Growmark Annual Report by Mandy Gradert

Annual Report 2013â&#x20AC;&#x201C;2014

CONTENTS Who We Are Our Commitment Our History What We Do Our Impact Looking Forward Year In Review Our People

10 20 23 42 50 53 90

A MESSAGE FROM OUR BOARD MEMBERS While we enjoy a history of success in the Growmark System, the status quo will not move us forward. We need to constantly challenge whether our programs and activities provide value. Is our innovation, technology, and efficiency the best it can be? Will we meet the more sophisticated demands of our owners and customers? Seeking answers to these questions is critical to improving the way we do business, how we market our products and services, and how we improve the value we bring to our members and customers. We know our past is a solid foundation and provides guidance in driving innovation and execution. Our Farm Bureau heritage and the long history of our System remain core strengths today.

With an eye on history and a strong awareness of industry changes, couple with the recognition that our Mission and Vision lead our System, earlier this year, we examined our strategic goals and values, to ensure they represent how we build our business. We continue to hold to our Mission and Vision statements; they guide us every day. But we added more definition to those statements. The outcome was a new strategic focus on what every employee needs to do every day. That strategic focus is, â&#x20AC;&#x153;To develop and deliver leading edge products, service, knowledge, and technology through high level expertise and strategic assets.â&#x20AC;? Every day, the employees of our System serve the most sophisticated producers of food in human history. Our charge,

our focus, is to know what this market will demand, provide the highly-skilled employees to measure up to those demands, and support our employees with efficient, high-performing assets. We have reflected on our past and set the table for our future. With our strong strategic focus in place, Growmark will continue to be the best agricultural cooperative in North America.

DAVID R. KELLY PRESIDENT

JOHN D. DAVENPORT VICE PRESIDENT

MISSION At GROWMARK we are proud of our rich history. Our mission, to improve the

long-term profitability of our member-owners, is reflected in all we do. We strive to be the best agricultural cooperative system in North America, which is made possible through the dedication of our skilled and respected employees.

Since our founding in 1927, the GROWMARK System has been a company of

ethical integrity. Shaped over 50 years ago, our company values have remained constant through changing times.

OUR VALUES + GOALS TIME-HONORED VALUES COUPLED WITH FORWARD-THINKING STRATEGIC GOALS, A WINNING COMBINATION THAT GUIDES THE GROWMARK SYSTEM. OUR VALUES

OUR GOALS

• Improve the profitability of farming for agricultural producers

• Foster a strong member system

• Provide fair and equitable treatment for employees • Preserve member ownership and control • Maintain sound financial policies and practices • Support Farm Bureau

• Develop our people • Grow and expand our business • Pursue acquisitions, mergers, and business ventures • Generate 12% Pre-tax Return on Invested Capital (PROIC).

• Operate under sound business ethics and principles • Promote the welfare of the community

OUR GOVERNANCE As a regional cooperative, Growmark is led by a 16 member

the knowledge, skills, and abilities of board members to

elected directly by the member cooperatives that own

as cooperative directors. In order to provide for the further

board of directors, all full-time agricultural producers

Growmark. Members of the Growmark Board of Directors participate in the development of the Growmark System strategic plan and are committed to transparency, open communication, and ethical oversight.

All Growmark directors undergo comprehensive training and complete the Growmark Certified Cooperative

Director Program. This program is designed to increase

better carry out their individual and team leadership roles

education and certification of System leadership, Growmark recently established the Advanced Director Certification

Program, a 12-month intensive program to broaden business perspective, increase knowledge of strategic System issues, and enhance leadership skills.

OUR SUBSIDIARIES AGRIVISOR, LLC

MID-CO

A joint venture with the Illinois Farm Bureau, AgriVisor delivers in-depth market analysis and grain and livestock marketing recommendations. AgriVisor also offers brokerage services tailored to fit individual needs.

MID-CO offers professional price-risk management services including up-to-the-minute market information and futures and options execution on all major exchanges of agricultural commodities.

GROWMARK, FS

SEEDWAY

Formerly known as Agway Agronomy, GROWMARK FS was acquired by GROWMARK, Inc. in 2002 and provides wholesale and retail agronomy services and solutions in the eastern United States.

This wholly-owned subsidiary markets one of the most extensive and diverse commercial vegetable seed product lines in the industry, sold from the Rocky Mountains to the East Coast and in Ontario, Canada. SEEDWAY also offers extensive lines of turf and farm seed.

MANITO TRANSIT

STAR ENERGY

This wholly-owned subsidiary operates truck tractors and liquid hauler trailers to distribute fuels, for farm, home, and industrial uses. Manito Transit is located in Ashkum, Ill.

Acquired by GROWMARK in 2007, STAR Energy offers a complete line of refined and renewable fuels, lubricants, additives, and propane to residential, commercial and industrial consumers in northwestern Iowa and beyond.

DOING THE RIGHT THING Growmark is invested in the financial, environmental, and

We are proud to represent the Growmark System and

of success is reflected in those values. Primarily, we are

organization. We invite you to explore the Growmark

social aspects of our business, and our long-term view

agriculturalists who are committed to producing a safe, plentiful, and affordable food supply through business

practices that protect and replenish our natural resources.

appreciate the opportunity to serve as leaders of this great Systemâ&#x20AC;&#x2122;s commitments to responsible business practices and corporate citizenship through the pages that follow.

We value our customers and strive to conduct business and make strategic decisions based upon their best interests today and the foreseeable future. We are personally

committed to leaving our organization and our industry better than it was when we became involved.

RESPONSIBILITY IN ACTION: ADVOCATING FOR SOLUTIONS Much attention has been fovused on nutrient management

in recent years, fron the ‘dead zone’ in the Gulf of Mexico to water quality concerns in the Chesapeake Bay Watershed.

As environmentalist and legislators look for ways to correct these issues, agriculture has found itself the subject of

enhabnced scrutiny and stricter regulations concerning the use of nutrients for growing crops.

The Growmark System has long promoted the use of

technology that allows nutrients to be applied only when

and where needed for optimal use and conversation of our natural resources.

“Just think about M.O.M. -Minimizing environmental

impact, Opitmizing harvest yields, and Maximizing input utilization,” said Dr. Howard Brown, Growmark director, nutrient management and environmental stewardship.

“Nitrogen management is important to ensure nitrogen

is available to nourish growing plants when they need it, 12

and not being transferred out of the soil into lakes, rivers, streams, and other bodies of water.”

Proactive monitoring of nitrogen use led to the development of the N-Watch program, which tracks nitrogen levels in

the soil and determines what nitrogen is needed to produce

optimum yields. The program began in 2012 and has grown to more than 300 fields throughout Illinois.

On the East Coast, farmers have been working in

partnership with Growmark FS (GFS) and other industry associations to address water quality issues in the Chesapeake Bay Watershed.

CONSERVATION OF NATURAL RESOURCES

Our daily business practices display a commitment to protecting the plante’s precious natural resources. We encourage site-specific application of crop inputs and

using GPS-configured grid soil sampling and variable rate application equipment.

CONSERVATION OF NATURAL RESOURCES

COMPLIANCE WITH LAWS AND REGULATIONS

protecting the planteâ&#x20AC;&#x2122;s precious natural resources. We

provincial, and local environmental health, and safety

using GPS-configured grid soil sampling and variable rate

accountable for compliance with these policies and

Our daily business practices display a commitment to

Growmark complies with applicable federal, state,

encourage site-specific application of crop inputs and

statues and the regulations. We hold all employees

application equipment.

trust them to implement proceduces within their area of

The result if products are applied only where needed and

i nthe proper ammounts. The Growmark System provides

crop genetics that support reduced tilage practices and help farmers manage weed and pest problems. We promote the use of buffer strips to reduce soil eroision. In addition,

responsibility.

MITIGATING RISKS

Growmark employs environmental services experts who

provide technical assistance in environmental compliance, pollution prevention, and remediation activities.

PROMOTION OF CLEAN SOIL, AIR AND WATER

In-house expertise is offered in engineering containment

quality of our natural resources. We bring a sound-science

our professionals are involved with any new venture

and services we provide.

due diligence is completed before the transaction

Conservation is essential, but so are actions to enhance the

systems for the products we offer to customers. In addition,

approach to recommendations for the sue of the products

Growmark might undertake to ensure that environmental goes forward.

RESPONSIBILITY IN ACTION: PROMOTING ALTERNATIVE FUELS Propane has been used for cooking and as a heat source

HOOPESTON AREA SCHOOL DISTRICT

portability. A by-product of natural gass processing and

in east-central Illinois received an interesting offer from

doe not contaminate the water or soil.

district would disable two of its oldest diesel buses, they

in homes and agriculture for years, due to its safety and

In the summer of 2012, the Hoopeston Area School District

crude oil refining, it is a plentiful domestic fuel source that

Blue Bird Corporation, Its school bus supplier. If the

Recently, the use of propane as a cehicle fuel source has been receiving a great deal of attention. The U.S. Department

of Energy estimates there are as many as 147,000 on-road

propane vehicles in the United States, many of which are

would qualify for a $50,000 rebate from the U.S. EPA on the

purchase of two new propane buses. After working through the projected fuel savings and adding in additional rebates

from the Illinois EPA, the district decided to move forward.

used in fleet applications, such as school buses, police cars,

Since Illini FS already supplied the district with diesel fuel,

making it even more attractive because of the availability of

contacted Chris Olson, Illini FS LP and retail marketing

or shuttles. Propane is considered an alternative fuel source,

Rod Comstock, Hoopeston Area School District bus driver,

state and federal grants.

manager, to see how they could work together on supplying

The Growmark System is pleased to use its expertise in the propane industry to work with customers considering propane as a vehicle fuel.

fuel for the new propane buses.

The school district has been running the new busses since

August 2013, and used 4,500 fewer gallons of fuel, about a $9,000 savings in the first three months.

CITY OF SPRINGFIELD

When considering a consolidation of four independent

fleets--police, fire, public works, and solid waste--The city of Springfield, Illinois, decided to look at ways to reduce overall costs.

While attending a training conference in St. Louis, MO, William McCarty, director of the Office of Budget and

Management, went to a workshop on using propane to fuel fleets.

McCarty applied for and received several grants to offset

the cost of converting 17 police cars and seven public works trucks to a bi-fuel system; meaning they can run on both

Since converting the cehicles, the city has been very pleased with the results. Fuel costs and emisions are reduced, and

horsepower is improved, as onboard computers adjust the timing of the engine to allow it to run at peak efficiency. “We set this up as a public/private partnership and it’s

worked very well,” McCarty said. “Prarieland FS has been very responsive to our requests and we’re hapy to share our experiences with potential customers looking to do something similar.”

The City of Sprinfield received an award from GreenFleet, naming it the 37th greenest city fleet in North America.

propane and gasoline, depending on availability.

AN ETHICAL PLATFORM CORPORATE ASSETS AND FINANCIAL INTEGRITY When dealing with business and accounting principles, Growmark employees are requred to make appropriate and accurate entries in the accountign records with regard to any use of its assets, sales of goods, or expenses reported. Growmark maintains an internal auditing department to ensure compliance with policies and practices. We also ndergo an external audit annually.

ACCOUNTABILITY

CODE OF CONDUCT

Growmark’s continued strength depends upon the protection of our business reputation, coporate assets, and financial integrity. In today’s business environment, having a strong and effective compliance program is a prudent and effective practice.

The Growmark Code of Conduct is a set of principles and rules governing employees’ conduct as they carry out the busienss of Growmark. Every employee is charged with understanding and obeyeing the laws and regulations associated witht their actions in the locality of their business operation.

