepaid pension and other benefits Capitalized major maintenance Other...

  • Page 40
    ... to capitalized major maintenance costs is summarized below: (DOLLARS IN THOUSANDS) BALANCE AT BEGINNING OF YEAR COST DEFERRED AMORTIZATION BALANCE AT END OF YEAR 2015 2014 2013 $ 67,643 109,408 70,554 $ 219,898 3,305 73,701 $ (45,953) (45,070) (34,847) $ 241,588 67,643 109,408 CHS 2015 39

  • Page 41
    ... credit facility for CHS Agroneg´ ocio Ind´ ustria e ´ cio''), our wholly-owned Com´ ercio Ltda (''CHS Agronego subsidiary, to provide financing for its working capital needs arising from its purchases and sales of grains, fertilizers and other agricultural products which expires in October 2016...

  • Page 42
    ... to include capital lease obligations that were previously accounted for as operating leases. See Note 18, Correction of Immaterial Errors for more information on the nature and amounts of these revisions. (DOLLARS IN THOUSANDS) 2015 2014 5.59% unsecured revolving term loans from cooperative and...

  • Page 43
    ...n u e d Long-term debt outstanding as of August 31, 2015 has aggregate maturities, excluding fair value adjustments and capital leases (see Note 5, Property, Plant and Equipment for a schedule of minimum future lease payments under capital leases), as follows: (DOLLARS IN THOUSANDS) 2016 2017 2018...

  • Page 44
    ...: 2015 2014 2013 Deferred tax assets: Accrued expenses Postretirement health care and deferred compensation Tax credit carryforwards Loss carryforwards Other Deferred tax assets valuation Total deferred tax assets Deferred tax liabilities: Pension Investments Major maintenance Property, plant and...

  • Page 45
    ... financial statement earnings. The cash portion of the qualified patronage distribution is determined annually by the Board of Directors, with the balance issued in the form of qualified and non-qualified capital equity certificates. Total qualified patronage refunds for fiscal 2015 are estimated...

  • Page 46
    ...preferred stock as of August 31, 2015, all of which are listed on the Global Select Market of NASDAQ: NASDAQ SYMBOL ISSUANCE DATE SHARES OUTSTANDING REDEMPTION VALUE NET PROCEEDS DIVIDEND RATE DIVIDEND PAYMENT FREQUENCY REDEEMABLE BEGINNING (a) (DOLLARS IN THOUSANDS) 8% Cumulative Redeemable Class...

  • Page 47
    ... August 31, 2015, 2014 and 2013 are as follows: PENSION AND OTHER POSTRETIREMENT BENEFITS UNREALIZED NET GAIN ON AVAILABLE FOR SALE INVESTMENTS FOREIGN CURRENCY TRANSLATION ADJUSTMENT (DOLLARS IN THOUSANDS) CASH FLOW HEDGES TOTAL Balance as of August 31, 2012 Current period other comprehensive...

  • Page 48
    ... all employees may participate. We also have non-qualified supplemental executive and Board retirement plans. Financial information on changes in benefit obligation, plan assets funded and balance sheets status as of August 31, 2015 and 2014 is as follows: QUALIFIED PENSION BENEFITS (DOLLARS IN...

  • Page 49
    ... PENSION BENEFITS (DOLLARS IN THOUSANDS) NON-QUALIFIED PENSION BENEFITS OTHER BENEFITS 2015 2014 2013 2015 2014 2013 2015 2014 2013 Components of net periodic benefit costs: Service cost Interest cost Expected return on assets Settlement of retiree obligations Prior service cost (credit...

  • Page 50
    ... stocks, as well as active and passive management styles. The committees believe that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations in the future. We have trusts that hold the assets for the defined benefit plans. CHS and CHS McPherson...

  • Page 51
    ... pension plans' recurring fair value measurements by asset category at August 31, 2015 and 2014 are presented in the tables below: 2015 (DOLLARS IN THOUSANDS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Cash and cash equivalents Equities: Mutual funds Common/collective trust at net asset value (1) Fixed income...

  • Page 52
    ... as part 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 2015, 2014 and 2013. CHS 2015 51

  • Page 53
    ... such as propane, may experience higher volumes and profitability during the winter heating and crop drying seasons. Our revenues, assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds, crop nutrients and...

  • Page 54
    ...(DOLLARS IN THOUSANDS) ENERGY AG CORPORATE AND OTHER RECONCILING AMOUNTS TOTAL For the year ended August 31, 2015: Revenues Operating earnings (Gain) loss on investments Interest expense, net Equity (income) loss from investments Income before income taxes Intersegment revenues Capital expenditures...

  • Page 55
    ... table presents our product sales, based on the geographic locations in which the sales originated, and our global service revenue for the years ended August 31, 2015, 2014 and 2013: (DOLLARS IN MILLIONS) 2015 2014 2013 North America South America Europe, the Middle East and Africa (EMEA...

  • Page 56
    .... These contracts are purchased and sold through regulated commodity futures exchanges for grain, and regulated mercantile exchanges for refined products and crude oil. We also use OTC instruments to hedge our exposure to price fluctuations on commodities and fixed-price arrangements. The price risk...