“To be the best...,” as our vision statement challenges us, is not just measured by the bottom line. It also includes how we do business. Integrity is a deep-seeded value. To help ensure our culture of accountabiility remains strong, Growmark has in place a

CODMPLIANCE PROCEDURES Compliance procedures help ensure that employees understand and comply with the Growmark Code of Conduct and the incorporated policies and guidelines. One way we promote a culture of compliance is thorugh annual training programs for all employees.

PRACTICING SAFETY COMMITMENT TO SAFETY

conduct onsite OSHA and DOT audits

place for employees to work and to

recommendations to local management.

We strive to proved a safe and secure be good neighbors inthe communities where we do business. Our Safety

Services staff develops and administers proactive safety, health, and accident prevention programs to protect

human and physical resource of

Growmark, out customers, and the surrounding communities.

We conduct specialized training in all areas of U.S. Occupational

Safety and Health Administration

(OSHA) and U.S./State Department

of Transportation (DOT) regulations through industry-specific programs

we have developed. In addition, we

and facility inspections, and provide

To help our affiliated retail members/ dealers develop safety strategies, we

provide risk assessment checklists and links to vital government information and directives. We have developed a

guide for agricultural chemical facilities titled â&#x20AC;&#x153;Security from Acts of Terrorismâ&#x20AC;? which focuses on employee and office safety, transportation issues, and facility security.

Record review for all employees who drive on Growmark business. COMMITMENT TO SAFETY

Growmark is committed to operating in

a manner that protects the environment, the value of its property, and the health and safety of its emplyees, and the

safety of the communities in which

our cooperative system operates. An

environmental Health and Safety policy is an integral part of the Growmark Corporate Compliance Program.

Workplace violence is not tolerated

at Growmark and we have adopted a

drug-free workplace policy. Growmark has instituted a Safe Driver Program,

which requires a periodic Motor Vehicle 17

THE GROWMARK WAY •We are a member-owned cooperative governed by a board of directors compromised of active farmers committed to the best interest of all memebers. The governance structure provides great transparency to decision-making.

•We provide comprehensive personnel training to ensure that they are eknowledgeable about safety and environmental reisks and prepared to respond to or correct any actions that could adversely affect the enironment.

•We are committed to operating under sound business ethics and principles.

•We employ Environment Services personnel to assess needs, recommend solutions, and assist with remediation if necessary.

•We support business practices that protect our natural resources. Clean air, healthy soils, productive plant life, and a clean water supply are essential to agriculture and the quality of life we enjoy in North America. •Our personnel are extensively trained to make crop input recommendations based on sound science that maximizes crop yields and minimizes any adverse impact on the environmnet. We focus on providing the correct agronomic and economic information combined with products and services. •We develope and endorse best management practices for use of energy products, and we have strongly supported renewable fuels for more than 40 years. 18

•We support organizations that demonstrate shared commitments to protecting natural resources. •We support organizations that demonstrate shared commitments to protecting natural resources. •We endorse recyclingn and reuse of all products possible •We are committed to giving back to our communities through support of charitable organizations, educational institutions, and the promotion of responsible stewarship of our natural resources.

1920

Farm Bureau members organize local cooperatives in the United States.

1955 1955

Illinois Farm Supply Company adopts the FS trademark.

FS Services, Inc. Organizes through the merger of Illinois Farm Supply and Farm Bureau Service Company of Iowa.

1969

1927

FS Services Inc. and Illinois Grain Corporation enter into a â&#x20AC;&#x153;Combination of Effortsâ&#x20AC;? agreement.

Nine local cooperatives organize to form Illinois Farm Supply Company.

1961

The corporate office of Illinois Farm Supply Company moves from Chicago to Bloomington, Ill.

2000

1980

The consolidation of FS Services, Inc. and Illinois Grain Corporation establishes Growmark, Inc.

Growmark begins marketing products directly to additional cooperative customers throughout the Midwest and in eight western states.

2007

Growmark acquires the assets of STAR Energy, LLC.

AgVantage, STAR, New Century, Servco, and Frontier FS become retail divisions of Growmark

2008

1994

GROWMARK acquires the assets of United Cooperatives of Ontario, and more than 30 member cooperatives in the Canadian province join the System.

2010

Growmark acquires the Menard County refined fuels terminal near Petersburg, Ill.

2002

Growmark acquires agronomy and seed businesses in the northeastern U.S. which are operated as Growmark FS, LLC and Seedway, LLC.

A commitment to integrity, quality products, and strong industry relationships make us the right choice for a reliable supply of agronomic inputs.

The Growmark Agronomy division offers all of the products and services an agricultural retailer needs to provide for farmer success. Growmark Agronomy offers a comprehensive seed line-up. FS Seed is engineered specifically with the Midwestern grower in mind, and Growmark also carries national brands like NK, Asgrow, and Dekalb to diversify the seed portfolio. Growmarkâ&#x20AC;&#x2122;s complete offering of plant food products, FS-branded and generic adjustments, surfactants, and crop protection products ensure superior yields and acre for acre productivity.

New fertilizer facilities in Vinton and Stuart, Iowa, are now operational, and expansion at Chapin, Iowa, will add 24,000 tons of dry fertilizer storage capacity. In December, we became the sole owner of the former CF Industries terminal in Cincinnati, Ohio by purchasing the 50 percent interest of our partner, Bunge North America. Also, this year, we began leasing Bunge fertilizer assets located in Council Bluffs, Iowa, and Fulton, Illinois. The addition of these facilities to our existing terminal portfolio provides efficient sourcing support for our area retailers.

The FS seed corn line, re-branded as FS InVISION, continues to focus on local development, local recommendations, and local results. FS HiSOY, the oldest proprietary soybean brand in the United States, remains a leader in adoption of new genetics and technology. Our seed line-up is diversified and comprehensive, and we benefit from partnering relationships with Monsanto and Syngenta to offer fast adoption of leading traits and genetics.

The Growmark Energy division proudly provides customers with energy products and services from the United Lubricants, Archer Oil, Dieselex Gold, FS, and Growmark brands.

The GROWMARK Energy division offers a complete line of refined and renewable fuels, propane, and lubricants to FS cooperatives and retail energy providers. Growmarkâ&#x20AC;&#x2122;s positioning on several major pipelines and ownership or partnership in a refinery and numerous fuel terminals ensures a reliable supply of quality products. In addition to expertise in supply and distribution, the GROWMARK Energy division provides assistance

to members and customers in the development of efficient operations and effective retail marketing strategies. Industry-leading technical services, information, training, and a full line of hedging and contracting tools to manage price risk are also available. In addition to enhancing our existing terminals at Ft. Dodge, Iowa, and Petersburg, Illinois, and increasing access to supply from other refineries and pipelines, we have acquired

a petroleum terminal at Ashkum, Illinois, to serve East Central Illinois members and customers. We also acquired Manito Trucking and Hansen Transfer, providing a fleet of 30 trucks and tankers, used in the distribution of refined fuels and lubricants, giving us more direct control over distribution

Growmark Facility Plannings mission is to provide equipment, facilities, and services that improve the operating efficiency of our customers.

Using the latest technologies, most respected suppliers, and our own team of licensed engineers, the Facility Planning division at GROWMARK delivers maximum value. Increases in farm size, facility size, and hauling equipment necessitate efficient product handling systems. Growmarkâ&#x20AC;&#x2122;s Facility Planning division and the licensed engineers at NewTech Engineering, a wholly-owned subsidiary of GROWMARK, are equipped to design and build custom operating systems to meet unique needs.

The individual departments: facility equipment, grain systems, commercial grain systems, and NewTech Engineering, LLC, work with Agronomy, Energy, and Grain Divisions to bring value to many projects throughout the year.

Relationships with more than 50 respected manufacturers, including John Deere, AGCO, Case IH, Caterpillar, Ford, and GM allow for member and non-member sales of more than 100 tractors, 200 application unites, and 300 pickup trucks.

More than 7 million bushels of onfarm grain storage was constructed through FS grain systems operations at 16 member cooperative and independent dealers. In addition, design and construction of approximately 3 million bushels of commercial elevator storage was performed for grain member cooperatives

The Growmark Grain Division serves membersâ&#x20AC;&#x2122; administrative needs, partners with members, creates new marketing alliances, and provides risk management solutions.

The Growmark Grain Division includes 80 members and companies in Illinois, Wisconsin, and Iowa. These 80 companies market over 800 million bushels of grains and oilseed annually into river, rail, and processor markets. Growmark Grain Division works with these companies on long-range planning, business development, and at times, partners with grain companies on large capital projects that add value for member owners. Growmark is partnering with nine members in retail grain elevator companies in both the US and Canada.

The Grain Division also enters into partnerships that provide new markets and/or supply chains for members. We provide risk management solutions for both commercial elevators and producers through Mid-Co Commodities and AgriVisor LLC. Our latest partnering effort with members is Eastern Grain Marketing, located near Kankakee, Illinois. This partnership between GROWMARK and Heritage FS supported the construction of a 110-car shuttle loading facility on the Norfolk Southern railroad and allows us to generate additional value

from our investment in Central States Enterprises, a partner firm with significant rail capacity and destination markets. Despite the drought going into this year, our grain business performed better than expected, originating 130 million bushels of grain, and operated at near break even for the year. The decision to re-enter the grain business in 2006 has set the table for whatâ&#x20AC;&#x2122;s become a very successful and dynamic segment of our Grain business.

Our goal in the Growmark Logistics division is to ensure that our clients can provide their customers with the right inputs at the right time.

A variety of transportation options are used to accomplish that goal. More than 125,000 truckloads of fuel, propane, lubricants, anhydrous ammonia, liquid and dry fertilizer, and dry cargo are arranged each year. Our traffic department also coordinates more than 1 million tons of rail and barge fertilizer shipments a year.

To improve efficiency, most bulk product shipments are received in two warehouses, located in Alpha, Ill. And Kitchener, Ontario, and distributed from there to our clients on regular route loads. Both facilities are ISO 9001:2008 compliant, signifying quality control from receipt of the product to its final delivery.

AGRONOMY FACTS

MILLION

IN ANNUAL SALES

OF PRODUCTS ANNUALLY TO PROTECT CROPS AND MAXIMIZE YIELDS.

The Plant Food Division sells approximately 2.8 million tons of fertilizer annually to meet growersâ&#x20AC;&#x2122; needs in producing high-yielding, high-quality crops.

$98 MILLION

OF 1.4 UNITS CORN

$300 MILLION $98 MILLION

IN ANNUAL SALES

$98 MILLION

MILLION

THE CROP PROTECTION DIVISION SELLS APPROXIMATELY

$98 MILLION

2.4 SOYBEANS

UNITS OF

ANNUAL AGRONOMY SALES 2009-2013

FS is an innovator, first on the market with many biotechnology products. FS Seed and the System-supported brands offer farmers a complete line of seed and technology. 34

$98 MILLION

Agronomic Services provides technical training and recommendations through newsletters, technical bulletins, webinars, and in-person training throughout the year to more than 15,000 people annually.

ENERGY FACTS

APPROXIMATELY

Annual volume for the Energy Division exceeds

1.6 BILLION Gallons of gasoline, distillates, and propane. These products and lubricants are marketed by FS member cooperatives in Illinois, Iowa, and Wisconsin and to member cooperatives and non-member customers in

of gasoline marketed by FS member cooperatives and

subsidiaries contains a

ETHANOL BLEND

25 STATES EAST OF THE ROCKY MOUNTAINS. GROWMARK owns a lubricant production facility and two lubricant distribution centers in its core geographical area. Lubricant and grease products are sold in 20 states and in the province of Ontario, Canada. ILLINOIS

IOWA

WISCONSIN

44% 37% 19% Percentage of energy products sold by State

GRAIN FACTS

GROWMARK Grain includes 79 members companies and grain partnerships in Illinois, Iowa, Wisconsin, and Ontario who market more than

$1 BILLION

PERCENTAGE OF GRAIN MARKETS

bushels of grain and oilseed annually into rail, processor, and export markets.

ILLINOIS RIVER MISSISSIPPI RIVER LAKE PORTS CLASS 1 RAILROADS SHORT LINE RR ETHANOL PLANTS

The GROWMARK Grain Division serves membersâ&#x20AC;&#x2122; administrative needs, partners with members, creates new marketing alliances, and provides risk management solutions.

FACILITY PLANNING FACTS

THE GRAIN SYSTEM AREA WORKS WITH A BROAD LINE OF PRODUCTS FROM

50+

The Facility Equipment area offers national account programs with:

RESPECTED MANUFACTURERS AND IS ONE OF THE

$5 MIL.

$3.8 MIL.

we were able to help our customers in approximately 15 STATES upgrade their fleets by almost 700 UNITS,

$2 MIL.

member cooperative and non-FS customer markets. Our mission is to provide equipment, facilities, and services that improve the operating efficiency of our customers.

$1 MIL.

PURCHASERS OF GRAIN SYSTEM EQUIPMENT IN THE INDUSTRY

FACILITY PLANNING + SUPPLY offers a wide array of products and services that serve the

$.5 MIL.

LARGEST

ANNUAL EQUIPMENT SALES 2009-2013

LOGISTICS FACTS

125,000 TRUCKLOADS OF PRODUCTS EACH YEAR TO LOCAL COOPERATIVES.

1,300 LOADS DAILY DURING PEAK SEASON

The Growmark System receives 6,500 RAIL SHIPMENTS and more

than 400 BARGE SHIPMENTS each year. The Logistics Division directly manages a percentage of these shipments to ensure the System receives the best combination of service and cost.

ILLINOIS

IOWA

WISCONSIN

42% 38% 17%

13MILLION THESE TRUCK DRIVERS TRAVEL MORE THAN

MILES EVERY YEAR

GROWMARK FACTS

$10 BILLION. GROWMARK’S ANNUAL SALES FOR 2012 WERE OVER

2012

2011

2010

2009

2008

THEIR HIGHEST EVER.

6,500 GROWMARK EMPLOYS

PEOPLE

SYSTEM WIDE

VERMONT • PENNSYLVANIA NEW YORK • FLORIDA

Seedway markets one of the most complete and diverse vegetable seed product lines in the industry.

FS is an innovator, first on the market with many biotechnology products. FS Seed and the System-supported brands offer farmers a complete line of seed and technology. GROWMARK SERVES OVER

100,000 +

FARM, RESIDENTIAL, AND COMMERCIAL CUSTOMERS

Our business is built on relationships that have stood the test of time. Eighty-six years ago, a group of Farm Bureau members seeking a reliable supply of quality products at a reasonable price joined together to accomplish that goal by forming the first FS cooperatives. In the decades since, new generations have stepped in to lead our cooperative system, with the inherent understanding of the need to work together to achieve growth and prosperity for all. Customers trust the advice from their local cooperative, and our employees

are regarded as experts. We enjoy this level of expertise because of strategic business relationships, alliances, and cooperative memberships which offer all parties the benefits of shared knowledge and resources. Growmark has a number of subsidiary businesses and retail divisions, each playing a different and important role in bringing the most current, relevant, and profitable business information to our members and customers.

DEERE AND GROWMARK, INC. COLLABORATE BLOOMINGTON, Ill. And OLATHE, Kan. - (Feb. 24, 2014) - In an effort to facilitate better decision-making, GROWMARK and John Deere are collaborating to deliver near real-time field level data to producers and FS Crop Specialists. The companies are linking FS Advanced Information Services (FS AIS), a suite of precision agronomy software, with John Deere Wireless Data Transfer, JDLink™ and MyJohnDeere. GROWMARK is among the first agricultural retailers to leverage the Wireless Data Transfer Application Programming Interface (API) for its precision agronomy decision support software, making data exchange faster and more useful for growers and its

FS company staff. This enables the crop specialists to work closely with their customers to make important management decisions, incorporating the latest field data. Ron Milby, GROWMARK executive director, Agronomy Marketing, said the GROWMARK Agronomy mission is to help producers focus on improving yields and productivity. “Through this collaboration with John Deere and our software partner, AgIntegrated, Inc., We are making it easier for our crop specialists to work with their farmers using near real time data.” “The collaboration with GROWMARK is a prime example of John Deere working with our customers’

trusted advisors,” said Pat Pinkston, Vice President of Technology and Information Solutions, John Deere. “John Deere is committed to increasing customer success by enabling data to be available when and where needed. This integration between FS AIS and MyJohnDeere.com makes it easier for customers to connect with their trusted advisors.” Producers will utilize an efficient and secure interface between FS AIS and MyJohnDeere, taking advantage of both Companies’ commitment to supporting better decisions through improved data integration at the field level. This includes the ability to easily transfer work instructions, prescriptions, and product lists to the GreenStar™ 3 2630 display. 43

GROWMARK INC. ACQUIRES CANTON PROPANE TERMINAL (Bloomington, Ill.) – GROWMARK, Inc., Bloomington, IL, has acquired the Canton, SD Propane Terminal from Magellan Pipeline Company, L.P. This acquisition will bolster Growmark’s access to propane, expand its propane storage capacity, and enhance Growmark’s ability to provide a reliable supply of propane to its members and customers. Kevin Carroll,

GROWMARK Vice President, Energy and Logistics, said the acquisition provides a strategic opportunity for both our wholesale and retail propane businesses. “Our retail division, STAR Energy, recently acquired Siouxland Propane, expanding our footprint into the South Dakota geography. This terminal will support the expanded footprint and enhance our supply

for other areas of our System. It’s a strategic move that strengthens our presence in this geography.” The Canton, SD facility provides storage capacity of more than 300,000 gallons and capability to fill two semitruck tanks simultaneously.

MENARD TERMINAL GRANTED BQ-900 CERTIFICATION GROWMARK is pleased to announce that the Menard Terminal, near Petersburg, Ill., has been granted BQ-9000 certification by the National Biodiesel Accreditation Committee. BQ-9000 certification differentiates the organization in the marketplace by demonstrating Growmark’s commitment to offering superior products and taking the extra steps needed to preserve their quality. It is the industry’s ultimate recognition for marketers that focus on biodiesel quality and positive experiences for customers. The National Biodiesel Accreditation Program, called BQ-9000, is a cooperative and voluntary program for the accreditation of producers and marketers of biodiesel fuel. The

program’s criteria for certification combine the ASTM standard for biodiesel, ASTM D6751, with a quality systems program that includes storage, sampling, testing, blending, shipping, distribution, and fuel management practices. The facility features include heated storage, insulated piping, filtration and a pulse blending system. Biodiesel offered at Menard is 100% soy-based and meets all of the requirements of the industry standard, ASTM D6751, and the more stringent GROWMARK Quality Assurance Program. Blends in 2%, 5%, 11% and 20% for both clear and dyed diesel fuel are available. Dieselex Gold and SURE-FLO IV are also available for blending at the rack.

The Menard Terminal facility was purchased in August 2008, and offers storage for more than 10 million gallons of gasoline, diesel fuel, ethanol, and biodiesel. Custom biodiesel blends are made with a state-of-the-art ratio blending system. Member cooperatives and other customers within a 100mile radius are served by this facility. display Yield data, as-applied maps and work records can be transferred back to the FS AIS software. This means more accurate records, eliminates duplicate data entry and simplifies movement of the information to improve decision making, productivity and the customer’s bottom line.

GROWMARK EMPLOYEES RECOGNIZED BY NCFC Bloomington, Ill. â&#x20AC;&#x201C; Ten GROWMARK employees were recognized at the 2013 National Council of Farmer Cooperativesâ&#x20AC;&#x2122; (NCFC) Information Fair, a communications contest that recognizes excellence in the publications, member relations, and marketing products of farmer cooperatives. Earning first place honors were: Jenny Haycraft, marketing

communications specialist, and Sam Skemp, general manager, FrontierServco FS, in the Advertising Leaflet/ Brochure (108 sq.in. or less) category; Heather Thompson, corporate strategic development manager, in the Online Publications category; and Haycraft, Jeff Bunting, marketing manager, crop protection, Mark Thornsbrough, manager, crop protection division

and Mike Scheer, manager, agronomy marketing and communications, in the Advertising Catalog/Product Guide category. Second place honors were given to: Haycraft, Thornsbrough, Bunting and Scheer in the Advertising Catalog/Product Guide category; Karen Jones, corporate relations and cooperative education specialist.

SEEDWAY CELEBRATES 50TH ANNIVERSARY (Hall, NY): SEEDWAY is commemorating its 50th anniversary in 2013, celebrating sustained growth and five decades of seed and service to growers across the eastern United States. SEEDWAY is one of the few remaining full-line seed companies, offering of comprehensive line of farm, turf and vegetable seed. Speedway’s origins began in 1923 with the formation of Robson Seed Farms, a mail order vegetable and flower seed business in Hall, NY. In the 1960’s a second business began operation, Robson Quality Seeds, the marketing arm of Robson Seed Farms. In 1963, Carl Fribolin of Geneva, NY, joined Robson Quality Seeds and the

SEEDWAY foundation was laid, with the ownership and name officially changing in 1971. In 1987 SEEDWAY was sold by its private ownership to Agway, Inc. Northeast and Mid-Atlantic cooperative based in Syracuse, NY. In December 2002, GROWMARK, Inc. purchased SEEDWAY. Initially, the company built its reputation in commercial and home garden vegetable seed sales. As the company grew, it expanded its product offering to include farm seed and eventually turf seed. Growth through acquisition has been a consistent theme for SEEDWAY. Some notable purchases include; Seem Seed Farms in 1974, Todd Seed Company in 1982, Scarlett

Seed Company in 1983, Carlton Seed in 1990, Burpee Commercial Vegetable Seed in 1996, S&M Vegetable Seed in 1998, Agriculver Seeds in 2003, and Olds Garden Seed in 2011. SEEDWAY will hold commemorative events for employees and customers throughout the summer at company locations. Events include the 50th annual kickoff meeting for northern division farm seed dealers in September, an event in Hall, NY that has been held every year since the company’s inception in 1963. The kickoff meeting annually launches the fall sales season and recognizes dealers for sales achievements.

FORMER SOURCE MAGAZINE GETS A NEW LOOK You might recognize the return address on the outside, but the ‘old’ Spirit Magazine is now the ‘new’ SOURCE. We started with new leadership elected at the annual meeting and now we ahve a new name and magazine formate for the poeple of the Growmark system. The name SOURCE draws its name from its core purpose — to be a source of information for employees, retirees and friends of the Growmark system — whats happening out at our member cooperatives as well as within our System. The new, expanded format will help us cover more activities per issue and be able to recognize and highlight how our members are serving their customers. We wil have more topics,

which will showcase the breadth and depth of what Growmark has to offer its cutomers as well as a more expansive reach into all things relative to the agriculture industry. And we will have special — some light hearted and some more serious — intent on engaging and delighting the readers. If you have a story, a joke to share or some photos that show what is happening in your world, pass it onto the staff for consideration. The ‘old’ electronic delivery system is ‘new’ too. You will be able to access more stories and updates of stories from the printed ediiton on the run and in between issues. And the electronic version will have links to more in

depth covers of topics included in the magazine. These electronic versions will live in the Growmark.com media center as well as on our Growmark facebook page. While I don’t think of myself as ‘old’ although I have served on the board since 1993, I am looking forward to serving the people of Growmark in this New Year and hearing your comments on the SOURCE.