  • Page 57
    ... for contracts accounted for as derivatives in accordance with ASC Topic 815, Derivatives and Hedging. These revisions did not materially impact our previously issued consolidated financial statements. 2015 (UNITS IN THOUSANDS) LONG SHORT 2014 LONG SHORT Grain and oilseed- bushels Energy products...

  • Page 58
    ... Capital's interest rate swaps qualify for hedge accounting and as a result, changes in fair value are recorded in earnings within interest expense, net in our Consolidated Statements of Operations. Longterm debt used to finance non-current assets carries various fixed interest rates and is payable...

  • Page 59
    ... commodity and freight purchase and sales contracts with a fixed price component; and other OTC derivatives whose value is determined with inputs that are based on exchange traded prices, adjusted for location specific inputs that are primarily observable in the market or can be derived principally...

  • Page 60
    ... in 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. Deferred compensation and other assets-Our deferred compensation investments, Rabbi Trust assets and available-for...

  • Page 61
    ... 3 LIABILITIES ACCRUED LIABILITY FOR CONTINGENT CRACK SPREAD PAYMENTS RELATED TO PURCHASE OF NONCONTROLLING INTERESTS (DOLLARS IN THOUSANDS) 2015 2014 Balance-beginning of year Amounts currently payable Total (gains) losses included in cost of goods sold Balance-end of year $ 114,917 (2,625...

  • Page 62
    ... are included in long-term debt. See Note 5, Property, Plant and Equipment and Note 7, Notes Payable and Long-Term Debt for more information about capital leases. Minimum future lease payments required under noncancelable operating leases as of August 31, 2015 were as follows: (DOLLARS IN THOUSANDS...

  • Page 63
    ... but not yet paid (1) Capital lease obligations incurred Capital equity certificates redeemed with preferred stock Capital equity certificates issued in exchange for Ag acquisitions Accrual of dividends and equities payable Assets contributed to Ardent Mills joint venture (1) 60,226 9,741 - 15...

  • Page 64
    ...acquisition of Illinois River Energy LLC, which operates an ethanol plant that will expand our grain origination opportunities and increase renewable fuels capacity. Additionally, we acquired the fertilizer business and assets of T erral RiverService, a transportation service company specializing in...

  • Page 65
    ... of the ASC 840-10-25-1 criteria 64 CHS 2015 that require a lease to be classified and accounted for as a capital lease. Consequently, prior period amounts in the financial statements, notes thereto and related disclosures contained in this Annual Report on Form 10-K for the year ended August 31...

  • Page 66
    ... assets for which cash had not yet been paid, resulting in misstatements of both investing and operating cash flows. We have revised prior period amounts in the financial statements, notes thereto and related disclosures contained in this Annual Report on Form 10-K for the year ended August 31, 2015...

  • Page 67
    ... 31 2014 (DOLLARS IN THOUSANDS) AS PREVIOUSLY REPORTED REVISION AS REVISED AS PREVIOUSLY REPORTED 2013 REVISION AS REVISED Cash flows from operating activities: Depreciation and amortization Changes in operating assets and liabilities, excluding the effects of acquisitions: Accounts payable and...

  • Page 68
    ... 2014, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2015, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management...

  • Page 69
    ..., Executive Committee • Represents CHS on the Quentin Burdick Center for Cooperatives; former member, Rugby Farmers Union Elevator, Harvest States Wheat Milling Defined Member Board, North Central Experiment Station Board of Visitors, North Dakota Farm and Ranch Business Management Advisory Board...

  • Page 70
    ..., CHS Annual Meeting Resolutions Committee • Member and chairman, River Region Co-op; former chairman, Southern Minnesota Co-op Directors' Association; former secretary, Minnesota State Co-op Directors' Association; former member, Brown County Farm Service Agency county committee, AgStar Financial...

  • Page 71
    ... planning committee • Operates a family dairy, hog and crop farm Perry Meyer • New Ulm, Minn.; elected 2014 • Member, Capital and CHS Foundation Finance and Investment committees • Director, Heartland Corn Products Cooperative; member, United Farmers Co-op, South Central Grain and Energy...

  • Page 72
    ... and North American grain marketing and agronomy (crop nutrients) operations; and enterprise strategy functions, including information technology, human resources, planning and strategy • Director, Ventura Foods, LLC; Ardent Mills, LLC • M.B.A., Washington University • Joined CHS in...

  • Page 73
    ... process, from crop input and energy product supply, to processing and transportation, to domestic and foreign markets - all to help our owners grow. CHS greatly appreciates the following producers, member cooperatives and employees who shared their time and stories to help create this annual report...

  • Page 74
    ... a globally integrated energy, grains and foods system innovatively linking producers to consumers. OUR MISSION To grow company profitability and stakeholder value. OUR VALUES At CHSN our values include a tradition of partnership and shared success. We build lasting and mutually rewarding customer...

  • Page 75
    5500 Cenex Drive Inver Grove HeightsN MN 55077 651-355-6000 chsinc.com NASDAQ: CHSCPN CHSCON CHSCNN CHSCMN CHSCL