A NEW CAMPAIGN FOR FS

Some things do get better with age, and the FS brand is a shining example. Since being introduced in 1955, the FS brand has consistently represented local knowledge, trust, and dependability. Through the decades, the FS brand has been a leader in bringing technological advancements to customers through products with superior formulations, and through services that adapt technology into practical applications that improve customer’s operations. As a marketing asset, the FS brand has always been a competitive force, with a compelling story to tell. FS advertising campaigns have used slogans as a way to illustrate the breadth of the FS brand in ways that are meaninful

to FS emplooyees, and memorable to customers and prospects. The best brands, like FS, are dynamic and constantly evolve as customers’ needs change. This evolution is communicated in marketing strategies and through advertising campaigns. Beginning in February, the FS brand will be represented by a new campaign sporting th etheme, “FS: Bringing you what’s next,” to demonstrate how FS consistently points the way forward. This new theme positions FS for the future and presents the FS brand in a way that demonstrates confidence, while continueing to reinforce the FS brand’s core attributes: Trusted Advisor, Professional, Dependable, and Local.

Campaign materials are being created for print, radio, video/TV, and there will be a new web landing page under the URL fssystem.com, that will serve as a portal to other FS product microsites. The copy, layout, and visuals in all campaign materials present FS as the business partner of choice that helps its customers navigate challenges, and move their operations forward towards their next ultimate level of success.

2012-2013 ACCOMPLISHMENTS • Reorganized our Member Services Division to reduce

• We created an intern program at the community college

management which further strengthens our lines

to fit the critical needs of our members for highly-skilled,

a layer between our members and GROWMARK of communication.

level, focused specifically on technical and operational skills local employees.

• We have reorganized in the Agronomy Divisions to

• We asked Dr. Howard Brown to focus on the critical

positioning us as the industry leader in the delivering

puts our best resources at the forefront of developing new

address the changing needs of the marketplace, better information and technology.

• We have combined government relations and corporate

communications to strengthen our influence about issues

issues of nutrient management and water quality. This

management tools and education programs, benefiting

not only the GROWMARK System, but the interests of our industry.

important to the System and to provide more leadership in sharing our culture with our new employees.

A LOOK AT OUR 2012-2013 FINANCIAL YEAR INCOME 43 FINANCIAL STATEMENT 44 CASH FLOWS 46 STATEMENT OF SHAREHOLDERâ&#x20AC;&#x2122;S EQUITY

STATEMENT OF OPERATIONS 50

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) Consolidated Net Income

2013

2012

$189,782

$249,573

Other comprehensive income, net of tax: Unrealized net holding loss on available-for-sale securities

(2,894)

(43,355)

Foreign currency translation adjustments

(5,445)

(509)

Unrealized gain on derivative financial instruments

1,867

2,900

Defined benefit and other post retirement

78,093

(54,611)

Other Comprehensive income (Loss)

71,621

(95,575)

Comprehensive Income

261,403

153,998

Less: comprehensive income attributable to non-Growmark ownership in subsidiaries

(3,885)

(5,892)

257,518

148,106

Comprehensive income attributable to Growmark

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) ASSETS 2013 2012 Current Assets: • Cash and equivalents $ 63,307 24,634 • Segregated funds 39,109 71,416 • Receivables-net 627,833 845,294 • Inventories 705,955 801,011 • Prepaid expenses and other assets 54,323 88,013 • Ownership in cooperative 46,035 46,035 • Deferred income taxes 12,815 994 TOTAL CURRENT ASSETS

1,551,377

1,879,399

Other assets 78,141 111,609 Ownership in cooperatives and others 345,591 429,423 Property, plant and equipment: • Land and improvements 68,119 57,302 • Buildings 124,909 103,937 • Machinery and equipment 306,849 266,003 • Transportation equipment 92,166 82,039 • Leasehold improvements 10,585 10,262 • Construction in progress 48,599 31,826 Less accumulated depreciation $ 260,515 209,192

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) LIABILITIES AND SHAREHOLDER’S EQUITY

2013 2012

Current liabilities: • Notes payable • Accounts payable • Patronage refunds payable in cash • Long-term debt due within one year • Customer prepayments • Other current liabilities

$ 11,000 351,329 73,493 2,785 165,677 167,034

109,612 448,206 62,054 2,750 210,644 334,607

TOTAL CURRENT LIABILITIES

601,315

1,167,875

Long-term debt Other long-term liabilities GROWMARK shareholders’ equity: • Capital stock • Retained earnings • Accumulated other comprehensive income/(loss)

265,436 119,748 396,798 684,874 7,740 1,089,412

291,389 229,812 411,597 642,892 (63,811) 1,089,412

Non-Growmark ownership in subsidiaries

86,907

990,678

TOTAL EQUITY

1,176,319

82,876

TOTAL LIABILITIES AND EQUITY

2,762,630

TOTAL GROWMARK SHAREHOLDERS’ EQUITY

2,365,821

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) OPERATING ACTIVITY

2013

2012

Consolidated net income $ 189,782 249,573 Less: Net income attributable to non-GROWMARK ownership in subsidiaries (3,815) (6,054) Net income attributable to GROWMARK 185,967 243,519 Patronage 145,335 158,182 Net income attributable to GROWMARK and after patronage $ 40,632 85,337 Depreciation 54,625 50,381 Amortization 1,969 861 Non-cash earnings and patronage received (3,869) (19,296) Patronage refund declared in stock 71,886 96,145 Other non-cash items 30,815 17,391 Net gain on available-for-sale securities (28,627) (80,721) Net gain on other ownership interests (6,333) Segregated funds 32,309 4,343 Changes in operating assets and liabilities, net of effects of acquisitions: • Accounts and notes receivable 222,411 (106,165) • Inventories 105,193 (85,089) • Accounts payable (67,732) 65,738 • Patronage refunds payable 11,439 26,597 • Other long-term liabilities 4,436 (7,220) • Vendor prepayments 38,134 68,726

(CASH FLOWS CONT.)

â&#x20AC;˘ Customer prepayments â&#x20AC;˘ Other assets/liabilities Net cash provided by operating activities

2013 (54,412) (210,847) 242,029

2012 (124,800) 103,296 95,524

OWNERSHIP ACTIVITY Proceeds from sale of available-for-sale securities 61,321 106,372 Purchases of available-for-sale securities (6,033) (4,301) Purchases/redemption of ownership in cooperatives and others 54,448 7,882 Purchases of property, plant and equipment (75,834) (70,045) Proceeds from sale of property, plant and equipment 3,880 3,334 Acquisition of businesses, net of cash acquired (32,917) (1,605) Net cash provided by ownership activities 4,865 41,637 FINANCING ACTIVITY Decrease in term debt, net Decrease in short-term borrowings, net Redemption of preferred stock Dividends on preferred stock Net cash used by financing activities Net increase in cash and equivalents Cash and equivalents at beginning of year Cash and equivalents at end of year $ Supplemental disclosures of cash flow information Cash paid during the year for:

(22,918) (98,612) (86,685) (6) (208,221) 38,673 24,634 63,307

(36,977) (64,202) (18,158) (408) (119,745) 17,416 7,218 24,634

INTEREST $ 25,584 25,421 INCOME TAXES 28,568 50,076 57

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

NON-GROWMARK CAPITAL RETAINED OTHER OWNERSHIP IN STOCK EARNINGS INCOME SUBSIDIARIES Balance at August 31, 2011

333,610

556,401

31,602

71,123

Net earnings before patronage refunds

----

243,519

----

6,054

Adjust non-GROWMARK ownership insubsidiaries

----

1,160

----

(1,160)

Cash dividends on preferred stock

----

(6)

----

Preferred stock redemption

(18,158)

----

Patronage dividends to be distributed in cash

----

(62,037)

----

Patronage dividends to be distributed in capital stock

93,895

(93,895)

----

Patronage dividends to be distributed in non-qualified capital stock

2,250

(2,250)

----

Contributions by owners

----

7,343

Distributions to owners

----

(322)

• available-for-sale securities $(70,722), net of tax $(27,228)

----

(43,494)

139

Foreign currency translation adjustments $(882), net of tax $(312)

----

(570)

Balance at August 31, 2012

$ 411,597

642,892

(63,811)

82,876

Unrealized net holding loss on

NON-GROWMARK CAPITAL RETAINED OTHER OWNERSHIP IN STOCK EARNINGS INCOME SUBSIDIARIES Net earnings before patronage refunds

----

185,967

----

3,815

Adjust non-GROWMARK ownership in subsidiaries

----

1,356

----

(1,356)

Cash dividends on preferred stock

----

(6)

----

Preferred stock redemption

(86,685)

----

Patronage dividends to be distributed in cash

----

(73,449)

----

Patronage dividends to be distributed in capital stock

68,655

(68,655)

----

Patronage dividends to be distributed in non-qualified capital stock

3,231

(3,231)

----

Contributions by owners

----

3,124

Distributions to owners

----

(1,622)

Unrealized gain on derivative financial instruments $3,214 net of tax $1,347

----

1,867

----

Defined benefit and other postretirement plan adjustments $124,701, net of tax $47,480

----

77,221

872

Balance at August 31, 2013

$ 396,798

684,874

7,740

86,907

CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

10,171,211

10,057,429

9,844,144

9,680,922

Net sales

Cost of sales

Gross margin 327,067 376,507 General, administrative and selling expense

(154,065)

(147,401)

Other income - net 39,484 18,003 Total operating income 212,486 247,109 Pretax income

217,033

302,801

Income tax expense

(27,251)

(53,228)

Consolidated net income

189,782

249,573

Less: Net income attributable to nonGROWMARK ownership in subsidiaries

(3,815)

(6,054)

Net income attributable to GROWMARK

185,967

243,519

Distribution of net income attributable to GROWMARK: Patronage - cash $ - preferred stock - non-qualified - preferred stock

73,449 68,655 212,486 3,231

62,037 93,895 247,109 2,250

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 1. PRINCIPAL ACCOUNTING POLICIES A. ORGANIZATION GROWMARK, Inc. (the Company) is an agricultural cooperative corporation operating for the benefit of its common shareholders/patrons. The Company is prmarily a wholesale supplier of agricultural products operating principally in the Midwestern UnitedStates and the Province of Ontario, Canada. Through certain divisionssubsidiaries, the Company is a retail supplier in the Northeastern and Midwestern United States, and Ontario Canada. Pursuant to its Certificate of Incorporation and Bylaws, Common Stock shall be issued only to agricultural producers or to associations of agricutural producers meeting the requirements of and operating in accordance with the provisions of an Act of Congress entitled the “Agricultural Marketing Act,” as amended (12 U.S.C. § 1141), or an Act of Congress known as the Capper-Volstead Act (7 U.S.C. § 291), or by cooperatives which serve agricultural producers, and which are incorporated under and governed by the Cooperative Corporations Act of Ontario, Canada (R.S.O. 1990 c. C.35), as amended, or comparable legislation of Canada or another province of Canada (“Associations of Producers”). Further, no dividends shall be paid on the common stock. Whenever full dividends upon all classes of preferred stock at the rate specified shall have been paid or declared, all remaining earnings for the year, after providing for such reasonable reserves and additions to retained earnings as may be determined by the Board of Directors, shall be distributed and paid in cash, property, qualified or nonqualified

written notices of allocation, patronage equity credits, notes, stock or stock credits to the commonshareholders and, at the discretion of the Board of Directors, to nonmember patrons upon the basis of patronage. In the event of distribution of retained earnings, such distribution shall be made to the common shareholders. B. CONSOLIDATION POLICIES The consolidated financial statements of GROWMARK, Inc. include the accounts of the parent company and its wholly-owned and majorityowned subsidiaries. C. CASH AND EQUIVALENTS Cash and equivalents includes all short-term highly-liquid negotiable instruments with original maturities of three months or less. D. FINANCIAL INSTRUMENTS The Company believes that the carrying value of its financial instruments, which include cash and equivalents, segregated funds, accounts receivable, notes receivable and accounts payable, approximates their fair value based on market rates currently available for financial instruments with similar terms and remaining maturities (note 10). The Company has determined it is not practical to calculate the fair value of debt without incurring excessive cost to do so. See notes 5 and 6 for disclosure about fair values of available for sale investments and derivatives, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 E. RECEIVABLES Receivables are stated net of an allowance for doubtful accounts of $12.8 million at August 31, 2013 and $14.1 million in 2012. The Company estimates the allowance based on an aging of the recei ables and an evaluation of the likelihood of success in collecting the receivables. Aging for delinquency purposes is based on the due dates and terms of the receivables. Receivables are written off through a charge to the allowance for doubtful accounts after reasonable collection efforts have been made and management has determined collection is doubtful. F. OWNERSHIP IN NONSUBSIDIARY COOPERATIVES Securities of nonsubsidiary cooperatives which have been purchased are carried at cost, and securities received as patronage refunds are carried generally at par value, less adjustments for impairments. The Company believes it is not practicable to estimate the fair value of the securities without incurring excessive costs because there is no established market for these securities and it is highly subjective to estimate future cash flows which are largely dependent on future patronage earnings of the nonsubsidiary cooperatives. The Company does not reflect its potential equity in the undistributed earnings of nonsubsidiary cooperatives. The Company believes that it would be entitled to receive portions of the undistributed earnings of certain nonsubsidiary cooperatives in the event of liquidation of these cooperatives. However, the amounts which would be received are subject to various uncertainties and unpredictable future events, including changes in

the share of the business of these nonsubsidiary cooperatives done with the Company in future years, the form of any distributions and the taxability thereof, and legal interpretations as to the methods of computation of the Companyâ&#x20AC;&#x2122;s share of any such future distributions. Such uncertainties preclude reasonable determination of such amounts prior to actual liquidation of the nonsubsidiary cooperatives and resolution of the uncertainties. G. ACCOUNTING FOR SALES-BASED TAXES The Company follows a policy of accounting for taxes on a net basis when the tax is assessed by a governmental authority and is both imposed on and concurrent with revenue-producing transactions. H. INVENTORIES AND COST OF SALES Inventories are valued at the lower of cost or market, except for grain which is valued at market. Cost is determined on the firstin, first-out method. Beginning September 1, 2012, the inventory valuation method used for propane was changed from average cost to first-in, first-out. close examination of inventory management practices revealed that the first-in, first-out method more accurately reflected the actual movement of inventory value. Prior year financial statements have not been revised, and the cumulative impact of $3.9 million is recorded as a charge in cost of sales in the current year. Patronage refunds are recorded when received.. included in the Consolidated Statements of Operations primarily as reductions of cost of sales. Costs related to the storage, handling and distribution of products sold by the company are included in cost of sales.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 I. INTANGIBLES

M. ACCOUNTING PRONOUNCEMENTS

The Company and its subsidiaries have goodwill and other intangible assets primarily including trademarks, customer lists, and covenants not to compete (see Note 4). In accordance with Accounting Standards Codification (ASC) 350 – Intangibles – Goodwill and Other, goodwill is subject to an annual impairment test.

In February 2013, Accounting Standards Update (ASU) 201302, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, was issued and is effective for fiscal years beginning after December 15, 2013. ASU 2013-02 is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. Substantially all of the information required by this new standard is already required to be disclosed, however, he new requirement will present, in one place, information about significant amounts reclassified and, in some cases, crossreferences to related footnote disclosures. Currently, this information is presented in different places throughout the financial statements. Adoption of the standard will not have an impact on key metrics for the Company.

J. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost less accumulated depreciation. Depreciation is determined on the straight-line method for all assets. K. FOREIGN OPERATIONS Included in the Company’s Consolidated Statements of Financial Position at August 31, 2013 and 2012 are the total assets of its Ontario, Canada operations which total approximately $197 million ($262 million in 2012.) L. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

N. SUBSEQUENT EVENTS Subsequent events have been evaluated through October 10, 2013 which is the date that the financial statements were available to be issued. O. RECLASSIFICATIONS Certain amounts in the 2012 financial statements have been reclassified to conform to the 2013 presentation. 2. ACQUISITIONS During 2013, the Company and its subsidiaries acquired various wholesale and retail businesses in the energy, agronomy, and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012

Receivables, inventory, and other current assets

17,395

Property, plant and equipment and other long-term assets

28,741

Intangibles 10,698 Total identifiable assets acquired

56,834

Notes, accounts payable, and other current liabilities

10,616

Long-term debt and other long-term liabilities assumed

1,222

Total liabilities assumed

11,838

Net identifiable assets acquired

44,996

Goodwill 2,654 Net assets acquired

47,650

Goodwill in the amount of $2.7 million was recognized as a result of the acquisitions, some of which is not expected to be deductible for tax purposes. The goodwill arising from the acquisitions consists largely of the synergies and economies of scale expected

from combining the operations of the Company and those of the acquirees. The fair value of accounts receivable acquired was $4.3 million. During 2012, the Company and its subsidiaries acquired various retail businesses in the energy sector of the agricultural industry. The aggregate purchase price was $1.6 million. Also during 2012, a subsidiary of the Company formed a joint venture with a member cooperative to create a retail grain operation in Illinois. 3. SEGREGATED FUNDS A significant portion of the segregated funds of a subsidiary of the Company is held in interest-bearing accounts by ADM Investor Services, Inc., the subsidiaryâ&#x20AC;&#x2122;s principal clearing broker. nonsubsidiary cooperatives done with the Company in future years, the form of any distributions and the taxability thereof, and legal interpretations as to the methods of computation of the Companyâ&#x20AC;&#x2122;s share of any such future distributions. Such uncertainties preclude reasonable determination of such amounts prior to actual liquidation of the nonsubsidiary cooperatives and resolution of the uncertainties.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012

2012

2013

Assets held in trust by captive insurance subsidiary $

28,832

26,184

Goodwill

8,851

6,197

Other intangible assets

13,256

5,362

Deferred income tax

------

48,082

Other

27,202

25,784

78,141

111,609

TOTAL OTHER ASSETS

Other intangible assets include customer relationships, noncompete agreements, trademarks, and tradenames. Amortization expense was $2.0 million for the year ended August 31, 2013 and $0.9 million for the year ended August 31, 2012. Estimated amortization expense for the succeeding five years is ($ in thousands):

2014 $2,295 2015 2,203 2016 1,591 2017 1,419 2018 1,182

3. SEGREGATED FUNDS (CONTINUED) At August 31, 2013, the gross pre-tax unrealized gains on long-term available-for-sale securities were $51.0 million. There were no gross pre-tax unrealized losses on long-term available-for-sale securities, resulting in a net unrealized gain of $51.0 million (or $31.4 million, net of $19.6 million of deferred income taxes). At August 31, 2012, the gross pre-tax unrealized gains on long-term available-for-sale securities were $57.0 million. The gross pre-tax unrealized losses on long-term available-for-sale securities were $1.7 million, resulting in a net unrealized gain of $55.3 million (or $34.0 million, net of $21.3 million of deferred income taxes). At August 31, 2013, the gross pre-tax unrealized gains on long-term available for-sale securities were $51.0 million. There were no gross pre-tax unrealized losses on long-term available-for-sale securities, resulting in a net unrealized gain of $51.0 million (or $31.4 million, net of $19.6 million of deferred income taxes). At August 31, 2012, the gross pre-tax unrealized gains on long-term available-for-sale securities were $57.0 million. The gross pre-tax unrealized losses on long-term available-for-sale securities were $1.7 million, resulting in a net unrealized gain of $55.3 million (or $34.0 million, net of $21.3 million of deferred income taxes). refinery margins are in excess of a specified minimum per barrel, product sales by the refinery during each fiscal year and on the shares. The proceeds from each installment sale, including the contingent portion, will be recorded at fair value at each closing date.

OWNERSHIP IN COOPERATIVES AND OTHERS YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

Nonsubsidiary cooperatives: • National Cooperative Refinery $ 203,916 251,128 • Association (NCRA) 8,916 6,128 • CoBank, ACB 7,851 8,324 Other cooperatives 3,807 4,744 Available-for-sale securities 215,574

264,196

($70,342 cost at August 31, 2013, $97,002 at August 31, 2012)

119,997

151,138

Other non-coop investments: UPI, Inc.

16,118

17,222

Other 41,114 44,902 Total ownership in coops and others

392,803

477,458

NCRA reclassified to current assets – ownership in cooperative

(47,212)

(48,035)

345,591

429,423

Net ownership in coops and others

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012

In subsequent periods, adjustments to amounts recognized for the contingent portion will be evaluated pursuant to ASC 450, Contingencies. During 2013, the Company recorded a gain on the sale of the first installment of $14.1 million which is included in Other income – net in the Consolidated Statement of Operations.. The value of the shares that will be sold in September 2013 ($48 million) has been reclassified to Current assets – Ownership in cooperative ($48.0 million in September 2012). 6. DERIVATIVE INSTRUMENTS ($ AND QUANTITIES IN THOUSANDS) The Company manages interest rate risk with derivatives designatedin a hedging relationship as cash flow hedges having a maximum term of 12 months at August 31, 2013. The objective is to minimize therisk and volatility of interest expense by fixing the interest rateon a portion of actual or forecasted borrowings. These derivative instruments may include over-the-counter (OTC) swap and optioncontracts. The changes in the market value of such contracts has his torically been, and is expected to continue to be, highlyeffective at offsetting changes in expected cash flows on the underlying floating rate debt and is a component of other comprehensive income. Unrealized gains and losses on interest rate swaps currently recorded in accumulated other comprehensive income will be reclassified as a component of interest expense as the derivatives approach maturity in the same period or periods during which the

hedged transaction affects earnings. The Company anticipates that approximately $2.7 million will be reclassified to interest expense within the next twelve months. The Company also manages some of its overall commodity price risk with derivatives designated in a hedging relationship as cash flow hedges having a maximum term of 3 months at August 31, 2013. The objective is to reduce the variability of cash flows associated with the Company’s forecasted purchases and sales of soybeans. These derivative instruments may include exchangetraded futures and options contracts. The changes in the market value of such contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in the expected cash flows associated with purchasing and selling the underlying commodity and is a component of other comprehensive income.The contract quantity of soybean futures and options at August 31, 2013 is 0.2 million bushels (0.1 million bushels in 2012).Unrealized gains and losses on futures and options contracts currently recorded in accumulated other comprehensive income will bereclassified as a component of cost of sales as the derivatives approach maturity in the same period or periods during which the hedged transaction affects earnings. The Company anticipates that approximately $0.4 million will be reclassified to cost of sales within the next twelve months.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012

The Company also manages some of its overall commodity price risk with derivatives designated in a hedging relationship as cash flow hedges having a maximum term of 3 months at August 31, 2013. The objective is to reduce the variability of cash flows associated with the Companyâ&#x20AC;&#x2122;s forecasted purchases and sales of soybeans. These derivative instruments may include exchangetraded futures and options contracts. The changes in the market value of such contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in the expected cash flows associated with purchasing and selling the underlying commodity and is a component of other comprehensive income. The contract quantity of soybean futures and options at August 31, 2013 is 0.2 million bushels (0.1 million bushels in 2012). Unrealized gains and losses on futures and options contracts currently recorded in accumulated other comprehensive income will be reclassified as a component of cost of sales as the derivatives approach maturity in the same period or periods during which the hedged transaction affects earnings. The Company anticipates that approximately $0.4 million will be reclassified to cost of sales within the next twelve months.

UNDERLYING 2012

2013

soybeans

(342)

(1,245) bushels

wheat/other grain

(3,478)

(3,988) bushels

liquid fuels

(15,387)

(43,398) gallons

fertilizer

(36)

(67) tons

corn

(2,772)

(7,996) bushels

The fair value of derivative instruments reported in the Statement of Financial Position are shown below, segregated by derivatives designated as hedging instruments under ASC 815 and derivatives not instruments under ASC 815 as of August 31, 2013 and August 31, 2012, respectively

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012

The contract quantity of soybean futures and options at August 31, 2013 is 0.2 million bushels (0.1 million bushels in 2012). Unrealized gains and losses on futures and options contracts currently recorded in accumulated other comprehensive income will be reclassified as a component of cost of sales as the derivatives approach maturity in the same period or periods during which the hedged transaction affects earnings. The Company anticipates that approximately $0.4 million will be reclassified to cost of sales within the next twelve months. The Company also manages some of its overall commodity price risk with derivatives designated in a hedging relationship as cash flow hedges having a maximum term of 3 months at August 31, 2013. The objective is to reduce the variability of cash flows associated with the Companyâ&#x20AC;&#x2122;s forecasted purchases and sales of soybeans.

2013 ASSETS/LIABILITIES LOCATION

YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) OTHER -OTHER RECEIVABLES- ACCOUNTS CURRENT LONG-TERM NET PAYABLE LIABILITIES LIABILITIES

Designated contracts: Interest rate

• Commodity

----

2,685

247

68 ----

Total designated ---- ---- 2,932 68 Non-designated contracts: • Commodity Total • derivatives

23,707

23,707 $

----

30,618

----

33,550 $

2013 ASSETS/LIABILITIES LOCATION

YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) OTHER -OTHER RECEIVABLES- ACCOUNTS CURRENT LONG-TERM NET PAYABLE LIABILITIES LIABILITIES

Designated contracts: • Interest rate

• Commodity

----

3,994

2,763

----

Total • designated ---- ---- 4,025 2,763 Non-designated contracts: • Commodity

142,421

----

136,299

----

142,421

----

140,324

2,763

Total • derivatives

in the event of liquidation of these cooperatives. However, the amounts which would be received are subject to various uncertainties and unpredictable future events, including changes in the share of the business of these nonsubsidiary cooperatives done with the Company in future years, the form of any distributions and the taxability thereof, and legal interpretations as to the methods of computation of the Companyâ&#x20AC;&#x2122;s share of any such future distributions. Such uncertainties preclude reasonable determination of such amounts prior to actual liquidation of the nonsubsidiary cooperatives and resolution of the uncertainties.

F. OWNERSHIP IN NONSUBSIDIARY COOPERATIVES

G. ACCOUNTING FOR SALES-BASED TAXES

Securities of nonsubsidiary cooperatives which have been purchased are carried at cost, and securities received as patronage refunds are carried generally at par value, less adjustments for impairments. The Company believes it is not practicable to estimate the fair value of the securities without incurring excessive costs because there is no established market for these securities and it is highly subjective to estimate future cash flows which are largely dependent on future patronage earnings of the nonsubsidiary cooperatives. The Company does not reflect its potential equity in the undistributed earnings of nonsubsidiary cooperatives. The Company believes that it would be entitled to receive portions of the undistributed earnings of certain nonsubsidiary cooperatives

The Company follows a policy of accounting for taxes on a net basis when the tax is assessed by a governmental authority and is both imposed on and concurrent with revenue-producing transactions.

COMMODITY CONTRACTS Sales

2012

$1,427,269

2013

Cost of sales

1,383,757

1,563,242

$1,618,568

DEBT YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

9,682

10,257

3.25% long term secured note due in annual installments from 2014 through 2021 (3.25% in 2012)

5,400

6,075

2.19% unsecured note due in 2017 (2.49% in 2012)

3,751

3,932

39,500

57,000

2,000

16,875

10,888

----

Long-term notes payable: 5.74% to 6.80% secured notes due in monthly installments from 2014 through 2018 (5.74% to 6.80% in 2012)

5.83% secured note due in annual installments from 2014 through 2021 (1.461% to 5.83% in 2012) 3.44% secured note due in 2016 (3.29% in 2012) 3.04% secured note due through 2025 (none in 2012)

DEBT YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

40,000

50,000

5.29% secured note due in 2023 (5.29% in 2012)

60,000

5.54% secured note due in 2026 (5.54% in 2012)

50,000

4.45% secured note due in 2018 (4.45% in 2012) 4.92% secured note due in 2020 (4.92% in 2012)

TOTAL DEBT 271,221 294,139 Amounts due within one year 2,785 2,750 Net long-term debt

268,436

291,389

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 Long-term debt maturities for the four years succeeding August 31, 2014 are $2.8 million in 2015, $4.9 million in 2016, $6.7 million in 2017, and $49.2 million in 2018. During 2013, gross advances on term debt were $127 million ($155 million in 2012), and gross repayments were $150 million ($192 million in 2012). Gross advances on short-term debt were $3.4 billion in 2013 ($3.7 billion in 2012), and gross repayments were $3.5 billion . LONG-TERM NOTES PAYABLE OF THE COMPANY

The note has a fixed rate and is secured by certain public stock holdings of the Company.During 2013, the Company paid in full and terminated a long-term revolving note payable of $35.0 million with Metropolitan Life Insurance Company ($1.0 million outstanding at August 31, 2012) and a long-term note payable of $15.0 million with Metropolitan Life Insurance Company ($15.0 million outstanding at August 31, 2012). Both notes were variable rate loans and secured by certain public stock holdings.

Long-term notes payable of $9.7 million ($10.3 million at August 31, 2012) are secured by a mortgage or a security agreement of approximately equal value on certain real property and equipment of the Company. During 2011, the Company secured $200 million of long term fixed rate debt through a private placement. Substantially all of the Company’s and certain subsidiaries’ current assets, as well as certain ownership in other companies are pledged as collateral. These notes expire between 2018 and 2026 and rank pari passu with the Company’s syndicated short-term line of credit. The Company has a long-term note payable of $39.5 million with Metropolitan Life Insurance Company with $39.5 million outstanding at August 31, 2013 ($41.0 million at August 31, 2012).

Certain covenants of these loans require the Company to maintain a minimum amount of net worth and working capital, and limit the amount of debt and direct or contingent obligations. Short-term notes payable of the Company The Company has secured shortterm lines of credit extending to August 2017 totaling $600.0 million at August 31, 2013 ($600.0 million at August 31, 2012). At August

The Company has a fixed rate long-term note payable of $5.4 million ($6.1 million at August 31, 2012) with Nationwide Exchange Services Corp., which is secured by a mortgage on certain real property. The Company has an unsecured variable rate promissory note payable to Central States Enterprises, LLC of $3.8 million at August 31, 2013 ($3.9 million at August 31, 2012).

31, 2013, there were no borrowings outstanding at variable rates ($0.8 million at August 31, 2012).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 CONSOLIDATED NON-RECOURSE LONG-TERM NOTES At August 31, 2013, a subsidiary (NORTHERN GRAIN MARKETING, LLC, or NGM) of the Company has a longterm revolving note payable with CoBank (non-recourse to the Company), with a total capacity of $8.0 million and no borrowings outstanding at August 31, 2013 ($9.0 million capacity and no borrowings outstanding at August 31, 2012). The note is collateralized by a first mortgage on NGM’s facilities as well as a financing statement on select personal property and is lized with assets of the Company. At August 31, 2013, a subsidiary (NORTHERN GRAIN MARKETING, LLC, or NGM) of the Company has a long-term revolving note payable with CoBank (non-recourse to the Company), with a total capacity of $8.0 million and no borrowings outstanding at August 31, 2013 ($9.0 million capacity and no borrowings outstanding at August 31, 2012). The note is collateralized by a first mortgage on NGM’s facilities as well as a financing statement on select personal property and is not cross-collateralized with assets of the Company. At August 31, 2013, a subsidiary (NORTHERN GRAIN MARKETING, LLC, or NGM) of the Company has a long-term revolving note payable with CoBank (non-recourse to the Company), with a total capacity of $8.0 million and no borrowings outstanding at August 31, 2013 ($9.0million capacity and no borrowings outstanding at August 31, 2012). The note is collateralized by a first mortgage on NGM’s facilities as well as a financing statement on select personal property and is not cross-collateralized with assets of the Company.

At August 31, 2013, a subsidiary (NORTHERN GRAIN MARKETING, LLC, or NGM) of the Company has a longterm revolving note payable with CoBank (non-recourse to the Company), with a total capacity of $8.0 million and no borrowings outstanding at August 31, 2013 ($9.0 million capacity and no borrowings outstanding at August 31, 2012). The note is collateralized by a first mortgage on NGM’s facilities as well as a financing statement on select personal property and isnot crosscollateralized with assets of the Company. The note is collateralized by a first mortgage on NGM’s facilities as well as a financing statement on select personal property and is lized with assets of the Company. At August 31, 2013, a subsidiary (NORTHERN GRAIN MARKETING, LLC, or NGM) of the Company has a long-term revolving note payable with CoBank (non-recourse to the Company), with a total capacity of $8.0 million and no borrowings outstanding at August 31, 2013 ($9.0 million capacity and no borrowings outstanding at August 31, 2012).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 LONG-TERM NOTES PAYABLE OF THE COMPANY Long-term notes payable of $9.7 million ($10.3 million at August 31, 2012) are secured by a mortgage or a security agreement of approximately equal value on certain real property and equipment of the Company. During 2011, the Company secured $200 million of long term fixed rate debt through a private placement. Substantially all of the Company’s and certain subsidiaries’ current assets, as well as certain ownership in other companies are pledged as collateral. These notes expire between 2018 and 2026 and rank pari passu with the Company’s syndicated short-term line of credit. The Company has a long-term note payable of $39.5 million with Metropolitan Life Insurance Company with $39.5 million outstanding at August 31, 2013 ($41.0 million at August 31, 2012). The note has a fixed rate and is secured by certain public stock holdings of the Company.During 2013, the Company paid in full and terminated a long-term revolving note payable of $35.0 million with Metropolitan Life Insurance Company ($1.0 million outstanding at August 31, 2012) and a long-term note payable of $15.0 million with Metropolitan Life Insurance Company ($15.0 million outstanding at August 31, 2012). Both notes were variable rate loans and secured by certain public stock holdings. The Company has a fixed rate long-term note payable of $5.4 million ($6.1 million at August 31, 2012) with Nationwide Exchange Services Corp., which is secured by a mortgage on certain real property. The Company has an unsecured variable rate promissory

note payable to Central States Enterprises, LLC of $3.8 million at August 31, 2013 ($3.9 million at August 31, 2012). Certain covenants of these loans require the Company to maintain a minimum amount of net worth and working capital, and limit the amount of debt and direct or contingent obligations. Short-term notes payable of the Company The Company has secured short-term lines of credit extending to August 2017 totaling $600.0 million at August 31, 2013 ($600.0 million at August 31, 2012). At August 31, 2013, there were no borrowings outstanding at variable rates ($0.8 million at August 31, 2012). Substantially all of the Company’s and certain subsidiaries’ current assets and certain ownership in other companies are security under a syndicated credit facility agreement for this short-term line of credit. These lines of credit rank pari passu with the Company’s long term fixed rate private placement debt. The Company has a secured variable rate short-term note payable with a vendor, National Cooperative Refinery Association (NCRA), with $11.0 million outstanding at August 31, 2013 ($42.0 million at August 31, 2012). The note is secured by the Company’s investment in NCRA. A $60 million short-term note payable with Wells Fargo had no borrowings outstanding at August 31, 2013 ($5.0 million at August 31, 2012) and is secured by stock of various companies that are owned by the Company with a market value of $65.7 million ($24.0 million at August 31, 2012).

OTHER LONG TERM LIABILITIES YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

Pensions/postretirement benefits $ Deferred income taxes Other liabilities

60,919 16,812 42,017

198,077 ---31,735

TOTAL OTHER LONG-TERM LIABILITIES

119,748

229,812

Class B Preferred, 3% cumulative, $.15 par value, authorized 2,000,000 shares

210

3,157

1,883

Class D Preferred, nondividend, $100 par value, authorized 5,000,000 shares 315,532 309,844 Class F Preferred, nondividend, nonvoting, $25 par value, authorized 2,000,000 shares

OTHER LONG TERM LIABILITIES YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

2013

2012

To be issued as patronage refunds in: Class D Preferred, or Class F Preferred

68,655

93,895

Non-qualified Class D Preferred stock, or stock credits

3,231

2,250

Paid-In Capital

1,487

Common, no par or stated value; 1,500 shares authorized, 213 shares outstanding, (219 shares in 2012)

----

396,798

411,597

4,526

2,028

$ Class D Non-qualified Preferred, nondividend,$100 par value

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 10. FAIR VALUE MEASUREMENTS ($ IN THOUSANDS)

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Assets and liabilities recorded at fair value on the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

LEVEL 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. he following fair value hierarchy tables present information about assets and liabilities measured at fair value on a recurring basis as of August 31, 2013 and August 31, 2012.

LEVEL 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Level 2 – Inputs to the valuation methodology include: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets;

• Inputs other than quoted prices that are observable for the asset or liability; • Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

ASSETS/LIABILITIES AT FAIR VALUE

YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands)

LEVEL 1

LEVEL 2

LEVEL 3

LEVEL 4

Financial securities

$130,822

33,968

----

164,790

Interest rate derivatives

----

(2,753)

----

(2,753)

Commodity contracts

3,275

(10,433)

----

(7,158)

Grain inventory 53,539 ---- ---- 53,539 Financial securities

$166,017

26,059

----

192,076

Interest rate derivatives

----

(6,757)

----

(6,757)

Commodity contracts

(58,655)

64,747

----

6,091

Grain inventory 139,171 ---- ---- 139,171

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AUGUST 31, 2013 AND 2012 The valuation of financial assets and liabilities classified in sing a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. For additional required disclosures regarding the Companyâ&#x20AC;&#x2122;s use of derivative instruments see footnote. At August 31, 2013, the Company and its subsidiaries have total net deferred tax liabilities of $4.0 million ($48.1 million net deferred tax asset at August 31, 2012) with deferred assets totaling $71.0 million and deferred liabilities totaling $75.0 million ($120.2 million and $72.1 million at August 31, 2012, respectively). The deferred items include temporary differences related to accounting methods being used for financial accounting that differ from those used for tax accounting. The types of differences include items such as bad debt expense, depreciation of property, plant and equipment, pension cost, postretirement health benefit cost, and the unrealized gain on

INCOME TAX EXPENSE Current tax expense

2012

$ 33,849

Deferred tax expense (6,598)

2013

59,693 (6,465)

$ 27,251 53,228 82

The Company and its subsidiaries are subject to income tax filing requirements imposed by the federal, state, and provincial taxing authorities in the United States and Canada. Income tax returns filed, or to be filed, by the Company and its U.S. subsidiaries are subject to examination by the U.S. federal, state and local taxing authorities for tax years ending after August 31, 2008. The income tax returns filed, or to be filed, by the Company and its foreign subsidiaries are subject to examination by the Canadian and provincial taxing authorities for tax years ending after August 31, 2005. The Company and its subsidiaries recognize interest and penalty expense, if any, in its provision for income taxes. Interest expense related to unrecognized tax benefits in the Consolidated Statement of Operations is immaterial for the years ended August 31, 2013 and August 31, 2012. The Company and its subsidiaries do not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease during the next twelve months. The effective income tax rate for fiscal 2013 and 2012 is less than the statutory rate, primarily due to the issuance of patronage refunds,

U.S. DEFINED BENEFIT PLANS

YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) PENSION: AUGUST 31,

PENSION: AUGUST 31,

2013 2012 2013 2012 Total plan assets Total projected • benefit • obligation

$348,876

288,848

----

387,225

449,107

25,131

40,663

Funded status

(38,349)

(160,259)

(25,131)

(40,663)

Accumulated • benefit • obligation

$348,010

397,039

----

Service cost

15,263

11,455

250

253

Interest cost 16,474 17,234 1,394 1,540 Expected return on plan assets

(22,502)

(21,659)

----

Net amortization

14,005

4,995

362

(230)

Settlement loss ---- ---- 2,540 ----

U.S. DEFINED BENEFIT PLANS

YEARS ENDED AUGUST 31, 2013 AND 2012 ($ in Thousands) PENSION: AUGUST 31,

HEALTH BENEFITS

2013 2012 2013 2012 Net transition (asset)/obligation

----

Prior service cost/(credit)

1,604

1,854

(411)

(641)

Net actuarial (gain)/loss

48,227

158,913

(6,696)

9,323

Net transition (asset)/obligation

----

Prior service cost/(credit)

250

(230)

Net actuarial (gain)/loss

2,564

13,755

(651)

591

FS COMPANY We at GROWMARK are proud of our historic relationship with the FS brand. Introduced more than 50 years ago, the FS brand represents a standard of excellence for agricultural and energyrelated products. Farmers, businessmen, and consumers count on the people at local FS cooperatives throughout Illinois, Iowa, Wisconsin, and Ontario, Canada and in FS companies on the East coast. In fact, itâ&#x20AC;&#x2122;s the people of the FS brand that set it apart. Always professional and dependable, FS specialists are trusted advisors with unmatched technical

expertise and a genuine interest in partnering in a customerâ&#x20AC;&#x2122;s success. FS energy specialists offer reliable heating and fueling solutions to farm and non-farm customers while FS crop specialists act as trusted advisors in day-to-day farm operations. FS companies are always exploring new ways to help customers optimize operations, navigate challenges and to

GROWMARK In 2000, GROWMARK began marketing products outside of its core territory, in Indiana, Ohio, and Michigan. In addition to providing wholesale products and services to FS member cooperatives, GROWMARK is committed to bringing the same trusted and respected products that our member cooperatives depend on to distributors and retailers across the continental United States and in Ontario, Canada.

reputation of integrity. Our employees possess knowledge and expertise beyond compare and our strong vendor relationships ensure products are available, even during peak seasons and product shortages. GROWMARK customers donâ&#x20AC;&#x2122;t have to worry about products arriving on time; with GROWMARK, dependability is part of the package.

Doing business with GROWMARK is easy. We stand by our products and our business practices and have earned a

SEEDWAY INC. SEEDWAY is a wholly-owned subsidiary of GROWMARK, acquired in 2002. SEEDWAY is a full-line seed company headquartered in Hall, N.Y. The subsidiary markets one of the most extensive and diverse commercial vegetable seed product lines in the industry, sold from the Rocky Mountains to the East coast and in Ontario, Canada. SEEDWAY also serves the commercial turf seed trade, supplying premium products to landscapers, golf courses, municipalities, and more. Finally,

SEEDWAY offers an extensive product line of regionally tested, adapted, and proven farm seed varieties, including corn, silage, soybean, and small grain seed, all specially designed for Northeast and Mid-Atlantic growers. Visit the SEEDWAY website for more information on SEEDWAY products, or to order vegetable seed online.

STAR ENERGY Acquired by GROWMARK in 2007, STAR Energy offers a complete line of refined and renewable fuels, lubricants, additives and propane to residential, commercial and industrial consumers in northwestern Iowa and beyond. Committed to service, quality, and reliability, the professionals at STAR Energy are proud to provide customers with round the clock support and premium products like Dieselex Gold diesel fuel and FS, Archer, and United

STAR

ENERGY

lubricants. STAR Energy also operates more than 20 retail fuel locations throughout northwestern Iowa. Visit the STAR Energy website for more information and a complete description of the products and services offered.

DANIEL KELLEY

JEFF SOLBERG

PRESIDENT + CHAIRMAN OF THE BOARD

CHIEF EXECUTIVE OFFICER

Daniel T. Kelley has served on Nationwideâ&#x20AC;&#x2122;s board of directors since 2006. Kelley also serves as a director of Nationwide Bank, and he is a former director of Farmland Mutual Insurance Company, a part of the Nationwide family of companies. Kelley is chairman of the board and president of GROWMARK, Inc., and operates a grain farm near Normal, Ill., in partnership with his two brothers. He is a director of Denver-based CoBank and Evergreen FS, Inc., in Bloomington, Ill., serving as president since 1985. He is a director of the Illinois Agricultural Leadership Foundation and serves as director and vice president of the Illinois State University Alumni Association. Kelley was a board member of AgriBank FCB in St. Paul, Minn., and chaired the merger steering committee forming the company in May 1992. Kelley has received many accolades and awards in the agribusiness community, including Director of the Year by the National Council of Farmer Cooperatives in 2002. A graduate of Illinois State University, Kelley holds a bachelorâ&#x20AC;&#x2122;s degree in agriculture.

Jeff Solberg was named Chief Executive Officer on November 2, 2010 and he assumed the duties of CEO on January 3, 2011. Solberg has filled many leadership positions at GROWMARK since he began in 1976, most recently as Senior Vice President, Finance, a position he held from 2008-2011. Solberg has also served the System as Cash Manager, Administrative Assistant Treasurer, and Treasurer, assuming responsibility for FS Agri-Finance and Insurance Services. He served as Vice President, Finance from 1999-2008. Solberg graduated from Illinois Wesleyan University in Bloomington in 1974 and received his M.B.A. from the University of Illinois in 1976. Solberg has served on the board of directors for several organizations and financial institutions and currently sits on the boards of several GROWMARK subsidiaries. Jeff and his wife Janet have two sons.

MARSHALL BOHBRINK

BRENT BOSTROM

VICE PRESIDENT + CHIEF FINANCIAL OFFICER

VICE PRESIDENT + GENERAL COUNSEL

Marshall Bohbrink became Vice President and Chief Financial Officer of GROWMARK in February, 2011. Bohbrink joined the System in 1976 and held a number of positions in accounting and auditing before assuming several Treasury positions including Treasury Operations Manager, Director of Insurance, Director of Financial Operations, and Treasurer. Bohbrink graduated from the University of Iowa in 1976 with a degree in Accounting and Finance. He also holds an M.B.A. from Illinois State University. He is a licensed producer for commercial property/casualty insurance. Bohbrink serves as a director on the boards of several GROWMARK subsidiaries. Bohbrink and his wife Kathy have three grown children and four grandchildren.

Bostrom has served as Vice President and General Counsel for GROWMARK since 2005. Bostrom graduated from Bethel College in St. Paul, Minnesota, in 1978 and from the University of Minnesota Law School in 1981. He was admitted to the State of Minnesota Bar Association, the U.S. District Court, and the Eighth Circuit Court of Appeals, all in 1981, and the U.S. Supreme Court in 1985. Prior to joining the System, Bostrom was a member of the Agricultural and Cooperative Law Practice Group at Doherty, Rumble & Butler P.A. and at Dorsey & Whitney LLP. He has practiced primarily in the areas of cooperative law and general agribusiness law for more than 20 years, after first obtaining several years of litigation experience. Bostrom is a member of the Legal, Tax, and Accounting Committee of the National Council of Farmer Cooperatives (NCFC). He served as Chairman of its Cooperative Structures Subcommittee for many years, and previously chaired its Executive Committee. He is also a member of the National Society of Accountants for Cooperatives (NSAC). Bostrom and his wife Julie have four children.

STEVE BUCKALEW

KEVIN CAROL

VICE PRESIDENT, EASTERN RETAIL OPERATIONS

VICE PRESIDENT, ENERGY

Steve Buckalew was named GROWMARK Vice President, Eastern Retail Operations effective September, 2004. Buckalew came to GROWMARK from United Producers, Inc., Columbus, Ohio, where he served as senior vice president of their livestock operations. He has dedicated his career to cooperatives by holding positions with the Louisville Bank for Cooperatives and Countrymark Co-op.

Kevin Carroll was named Vice President, Energy of GROWMARK in September 2008. He joined the GROWMARK System in 1985 as a Financial Analyst, and has held various positions including Treasury Operations Manager; Manager, Energy Operations; Director Business Analysis & Research; and Region Manager in Growmark’s Western and Northern regions.

He holds a bachelor’s degree in Business Administration from the University of Cincinnati and a master’s degree in Agricultural Economics from The Ohio State University. Buckalew and his wife Sharman are parents of two sons and a daughter.

Kevin received a B.S. in Finance from the University of Illinois and an M.B.A. from Illinois State University and serves as a director on the boards of several organizations and companies. Prior to joining GROWMARK, Kevin was a grain and feed ingredient merchandiser in Omaha, Nebraska. Kevin and his wife Tammy have three grown children.

BRENT ERICKSON

SHELLY KRUSE

VICE PRESIDENT, GRAIN

VICE PRESIDENT, MIDWEST RETAIL + ACQUISITIONS

Brent Ericson became Vice President, Grain on November 1, 2011. He joined the GROWMARK System in 1981 as an associate merchandiser for the Creve Coeur grain facility and six months later was promoted to assistant manager. In 1983 Brent joined MID-CO COMMODITIES in Bloomington and by 1985, he attained the level of senior commodity hedging advisor. From 1988-1989 he served as grain marketing manager of Midland Enterprises but returned to the System in 1989 as general manager of Grainco, Inc., A GROWMARK Grain member. In 1999, Grainco merged with Kendall-Grundy FS to form GRAINCO FS and Brent was named general manager. Brent received a B.S. in Agricultural Business from Western Illinois University. Brent and his wife Jean have two grown children.

Shelly Kruse became Vice President, Midwest Retail and Acquisitions in September 2008. She holds a B.S. degree in Business from Lewis University, in Romeoville, Ill., and an M.B.A. from Northern Illinois University. Kruse joined the GROWMARK System in 1984 as controller at Bureau Service Company in Princeton, and later managed the companyâ&#x20AC;&#x2122;s energy marketing and credit responsibilities. She transitioned to GROWMARK staff in 1996, serving the Iowa Region as business manager and then region manager. In January 2006, she was named energy division manager and moved to the corporate office in Bloomington. Kruse and her husband Jim have five children.

MARK ORR

JIM SPRADLIN

REGION VICE PRESIDENT, MEMBER SERVICES

VICE PRESIDENT, AGRONOMY

Mark Orr was named Region Vice President, Member Services in October 2013. Mark began his career with the GROWMARK System in 1989 as an FS Agri-Finance intern. He became assistant controller at Schuyler-Brown FS in 1990, and served as controller for both Western FS and Ag-Land FS between 1993 and 2001. In 2001, he became the general manager for Piatt County Service Company. Since 2006, Mark has been the general manager for Ag View FS and in addition, became the managing partner for Northern Grain Marketing in September 2012.

Jim Spradlin was named Vice President, Agronomy of GROWMARK in September 2008. Jim has held numerous positions of increasing responsibility since joining the GROWMARK System in 1982. Those positions include accounting trainee and Comptroller at Schuyler-Brown FS, Administrative Director, GROWMARK Regional Staff, General Manager of Piatt County Service Company and Ag-Land FS, and Central Region Manager for GROWMARK. He became the Energy Division Manager in 2002 and Agronomy Division Manager in 2006.

Mark received his Bachelor of Science degree in Agri-Business from Illinois State University in 1990. Mark and his wife Laura have two children.

Jim earned a bachelorâ&#x20AC;&#x2122;s degree in Business Administration and Economics from Illinois College in 1982. Jim is on The Fertilizer Institute Board of Directors. He was a past chapter director in Rotary International and has served on numerous church boards. Jim and his wife Lisbeth have two children.

GARY SWANGO

MIKE WOODS

VICE PRESIDENT, HR + COMPLIANCE

VICE PRESIDENT, FINANCIAL + RISK MANAGEMENT

Gary Swango became Vice President of Human Resources & Compliance for GROWMARK, Inc. in January 2012. Gary graduated from Illinois Wesleyan University with a bachelorâ&#x20AC;&#x2122;s degree in business administration in 1973, where he was an FS scholarship recipient. He joined FS Services, Inc. in 1975 as employee benefits supervisor. During his tenure with the GROWMARK System, Gary has served in numerous positions including manager of personnel administration, manager of administrative services, market development representative, and director of corporate and member relations. Gary was named director of human resources in 1999.

Mike Woods has served as Vice President, Financial and Risk Management since December of 2013. Mike joined the GROWMARK System in July, 1974 as Potash Supply Manager. Mike has held several positions in the System since that time including Operations Coordinator and Operations Manager in the Farm and Home Division, operations and administrative positions in the Feed and Structures Division, Operations Manager for the Mark II Agronomy venture with Countrymark Cooperative, Operations and Customer Service Manager of the Seed Division, and Business Analysis Director. In 2011, Mike was named Executive Director, Strategic Research and Information, a position he held before assuming his current responsibilities.

Gary is currently a member of the Illinois Workforce Investment Board and serves on the board of the Advocate BroMenn Foundation, where he serves as vice chair. He also represents the Foundation on the Planning, Governance, and Farm Committees of the Advocate BroMenn Healthcare System. Gary and his wife Julie live in Bloomington. They have three grown children.

Mike earned a Bachelor of Science degree in Economics and Finance from Millikin University in Decatur, Illinois. Mike served as an assistant college baseball coach as the Commissioner of the Central Illinois Collegiate Baseball League for 12 years. Mike and his wife, Ellen, live in Bloomington and have two children who are both married.

DENNY WORTH VICE PRESIDENT, MEMBER SERVICES Denny Worth was named Vice President, Member Services in June 2013. He joined the GROWMARK System in 1976 as an office manager trainee at Logan FS. He then served several years as auditor for the Illinois Agricultural Auditing Association and in 1981 was hired as assistant controller for McLean County Service Company (now Evergreen FS). Denny has also served GROWMARK as regional operations manager for the Eastern Illinois Region, the region administrative director for the Central Illinois Region, the member services administrative director, and finally, he served as the Northern Region manager from 2008-2013. Denny has a bachelorâ&#x20AC;&#x2122;s degree in accounting from Illinois State University and he has also earned the Certified Public Accountant and Certified Financial Planner designations. Denny and his wife Sharon have two children.

KEY CONTACTS AGRONOMY

Mike Scheer | 309.557.6404 | mscheer@growmark.com Manager Agronomy Marketing and Communications ENERGY

Ron Durdle | 309.557.6394 | rdurdle@growmark.com Energy and Marketing Communications Manager FACILITY PLANNING

Lindsey Powell | 309.557.6324 | lpowell@growmark.com Facility Planning Marketing Communications Manager GRAIN

Joe Kapraun | 309.557.6401 | jkapraun@growmark.com Manager Grain Marketing Division LOGISTICS

Amanda Baker | 309.557.6494 | abaker@growmark.com Logistics Systems Support Specialist GOVERNMENT AFFAIRS

Jane Wolshlag | 309.557.6340 | wolshla@growmark.com Government Information Coordinator CORPORATE COMMUNICATIONS + MARKETING

AMY BRADFORD | 309.557.6116 | brad@growmark.com Corporate Communications Manager

FS COMPANIES ILLINOIS

Sunrise Ag Service Company

Huron Bay Co-operative

Ag View FS, Inc.

TriCounty FS, Inc.

La Co-operative Agricole d’Embrun Limitee

Ag-Land FS, Inc.

Wabash Valley Service Company

Lucknow District Co-operative Inc.

Carroll Service Company

West Central FS, Inc.

North Wellington Co-operative Services Inc.

Christian County Farmers Supply Company Consery FS, Inc. Evergreen FS, Inc. Gateway FS, Inc. Gold Star FS, Inc. GRAINCO FS, Inc. Heritage FS, Inc. Illini FS M + M Service Company Piatt County Service Company Prarieland FS, Inc. South Central FS, Inc. Southern FS, Inc. St. Clair Service Company Stephenson Service Company

IOWA Agriland FS, Inc. AgVantage FS New Century FS Three Rivers FS Company ONTARIO AGRIS Co-operative Ltd.

Sunderland Co-operative Inc. Thunder Bay Co-operative Farm Supplies Vineland Growers Co-operative Ltd. Wanstead Farmers Co-operative Company Limited EAST COAST Growmark FS, LLC

Bradford Co-operative Storage Ltd.

WISCONSIN

Co-operative Regionale de Nipissing Sund-

Frontier-Servco FS

bury Ltd. County Farm Centre Ltd. Durham Farmers’ County Co-op FS PARTNERS Hearst Farmer’s Co-operative

GRAIN COOPERATIVES ILLINOIS Alliance Grain Co. Andres & Wilton Farmers Grain & Supply Co. Assumption Cooperative Grain Co. Burtonview Cooperative Carrollton Farmers Elevator Chapin Farmers Elevator Cissna Park Co-op Cooperative Grain & Supply Co. Culver-Fancy Prairie Cooperative Co. Deland Farmers Cooperative Grain Co. Donovan Farmers Cooperative Elevator Earlville Farmers Cooperative Elevator Co. East Lincoln Farmers Grain Company Elburn Cooperative Company Eminence Grain & Coal Company Farmers Cooperative Association Farmers Elevator Company of Biggs & Easton Farmers Elevator Company of Manteno Farmers Elevator Company of Sciota Farmers Grain Company of Central Illinois Farmers Grain Company of Dorans Goodwine Cooperative Grain Co. GRAINLAND Cooperative Grant Park Cooperative Grain Co. Graymont Cooperative Association Hamel Cooperative Grain Co. Heritage Grain Cooperative Hudson Grain Co. Jersey County Grain Co. Kasbeer Farmers Elevator Co. Cooperative

Landmark Services Cooperative Legacy Grain Cooperative Leland Farmers Co. Ludlow Cooperative Elevator Co. The Farmers Grain & Coal Co. McNabb Grain Co. Mechanicsburg Farmers Grain Co. Minier Cooperative Grain Co. Monica Elevator Co. Morrisonville Farmers Cooperative Co. Northern Partners Cooperative Okaw Farmers Cooperative, Inc. Pearl City Elevator, Inc. Pisgah Cooperative Grain Co. Prairie Central Cooperative, Inc. Premier Cooperative, Inc. Randolph Cooperative Grain Co. Rees Farmers Elevator Co. Roanoke Farmers Association RPA Farmers Co-op Rt. 16 Grain Cooperative Stanford Grain Co. TALOMA Farmers Grain Co. TOP AG Cooperative, Inc. Topflight Grain Cooperative, Inc. Tri Central Co-op INDIANA IMPACT Cooperative, Inc. IOWA ALCECO (Albert City Elevator) East Central Iowa Cooperative

Farmers Cooperative Association (Forest City) Farmers Cooperative Co. (Ames) Farmers Cooperative Co. (Dows) Farmers Cooperative Co. (Hinton) Farmers Cooperative Co. (Remsen) Farmers Cooperative Elevator Co. (Arcadia) Farmers Cooperative Elevator (Ottosen) First Cooperative Association Five Star Cooperative Gold-Eagle Cooperative Heart of Iowa Cooperative Heartland Co-op Innovative Ag Services Co. MaxYield Cooperative NEW Cooperative, Inc. North Central Cooperative North Iowa Cooperative Northern Country Cooperative Co. Osage Cooperative Elevator Prairie Land Cooperative Pro Cooperative River Valley Cooperative StateLine Cooperative United Cooperative United Farmers Cooperative Viafield West Central Co-operative Western Iowa Cooperative MISSOURI MFA, Incorporated

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1701 Towanda Avenue Bloomington, IL 61701 309.557.6000